Income Tax Ordinance (XXXI of 1979)-----

----S. 59(1)---Establishment of Office of Federal. Tax Ombudsman Ordinance (XXXV of 2000)---C.B.R. Circular No. 4 of 2001, dated 18-6-2001---Self-Assessment Scheme, para 9(a)(i)---Assessment year 2001-2002---Computer random ballot---Selection of cases with temporary NTN having prefix "Z" instead of actual NTN---Validity---Regional Commissioner of Income Tax was found factually correct to the extent that no mala fide NTN specific or name specific feature was found in the programme---Allotment of NTN with prefix `Z' to return's of AOP, RF/URF due to mistake in matching NIC numbers of member/partner with NTN of AOP/RF/URF was found unwarranted and the proposition that the returns of complainant/assessees would not have been picked in ballot had their NTN not been changed validly raises the question of benefit of doubt---Where two interpretations/eventualities were possible the one beneficial to the assessee should be adopted---Selection of returns for audit in complainant/assessee's cases, fell under the definition of `maladministration'---Federal Tax Ombudsman recommended that the Central Board of Revenue' directs exclusion of return from the list of cases selected under para. 9(a)(i) of the Self-Assessment Scheme for audit and for its acceptance under Self-Assessment Scheme-- Discrepancies found in allocation of NTN through computer programme overlooking such discrepancies in designing the ballot software by PRAL and failure of concerned tax employees to check such programmes and monitor the operations fall in the category of maladministration warranting remedial action---Federal Tax Ombudsman further .recommended (i) that 'Central Board of Revenue to put nationwide networking of their computerized operations on top priority; (ii) that officers well-versed with laws, rules, regulations and procedures be designated for briefing the software designers/ programmers and for evaluating the software designed by them (iii) that resource persons/agencies, where a project is to be out sourced, to be selected with, utmost care and thereafter their performance be diligently monitored by competent tax employees.

Complainants in person

Asghar Ali, Senior Project Manager, Lahore, Mujahid Naeem, Manager, Faisalabad, Ahsanul Iraq, Manager DPU, Faisalabad and Iftikhar Ahmad, Manager, Sargodha for Respondent.

DECISION/FINDING

Maladministration is alleged in these complaints on the part of RCIT, Central Region, Multan for selection their returns of income pertaining to assessment year 2001-2002 for total audit through a programme, designed by the Department to get the desired results under its command to the computer in the following manner:--

(a)Specific command was given for about 30% of the total selected cases under the alleged random ballot.

(b)That in cases where NTN was on record, the codified number with prefix (Z) was allotted in suspicious manner and against the prescribed procedure under the S.A.S.

2. Responding to the notice under section 10(4) of Ordinance XXXV of 2000 the RCIT has submitted that the cases were selected through Computer balloting as provided in Para. 9(a)(i) of Board Circular No.4 of 2001 regarding Self-Assessment Scheme for the assessment year 2001-2002. Regarding, the specific points raised by the complainants supra the RCIT has submitted that the allegations are misconceived. The complainant assessees filed returns in the status of AOP/URF/RF mentioning their respective existing NTN and entered the NIC numbers of Managing Member/Partners in the return of AOP/Firm as required by the note below the prescribed blocks for NIC in the IT 11-B. Since the ballot software had the general command to match NIC numbers with NTN, -such return too were subjected to the aforesaid command. Obviously the NIC number did not match with the NTNs and PRAL Computers allotted temporary numbers with prefix `Z'. However, according to RCIT, other relevant particulars relating to the new Numbers e.g. Name, Address. Total income and Total Tax paid were the same as declared by the complainants in the returns of AOP/RF/URF. Allegations of the complainants regarding selection of their cases, through any "NTN number specific programme" designed on the behest of Department or any other design to select any particular cases is totally denied as baseless and factually incorrect.

3. Representatives of the two sides are heard. Officials from PRAL were given exclusive hearing to explain the procedure adopted for such selection.

4. It has been stated by the respondents that all particulars of returns were fed to the computer manually and afterwards entries were matched/verified on the basis of data available in the master index. For all returns Checks applied for verification were matching of NIC Number and NTN. If either of two did not match with the master index a temporary NTN with prefix `Z' was allocated by computer as per programme.

5. In case where the status of assessee was other than "individual" an individual having his unique NIC Number can possibly sign other than their own individual return in his capacity a member of AOP. Partner of a firm or principal Officer of a company. Such artificial juridical person do not have any NIC Number. In such cases matching of the NTN on return with any NIC number available in the master index is. totally out of question. The computer software therefore, automatically allocates a temporary NTN with the prefix `Z' to such eases.

6. This flaw in the software design is attributed by the PRAL. officials to inadequate briefing by C.B.R., who are supposed to educate the programmers with Tax Laws. Generally DCITs and IACs coordinate the programming process. And they ignored this factor.

7. As regards the NTN data available in the master index it was noted that first NTN entered therein were issued prior to 1995 thereafter new NTNS were issued in 1999 and master index was updated. These NTNs are generally available with the assessee However, after June. 2000 a third NTN, called universal NTN replaced the old NTNs in case of assessees who applied for new NTN designed to conform to the planned shift from circle based structure to function based structure. Accordingly Circle and zone codes were omitted. These NTNs were either nor issued or not delivered to assessees for one reason or the other but .in the master, index these were substituted In such cases too matching of NIC, number with NTN reported by assessee on the return was out of question.

8. It has also been admitted that out of total returns filed for the assessment year 2001-2002, 43% were on TR (trial) number.

9.Thus error of following categories occurred:--

(I)An error of manual omissions or commissions in each list e.g. a return not qualifying under SAS marked `Y' and vice versa.

(II)Selected cases of AOP,RF, URF and companies with substituted temporary NTN having prefix `Z'.

(III)In certain other cases name of individual signatory of return who wrote his NIC number in the return of AOP, RF, URF or company is picked against NTN of such artificial juridical persons.

(IV)Manually allotted temporary number with prefix `Z' were replaced with, computer assigned nation-wide numbers.

(V)All TR numbers were also replaced with nation-wide 'Z' numbers.

(VI)Where by any reason manually allotted NTN were not entered in computer a new number was assigned by computer.

(VII)Where no NTN was mentioned on the return and no NTN was assigned to such assessee by the computer in the year 2000 or later, a `Z' number was assigned by computer.

(VIII)The case, where return, is picked by NTN without the name of assessee. (PRAL has admitted that it is programming discrepancy. However, in most of the cases discrepancy has been `duly addressed by the Department.)

10. Return actually selected by computer random ballot in all the cases can be traced back and identified through the computer software itself. The Representatives of PRAL therefore, submitted that the discrepancy does not indicate any mala fide vitiating the selection. However, it was submitted on behalf of the complainants that the substitution of their actual NTNs with temporary NTNs having prefix `Z' was totally uncalled for and it was caused purely due to incompetence of programmers as well as monitoring officers of the Department. They contended that their returns would not have been picked in ballot had their original NTNs not been changed.

11. Submissions made on behalf of the two sides are considered. The reply of RCIT is found tactually correct to the extent that no mala fide NTN specific or name specific feature is found in the programme. Allotment of NTN with prefix `Z' to returns of AOP, RF/URF due to mistake in matching NIC numbers of member/partner with NTN of AOP/RF/URF is found unwarranted and the proposition that the returns of complainants would not have been picked in ballot had their NTN not been changed validly raises the question of benefit of doubt. It is a settled principle of law that where two interpretations/ eventualities are possible the one beneficial to the assessee should be adopted. Selection of returns for audit in complainant's cases, accordingly, falls under the definition of maladministration. It is recommended.

(i)The C.B.R. directs exclusion of return from, the list of cases selected under para 9(a)(i) for audit and for its acceptance under Self-Assessment Scheme.

(ii)Compliance be reported within thirty days of their order.

12. Besides, the aforementioned discrepancies found in the allocation of NTN through computer programme overlooking such discrepancies in designing the ballot software by PRAL and failure of concerned tax employees to check such programmes and monitor the operations thereof fall in the category of maladministration warranting remedial action.

13. It is further recommended:--

(i)That C.B.R. to put nationwide networking of their computerized operations on top priority.

(ii)That Officers well-versed with laws, rules, regulations, procedures be designated for briefing the software designers/programmers and for evaluating the software deigned

(iii)That resource persons/agencies, where a project is to be out sourced, to be selected with utmost care and thereafter their performance be diligently monitored by competent tax employees.

C.M.A./L-684/FTOOrder accordingly.