Income Tax Ordinance (XXXI of 1979)---

----S. 59(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.3(2)---C.B.R. Circular No. 4 of 2001, dated 18-6-2001---Self-Assessment Scheme, Para. 9(a)(ii)---Assessment year 2001-2002---Assessee, a chemist and druggist---"Revenue potential" case--Factors leading to 'reasonable belief' about the "revenue potential" of the present case were expansion in business reflected by opening new outlets; nature of business extending to supplies, sales, dispensing or prescriptions at numerous new outlets and utilization of imports for sales as well as supplies---Any possibility or vague ground could not be a basis for "reasonable belief" about the "revenue potential" of the case-- No discrimination appeared to have been meted out with the result that there was no "maladministration" as defined by S.3(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000-- Complaint being without any merit was filed and case was closed by the Federal Tax Ombudsman.  

Yousaf Saeed (FCA) for the Complainant.

Sirdar Ahmad Jamal Sukhera, Bar-at-Law for Respondent.

DECISION/FINDINGS

The Complainant private limited company is an importer/distributor/retailer of medicines and medical equipment. They are an existing assessee of long-standing and are aggrieved by the 'set apart' of their return for the assessment year 2001-2002 for Total-Audit by resort of. Para. 9(a)(ii) of the Scheme for Self-Assessment despite higher declared Income and better trading results.

2. The facts of the case are that as against an income of Rs.3,948,897 accepted under SAS in 2000-2001, the Complainant filed return for 2001-2002 at Rs.4,385,217 fulfilling all the conditions prescribed in the SAS for the year. Their return was not selected in the computer draw but on 22-5-2002 they received a show-cause notice from the R-CIT conveying that on the recommendation of the concerned Commissioner, their return is proposed to be 'set apart' for Total Audit for the following reasons--

The extent of Supplies out of Imports vis-a-vis Local Purchase is to be ascertained.

Declared Sales are not commensurate with the volume of business.

Taxability of 'advances against sales' needs probe with reference to section 12(18) of the

Income Tax Ordinance, 1979.

Creditors for Goods have to be verified for possibility of action under section 13(1)(a) and section 12(18) of the Ordinance.

Source through which loans obtained from associated under takings were repaid.

Possibility of action under section 52 for non-availability of Statements required to be filed under sections 139 to 142 of the Ordinance.

Not feeling satisfied with the point-wise explanation tendered by the on 31-5-2002, the R-CIT passed an order exercising, the vested by Para 9(a)(ii) of C.B.R. Circular No.4 of 2001, setting apart the return for Total Audit, which is the cause of grievance now.

3. Respondent vide letter 2-11-2002 has forwarded R-CIT Lahore para-wise comments which questions the competence of the complaint for admission in view of section 9(2) of the FTO Ordinance, and denies 'maladministration' contending that the procedure prescribed in. this behalf was adhered to and the Complainant offered opportunity of explaining the case and also of hearing.

4. Mr. Yusuf Saeed (FCA) representing the Complainant explained that since the taxpayer is an Importer/Supplier, separate statement under section 143B was filed for every year. As respects Income Tax return, it showed an Income of Rs.4,385,217 compared to Rs.3,948,897 of the preceding year 2000-2001 hence there was no decline in Income. Moreover, there was neither addition to assets nor any disparity in expenses on utilities. Above all, no profile prepared by the Survey Team was available. Thus, the discrepancies as were mentioned in the Policy Guidelines issued by the C.B.R. on 22-3-2002 were not obtaining. The learned counsel attempted to dispute the credibility concerning possibility of infringement of section 12(18), section 24(fff) and section 52, by pointing out that such infractions were never found in the past in the Complainant's assessments. It was pleaded that something more than mere suspicion was needed to form a `reasonable belief' that the return had "revenue potential". The exercise of discretion to select the case for Total Audit was, according to the AR, tainted with arbitrariness thus falling under the definition of 'maladministration' as per the FTO Ordinance.

5. Mr. Anwarul Haq (IAC) appearing for the Revenue attended the factual aspects of the case and raison

d'etre for exercise of discretion to categorise the Complainant's return as a "revenue potential" case. He contended that Policy Guidelines issued by the C.B.R. specify certain deficiencies which could be made a basis for set apart of a case but these were not exhaustive as is evident by the use of the word 'including'. Therefore, other indicators suggestive of `revenue potential' could as well a valid basis. Coming to the Complainant's own case the IAC pointed out that--

(i) despite opening of several outlets, the extent of Supplies has remained static,

(ii) sales have fallen by over Rs.30 (M) with consequential fall in GP by over Rs.3.6 (M);

(iii) new premises acquired for setting up outlets did amount to addition to assets which needed to be looked into,

(iv) it was to be ascertained as to how much of the Supplies came out of imports, with a view to verify the withholding tax, and

(v) possibility existed of legal add-back out of the claim for Overhead Expenses.

The representative of the Revenue dwelt at length on the market goodwill, the long-standing reputation arid magnitude of business of the Complainant to build up the argument that if such a prominent and well known name in the business of medicine could be a `revenue potential' case, who else could?

6. The learned Legal Advisor to the Department, Sirdar Jamal Sukhera (Bar-at-law) addressed the arguments as to the competence of 'the complaint for admission in view of the bar contained in subsection (2) of section 9 of the Establishment of the Office of Federal Tax Ombudsman, 2000 (hereinafter called the FTO Ordinance) which reads as under:--

Section 9. Jurisdiction, functions and powers of the Federal Tax Ombudsman.

(1) Subject to subsection (2), the Federal Talc Ombudsman may, on a. complaint by an aggrieved person,.... investigate any, allegation of maladministration on the part of the Revenue Division or any Tax Employee.

(2) The Federal Tax Ombudsman shall not have jurisdiction to investigate or inquire into matters which:--

(a) are sub judice before a Court of competent jurisdiction or tribunal or Board or authority on the date of the receipt of a complaint, reference or motion by him; or

(b) relate to assessment of income or wealth, determination..., interpretation of law, rules and regulations relating to such assessment, .... in respect of which legal remedies of appeal, review or revision are available under the Relevant Legislation.

(here in bold of emphasis)

Much stress was laid by the LA on the words "Subject to subsection (2)" to emphasise that jurisdiction vested in. the Federal Tax Ombudsman (hereinafter called the FTO) to `investigate any; allegation of mal administration on the' part of the 'Revenue Division or any Tax Employee' was sufficiently curtailed, by the restriction imposed by subsection (2). Mr. Sukhera then developed the argument that section 3 of the Income Tax Ordinance, 1979 (here called the repealed Ordinance) innumerate the Income Tax Authorities which inter alia included the R-CIT, the CIT, the IAC as also there D-CIT. Therefore, any proceedings relating to income-tax assessment initiated by them fell in the category of those "subjudice before a ..competent ..authority" thus falling outside the jurisdiction of the FTO. It was submitted that a show-cause notice for set-apart of the return for Total Audit had been issued and a decision was yet to be taken, hence the matter is subjudice and would remain so till a final assessment is framed. Therefore, it is beyond the scope of the powers of the FTO to take-up any investigations at this stage. According to the learned Legal Advisor, in the present complaint the issue involved was whether assessment of income should be under SAS or through Total Audit, which is a matter purely relating to the assessment of income and hence covered by the ouster of jurisdiction vide subjection (2) of section 9 of FTO Ordinance.

7. The learned Legal Advisor of Department recalled similar arguments having been addressed by him earlier on an earlier occasion when combined hearing of several complaints concerning selection for Total Audit was held at Islamabad. Therefore, instead of repeating the arguments once again he was desired to submit written arguments and the case-law on which he intended to rely, so that these could be made a part of record and discussed in detail. Since these were not received for over three weeks, he was reminded on phone but, for reasons best known to him, he did not choose to file the written arguments. The dispute is, therefore, resolved relying on an earlier decision/finding in Complaint No. 1438 of 2002, Gharilawala Cement Factory and Complainant No.743 of 2002 Pak Hero Industries (Pvt.) Ltd., were after a detailed discussion these objections were overruled. The legal objection to jurisdiction is therefore, rejected.

8. Coming to the facts as were made a basis for exercise of discretion under Para. 9(a) of the Self-Assessment Scheme for the year, the arguments by the IAC appear to carry force inasmuch as (i) the expansion in business reflected by opening new outlets, (ii) the nature of business extending to Supplies, Sales, Dispensing of prescriptions at numerous new outlets, as also (iii) the utilization of imports for Sales as well as Supplies; were such occurrences which warrant scrutiny thus placing the return to reason that the category of "revenue potential case'. It stands to reason that such factors existed as led to a `reasonable belief' about the "revenue potential" of the case. It is pertinent to mention that any possibility or vague ground can be a basis for reasonable belief about the revenue potential of the case. On this view of the matter, no discrimination appears to have been meted our with the result that there is no 'maladministration' as defined in clause (3) of section 2 of the FTO Ordinance. The complaint is thus found to be without merit hence it is FILED and the case is CLOSED.

C.M.A./781/FTOOrder accordingly.