Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 59(1)‑‑‑C.B.R. Circular No. 7 of 2002 dated 15‑6‑2002, para. 9(a)(ii) [Self Assessment Scheme]‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000); S.2(3)‑‑‑Self assessment‑‑‑Setting apart of assessment‑‑‑Assessment year 2002‑2003‑‑ Difference in balance‑sheet total ‑‑‑Assessee explained that there was no difference in total of balance‑sheet, but there was a typographical mistake in the amount of capital account which was verifiable from the copy of capital account, wealth statement and its reconciliation‑‑‑Setting apart for total audit‑‑‑Validity‑‑‑Regional Commissioner of Income Tax did not make a judicious exercise of power in selecting the case for total audit and proceeded on whim and conjectures rather than on solid evidence or cogent reasons for such selection‑‑‑No material evidence or information was available to show that true particulars of income had been suppressed‑‑‑Income declared showed an increase as compared to income declared in the immediately preceding year‑‑‑Notice did not specify any cogent reason except that the total of balance‑sheet showed a discrepancy ‑‑‑Complainant/assessee filed his wealth statements alongwith reconciliation from year to year and these figures were available on records‑‑‑Typographical mistake should not be allowed to defeat the spirit of the Self‑Assessment Scheme which otherwise fulfils all other conditions laid down in this behalf‑‑‑Nothing was there to justify the selection of the case for total audit and for excluding the return of income for assessment year 2002‑2003 from the purview of Self Assessment Scheme‑‑‑Such course did not meet the parameters fixed by the Central Board of Revenue ‑‑‑Maladministration thus was established‑ Federal Tax Ombudsman recommended that the order of the Regional Commissioner of Income Tax selecting the case for total audit be withdrawn and the return filed for the assessment year 2002‑2003 by the complainant/assessee be processed under Self‑Assessment Scheme.

A. R. Lakhani, F.C.A. for the Complainant.

Abdus Salem, I.A.C. Range‑II, Zone‑E, Karachi for Respondent.

DECISION/FINDINGS

The only grievance in the complaint relates to the selection of return of income for the assessment year 200‑2003 for total audit under para 9(a)(ii) of Central Board of Revenue's Circular No.7 of 2002. It has been alleged that the RCIT, Southern Region, Karachi has wrongly selected his return of income which was filed under Self‑Assessment Scheme for the assessment year 2002‑2003 for total audit.

2. The complainant is proprietor of Messrs Al‑Farid Corporation and is engaged in the business of exports and local sales of rice, chilli etc. He is borne on NT No.26‑1‑0571935 and is being regularly assessed in Zone-E, Karachi.

3. For the assessment year 2002‑2003 return showing income of Rs.951,267 was filed under Self‑Assessment Scheme. Total sales amounting to Rs.53,889,358 were disclosed during this year as against sales of Rs.36,764,994 declared in the immediately preceding year i.e. 2001‑2002. The G. P. rate for the year under consideration was shown at 6.40 % as against 6.68 % shown in the assessment year 2001‑2002. The increase in income in the assessment year 2002‑2003 as compared to assessment year 2001‑2002 works out to more than Rs.300,000. The result shown in the assessment year 2002‑2003 shows a marked improvement not only in the sales/turn‑over but also in total

4. The complainant was confronted by a letter dated 28‑12‑2002 from the RCIT alleging that there was a difference of Rs.46,80,000 in balance sheet total and hence true particulars of income were suppressed. This letter was duly attended to by the complainant and his AR submitted a reply dated 9‑1‑2003 in which it was explained that there was a typographical mistake in the amount of capital account and there was no difference in total of balance‑sheet. No adverse inference could thus be drawn from this simple and innocent totaling mistake of typographical nature. The letter dared 28‑12‑2002 mentions this difference in balance- sheet to be the only basis for selecting the case for total audit under para. 9(a)(ii) of Circular No.7 of 2002 (Self‑Assessment Scheme). No other basis other than this has been mentioned in the letter dated 28‑12‑2002. However, the matter was satisfactorily explained by the complainant and the difference of Rs.46,80,000 was reconciled. The mistake was verifiable from the copy of the capital account, wealth statement and its reconciliation. In the light of the above discrepancy stood fully and satisfactorily explained. This, therefore, could not constitute the basis for the selection of complainant's return filed under Self‑Assessment Scheme for total audit. A genuine or inadvertent mistake cannot debar the return of income from Self Assessment Scheme if other conditions have been duly fulfilled. These facts are quite evident and borne out from the records itself. The AR of the complainant has vociferously argued that all conditions have been fulfilled by the assessee and there is no reason why his return of income should be excluded from Self‑Assessment Scheme and be considered for total audit. The parameters and conditions laid down for total audit do not apply in the case of the complainant. There is no decline in income and there is no suppression of material facts. In view of 'all these the complainant's return for the assessment year 2002‑2003 deserves to be accepted under Self‑Assessment Scheme.

5. The AR of the complainant has further pleaded that discrepancies observed in the amounts of cash in hand declared on 30‑6‑2001 and 30‑6‑2002 at Rs.37,952 were fully explained from the records and documents filed. The complainant had filed wealth statement and reconciliation and the cash balance in the proprietor's wealth statement alongwith reconciliation. However, inadvertently the balance in inner column as shown in the earlier years' wealth statements was repeated in typing. No adverse inference as such could be drawn on the basis of an inadvertent typographical mistake which is verifiable from the records itself. The learned AR of the complainant has filed wealth statements for the periods ended on 30‑6‑2001 and 30‑6‑2002 wherein the mistake has been duly reconciled from the records already available.

6. In view of the factual position stated by the AR and also borne from the records the mistake in figure in these two years has been attributed to typographical mistake. In the course of discussion, the AR of the complainant further contended that these facts were duly explained to the RCIT personally besides having been given an explanation in writing.

7. After having heard the parties and having gone through necessary evidence, and records produced, the inevitable conclusion is that the RCIT did not make a judicious exercise of his power in selecting the case for total audit. He proceeded on whim and conjunctures rather than on solid evidence or cogent reasons for such selection. There was no material evidence or information to show that true particulars or income have been suppressed. As a matter of fact, the income declared for this year shows an increase of more than Rs.3,00,000 as compared to, the income declared in the immediately preceding year.

8. Notice dated 28‑12‑2002 does not specify any cogent reason except that the total of balance‑sheet shows a discrepancy. This fact was also explained in writing as well as in personal appearance. The complainant has been filing his wealth statements alongwith reconciliation from year to year and these figures were available on the records. A typographical mistake should not be allowed to defeat the spirit of the Scheme which otherwise fulfils all other conditions laid down in this behalf.

9. For the aforesaid reasons and from the perusal of facts there is nothing to justify the selection of this case for total audit and for excluding the return of income for the assessment year 2002‑2003 from the purview of Self‑Assessment Scheme. This appears to be a case of arbitrary exercise of powers and does not meet the parameters fixed by the C.B.R. for selection cases for total audit. The preliminary objection of the respondent that the matter falls within the purview of section 9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 is overruled in view of decision in Complaint No. 1438 of 2002. Maladministration as defined in section 2(3) has been established.

10. It is, therefore, recommended that:‑‑

(i)The order of the RCIT dated 25‑2‑2003 selecting the case for total audit be withdrawn.

(ii)The return filed for the assessment year 2002‑2003 by the complainant be processed under Self‑Assessment Scheme.

(iii)Compliance be submitted within 30 days from receipt of this order.

C.M.A./832/FTOOrder accordingly.