(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 59(1)‑‑‑C.B.R. Circular No. 4 of 2001, dated 18‑6‑2001, para.9(a)(ii)‑‑‑Self‑Assessment Scheme ‑‑‑C.B.R. Circular Letter No.7(7) Asstt/2001, dated 26‑3‑2001‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3.)‑‑‑Self‑assessment, setting apart‑‑‑Assessment. year 2001‑2002‑‑‑Contention was that setting apart of case by the Regional Commissioner of Income Tax was the matter related to assessment‑‑‑Validity‑‑‑Neither the process employed by the Regional Commissioner of Income Tax under para. 9(a)(ii) of C.B:R. Circular No.4 of 2001 nor his decision to select the case for audit was a matter relating to assessment of income nor remedy in the shape of appeal/revision against his decision to select the case was available to the complainant/assessee.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 59(1)‑‑‑C.B.R. Circular No. 4 of 2001, dated 18‑6‑2001, para.9(a)(ii)‑‑‑Self‑Assessment Scheme ‑‑‑C.B.R. Circular Letter No.7(7) Asstt/2001, dated 26‑3‑2001‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Self‑assessment‑‑ Setting apart of assessment‑‑‑Assessment year 2001‑2002‑‑‑Contention was that prejudice was caused by selecting the return for total audit by the Regional Commissioner of Income Tax‑‑‑Validity‑‑‑Privilege was earned by the complainant/assessee when his return of income qualified for acceptance under Self‑Assessment Scheme‑‑‑Denial of such privilege without valid reason would be a prejudice caused to the complainant/ assessee.

(c) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 59(1)‑‑‑C.B.R. Circular No. 4 of 2001, dated 18‑6‑2001, para. 9(a)(ii)‑‑‑Self‑Assessment Scheme ‑‑‑C.B.R. Circular Letter No.7(7)Asstt/2001, dated 26‑3‑2001‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Self assessment‑ Setting apart of assessment‑‑‑Assessment year 2001‑2002‑‑‑Switch over business from real estate agency to sale of wheat‑‑‑Source of investment was duly explained‑‑‑Setting apart of case by the Regional Commissioner of Income Tax without recording any reasons for dissatisfaction‑‑Validity‑‑‑Complainant/assessee‑ had satisfactorily explained all the issues that it was confronted with by the Regional Commissioner of Income Tax and sufficient cause had been shown on its behalf as to why the reasons that the Regional Commissioner of Income Tax had for his belief that it was a revenue potential case were unfounded and invalid‑‑‑Regional Commissioner of Income Tax himself had not recorded any reason for his dissatisfaction with the causes shown to him on behalf of the complainant/assessee‑‑‑Selection of return for audit thus was arbitrary‑‑‑Any order passed without reasonable ground or in breach of the parameters laid down by rules, regulations or binding orders will be contrary to law, arbitrary and based on irrelevant grounds which amounted to maladministration attracting the jurisdiction of Federal Tax Ombudsman‑‑‑Alleged maladministration, therefore, stood established‑‑‑Federal Tax Ombudsman recommended that the Central Board of Revenue should direct exclusion of return from the list of cases selected under para. 9(a)(ii) for audit and for its acceptance under Self Assessment Scheme.

Shahbaz Butt and Tariq Rasheed for the Complainants.

Shahid Jamil Khan, Legal Adviser for Respondent.

ORDER

Maladministration is alleged in the instant complaint on the part of the RCIT, Eastern Region, Lahore for arbitrarily setting apart the return filed by the complainant under Self‑Assessment Scheme, for total audit by invoking para. 9(a)(ii) of C.B.R. Circular No.4 of 2001, dated 18‑6‑2001. The complainant, an old assessee with the status of Individual engaged 'in operating an estate agency and, trading in wheat declared total income at Rs.215,453, for assessment year 2001‑2002:

2. The RCIT confronted the complainant through a notice envisaged under para. 9(a)(ii) of C.B.R. Circular No.4 of 2001, dated 18‑6‑2001, that return of income filed by the Complainant, warranted audit for following reasons:

"(i)You have declared income of Rs.215,453, from Estate Agency and sale of wheat, against which expenses of Rs.68,825 have been declared. Perusal of the computation chart shows that you have not claimed business expenses on account of electricity and salaries which clearly indicates that you have furnished inaccurate particulars and concealed true facts of your business activities rendering your declared version

(ii)In the year under consideration you have started a new business of "COMMISSION FROM SALE OF WHEAT" but have not shown any increase in capital in the wealth statement. Your income in the previous years is insufficient to make an investment in a new business.

(iii)You are running an estate agency in a posh locality of the city. Commission income declared at Rs.180,000 is too low. It is known fact that price of a one Kanal plot in Defence Housing Authority ranges from Rs.1,800,000 to Rs.3,500,000, depending upon its location. Even if you are, charging 1% commission from each party, it means that during the year only four to five plots of one Kanal area were transacted. The commission declared is understated as it does not commensurate with the extent of business you are enjoying. You have suppressed your income by furnishing inaccurate particulars of your business affairs.

3. It has been submitted before the RCIT on behalf of the complainant that it is true that no expenses under the head salaries and electricity have been claimed because none were incurred but there is no inaccuracy in it. It is submitted that the perusal of wealth statements available on record would reveal that the business premises at Main Boulevard were sold‑‑out by assessee during the year ended June 30, 2002. The agreement to sell was executed for an advance of Rs.300,000 and possession thereof Was handed over to the vendees. This fact is specifically mentioned in wealth statement. The said shop was not appearing in the wealth statement in the year ended 30‑6‑2001 because the deal has been completed. Further reconciliation available on record, where the sale of shop has been shown and gain thereon has been worked out. Since the assessee sold out the premises and handed over the vacant possession of the same to the vendees, for all practical purposes the business of estate agency was wound up at Main Boulevard Defence Society and assessee switched over to the other business. That is why neither salaries nor electricity bills were claimed.

4. The assessee/complainant has also denied that he has started business of "Commission from sale of wheat", it is submitted that perusal of the return and the trading profit and loss account attached therewith would reveal that the assessee has declared income from trading in wheat and real estate commission. Apart from trading in, wheat the assessee also continued as real estate commission agent on a very limited scale for the reason that he had no office/shop or establishment during the year and business was being conducted from his residence. The last observations made in the notice are basically presumptive and contrary to facts.

5. However, the RCIT, found the foregoing explanation unsatisfactory and conveyed his decision through letter, dated 15‑6‑2002 that the explanation cannot be accepted.

(i)The shop at Main Boulevard, is appearing in the wealth statement (as on 30‑6‑2000) and the business address appearing on the returns for assessment years 2000‑2001 and 2001‑2002 is of the same shop. Moreover, on one hand the assessee states that electricity and salaries expenses were not claimed because business as an estate agent1was wound up and on the other hand in para 2 of his reply he explained that the business of sales and purchase of wheat was on a very small scale.

(ii)The assessee's explanation that no additional capital was required for the new business of sale and purchase of wheat as it was on a very small scale is negated by the quantum of income declared for the year at Rs.180,000 against Rs. 61,000 as declared for the previous year.

(iii)The assessee has explained that his business from the estate agency was limited as he had disposed of his shop at Defence and resultantly his commission income was very low. However, the returns for the assessment years 2000‑2001 arid 2001‑2002 show his sales and commission as under:

2000‑20012001‑2002

Sales564,0002,085,560

Commission61,000,189,000

Comparative analysis of both the years shows that commission income declared for the assessment year 2001‑2002 is higher than that of assessment year 2000‑2001. The business affairs of the assessee require a probe.

6. Hence the instant complaint alleging maladministration on the ground that the decision of the RCIT is arbitrary, unreasonable, unjust, biased, contrary to law, rules and regulations because no valid reasons are recorded at all for being dissatisfied with the explanation offered by the complainant in response to the show‑cause notice issued by him.

7. The RCIT, responding to the notice under section 10(4) of the Ordinance XXXV of 2000 raised following preliminary objections to the jurisdiction of this Office over the complaint:‑‑

"(i)Matter relates to assessment; hence falls outside jurisdiction of Federal Tax Ombudsman in light of provisions of section 9(2)(b) of Establishment of Office of Federal Tax Ombudsman

(ii)No prejudice has so far been caused to assessee.

(iii)Remedy in shape of appeal/revision against assessment is available to complainant.

(iv)No maladministration has been caused in this case."

8. Representatives of the parties have been heard on the preliminary objections raised by the RCIT, Mr. Shahid Jamil Khan, the Legal Adviser of the Department has cited the order of the President of Islamic Republic of Pakistan on Representation in Complaint No.979‑K of 2001 wherein it is held that "a decision which is bona fide or is reached for valid reasons does not amount to maladministration."

9. It is found after due consideration that neither the process employed by the RCIT under para. 9(a)(ii) of C.B.R Circular No.4 of 2001 nor his decision to select the case for audit is matter relating to assessment of income nor any remedy in the shape of appeal/revision against his decision to select the case is available to the complainant.

10. Further, the view canvassed by the RCIT that no prejudice has so for been caused to the complainant is also mis‑convened. It is al privilege already earned by the complainant where return on income qualifies for acceptance under Self‑Assessment Scheme. Denial of such privilege without valid reason would be a prejudice caused to the complainant. ,

11. The contentions of the RCIT and the Legal Advisor of the Department that no maladministration is committed in arriving at the decision to select the case for audit is subject‑matter of investigation that will be dealt with hereinafter. Three of the four preliminary objections, supra raised by the RCIT are, therefore, over‑ruled and the fourth objection would be considered at the appropriate stage.

12. It has been further submitted by the RCIT that the case of the assessee is selected for total audit on genuine grounds. Procedure prescribed in this behalf has been duly followed. The matter has been thoroughly discussed with the tax advisor of assessee and his view point has been judiciously considered; hence case has been selected for total audit for valid reasons.

13. The authorized representative of complainant, besides reiterating the submissions already made before the RCIT further submitted that the RCIT did not examine the assessment record of the assessee and his submissions were rejected without application of mind. The case of the assessee was recommended for total audit firstly on whimsical grounds and secondly the veracity of submission was neither checked nor examined. The selection of the case at the fag end of the period of limitation under section 59(4) is fanciful and reflects misuse of powers for the following reasons:--‑

(i)The assessee had declared income for the preceding years as under:

It was pointed out that in assessment year 1996‑97 the assessee declared income from property and insurance business, while in assessment years 1997‑98 and 1998‑99 income was declared, from property income and real estate agency commission and in assessment year 1999‑2000 income from property, estate agency and trading was declared. In assessment year 2000‑2001 income from property was not declared as the shop at Main Boulevard was sold out while income from estate agency and trading of wheat was declared. The reason for non‑declaration of property income was that the shop fetching rent was sold out during the year 1‑7‑1998 to 30‑6‑1999 and possession was handed over to the vendees and this fact was declared in the wealth statement. Subsequently copy of sale‑deed was also filed. The perusal of wealth statement as on 30‑6‑2000 showed advance against shop/property at Rs.300,000 while in the wealth statement as on 30‑6‑2001 the said shop did not appear in the wealth statement. There was, therefore, no basis to hold that the assessee did not have sufficient funds for investment in trading business. This observation shows that the Commissioner of Income Tax recommended the case for total audit without appreciating that advance of Rs.300,000 was available for business in addition to his own capital.

14. It has been submitted on behalf of the complainant that the reasons recorded by the learned RCIT do not conform to any of the guidelines for selection of cases, circulated by the Central Board of Revenue (C.B.R.) vide Circular Letter No.7(7) S. Asstt of 2001, dated 26th March, 2002 which are as under:‑‑

(i)Evidence, information or reason to believe that true particulars of income have been suppressed and it is a revenue potential case.

(ii)Such selection tray be based upon factors including:‑‑‑

(a)Evident decline in income.

(b)Any addition to the assets that is not covered by income declared. (Tax profiles of Survey and Registration may be consulted to identify such cases).

(c)Disparity is expenses on utilities vis‑a‑vis income declared.

15. The counsel of the complainant has submitted that there is neither any evidence of decline in income, nor there is any evidence that addition, to assets during the year is not covered by the known sources of the complainant nor there is any evidence or information that true particulars of income have been suppressed. All the 'reasons that the complainant was confronted with by the RCIT through his notice and on the basis of which he believed that the potential of revenue could be more than what was declared have been fully explained, according to the learned counsel, He submits that sufficient cause has been duly shown that the reasons were invalid and unfounded. Attention is invited to the decision of the RCIT reproduced supra where no reasons have been recorded by the RCIT for his dissatisfaction with the causes shown why the return does not warrant selection for audit.

16. Finally it is submitted on behalf of the complainant that on the foregoing facts there was no valid reason for the RCIT to believe that true particulars of income had been suppressed or that the revenue potential of the case in assessment year 2001‑2002 was more than what had been already declared.

17. Submissions made on behalf of each side have been considered. It is found that the complainant has satisfactorily explained all the issues that it was confronted with by the RCIT through his notice and sufficient cause has been shown on his behalf as to why the reasons that the RCIT had for his belief that it was a revenue potential case were unfounded and invalid. The RCIT himself has not recorded any reason for his dissatisfaction with the cases shown to him on behalf of the complainant.

18. Selection of return of income filed by the complainant for audit therefore, is arbitrary. Any order passed without reasonable ground or in breach of the parameters laid down by rules, regulations or binding orders will be contrary to law, arbitrary and based on irrelevant grounds. This amounts to maladministration, attracting the jurisdiction of the Federal Tax Ombudsman. The alleged maladministration stands established.

19. It is recommended that:‑

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

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

C.M.A./883/FTO Recommendation Made.