NAYAB COTTON GINNING (PVT.) LTD., GOJRA. VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2786 (2002)

Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 108(b), 2(26)(c), 50, 143‑B, 142 & 116‑‑‑Income Tax Rules, 1982, R.61‑‑S.R.O. 943(I)/79, dated 17‑10‑1979‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000); S.2(3)‑‑‑Penalty for failure to furnish return of total income and certain statements‑‑‑No payments attracting provisions of S.50 of the Income Tax Ordinance, 1979 were made as the factory was leased out and no statement under S.143‑B was filed‑‑‑Imposition of penalty under S.108(b) of the Income Tax Ordinance, 1979 for default in submission of monthly statements was required to be submitted under S.142 of the Income Tax Ordinance, 1979‑‑‑Validity‑‑‑Order passed imposing penalty was arbitrary and capricious, contrary to facts evident from record as well as against the law and thus maladministration was proved on the Count that the process employed as well as the decisions made by the Special Officer and the concerned Inspecting Additional Commissioner both were contrary to law as well as mall fide the decision was perverse, arbitrary, unjust and oppressive; the decision was based on irrelevant ground; decision involved exercise of powers for improper motive of administrative excess to deny the complainant his due refund and alternately the decision proved incompetence and inaptitude of the Special Officer as well as the Inspecting Additional Commissioner in discharge of their duties and responsibilities‑‑‑Federal Tax Ombudsman recommended that the Commissioner may, by an order in writing, amend under S.221 of the Income tax Ordinance, 2001 the order to rectify the mistakes in the order that are apparent from record and the proceedings under Efficiency and Disciplinary Rules, 1973 are initiated against the Special Officer and the concerned Inspecting Additional Commissioner for committing the maladministration and to take action against them/warranted under the Rules.

Anwar Bhatti for the Complainant.

Amjad Khan, IAC for Respondent.

DECISION/FINDINGS

Maladministration is alleged, in the instant complaint, against Mr. Mohammad Riaz Khawaja, Special Officer of Income Tax, Company Circle‑09, Faisalabad for arbitrarily imposing penalty amounting to Rs.1,747,200 under section 108(b) of the Income Tax Ordinance, 1979, hereinafter called the Repealed Ordinance, for alleged default of non‑submission of monthly statements required to be submitted under section 142 for the period July, 1999 to June, 2000 as prescribed under rule 61 of the Income Tax Rules, 1982.

2. It is stated in the complaint that the Company leased out the Factory during the accounting period July, 1999 to June, 2000 and made no payments warranting any deduction of tax under section 50 of the Repealed Ordinance, hence no liability to file any monthly statement envisaged under section 142 read with rule 61.

3. It transpires on perusal .of penalty order that the Special Officer Company, Circle 09, Faisalabad, issued notice under section 116 for default of non‑filing of statements under section 139 on 14‑1‑2002 for compliance on 19‑1‑2002, served on the A.R. of the Company on 15‑1‑2002. The AR moved an application seeking two weeks time to make his submissions after consulting his client. The Special Officer did not allow the request and imposed penalty amounting to Rs.1,747,200 vide order under section 108(b), dated 23‑1‑2002 corresponding to assessment 'year 2000‑2001, for alleged default of provisions of section 142 of the Repealed Ordinance: The Special Officer did neither record any basis to hold the complainant in default nor to arrive at the amount of penalty either in the notice under section 116 or in the order passed under section 108(b) of the Repealed Ordinance. It was further alleged that the Special Officer was victimizing the complainant by issuing notice under section 56 for the charge years 1999‑2000 and 2000‑2001.

4. Investigation further revealed that an order under section 108(b) imposing penalty of Rs.86,200 was passed earlier on 3rd November, 2001 for alleged default of non submission of statements under section 142 of the Income Tax Ordinance, 1979 for the period July, 1999 to June, 2000 in respect of payments of Rs.24,200 and Rs.18,500 attracting provisions of subsection (4) of section 50 of the Repealed Ordinance, despite denial of complainant that no such payments were made during the said period. The CIT (Appeal) set aside the order on 16‑1‑2002 for de‑novo decision. The Special Officer, Mr. Mohammad Riaz Khawaja, meanwhile passed an order under section 156/108(b) on 14‑1‑2002 holding that penalty imposed for default of non‑filing of annual statement under section 142 of the Income Tax Ordinance, 1979 is a glaring and obvious mistake of law as penalty for non filing of annual statement under section 142 have already been omitted vide Finance Ordinance, 1995. The penalty under section 108(b) for default of non filing of annual statement under section 142 of the Income Tax‑ Ordinance, 1979 is not provided under the law. He deleted the penalty.

5. The respondent submitted in response to notice under section 10(4) of Ordinance, XXXV of 2000 that the complainant had filed statement under section 143‑B for assessment year 2000‑2001 declaring supplies of Oil at Rs.475,361 and showing payment of tax at Rs.7,130 which indicates that the assessee company had operated the factory during the period July 1, 1999 to June 30, 2000. The RCIT further submitted that sales of edible oil were not liable to deduction of Income Tax under subsection (4) of section 50 and therefore, not covered under the presumptive tax regime. The assessee was thus required to file return of total income under section 55 instead of statement under section 143‑B; hence, the notice under section 56 was issued. The RCIT, therefore, proposed that complainant, may explain this issue before Assessing Officer.

6. Regarding penalty under section 108(b), the RCIT submitted that books of account produced on 13‑9‑2001 revealed that payment of Rs.24,200 and Rs.18,500 for supply of goods were made as per ledger at page‑5 that were liable to deduction of tax under section 50(4) and the assessee‑Company was legally under obligation to file statement under section 142 of the Income Tax Ordinance, 1979. The assessee, thus committed default under section 142 of the Income Tax Ordinance 1079 and therefore, penalty under section 108(b) for non‑filing of statement under section 142 had been legally and lawfully imposed after providing an opportunity of being heard to the assessee.

7. Mr. Muhammad Anwar Bhatti, Advocate contended that the income year corresponding to assessment year 2000‑2001 ended on 31‑8‑1999 in complainant's case as per S.R.O. 943(I)/79, dated 17‑10‑1979 because it owned a Ginning Factory. As such statement filed under section 143‑B for assessment year 2000‑2001 pertained to accounting year ended on 31‑8‑1999. He submitted that the Assessing Officer had already passed a penalty order under section 108(b) with reference to assessment year 2000‑2001 on 3‑11‑2001 by imposing penalty of Rs.86,200 that was set aside by the Commissioner of Income Tax (Appeals) on 16‑1‑2002. While the Special Officer had deleted the penalty vide order under section 156 on 14‑1‑2002 the complainant filed second appeal before Income Tax Tribunal, Lahore impugning the setting aside of penalty order instead of canceling it.

8. The Special Officer, at this stage passed a fresh penalty order under section 108(b) on 23‑1‑2002 for the same period imposing penalty of Rs.1,747,200 which is alleged in the instant complaint to be against the law, arbitrary, unjust, oppressive and mala fide having no factual basis because there is no finding that complainant made any payment during the period 1‑9‑1999 to 31‑8‑2000 that attracted any provision of section 50 of the Repealed Ordinance. It was categorically stated before the Special Officer that no payments attracting provisions of section 50 were made in the income period 1‑7‑1999 to 30‑6‑2000 as the factory was leased out and no statement under section 143‑B was filed for the corresponding assessment year.

9. According to the AR of complainant, the order is mala fide as well because it was passed to circumvent the recommendations of Federal Tax Ombudsman, dated 29-12‑2001 in Complaint No. 1232/2001 to conclude proceedings under section 116 by 15‑1‑2002 and settle the refund claims.

10. Submissions made on behalf of the two sides have‑ been considered. It is found that the Special Officer has failed to appreciate the facts of the case as well as the provisions of law applicable to the case. Firstly the income year of the complainant, being the owner of a ginning factory, is from 1st day of September to 31st day of August in accordance with clause (c) of subsection (26) of section 2 of the Repealed Ordinance. Thus the statement under section 143‑B filed for assessment year 2000‑2001 corresponds to income year ended 31st August, 1999 which has been confused with income year July 1, 1999 to June 30, 2000. Further it has not been appreciated that the factory was leased out during the period September 1, 1999 to August 30, 2000 and complainant has filed a return of income from lease rent under section 55.

11. The Special Officer has not mentioned the dates of payments amounting to Rs.24,200 and Rs.18,500 said to be noted from complainants ledger. The impugned penalty order neither indicates the period of accounts to which the ledger pertained nor the specific nature of the two payments. The penalty order neither bears the period of default nor the rate at which the penalty has been worked out.

12. The notice under section 116 issued by the Special Officer on 14‑1‑2002 was ab initio void in law firstly because an order passed under section 156 passed on the same date i.e. 14‑1‑2002 for the same alleged default during the same accounting period was already on record and holding the field. Besides, remand proceedings in pursuance of the order of the CIT(A) passed on 16‑1‑2002 had become due prior to the date of compliance of notice fixed on‑19‑1‑2002 and the date of passing the impugned order on 23‑1‑2002.

13. The order passed under section 108(b) passed on 23‑1‑20021 imposing penalty amounting to Rs.1,747,200 is arbitrary and capricious contrary to facts evident from record as well as against the law. The alleged maladministration as defined under subsection (3) of section 2 of Ordinance XXXV of 2000 is proved on following counts:‑‑

(i)???????? The process employed as well as the decisions made by the Special Officer and the concerned IAC both are contrary to law as well as mala fide.

(ii)??????? The decision is perverse, arbitrary, unjust and oppressive.

(iii)?????? The decision is based no irrelevant ground.

(iv)?????? It involves exercise of powers for improper motive of administrative excess to deny the complainant his due refund.

(v)??????? Alternately the decision proves incompetence and inaptitude of the Special Officer as well as the IAC in discharge of their duties and responsibilities.

14.?????? It is now recommended:

(i)???????? That Commissioner may by an order in writing, amend under section 221 of the Income Tax Ordinance, 2001 the order supra to rectify the mistakes in the order that are apparent from record as found supra.

(ii)??????? That proceedings under Efficiency and Disciplinary Rules 1973 are initiated against Mr. Mohammad Riaz Khawaja, Special Officer and the concerned Inspecting Additional Commissioner for committing the maladministration found supra and to take action against them warranted under the Rules.

(iii)?????? Compliance to be reported within 90 days from the date of the order.

C.M.A./867/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.