UMAIR IBRAHIM PROPRIETOR MESSRS USMAN WEAVING FACTORY, HAFIZABAD VS SECRETARY REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 71 (2002)

(a) Income‑tax‑‑‑

‑‑‑‑Assessment made on the basis of return signed by the brother of the assessee was invalid.

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

‑‑‑‑Ss. 63 & 132‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 9‑‑‑Best judgment assessment‑‑ Inspector's report‑‑‑Power looms in a premises belonging to other 7 persons, existing assessee in the status of individual at their own NTN, was considered to be of the assessee and income of the assessee was assessed accordingly‑‑‑Validity‑‑‑Assessment for the assessment years 1996‑97 stated that according to the Inspector's report there were 28 power looms at the premises which were claimed to be owned by 7 persons but according to the Inspector's report mentioned in the order of the re‑assessment, the number of looms had suddenly increased to 52‑‑‑Even if there were in fact 52 looms at the premises it was not clear from the assessment order as to how 28 of these looms were considered to be belonging to assessee who was not even specifically mentioned in the original assessment order for the assessment year 1996‑97‑‑‑Appellate order also showed that even the department had acknowledged by implication that demand notice and assessment order for the assessment year 1996‑97 had not been served properly in the case and that the complainant learnt about the order after commencement of tax recovery proceedings at which stage a duplicate demand notice was served‑‑‑First Appellate Authority in its order did not mention the date of service of demand notice but only observed that the appeal was late by 10 months and 25 days‑‑‑Assessments for the assessment years 1996‑97 and 1997‑98 were found to be invalid and Federal Tax Ombudsman recommended that (i) the assessments for the years 1996‑97 and 1997‑98 be cancelled by the Commissioner of Income Tax under section 138 of the Income Tax Ordinance, 1979 with appropriate directions (ii) that if the directions include the making of fresh inquiry the number of power looms be ascertained by the Assessing Officer in the presence of the assessee/complainant and if it is found that 52 power looms were wrongly shown by the Inspector in his report, disciplinary proceedings may be commenced against him.

Complainant in person.

Muazzam Bashir, D.C.I.T. for Respondent.

FINDINGS/DECISION

This is a complaint pertaining to income‑tax assessments for the years 1996‑97 and 1997‑98 in the complainant's case. The main points in the complaint are as under:‑‑‑

(i) The complainant is owner of four power looms in Usman Weaving Factory, Hafizabad. There are seven owners (including the complainant) who own four power looms each in the said factory and all the seven persons have separate National Tax Number.

(ii) The assessments for the two years are based on the Circle Inspector's report which was prepared in his office and that actually the Income‑tax Officer had himself visited the complainant's factory and had found that no business was being done there.

(iii) The Circle Inspector, Mr. Muhammad Ramzan wanted illegal gratification to settle matters and on the complainant's refusal, an incorrect report was prepared.

(iv) Despite the invalid tax demand created for the two years, the complainant paid Rs.25.000 out of the demand and filed an appeal which, however, was dismissed as time‑barred by the Commissioner of Income‑tax (Appeals).

(v) There was no justification for treating the appeal as time‑barred because the Assessing Officer had served a duplicate copy of assessment order and demand notice on the basis of which the last date for filing of appeal was 29‑7‑2001 while the appeal was filed on 28‑7‑2001.

It has been prayed that the assessments may be ordered to be cancelled and the complainant's Income‑tax file be closed.

2. The respondent's reply has been received in which the main points are as follows:‑‑

(i) According to the complainant six persons besides him are running four power looms each but inquiry conducted through Circle Inspector showed that there were in fact 52 power looms installed in the premises which means that 28 power looms were operated by the complainant.

(ii) The complainant failed to comply with statutory notices and therefore, assessments were finalized under sections 63/132 at income of Rs.220,000 and. Rs.230,000 for the assessment years 1996‑97 and 1997‑98 respectively. The assessments were finalized on the basis of facts and material available on record and after properly confronting the complainant in writing.

(iii) There is no evidence regarding demand of illegal gratification by the Circle Inspector.

(iv) The complainant deposited Rs.25,000 out of the outstanding demand of Rs.79,730 for the assessment years 1996‑97 and 1997‑98 and obtained duplicate copy of assessment orders after making payment of copying fee.

(v) The complainant's appeal was, however, dismissed by the CIT (Appeals) as being barred by time.

(iv) According to CIT, Gujranwala business was done by the complainant only up to the assessment year 1998‑99 after which the business was closed. The CIT has been directed to ensure that absolutely fair treatment based on actual facts is meted out in the pending assessments.

3. The factual position is that originally assessment for the year 1996‑97 was made at the income of Rs.220,000 in the name of Usman Weaving Factory by assigning the status of "individual" without naming the proprietor. The assessment was statedly made on the basis of the Inspector's report that 28 power looms were installed in the premises.

The contention of the assessee that he owned only four power looms and that the remaining 24 power looms belonged to other persons was not accepted. While deciding the appeal, the CIT (Appeals) noted that the applicant had furnished NTNs of the remaining six owners of the power looms and he directed that an inquiry be made by the Assessing Officer through his Inspector and that relevant records also be examined. He directed that if the contention regarding separate ownership is found to be correct the applicant would be considered as the owner of only four power looms and his income would stand reduced to Rs.65,000. If, however, the contention was not found to be correct, a reasonable estimate of income would be made after allowing the complainant due opportunity of being heard.

4. The order of re‑assessment for the year 1996‑97 was made by the Assessing Officer en 30‑6‑2000 in the name of Usman Weaving Factory, Proprietor Umair Ibrahim. In this order, the Assessing Officer gave the dates and date of service of five notices under section 61 and wrote that there was no compliance and that a final notice under section 62, dated 15‑6‑2000 also remained uncomplied with and that, therefore, ex parte assessment was being made. He further wrote that inquiry was made through the Inspector whose report was reproduced in the assessment order as follows:‑‑

"At the time of my visit factory premises of the assessee was not in operation but 52 power looms were installed therein. The contention of the assessee that six persons are/were running a 4 power looms each and were existing assessee is correct. Thus the total power looms being run by six persons as claimed comes to 24 and the balance let is at 28 power looms which were being run by the assessee. The local enquiries further revealed that the factory of the assessee stands closed for the last one year i.e. after 30th June, 1999.

In view of above it is submitted that the assessee's factory remained in operation up to assessment year 1999‑2000 and the number of power looms which were being run by the assessee himself were 28 and the same may please be adopted for assessment years 1996‑97 to 1999‑2000."

The Assessing Officer thus concluded that there were in fact 52 power looms in the premises out of which 24 power looms were run by six other persons but "even then 28 power looms remained in the hands of the assessee". With these observations the Assessing Officer assessed income in the reassessment for the year 1996‑97 at the original figure of Rs.220,000 and an ex parte assessment was also made on the same date for the assessment year 1997‑98 in which income was estimated at Rs.230,000.

5. It was noted during the hearing that in the original order for the assessment years 1996‑97 the name of the individual proprietor was not indicated but in the order of reassessment the name was given as Umair Ibrahim. According to the record produced, however, the return on which the assessment was based had been signed by Muhammad Zubair, a brother of Umair Ibrahim. Similarly the return for the assessment year 1997‑98 was also signed by Muhammad Zubair. The assessments were, however, made in the name of Muhammad Ibrahim which thus appear to quite invalid.

6. It is also noted that it was indeed strange that in the original assessment for the year 1996‑97, dated 22‑6‑1999 it was stated that according to the Inspector's report there were 28 power looms at the premises which were claimed to belong to 7 persons but according to the Inspector's report mentioned in the order of the reassessment, dated 30‑6‑2000, the number of looms had suddenly increased to 52. In any case, even if there were in fact 52 looms at the premises it is not clear from the assessment order as to how 28 of these looms were considered as belonging to Mr. Umair Ibrahim who was not eve specifically mentioned in the original assessment order for 1996‑97.

7. As regards the appellate order, it is evident that even the department has acknowledged by implication that demand notice and assessment order for the assessment year 1996‑97 had not been served properly in the case and that the complainant learnt of the order after commencement of tax recovery proceedings at which stage a duplicate demand notice was served on 29‑6‑2001. The CIT (Appeals) in his order did not, however, mention the date of service of demand notice but only observed that the appeal was late by 10 months and 25 days.

8. In the light of the above, the assessments for the years 1996‑97 and 1997‑98 are found to be quite invalid and it is recommended that:‑‑

(i) The assessment for the years 1996‑97 and 1997‑98 be cancelled by the Commissioner under section 138 of the Income Tax Ordinance with appropriate directions.

(ii) If the directions include the making of fresh inquiry the number of power looms be ascertained by the Assessing Officer in the presence of the assessee/complainant and if it is found that 52 power looms were wrongly shown by the inspector in his report, disciplinary proceedings may be commenced against him.

(iii) Compliance be reported within 60 days.

C.M.A./481/FTOOrder accordingly.