Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑‑S.2(3)‑‑Income Tax Ordinance (XXXI of 1979), S.156‑‑‑Maladministration‑‑ Non‑compliance of Appellate Authority's order‑‑ Failure of Assessing Officer to give effect to the orders passed in appeal‑‑‑Disregarding and disobeying such order amounted to indiscipline, insubordination and maladministration ‑‑‑Assessing Officer failed to carry out the orders and directions of the superior officers which not only amounted to dereliction of duties but also was an act of insubordination which should be taken due notice of by the supervisory officers of the Department‑‑‑Complainant had suffered harassment and hardship due to inaptitude, inefficiency and incompetence of the Assessing Officer who failed to carry out his duties under the law‑‑ Federal Tax Ombudsman recommended that suitable disciplinary action be taken against the Assessing Officer for his failure to give effect to the orders in appeal and for not having complied with the directions of the Commissioner of Income‑tax (Appeal) in respect of addition under the head "financial expenses"‑‑‑Service of rectified orders for the assessment years from 1993‑94 to 1999‑2000 on the authorized representative of the complainant might also be confirmed.  

Zulfiqar Haider, I.T.P. for the Complainant.

Sajidullah Siddiqui, D.C.I.Ts., Circle‑8, Cos.II, Karachi and Ansar Ali, D.C.I.Ts., Circle‑4, Cos.II, Karachi for Respondent.

FINDING/DECISION

The complainant is a private limited company registered/incorporated under the Companies Ordinance, 1984. It was engaged in manufacture and sale of plastic goods since the year 1975. The Company is now a sick industrial unit having sustained heavy financial losses in the recent years.

2. The grievances of the complainant relate to the assessment years 1990‑91, 1993‑94, 1995‑96, 1996‑97, 1997‑98, 1998-99 and 1999‑2000.

3. In response to necessary notice Mr. Zulfiqar Haider, (TP and one of the directors of the company attended with necessary records. The department was represented by Mr. Sajidullah Sidduqui, DCIT, Circle‑8, Cos.II, Karachi and Mr. Ansar Ali, DCIT, Circle‑4, Cos.II, Karachi. The departmental representatives produced assessment records of the complainant.

4. Brief facts of the case are stated as under:‑

Assessment year 1990‑91:

5. The most contentious aspects of the complaint relate to the assessment year 1990‑91. It has a very agonizing history. The learned representative of the complainant has contended that assessment in this case was completed under section 62 on 26‑6‑1993. For various deficiencies in the books of account the Assessing Officer had made two additions in the income of the complainant. An addition of Rs.20,89,579 was made in the trading result. This was based on past history of the case. The other addition related to Financial Expenses claimed at Rs.53,12,523. Out of this claim 50% amounting to Rs.26,56,261 was disallowed having been considered by the Assessing Officer to be disproportionate with the ratio of increase in the turn over. In the opinion of the Assessing Officer no explanation was furnished in support of this claim and hence a sum of Rs.26,56,261 being 50% of the total expenses claimed under this head was disallowed.

6. The assessee was aggrieved with these two additions and appeals against them were preferred to the CIT (Appeals) Zone‑II, Karachi. The CIT (Appeal) Zone‑II, Karachi vide his order dated 9‑1‑1994 in Appeal No. 1414 of 1994 confirmed the addition in the trading result amounting to Rs.20,89,579 being in accordance with the past history of the case particularly relating to the assessment year 1986‑87 when the assessee himself declared G.P. @ 18%, the other addition amounting to Rs.26,56,261 was set aside with the direction to the Assessing Officer to get the expenses verified from the bank and also ascertain whether these expenses pertained to the business of the assessee and only then to draw a final conclusion. The CIT (Appeal) held that the curtailment of 50% expenses under this head was not based on cogent reasons. The assessee filed an appeal before the learned ITAT on the point of confirmation of addition in trading result by the CIT (Appeal). The learned ITAT vide its order dated 17‑3‑2001 in I.T.A. No. 2598/KB of 1993‑94 (Assessment year 1990‑91) ordered the deletion of addition in trading result amounting to Rs.20,89,579. It, however, maintained the order of the CIT (Appeal) in respect of financial charges.

7. The main grievance of the learned AR of the complainant is that appeal effect has not been given to the order of the learned ITAT deleting the addition of Rs.20,89,579. The other grievance relates, to the add backs of Rs.26,56,261 under the head financial expenses. The AR of the complainant has vehemently argued that the Assessing Officer did not make any effort to verify these expenses from the bank according to the directions given by the CIT (Appeal) and later on confirmed by the learned ITAT. As a consequence this add back was repeated in the order of the Assessing Officer for this year passed under sections 62/132/135 dated 25‑6‑2002. As a matter of fact, even the addition of trading result amounting to Rs.20,89,579 which was ordered by the learned ITAT to be deleted vide its order dated 17‑3‑2001 was not given appeal effect.

8. As regards directions given by the CIT (Appeal) Zone‑II, Karachi and later on endorsed by the ITAT, the Assessing Officer did not make any effort to get the financial expenses verified from the bank either by writing any letter to the banks or by deputing Inspector of the Circle for verification of these expenses. The Assessing Officer on the contrary wrote letter to the assessee to furnish the details of the financial expenses for verification. This was not in accordance with the directions of the Appellate Authorities and the action taken by the Assessing Officer was not in consonance with the spirit of the orders of the Appellate Authorities. The Assessing Officer adopted an easy and short method by passing on the responsibility to the assessee. As a matter of fact, vide order dated 25‑6‑2002, the Assessing Officer had not even deleted the trading addition of Rs.20,89,579 which was against the order of the learned ITAT. The department has attributed this to inadvertent mistake in its parawise comments. This explanation is neither satisfactory nor convincing. Disregarding and disobeying the orders of the Appellate Authorities amounts to indiscipline and insubordination. This aspect is clear from the conduct of, the Assessing Officer. In these circumstances maladministration has been established. It is shocking to note that the Assessing Officer failed to carry out the orders and directions of the superior officers. This amounts not only to dereliction of duties but also is an act of insubordination which should be taken due notice by the supervisory officers of the department. The complainant has suffered harassment and hardship due to ineptitude, inefficiency and incompetence of the Assessing Officer who failed to carry out his duties under law. For the aforesaid reasons appropriate departmental action be initiated and this office be informed of the action taken in this behalf within 45 days of the receipt of the order.

9. The department in its para-wise comments has just stated that in response to rectification application of the complainant dated 9‑8‑2002 a rectification order has been belatedly passed on 15‑8‑2002 by which the grievance of the complainant relating to trading addition has been removed. There is, however, nothing to show that the Assessing Officer has made any effort or endeavour to verify financial expenses amounting to Rs.26,56,261 which was added back in the assessment year 1990‑91. The directions given by the Appellate Authorities till date have not been complied with. Due attention should be given to this aspect and matter brought to logical end as per directions of the Appellate Authorities. This will also effect assessments of the complainant for subsequent years.

Assessment years 1993‑94 1995‑96 1996‑97, 1997‑98, 1998‑99 and 1999‑2000.

10. The grievances pertaining to above assessment years are common in nature. These relate to rectification applications of the complainant for the respective years. The learned AR has argued that the orders for these years suffer from apparent mistakes, such as calculation mistakes, amount of depreciation claimed and allowed, failure to give appeal effect to the orders of the Appellate Authorities. The officers appearing on behalf of the department have stated that rectification orders have been passed in all the assessment years mentioned above on 15‑8‑2002 and the rectified orders were sent by courier service at the address of the complainant. The orders were, however, returned by courier service with the remarks that the office of the complainant was locked and there was nobody to receive the orders.

11. The learned AR of the complainant is not aware of the rectified orders dated 15‑8‑2002. However, the departmental representatives have requested the AR of the complainant to collect these orders from them at any convenient time from the office. It is also stated that these rectified orders have taken due care of the problems relating to various assessment years mentioned above and all grievances have been redeemed and redressed by these orders.

12. It is, therefore, recommended that:

(i) Suitable disciplinary action be taken against the Assessing Officer for his failure to give appeal effect to the orders of the appellate authority and for not having complied with the directions of the CIT (Appeal) in respect of addition under the head financial expenses. It may also be confirmed that the rectified orders for the assessment years 1993‑94, 1995‑96, 1996‑97, 1997‑98, 1998‑99 and 1999‑2000 have been duly served on the learned AR of the complainant.

(ii) Compliance report be sent to this office within 30 days of the receipt of this order.

C.M.A./586/FTOOrder accordingly.