Messrs GOODWILL INTERNATIONAL VS SECRETARY, REVENUE DIVISION, CENTRAL BOARD OF REVENUE, ISLAMABAD
2004 P T D 113
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs GOODWILL INTERNATIONAL
Versus
SECRETARY, REVENUE DIVISION, CENTRAL BOARD OF REVENUE, ISLAMABAD
Complaint NO.C-59-K of 2003, decided on /01/.
th
April, 2003. (a) Income Tax Ordinance (XLIX of 2001)---
----S.122---Income Tax Rules, 2002, R.68---Income Tax Ordinance (XXXI of 1979), S.62, 143-B & 80-C---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 1000), S.2(3)-- Amendment of assessment---Assessment was completed under S.62 of the Income Tax Ordinance, 1979 after due verification and. obtaining Inspector's report regarding manufacturing---Refund was created-- Application for issuance of refund---Show-cause notice for amendment of assessment under S.122 of the Income Tax Ordinance, 2001 which was replied 'in detail--Second show-cause notice on different ground that certain quantity of imported goods was sold in the market without any processing/value addition and the complainant/assessee should have filed statement under S.143-B of the Income Tax Ordinance, 1979 as the tax deducted at import stage was to be treated as full and final discharge of liability as provided in S.80-C of the Income Tax Ordinance, 1979-- Validity---Facts obtaining on record established the allegation that the roving and rambling enquiries started when the complainant/assessee pressed for issuance of determined refund--Refund was determined on completion of assessment under S.62 of the Income Tax Ordinance, 1979---Department started issuing notices under S.122 of the Income Tax Ordinance, 2001 for amending the original assessment which had resulted in the creation of refund after the complainant/assessee applied for issuance of refund---Taxation Officer could not establish the charges and did not pursue the proceedings initiated for amending the assessment order---Subsequently, power was delegated to Senior Additional Commissioner and he accordingly issued notice under S.122 of the Income Tax Ordinance, 2002 again raising absolutely different issues and discrepancies---Facts clearly established the element of maladministration ---Federal Tax Ombudsman recommended that the notice issued by the Additional Commissioner under S.122 of the Income Tax Ordinance, 2001 be withdrawn and the refund already determined be issued within 30 days.
(b) Income Tax Ordinance (XLIX of 2001)-----
----S.122---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---Amendment of assessment---Definite information---Section 122 of the Income Tax Ordinance, 2001 did not empower the Taxation Officer to amend the assessment order merely on the basis of change of opinion, conjecture and presumption-- Statutory condition of definite information regarding the incorrectness of the assessment must be fulfilled before initiating the proceedings.
Khawaja Manzoor Ahmed and M. D. Khan for the Complainant.
Agha Hidayatullah, Additional Commissioner Range III, Zone-C, Karachi for Respondent.
FINDINGS/DECISION
The complainant an unregistered firm derives income from business of Manufacturing/Processing Imports and Exports of Leathers and is an existing Income Tax Assessee on National Tax Number 11-05-0010721 of Circle 05 Zone-C, Karachi.
2. The complainant is aggrieved by non-issuance of determined refund of Rs. 22,40,897 and unjustified issuance of notice under section 122 of the Income Tax Ordinance, 2001. The facts of the case are briefly stated as under:--
3. The Income Tax Return for the year 2001-2002 was filed declaring income of Rs.2,93,000. The return was not accepted under the Self-Assessment Scheme due to non-submission of statements of account and other necessary prescribed details alongwith the return of income. The assessment was completed under section 62 on 7-6-2002 of the repealed Income Tax Ordinance 1979 after detailed examination of various statements, documents, the report of the Inspector after spot enquiries and income was assessed at Rs.17,09,128 creating refund of Rs.22,40,897.
4. The complainant applied for the refund of the aforesaid amount vide his letter dated 9-9-2002 addressed to concerned officers. The Taxation Officer Circle-C-5 Zone-C, Karachi instead of issuing refund, issued a show-cause notice under section 122 of the Income Tax Ordinance, 1979 vide his. No. TO/Circle-05/ZC/2002-2003 dated 12-11-2002 pointing out the following discrepancies to justify the amendment of the assessment originally made:--
(1)Non-submission of mandatory documents for claiming tax depreciation.
(2)Reasons for revision of the return of income for the assessment year 2001-2002 and low G.P. rate applied at 10% instead of 30% as applied in other parallel cases.
5. The complainant was also required to furnish certain other details in the light of aforesaid discrepancies.
6. The complainant's A.R.M.D. Law Associates submitted a detailed reply in response to the aforesaid show-cause notice vide letter No. Ref: MDLA/O1/11/2002-2003/104 dated 18-11-2002. The proceedings initiated under section 122 of the Income Tax Ordinance, 2001 were not pursued further as no response was made after the Authorized Representative of the complainant filed a detailed and comprehensive reply. There was reason to believe that the matter had been dropped by the Department. However, after a lapse of about two months a show-cause notice under section 122 of the Income Tax Ordinance, 2001 was again issued by the Additional Commissioner of Income Tax Range-III, Zone-C, Karachi vide his letter ADLA/CIT/R III/ZC/2002-2003 dated 6-1-2003. In this notice absolutely different grounds have been taken for amending the original assessment order for the year 2001-2002 under section 122 of the Income Tax Ordinance, 2001. The complainant's Authorized Representative again submitted a comprehensive reply alongwith all the necessary details vide his letter No. Ref: MDLA/035/01/2003 dated 14-1-2003.
7. The respondents have filed parawise comments raising therein preliminary, objection -of jurisdiction in terms of section 9(2)(b) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 as according to them remedies of appeal, review or revision are available to the complainant. It is also stated that during the year under consideration the complainant imported Wet Blue Skins and Dry' Skins amounting to Rs. 4,87,57,331 (including, taxes) and as per sales tax invoices the taxpayer sold certain quantity from the same goods for Rs.2,26,18,686 in the market without any value .addition and therefore, the complainant should have filed statement under section 143-B of the Income Tax Ordinance, 1979 (repealed) as the tax deducted at import stage was to be treated as full and final discharge of liability as provided in the section 80-C of the repealed Ordinance. It is further stated that the complainant's return declaring income of Rs.2,93,000 was erroneously finalized at an income of Rs.17,09,128 under section 62 of the Income Tax Ordinance creating a refund of Rs.22,40,897 on account of tax deducted-at import stage. It was in these circumstances that a show-cause notice under section 122 of the Income Tax Ordinance, 2001 has been issued by the Additional Commissioner seeking taxpayer's explanation as to why the assessment should not be amended.
8. It is reiterated that since the imported goods were not put to manufacturing process, these constituted commercial imports and their sales were covered by section 80-C of the Income Tax Ordinance, 1979. It is further stated that the first show-cause notice was issued by the Taxation Officer Circle C-05, due to the fact that powers under section 122 of the Income Tax Ordinance, 2001 at that point of time were vested with the Taxation Officer of the concerned circle as per CIT's notification dated 1-7-2002. It. is also conceded that the second show--cause notice under section 122 of the Income Tax Ordinance, 2001 read with rule 68 of the Income Tax Rule, 2001 has been issued by the Additional Commissioner as the powers of amendment of the assessment under section 122 of the Income Tax Ordinance, 2001 had been subsequently delegated to him by the Commissioner vide notification dated 2-12-2002.
9. It is however, reported that the complainant's plea that the imported goods were processed in the factory has not been supported by any evidence or account books. Instead of making the compliance of notice the complainant has filed the present complaint. The respondents have categorically denied the allegation of mala fide intention and have tried to justify the proceedings initiated under section 122. It is also reported that refund was created incorrectly without examining the facts in accordance with law.
10. The representatives of the complainant as well as of respondents noted above have been heard and the records produced by the D.R. have also been examined. The examination of record shows that the Additional Commissioner of Income Tax Range-III, Zone-C, Karachi issued second show-cause notice on 6-1-2003 pointing out therein two main discrepancies i.e. sale of imported goods without any processing/value addition and non-declaration of receipts against huge expenses claimed under the heads Chemicals, Powers, Gas and Labour. The complainant's Authorized Representative in reply vide his letter Ref: MDLA/035/01/2003 dated 14-1-2003 has controverted and reconciled the objection/ discrepancies by providing complete details of sales alongwith the sales invoices. He asserted in the aforesaid letter that all the sales were made after normal processing and charges therefor, are reflected in all the sales invoices. The A.R. of the complainant has furnished a summary of import and sales including processing charges relating to the assessment year 2001-2002. The manufacturing/processing expenses have been shown therein at Rs.21,34,142 under the heads Chemicals, Powers etc.
11. He has also pleaded that the sales were made only to about half a dozen parties and verification to ascertain the factual position could be made very easily before issuing the show-cause notice. Mr. M.D. Khan, Advocate representing the complainant further, stated that he had offered to provide certificates from the buyers to establish that the imported goods were sold after processing.
12. It is pertinent to point out that before making the original assessment, the Taxation Officer of Circle-05, got spot enquiries conducted through Income Tax Inspector and a copy of his report dated 5-5-2002 is available on record. The Inspector reported at the outset as under:--
"The assessee is engaged in processing and tanning of skins on Plot No.101 measuring 1125 sq. yds.".
He thereafter provided the details of machineries and equipments installed in the business premises. He however, reported that the whole process of tanning involves ten steps from Raw to Roating and in such cases G.P. rate of 28% to 30% is generally declared/applied. He further, reported that the complainant is involved in the processing from Raw to Wet blue and wet blue to crust which constitutes 1/3rd of the whole process and on the basis thereof he recommended the application of G.P. rate at 10%.
13. The complainant's Authorized Representative therefore, contended vehemently that even spot enquiries conducted by the Income Tax Inspector confirmed the element of processing and therefore, the stand taken by the Department that no addition was made to the imported goods is absolutely unfounded.
14. Mr. Manzoor Ahmed one of the partners of the firm has stated that it is a general practice in the market that imported goods are sold under the same name and description despite the fact that all such goods are processed in the factory before sale. He asserted that this fact could also be easily ascertained by the Additional Commissioner of Income Tax before issuing the show-cause notice. He has further, stated that some of the purchasers demanded additional processing of imported goods and paid extra charges therefor. The A.R. of the complainant has furnished the details of parties from whom sales proceeds and processing charges were received during the year under consideration. He has reiterated that no processing charges were received from any other parties except those to whom sales were made. Thus the allegation of suppressing the receipts of processing is absolutely misconceived and unfounded.
15. The A.R. of the complainant has also pleaded that the refund already determined by the Department has been unlawfully withheld as there is no provision in the Income Tax Ordinance, 2001 to deprive a tax payer of his due refund. The departmental representative has not been able to controvert this assertion by offering any plausible explanation.
16. Notwithstanding the arguments of the complainant's and respondent's Authorized Representative discussed above; the facts obtaining on record establish the allegation made by the complainant that the roving and rambling enquiries started when the complainant pressed for issuing the already determined refund. It is apparent from record that refund of Rs.22,40,897 was determined on 7-6-2002 on completion of relevant assessment under section 62 of the repealed Income Tax Ordinance, 1979. The respondents started issuing notices under section 12 of the Income Tax Ordinance., 2001 for amending the original assessment which had resulted in the creation of aforesaid amount of refund after the complainant applied for issuance of refund on 9-9-2002. However, the Taxation Officer of Circle-05, could not establish the charges and therefore, he did Rot pursue the proceedings initiated for amending the assessment order. Thereafter power was delegated to his senior i.e. Additional Commissioner and he accordingly issued notice under section 122 of the Income Tax Ordinance, 2001 again raising absolutely different issues and discrepancies as elaborately discussed in the preceding paras.
17. It is pertinent to point that section 122 of the Income Tax Ordinance, 2001, does not empower the Taxation Officer to amend the s assessment order merely on the basis of change of opinion, conjecture and presumption. The statutory condition of, definite information regarding the incorrectness, of the assessment must be fulfilled before initiating the proceedings under the said section.
18. The facts stated above clearly establish the element of maladministration as defined in subsection 3 of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. The objection taken by the respondents regarding jurisdiction in terms of section 9(2) is therefore, misconceived and the following recommendations are made:---
(1)The notice issued by the Additional Commissioner under section-122 of the Income Tax Ordinance, 2001 on 6-1-2003 be withdrawn and the refund already determined be issued within 30 days of the receipt of this order.
(2)The compliance be reported within a week thereafter.
C.M.A./872/FTOOrder accordingly.