2004 P T D 1164

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akthar, Federal Tax Ombudsman

NEW AL-QAMAR TRADER

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 829-L of 2003, decided 13th August, 2003.

Income Tax Ordinance (XXXI of 1979)---

----S. 59(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---C.B.R. Circular No.7 of 2002, dated 15-6-2002 para.9(a)(ii)---C.B.R. Circular No.7 (7)/S. -Asstt./2002, dated 17-12-2002---Assessment year 2002-2003---Opportunity of being heard---Case was selected for total audit on the ground that net profit rate declared was low as compared to last year and also as compared to other parallel cases- --Assessee contended that no opportunity of being heard was provided before selection of case for Total Audit-- Department pleaded that hearing was afforded by asking the complainant/assessee to file an objection, which was complied and if Regional Commissioner of Income Tax had not given an opportunity of being heard, the complainant/assessee could have made a specific request for the same---Validity---Concept of affording hearing was not that reply to objection was filed but a personal hearing was to be given so that the party may present its case before the concerned authority---Central Board of Revenue in its Circular, dated 17-12-2002 directed that "Regional Commissioner of Income Tax must confront the assessees to provide them due opportunity of being heard and must indicate the basis of their proposed selection in the notices to be communicated to them"-- Department admitted that no hearing was afforded and only opportunity to file objection was granted which was complied with---Most important point was that the principles of natural justice which ought to have been followed in the case were not satisfied and Regional Commissioner of Income Tax circumvented this provision by issuing an ambiguous notice---Notice was not in accordance with the direction of the Central Board of Revenue because only reply to notice was sought and it was necessary to fix a date of hearing---Not necessary for the complainant/ assessee to ask for a hearing ---Assessee must be afforded in normal course right of hearing and specially when Central Board of Revenue had issued a clear direction in, this regard---Principle of natural justice and the directive of Central Board of Revenue thus had been violated---Violation of principles of natural justice rendered the decision, action and proceedings taken in pursuance of such decision void, illegal and contrary to law and on this ground alone the selection could not stand the legal scrutiny, which amounted to maladministration --Federal Tax Ombudsman recommended that Central Board of Revenue/Regional Commissioner of Income Tax to withdraw order for selection of case for Total Audit, dated 28-3-2003 and accept the return for assessment year 2002-2003 under the Self Assessment Scheme.

2002 PTD 1918 and Complaint No. 1438 of 2002 ref.

Nadeem Ahmed, ITP for the Complainant.

Muzamal Hussain Butt, D-CIT for the Revenue.

FINDINGS/DECISION

Maladministration has been alleged in the instant complaint on the part of R-CIT Eastern Region Lahore for arbitrarily setting apart the Income Tax Return filed by the complainant under Self Assessment Scheme for the assessment year 2002-2003 for Total Audit.

2. The complainant is an AOP earning its income from rice husking and sale of rice. The complainant filed its Income Tax Return tinder Self Assessment Scheme declaring net income at Rs.124,606. Its case was not selected for Total Audit through computer ballot. However, subsequently a show-cause notice, dated 24-1-2003 was received from R-CIT Eastern Region Lahore indicating his intention to select this case for Total Audit on the ground that net profit rate declared by the complainant was low as compared to last year and also as compared to other parallel cases. The complainant furnished explanation on 7-2-2003 but the case was selected for Total Audit by the R-CIT vide his letter, dated 28-3-2003. This is cause of grievance.

3. In reply the respondent raised preliminary objection to jurisdiction that as the order setting apart is appealable alongwith assessment order the case falls outside the jurisdiction of Federal Tax Ombudsman. Allegations of maladministration have been denied. The R-CIT has submitted that in this case net profit rate was less than net profit rate declared for the earlier year. Last year the complainant declared net profit rate of 1.7 % but this year net profit rate has decreased to 1.38%. The R-CIT has submitted that net profit rate is also low as compared other parallel cases existing at NTN No.21-20-0450686 and NTN No.21-21-0451558 where net profit rate was declared at 3.27% and 3.92 % respectively. In the instant case net profit rate declared at 1.38%, disclosed an evident decline to income. The R-CIT has stated that selection of the case for Total Audit was according to the parameters laid down by the-C.B.R. by their letter, dated 17-12-2002 for selection of cases for Total Audit.

4. Mr. Nadeem Ahmad, ITP, for the complainant has explained that a comparison of the results declared for this year with the last year indicated that there was improvement in income and sales. The complainant has declared sales of Rs.9,000,568 and income at Rs.124,606 as compared to sales declared at Rs.622,282 and income at Rs.106,200 for last year. However, there was slight variation in net profit rate to the extent of 0.32%, which is normal variation in the business. The AR of the complainant has pleaded that percentage of net profit rate is criterion for second stage when assessment is completed in a case but this criterion cannot be made basis of selection of a case for Total Audit. Secondly a normal variation in net profit rate cannot also be made basis of selection of a case for Total Audit. The AR of the complainant has also pointed out the comparison made by the R-CIT with parallel case is not proper because case at N.T.N. 21-21-0451558 is not a parallel case because the complainant purchases paddy and gets it husked from others before sale of rice whereas in parallel case only purchase and sale of rice is done. He has submitted that selection of the case for Total Audit on the basis of net profit rate is not covered by the parameters laid down by the C.B.R. for selection of cases for Total Audit because there was no evident decline in income, no evidence, information or reason to believe that the income has been suppressed. There was no disparity in expenses on utilities, no acquisition of new assets or incurring of liability of.Rs.50,000 or more from non-institutional sources. At the time of hearing the AR of the Complainant has also contended that no opportunity of being heard was provided to the complainant before selection of this case for Total Audit.

5. Mr. Muzamal Hussain Butt D-CIT defended the selection of this case for Total Audit. He reiterated what has been stated that in the reply. As far as opportunity of being heard is concerned it has been submitted by the DR that if R-CIT had not given an opportunity of being heard to the complainant .it could have made a specific request to the R-CIT for the same. But this was not done by the complainant hence this objection is not valid.

6. The complaint and respondent's reply have been examined carefully and arguments of the two sides have been considered. The R-CIT has raised preliminary objection regarding jurisdiction as discussed in para. 2 supra. The issue of jurisdiction has been examined in detail in C. No. 1250 of 2001 decided on 27/12/2001.