(a) Income Tax Ordinance (XLIX of 2001)---

----S. 122---Income Tax Ordinance (XXXI of 1979), S.62---Survey for Documentation of National Economy Ordinance (XV of 2000), S. 3(1) & First Schedule---Establishment. of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---Survey of business--Signature on survey Form by the real brother of the assessee---Amendment of assessment in respect of sales on the basis of such Survey Form-- Validity---Brother was not' an assessee nor there was any evidence that he was authorized to affix his signature as an assessee or on behalf of the assessee---Department's argument was based on presumption that as he had been receiving notices he must be treated to have the authority to sign the Form---In the absence of proof of such authority and clear denial by the assessee, the Survey Form relied upon by the department had no legal validity and not binding on the assessee and it could not be pressed in service against the assessee.

Complaint No.675 of 2001 rel.

Complaint No. 582 of 2001 distinguished

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss. 122 & 239---Income Tax Ordinance (XXXI of 1979); S. 62---Survey for Documentation of National Economy Ordinance (XV of 2000), S.3(1) & First Schedule---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---C.B.R. Circular No.1/69/STS/2000 dated 8-12-2000---Finance Act (I of 2003), preamble---Amendment of assessment---Change of opinion---Assessment was finalized under S.62 of the Income Tax Ordinance, 1979-- Amendment of such assessment on the basis of Survey Form ---Validity-- Under S.122(5)(a) of the Income Tax Ordinance, 2001 an assessment could be amended where the Commissioner was of the view that Income Tax Ordinance, 2001 had incorrectly been applied in making the assessment---Assessment was not made under Income Tax Ordinance, 2001 but under the Income Tax Ordinance, 1979---Commissioner could not invoke the said provision---Only provision left was S. 122(5)(b) of the Income Tax Ordinance, 2001---For applying the said provision there should be "definite information" acquired from an audit or otherwise-- No audit report existed---Department had relied upon the Survey Form---Such act being not valid could not constitute valid "definite information" ---Survey Form though was available but the Assessing Officer while making assessment did not consider the same as .relevant-- Survey Form could not be treated as "definite information" but would fall in the category of "change of opinion" by the Commissioner and on the basis of "change of opinion" assessment could not be amended-- Notice issued and proceedings initiated by the Commissioner under S.122 of the Income Tax Ordinance, 2001 were contrary to law-- Maladministration having been established, Federal Tax Ombudsman recommended that the notice under S.122 and all proceedings taken in pursuance thereof be cancelled/withdrawn.

Saghir Tirmizi and- Hasan Askari for the Complainant

Muhammad Azhar, ACIT for Respondents.

FINDINGS/DECISION

The complainant an individual derives income from manufacturing of cloth on power looms and is an existing income tax assessee of Circle-24, Faisalabad, on National Tax, No. 3-24-0084129. The facts of the case are briefly stated as under:--

2. The complainant is aggrieved by issuance of show-cause notice under section 122 of the Income Tax Ordinance, 2001 relating to the assessment year 2001-2002 from Inspecting 'Additional Commissioner of Income Tax/Wealth Tax Range-III, Faisalabad.

3. The complainant filed, return of income for the assessment year 2001-2002 on 1-10-2001 under the Self-Assessment Scheme declaring income of Rs.1,90,000. The return was selected for total audit through computer random balloting and the assessment was completed under section 62 of the repealed Income Tax Ordinance, 1979 on net income of Rs.2,14,000 vide assessment order, dated 14-9-2002.

4. The show-cause notice bearing No. 930, dated 17-4-2003 under section 122 of the Income Tax Ordinance, 2001 for the assessment year 2001-2002 has been issued by the Inspecting Additional Commissioner, Range-III, Faisalabad'. He has expressed his intention to amend the original assessment made under section 62 of the repealed Ordinance, 1979 on the ground that the Survey Team had estimated the complainant's sales at Rs.37.50,000 as against Rs.12.00,000 declared in the return of Income for the year under consideration. Since the complainant did not file any objection to the sales estimated by the Survey Team within the reasonable time, it indicated that he had accepted the estimate made by the Survey Team: It is alleged that the aforesaid observations are absolutely wrong and incorrect as the complainant never admitted or agreed to any such estimate. As a matter of fact he was never called upon to admit, agree or to sign the Survey Form as alleged in the aforesaid show-cause notice.

5. It is further stated that he was not provided the report of the Survey Team and obtained a certified copy thereof after submitting an application- in this behalf. It is stated that a cursory glance at the photocopy of the report made it clear that the Survey Form was got signed by a person other than the complainant. It was signed by the brother of the complainant who was neither associated with the business of the complainant in any manner whatsoever nor had been authorized to act on his behalf as his agent or attorney. In such circumstances it could not be concluded that the complainant had accepted the figure recorded by the survey team and therefore, the information could not be utilized against him.

6. It is also alleged that the survey report was prepared under the Documentation of National Economy Ordinance, 2000 which was not relevant in any proceedings under the Income Tax Ordinance, 2001. There was no such provision in the Income Tax Ordinance, 2001 as was provided in the repealed Income Tax Ordinance, 1979 under section 61A authorizing the utilization of information collected under the Documentation of National Economy Ordinance, 2000: It is therefore alleged that the show-cause notice was void ab initio and was not applicable to the assessment year 2001-2002. It is further alleged that the issuance of notice under section 122 by the Inspecting Additional Commissioner of Income . Tax amounts to maladministration. The complainant has placed reliance in this regard on the decision of the Federal Tax Ombudsman in Complaint No. 675 of 2001, dated 18-8-2001. It has therefore, been prayed that notice issued under section 122 be declared null and-void and the concerned Revenue authorities be directed to' file the proceedings, initiated against the complainant.

7. It is pleaded in the parawise comments filed by the respondents that the sales/receipts declared in the return were understated and therefore, notice under section 122 of the Income Tax Ordinance, 2001 was rightly issued intending the amendment of the relevant assessment order made under, section 62 of the Income Tax Ordinance; 1979. The plea of the complainant that no agreement was made with the Survey Team was an afterthought as he was at liberty to challenge the estimate at proper time but he opted not to do so.

8. It is further stated that the Survey Form was signed by the real brother of the complainant who could not be considered an irrelevant person. He had been receiving statutory notices on behalf of the complainant as revealed by his signature on notice under section 61, dated 12-4-2002. Moreover the said person signed Survey Form in the relevant column provided for the signature of the assessee. Furthermore, the presence of the brother of the complainant in the business premises at the time of visit of survey team showed that the contention of the complainant was not correct. It is pleader that the complainant tried to twist the facts in his favour based on technicalities.

9. It is further, stated that the Survey Form signed by the complainant and his real brother could be used as evidence to amend the assessment order framed under the Self-Assessment Scheme on account of understatement of receipts. It is also pleaded that as per the provision of section 239 of the Income Tax Ordinance, 2001 proceedings for assessment years ending up to 30-6-2002 could be initiated and finalized as if Income Tax Ordinance, 2001 had not come into force.

10. It is reiterated that issuance of notice under section 122 of the Income Tax Ordinance, 2001 for the assessment year 2001-2002 was in accordance with law and fully justified: It is further stated that the facts of the case relied upon by the complainant are distinguishable as in the said case the complainant filed complaint before the Honourable Federal Tax Ombudsman against the estimate of sales by survey team whereas in the case under consideration the complainant did not contest the estimate of sales made by the survey team within reasonable time. It is pleaded that since no maladministration is involved the complaint may be rejected.

11. The case has been discussed with the above-cited representatives of the complainant and the department. The record of the case produced by the departmental representative have also been examined. The A.R. of the complainant argued that issuance of notice under section 122 of the Income Tax Ordinance; 2001 was absolutely unjustified and illegal as he had never agreed to the estimate of sales made by the survey team and even on Survey Form his signatures were not obtained regarding the alleged agreement. The survey report was signed by his brother Mr. Khalid who had nothing to do with his business. In support of his argument he referred to the decision of the Federal Tax Ombudsman in Complainant No. 675 of 2001 whereby it was held that the Survey Form not signed by the assessee or signed by a person not authorized to sign it, is not valid and binding on the assessee.

12. The departmental representative reiterated the pleas taken in the parawise comments and stated that his brother Mr. Khalid had been receiving statutory notices on his behalf and the same person had also signed the 'relevant column provided for the signature of the assessee. The presence of the brother of the complainant in the business premises at the time of visit of the Survey Team established the fact that he was assisting his brother the "complainant". The complainant's A.R. pleaded that he could not make a representation against the estimate of sales made by the survey team as he did not receive survey report from the department. The report was subsequently obtained after making a specific request in writing on 30-4-2003.

13. The departmental representative produced a copy of C.B.R.'s Circular No-1/69/STS/2000, dated 8-12-2000 which provided for detailed stock taking in-cases where the taxpayer did not agree with the estimates made by the Survey Team. The relevant para. 6 of the said Circular is reproduced as under:--

"In cases where the findings of the survey team are not agreed by the surveyees, detailed stock taking and turnover determination shall be undertaken by the back-up teams."

14. The departmental representative also cited the decision of the Federal Tax Ombudsman in Complaint No.582 of 2001 which also provides the same procedure in cases where any party objected to the correctness of the entries made by the Survey Team. He pleaded that since the complainant had not objected to the estimates made by the Survey Team, the department was justified to conclude that he had agreed with the agreement as laid down by the Federal Tax Ombudsman in the decision referred above.

15. The argument of the complainant's A.R. that in the absence of complainant's signature, it could not be held that he had agreed with the estimate of sales made by the survey team or it is binding on him appears to be well-founded. This is also supported by the decision from this forum in Complaint No.675 of 2001 (2003 PTD 950). It is an admitted position that the brother (Khalid) is not an assessee, nor there is any evidence that he was authorized to affix his signature as an assessee or on behalf of the complainant. The department's argument is based on presumption that as he had been receiving notices he must be treated to have the authority to sign the form. In the absence of proof of such authority and clear denial by the complainant, the survey form relied upon by the department has no legal validity and not binding on the complainant. Therefore, it cannot be pressed in service against the complainant.

16. It is pertinent to point out that respondent's observations in para. `6' of the parawise comments are not correct. The examination of records shows that the assessment in the case of the complainant for the assessment year 2001-2002 was not completed under the Self-Assessment Scheme. The assessment was framed under section 62 of the income Tax Ordinance, 1979 as tae return was selected for total audit through computer balloting. The sales were estimated at Rs.12,80,000 against declared sales of Rs.12,00,000 which shows that survey report was available but the Assessing Officer while completing the assessment under total audit did not consider it relevant and no reliance was placed on it.

17. The question arises whether notice under section 122, dated 17-4-2003 is valid. It will be appropriate to reproduce the relevant provision of law as it stood on the date notice was issued.

"122. Amendment of assessments.--(1) Subject to this section, the Commissioner may amend an assessment order as issued under section 120 or issued under section 121 (or issued under section 59, 59A, 62, 63 or 65 of the repealed Ordinance) by making such alterations or additions as the Commissioner considers necessary to ensure that the taxpayer is liable for the correct amount of tax for the tax year to which the assessment order relates.

(2) -

(3)

(4) -

(5)An assessment order shall only be amended under subsection (1) and an amended assessment shall only be amended under subsection (4) where the Commissioner-

(a) is of the view that this Ordinance has been incorrectly applied in making the assessment (including the misclassification of an amount under a head of income (incorrect payment of tax with the return of income, an incorrect claim for tax relief or rebate), an incorrect claim for exemption of any amount or an incorrect claim for a refund); or

(b) has definite information acquired from an audit or otherwise that the assessment is incorrect"

18. It can be observed that under subsection (5)(a) of section 122 an assessment order can be amended where the Commissioner is of the views that Income Tax Ordinance, 2001 has incorrectly been applied in making the assessment. In the complainant's case assessment was not made under this Ordinance (Ordinance 2001) but under the Income Tax Ordinance 1979. Therefore, the Commissioner could not invoke this provision. The only provision left was subsection 5(b). For pressing this provision there should be definite information acquired from an audit or otherwise. There is no audit report. The department has relied upon the Survey Form. It being not valid cannot constitute valid definite information. Furthermore in view of judicial pronouncements as the Survey `Form was available but the Assessing Officer while making assessment did not consider it relevant it cannot be treated as definite information but will fall in the category of change of opinion by that Commissioner. Therefore, on the basis of such change of opinion assessment cannot be amended. These observations find support from the amendment made by Finance Act, 2003. The notice issued and proceeding initiated by the Commissioner under section 122 of the Income Tax Ordinance, 2003 are contrary to law. Maladministration is established.

19. It is recommended that:--

(i)The notice under section 122, dated 17-4-2003 and all proceedings taken in pursuance thereof be cancelled/withdrawn.

(ii)Compliance be reported within 30 days.

C.M.A./1053/FTOOrder accordingly.