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

‑‑‑S. 146‑‑-Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Power to enter and search business premises‑‑‑Enquiry by Inspector‑‑‑Enquiry was entrusted to the Inspector without authorizing him under S.146 of the Income Tax Ordinance, 1979‑‑‑In the absence of such authority the Income Tax Inspector could not enter the business premises of the assessee for making enquiries.

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

‑‑‑‑S. 146‑‑Establishment of Officer of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Power to enter and search business premises‑‑‑Enquiries made without following the provisions of S.146 of the Income Tax Ordinance, 1979 clearly fell under the definition of maladministration.  

(c) Income‑tax‑‑‑

‑‑‑‑Evidence‑‑‑Photograph of a room in which some persons were taking meals could not be taken as evidence to establish restaurant business.

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

‑‑‑‑S. 59(3)‑‑‑C.B.R. Circular No. 7 of 2002, dated 15‑6‑2002, para. 7(iv) (Self Assessment Scheme)‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Claim of capital nature expenses in the statement of receipts and expenditure i.e. purchase of computer, furniture and Neon signboard‑‑‑Return of income was excluded from Self‑Assessment Scheme being concealment of income‑‑‑Validity‑-‑Since department has not been able to establish concealment/suppression, of income, the inadmissible expenses of capital nature could be disallowed under S.59(3) of the Income Tax Ordinance, 1979‑‑‑Maladministration committed by the functionaries of income‑tax department was established‑‑‑Federal Tax Ombudsman recommended that Central Board of Revenue to direct the concerned Taxation Officer to accept the return of income of the Complainant for the assessment year 2002‑2003 under the Self‑Assessment Scheme after making adjustment of inadmissible expenses under the relevant provisions of Income Tax Ordinance, 1979.

Faiq Razvi for the Complainant.

Messrs Rajabuddin, IAC and Muhammad Aslam, ACIT for Respondent.

FINDING/DECISION

Mr. Amjad Ali Khan, Proprietor of Messrs Madni Pakwan Centre, is an existing Income Tax Assessee of Circle‑18, Zone‑A, Karachi, on National Tax Number 9‑18‑0268964.

2. The complainant has alleged that Mr. Muhammad Aslam, Income Tax Officer Circle‑A‑18, has arbitrarily excluded his return of income for the assessment year 2002‑2003 from the purview of Self‑Assessment Scheme in terms of para. 7(vi) of Circular No.7 of 2002, dated, 15‑6‑2002. The facts of the case are briefly stated as under:‑‑

3. The assessments for the years 2000‑2001, 2001‑2002 were completed under section 62 of the repealed Income Tax Ordinance, 1979 as under:‑‑

4. The complainant filed return for the assessment year 2002‑2003 on 23‑9‑2002 declaring income of Rs.4,38,800 under the Self- Assessment Scheme. The return was not accompanied by statement of account or computation chart. The Assessing Officer therefore, issued requisition letter for the aforesaid statements on 1‑1‑2003 which was served on the complainant on 17‑1‑2003 and compliance was made on 20‑1‑2003. The taxation officer, Circle‑18 vide his letter, dated 28‑2‑2003 informed the complainant that his return did not qualify for acceptance under the Self‑Assessment Scheme in terms of para. 7(vi) of C.B.R. Circular No.7, dated 15‑6‑2002 as there was evidence of concealment of income. Notice under section 61 of the repealed Income Tax Ordinance was also issued alongwith the aforesaid letter.

5. It is stated by the complainant that he has been deriving income from cooking charges which is absolutely different from the catering business. This tact was accepted by the Assessing Officer while completing the assessment for earlier years. It is alleged that the inference drawn by the Income Tax Officer that the complainant is also doing business of supplying food items to weddings and parties on booking basis is based on mere conjectures. He has also alleged that the concerned Assessing Officer Mr. Muhammad Aslam is biased and unjust from the very beginning and has conducted the proceedings in a hasty manner, without following the rules and regulations. He has referred to notices issued under section 61 of the repealed Ordinance dated 28‑2‑2003, 7‑3‑2003 and 17‑2-2003 to substantiate his allegation.

6. It is further alleged that the complainant applied for certified copy of the Order Sheet on 21‑3‑2003 and deposited the proscribed fee but the copy has not been issued. His authorized representative visited the office of the Assessing Officer twice but failed to obtain the copy of the order sheet. It is further, stated that when the ITO was reminded on 9‑5‑2003 he informed that the copy may be collected from his office.

7. The complainant has categorically denied the business of food supply on wedding parties. As regards the expenses incurred on the purchase of computer, furniture and Neon signboard, it is stated that the same could be added back under section 59(3) of the repealed Income Tax Ordinance.

8. It is also alleged that the complainant made representation to the Chairman, C.B.R. and endorsed copies thereof to Member Direct Tax and other senior officers on 21‑3‑2003 but no response has been received from them so far. It is prayed that directions may be issued to the Assessing Officer to accept his return of income for the year 2002‑2003 under Self‑Assessment Scheme.

9. The respondents have filed parawise comments raising therein the preliminary objection regarding jurisdiction in terms of subsection 2 of section 9 of Federal Tax Ombudsman Ordinance 2000. It is stated that the Assessing Officer having gathered material evidence through local enquiry and report of the Income Tax Inspector, was convinced that the complainant was engaged in the business of Catering and running a Restaurant and receipts therefrom were found to have been suppressed. The ACIT got hold of an estimate of receipt on the letter head of the assessee and also obtained photographs of the business. The return was therefore, excluded from the purview of the Self‑Assessment Scheme and proceedings under the normal law were initiated. It is further stated that on the basis of enquiries and evidence, the taxation officer was justified to conclude that the complainant was deriving income from running a Restaurant and Catering business. Since the element of concealment was established the return of the complainant did not qualify for acceptance under the Self‑Assessment Scheme as provided in the C.B.R. Circular No.7 of 2002. It is also pleaded that notices have been issued to the complainant strictly in accordance with the provisions of law and reasonable time has been provided to the complainant for compliance of the statutory notices. It has been conceded that certified copy of the order sheet was not issued to the applicant on his application. He was however, asked to collect the same from the office of the ITO. It is further, pleaded that the complainant was confronted that he had wrongly claimed the following expenses of capital nature in the receipt and expenditure statement:‑‑

10. It is argued that the complainant's contention that the aforesaid expenses could be adjusted under section 59(3) of the repealed Income Tax Ordinance, 1979 was not correct as the return of the complainant did not qualify for acceptance under Self‑Assessment Scheme. The respondents have also stated that the complainant claimed legal/advocate of Rs.1,67,000 in the receipt and expenditure account. He in his complaint, dated 21‑3‑2003 addressed to the Chairman, C.B.R. stated that he had made payments to various lawyers/consultants for their services obtained in connection with property issues, matter of sales tax, income‑tax, professional tax Social Security, EOBI laws etc. It is pleaded that the complainant is not registered with the Sales Tax Department. Social Security, EOBI, Excise and Taxation nor he owned immovable properties as the same has not been declared in the wealth statement. It is pleaded that the aforesaid expenses were claimed by the complainant simply to suppress/reduce actual income. It is reiterated that the Assessing Officer was full justified to exclude the return of the complainant from the purview of the Self‑Assessment Scheme.

11. The Authorised Representative of the complainant argued that no evidence on record to establish that the complainant was running a restaurant. He further argued that in the letter, dated 28‑2‑2003 it was alleged by the department that the complainant was also supplying food items on weddings and other parties on booking basis but the allegation was without any corroborative evidence. No reference was made to any enquiry conducted by the Circle Inspector in this behalf. If any enquiry had been made by the Income Tax Inspector‑copy of his report should have been supplied to the complainant alongwith the aforesaid letter dated 28‑2‑‑2003.

12. The departmental representative" tried to justify the exclusion of the return of the complainant from Self‑Assessment Scheme and reiterated the pleas/arguments of respondents stated in the parawise comments.

13. The assessment records produce by the departmental representative have been examined. The relevant order sheet shows that the Inspector of the Circle was directed by the Assessing Officer on 22‑2‑2003 to conduct enquiry regarding business activities of the complainant and submit that enquiry report. The Inspector made enquiries and submitted his report on 26‑2‑2003 alongwith photograph of the shops and certain other documents. It has however, been noted that the enquiry was entrusted to the Inspector without authorizing him under section 146 of the repealed Income Tax Ordinance 1979. In the absence of the said authority the Income Tax Inspector could not enter the business premises of the assessee for making enquiries. The departmental representative has also conceded that the requisite permission under section 146 was not accorded to the Inspector. He however, argued that in the absence of the said permission, the Inspector gathered information through local enquiries without entering the business premises for inspecting the accounts or obtaining the copies of documents etc. The photographs of the business premises were also taken from outside which were submitted alongwith the enquiry report.

14. The observations of the learned Departmental Representative have not been found correct as the same have been contradicted in the enquiry report of the ITI. This is evident from the first paragraph of the report which is reproduced hereunder:‑‑

"As per directions I visited the business premises of the above named assessee which revealed that the assessee is engaged in the business of cooking, catering and also running a restaurant in the same premises. At the time of visit, there were cooking Biryani, Qurma, Zarda and Kheer in the huge quantity which were ordered by someone. I contacted a person at the place of cooking. He reported that they used to supply the food on every kind of occasions such as Shadi, Biyah and others parties as and when order placed by the parties. In this connection, two quotations were obtained from Pakistan Centre which are enclosed herewith."

15. The examination of records also confirms the contention of the representative of the complainant that the Inspector's enquiry was never confronted to the complainant. The Departmental Representative has not been able to offer any plausible explanation as to were made without following the relevant provisions of Income Tax Ordinance referred above. It clearly falls under the definition of maladministration as provided in subsection 3 of section 2 of the F.T.O., Ordinance, 2000.

16. The perusal of documents available on record also shows that plea taken by the respondents that the Assessing Officer got hold of an estimate of receipt/quotation on the letterhead of the assessee is not correct. The photo copy of the said receipt/quotation produced by the D.R. shows that on plain papers rates and prices of various items of food were recorded without bearing any cash memo/bill number or any name and address of the shop and the business card of the' complaint has been affixed thereon. This factual position has also been conceded by the D.B. The said documents cannot be considered as bills issued by the complainant. The department has not been able to furnish any evidence to substantiate its findings that the complainant has been doing catering business. Similarly the reliance on inspector's report that the complainant is running a restaurant and the income therefrom has not been disclosed is not corroborated by any evidence. The Departmental Representative has expressed his inability to tell the name and address of the owner of the premises in which the alleged business of restaurant is being carried on by the complainant. He has however, produced a photograph of a room in which some persons are taking meals. This of course cannot be taken as evidence to establish restaurant business by the complainant.

17. The department has also failed to controvert the allegation made by the complainant that his representations, dated 21‑3‑2003 addressed to the Chairman, Central Board of Revenue, Islamabad and all the concerned senior officers of the department have remained un-responded so far. The department has also not been able to offer any plausible explanation for non‑issuance of certified copies of the order sheet by the Assessing Officer when the complainant made a request in writing in this behalf on 21‑3‑2002. He had also deposited prescribed fee for issuance of copies.

18. As regards the claim of expenses of capital nature by the complainant in the statement of receipts and expenditure under the heads purchased of computer, furniture and Neon signboard amounting to Rs.1,82,700 and legal expenses at Rs.1,67,000, the explanation offered by the complainant that the said expenses could be adjusted under section 59(3) of the repealed Ordinance carries weight. Since the department has not been able to establish concealment/suppression of income by the complainant as discussed above, the inadmissible expenses of capital nature can be disallowed under the aforesaid provisions of the repealed Ordinance.

19. The facts stated above clearly establish maladministration committed by the functionaries of the income‑tax department. The respondent's preliminary objection of jurisdiction in terms of section 9(2) of the Federal Tax Ombudsman Ordinance, 2000 is misconceived and misplaced. It has been repeatedly held in a number of complaints that where maladministration is established the Federal Tax Ombudsman has jurisdiction to investigate the allegation of the complaint. This issue has been elaborately discussed in the complaint No. 1438 of 2002.

19‑A. In view of the above it is recommended as under:‑‑

(i) The C.B.R. to direct the concerned taxation officer to accept the return of income of the complainant for the assessment year 2002‑2003 under the Self‑Assessment Scheme after making adjustment of inadmissible expenses under, the relevant provisions of the Income Tax Ordinance.

(ii) The compliance be made within 30 days of receipt of this order and reported within a week thereafter.

C.M.A./1002/FTOOrder accordingly.