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

‑‑‑‑Ss 122 & 170‑‑‑Income Tax Ordinance (XXXI of 1979), Ss. 96, 62/156‑‑‑C.B.R. Circular No.12 of 1991, dated 30‑6‑1991‑‑ Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3) & 10(4)‑‑‑Amendment of assessments ‑‑‑Refunds‑‑ Demand of‑‑‑Initiation of proceedings under S.122 of the Income Tax Ordinance, 2001 on the ground that income was not computed in accordance‑‑ with C.B.R. Circular No.12 of 1991, dated 30‑6‑1991 as expenses allowed at the time of finalizing the assessments under Ss.62/156 of the Income Tax Ordinance, 1979 were not allocated, proportionately‑‑‑Validity‑‑‑Cognizance of maladministration alleged against Taxation Officer and below had been taken by the Regional Commissioner of Income Tax‑‑‑Regional Commissioner of Income Tax had already directed the Commissioner of Income Tax to obtain explanation in the first instance of the Assessing Officer who framed erroneous assessments and created refunds not due to the assessee and, in the second instance, explanation of the Inspecting Additional Commissioner for keeping the action under S.122 of the Income Tax Ordinance, 2001 pending for a period of more than six months and to submit his recommendation after obtaining explanations of the two delinquent officers‑‑‑Federal 'fax Ombudsman recommended that (a) the Commissioner should ensure that unwarranted proceedings initiated under S.122 of the Income Tax Ordinance, 2001 were dropped and the errors apparent from record in the three assessment orders were rectified under S.221 of the Income Tax Ordinance, 2001 after giving complainant due opportunity of being heard (b) the Commissioner further ensure that vouchers already issued for undisputed amounts of refund do not bounce again and further refunds, if any determined to be due in consequence of orders to be passed under S.221 of the Income Tax Ordinance, 2001 were issued within 30 days (c) the Commissioner should submit his recommendations on the allegations of maladministra tion to the Regional Commissioner of Income‑tax within 30 days.

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

‑‑‑‑S.2(3)‑‑‑Maladministration‑‑‑Cheques dishonored twice on presentation proved the maladministration.

S.M. Rehan, F.C.A. for the Complainant.

Agha Hidayatullah, I.A.C. for Respondent.

DECISION/FINDINGS

Maladministration is alleged in the instant complaint on the part of IAC, Range‑II, Zone `C' Karachi for initiating proceeding under section 122 of the Income Tax Ordinance, 2001 (The Ordinance) to delay or deny the refund due to the complainant as under:‑‑

2. *The total amount of refund in assessment year 2001‑2002 was Rs.1,545,290 subsequently the department adjusted the amount of Rs.844,304 out of such refund towards the tax liability for the assessment year 2002‑2003. The net refund for the assessment year 2001‑2002, therefore, comes to Rs.700,986.

3. The complainant is being assessed to tax at NT No.11‑12‑0289085 by the Taxation Officer, Circle‑C‑12, Zone‑C, Karachi Assessments for the years 1999‑2000, 2000‑2001 and 2001‑2002 had been completed.

4. Notice issued under section 122 on 21‑12‑2002 was complied with on 28‑12‑2002 followed by letters, dated 28th January area 18th February, 2003. Application under section 170 of the Ordinance was moved on 3rd May, 2003 but all in vain. Complainant has prayed for recommendation to issue refund alongwith compensation for delay in issuing the refund.

5. Responding to the notice under section 10(4) of the Ordinance XXXV of 2000 the RCIT, Southern Region has submitted that while processing the refund application the IAC found that the assessments had not been correctly made insofar as the income was not computed in accordance with the C.B.R. Circular No. 12 of 1991, dated 30‑6‑1991. According to the said circular, where business consists of local purchases supplies covered by section 80‑C and other sales or income, the computation should be made‑ as under:‑‑

"(a) Supplies covered under section 80‑C be treated as separate block of income and taxed at the applicable rate. If full tax was deducted/paid, no further payment was required to be made. In the case of short deduction/collection and payment, by the payer, the balance was to be paid by the recipient alongwith the return.

(b) Income not covered by section 80‑C was assessable in the normal manner.

(c) Expenses debitable to the manufacturing/trading and P&L account were admissible only against income not covered by 80‑C in the same ratio as sales not covered by 80‑C bear to the total sales".

6. Thus the expenses allowed at the time of finalizing the assessments under section 62/156, were not allocated, proportionately, as envisaged at (c) above. The RCIT submitted that the Commissioner concerned has prepared summary of refunds admissible to the assessee as under:‑‑

7. Since, the computation of income as, per original/revised assessments was not in accordance with law, the assessment orders according to the Commissioner, warranted amendment under section 122 of the Ordinance for which the proceedings were yet to be finalized. The RCIT has directed the Commissioner concerned to get all the proceedings finalized within one week and to ensure issuance of refund due to the assessee.

8. He has further been directed to obtain explanation in the first instance of the Assessing Officer who framed erroneous assessments and created refunds not due to the assessee and, in the second instance, explanation of the IAC concerned for keeping the action under, section 122 pending for a period of more than six months. The RCIT has assured that appropriate action in the light of their explanations and recommendation of the Commissioner shall be taken. Meanwhile the department has issued two refund vouchers of Rs.358,519 and Rs.216,429 for the assessment years 1999‑2000 and 2000‑2001 respectively. However, the cheques have been dishonoured twice on presentation which proves the malpractice.

9. The Authorised Representative of the complainant has submitted during the personal hearing that no order under section 122 of the Ordinance has been passed. Further the notices under section 122 of Income Tax Ordinance, 2001 for the assessment years 1999‑2000 and 2000‑2001 are not in respect of pro rating of expenses. Notice under section 122 to pro rate the expenses only for the assessment year 2001‑2002 has been issued and it is explained vide letter, dated 27‑1‑2002 that this will result in increase of refund by Rs.110,417.

10. The advance tax liability is not yet due but shown as adjusted without complainant's consent. This tax has been adjusted against refund due for assessment year 1999‑2000 in order to avoid compensation under section 102 of the income Tax Ordinance, 1979 as the refund of assessment year 1999‑2000 is eligible for more compensation. The adjustment is allegedly mala fide. The advance liability under section 147 of the Income Tax Ordinance 2000 will be discharged on due dates.

11. Cognizance of maladministration alleged against Taxation Officer's in BS‑19 and below has been taken by the RCIT. He has already issued directions to the Commissioner concerned to submit his recommendations after obtaining explanations of the two delinquent officers.

12. It is recommended that

(a) The Commissioner ensures that unwarranted proceedings' initiated under section 122 are dropped and the errors apparent from record in the three assessment orders are rectified correctly under section 221 after giving the complainant due opportunity of being heard.

(b) The Commissioner further ensures that vouchers already issued for undisputed amounts of refund do not bounce again and further refunds, if any determined to be due to consequence of orders to be passed under section 221 of the Ordinance are issued within 30 days.

(c) The Commissioner submits his recommendations on the allegations of maladministration to the RCIT within 30 days and

(d) Compliance is reported within 45 days.

C.M.A./8/FTO Order accordingly.