MIAN TOYS FAROSH, SARGODHA VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2004 P T D 1788
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
MIAN TOYS FAROSH, SARGODHA
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 588 of 2003, decided on /01/.
th
July, 2003. Income Tax Ordinance (XXXI of 1979)‑‑‑--
‑‑‑‑S. 156‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)‑‑‑Rectification of mistakes‑‑‑Less amount of gross profit was deducted from the estimated gross profit than the actual declared gross profit‑‑‑Application for rectification of‑‑ Assessment was rectified by enhancing sales to arrive at net income as earlier assessed‑‑‑Validity‑Order under S.156 of the Income Tax Ordinance, 1979 was based on complete lack of understanding of the scope of S.156 of the Income Tax Ordinance, 1979‑‑‑Assessing Officer could not enhance the estimate of sales in the rectification order as he had to operate within the framework of the original assessment order‑‑ Sales had been estimated at Rs.700,000 and after working out gross profit @ 15% amounting to Rs.105,000 the incorrect figure of gross profit amounting to Rs.52,500 was deducted to arrive at the trading account addition instead of deducting the actual declared gross profit of Rs.97,500‑‑‑Rectification order was required to re‑compute the trading account addition to the income after deducting Rs.97,500 from the assessed gross profit of Rs.105,000 and it was not for the Assessing Officer to replace any estimate of sales for the already assessed sales‑‑ Rectification order as passed was the result of maladministration ‑‑ Return was also qualified under Self‑Assessment Scheme and had been wrongly excluded from. Self‑Assessment Scheme‑‑‑Federal Tax Ombudsman recommended that the rectification order for the assessment year 2001‑2002, dated 1‑1‑2003 be again rectified in the light of the observation in para. 6 above; that a letter of warning be issued to the Assessing Officer who passed the order under S.156 of the Income Tax Ordinance, 1979 telling him to refrain from such illegal action in future; that the complainant's return for the year 2002‑2003 be considered as qualifying for Self‑Assessment Scheme as far as the comparison with the last tax payable is concerned‑‑‑Return may thus be accepted under Self‑Assessment Scheme if other requirements of the scheme were met.
Nasir Nawaz Mufti, ITP, AR for the Complainant.
Gul Rehman, Taxation Officer for Respondent.
FINDINGS/DECISION
This is a complaint relating to a statedly erroneous order passed under section 156 of the repealed Income Tax Ordinance, 1979 for the assessment year 2001‑2002 and also against the non‑acceptance of the complainant's return for the year 2002‑2003 under the Self‑Assessment Scheme. The main points in the complaint are as follows:‑‑
(i)The complainant's income for the year 2001‑2002 was assessed at Rs.100,000 against estimated sales of Rs.700,000 (and GP a 15 % amounting to Rs.105,000).
(ii)While working out addition on the basis of assessed gross profit the Assessing Officer deducted the wrong amount of so‑called gross profit amounting Rs.52,500 from .the estimated gross profit instead of the actual declared GP of Rs.97,500.
(iii)An application for rectification under section 156 was, therefore, filed with the Assessing Officer but instead of making the required rectification he passed an order under section 156 in which the sales were enhanced to Rs.1,000,000 to arrive at the earlier assessed income of Rs.100,000 which is totally invalid.
(iv)The complainant's return for the assessment year 2002‑2003 filed at income of Rs.73,200 also qualified for self‑assessment scheme if the correct income assessed for the year 2001‑2002 was considered but since the income of Rs.100,000 has been adopted on the basis of an erronepus order under section 156 the said return has been wrongly excluded from the self‑assessment scheme.
It has been prayed that the orders of the Assessing Officer for the two years be vacated.
2. In the respondent's reply the rectification order under section 156 passed by the Assessing Officer for the year 2001‑2002 has just been reproduced without any comments and it has been stated that on the basis of the income and tax assessed for the year 2001‑2002 the return for the year 2002‑2003 has been rightly excluded from the self assessment scheme.
3. The matter has been examined during the hearing and it is seen that for the assessment year 2001‑2002 the complainant declared income of Rs.45,000 on the following basis‑‑‑
Sales=Rs.650,000
Gross profit @ 15%=Rs. 97,500
Expenses=Rs.52,500
Net Income=Rs. 45,000
While framing the assessment the Assessing Officer assessed the complainant's income at Rs.100,000 in the following manner‑‑‑
Gross sales estimated=Rs.700,000
Gross profit @ 15%=Rs.105,000
Less GP declared=Rs.52,500
Balance income=Rs.52,500
Add net income declared=Rs.45,000
Income for addition=Rs.97,500
Add backs out of P&L=Rs. 2,500
Account
Net income=Rs.100,000
4. In his application under section 156 filed on 12‑9‑2002 the complainant pointed out that in computing the complainant's income the declared gross profit of Rs.97,500 should have been deducted from the assessed gross profit (Rs.105,000) instead of the amount of Rs.52,500 actually deducted. It was thus requested that the mistake be rectified.
5. In his rectification order, dated 1‑1‑2003 the Taxation Officer, Circle 02, Sargodba observed as follows:‑‑
"The perusal of assessment record reveals that the order was passed for Rs.100,000 and the assessment form IT‑30A was also prepared for complainant's income of Rs.100,000. The demand notice was also issued for the balance amount of tax calculated at Rs.100,000. It appears that both the figures i.e. gross sales, GP and GP declared has inadvertently been taken as under‑‑‑
SalesRs.700,000
GPRs.105,000
Less GP declaredRs.52,500
Balance IncomeRs.52,500
The same might be as under:‑‑
Sales estimated Rs.100,000
GP @ 15 %Rs.150,000
Less GP declaredRs.97,500
Balance incomeRs.52,500
In my opinion the income has rightly been assessed at Rs.100,000 which is apparent from record.
In view of above, rectification application filed by the assessee is hereby rejected."
6. A bare perusal of the above portion of the order under section 156 shows that it is based on a complete lack of understanding of the scope of section 156. Obviously the Assessing Officer could not enhance the estimate of sales in the rectification order as he had to operate within the framework of the original assessment order. In this order the sales had been estimated at Rs.700,000 and after working out the gross profit @ 15 % amounting to Rs.105,000 the incorrect figure of GP amounting to Rs.52,500 was deducted to arrive at the trading account addition instead of deducting the actual declared gross profit of Rs.97,500. The only thing required to be done in the rectification order was to re compute the trading account addition to the complainant's income after deducting Rs.97,500 from the assessed GP of Rs.105,000 and it was not for the Assessing Officer to replace any estimate of sales for the already assessed sales. The rectification order as passed is thus the result of obvious maladministration.
7. Similarly the complainant is right in pointing out that his return for the assessment year 2002‑2003 qualified under the self assessment scheme on the basis the actual assessed income for the year 2001‑2002 (as in the complainant's rectification application) and it had, therefore, been wrongly excluded from the Self‑Assessment Scheme.
8. In the light of the above it is recommended that:‑‑
(i)The rectification order for the assessment year 2001‑2002, dated 1‑1‑2003 be again rectified in the light of the observations in para. 6 above.
(ii)A letter of warning be issued to the Assessing Officer who passed the order under section 156 telling him to refrain from such illegal action in future.
(iii)The complainant's return for the year 2002‑2003 be considere4 as qualifying for self‑assessment scheme as far as the comparison with the 'last tax payable is concerned. The return my thus be accepted under the self‑assessment scheme if it meets the other requirements of the scheme.
(iv)Compliance report with reference to recommendations at (i), (ii) and (iii) above be furnished within 30 days.
C.M.A./982/FTOOrder accordingly.