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

---S.59(1)---C.B.R. Circular No.7 of 2002 dated 15-6-2002, para.9(a)(ii) [Self-Assessment Scheme]---C.B.R. Circular No.7(7)/S.Asst/2002, dated 17-12-2002-- Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-assessment --Setting apart-- Assessment year 2002-2003---Salary case having business income-- Setting apart for total audit---Validity---No basis existed for applying a different criterion for cases considered as salary cases in the context of para. 9 of Self-Assessment Scheme when in the Income Tax Ordinance, 1979 and also in relevant C.B.R. Circulars the criteria was, that salary cases were those in which salary income was more than 50% of the total income---Word "only" used in para. 9 of the Self-Assessment Scheme was in the context of property income and not salary income---Selection of the case for total audit was found to be contrary to the provisions of para. 9 of Self-Assessment Scheme and, therefore, invalid.  

Complaint No. 1404 of 2002 ref.

(b) Income tax Ordinance (XXXI of 1979)---

---S.59(1)---C.B.R. Circular No.7 of 2002 dated 15-6-2002, para. 9(a)(ii) [Self-Assessment Scheme]---C.B.R. Circular No.7(7)/S.Asst/2002, dated 17-12-2002-- Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 20(10), S.2(3)---Self-assessment---Setting apart-- Assessment year 2002-2003---Setting apart of case for total audit on the. basis of previous years' assessments which were subsequently set aside by the Appellate Tribunal---Validity---No valid reason existed showing as to how such assessments which in fact, had been set aside and did not hold ground, could form a basis for selection of complainant's case for total audit when the income declared was higher than the income declared in earlier years---Selection of the case for total audit was considered invalid both on legal and factual grounds---Federal Tax Ombudsman recommended that assessee's return for the assessment year 2002-2003 be excluded from the cases selected for audit and be accepted under Self-Assessment Scheme.  

Mir Ahmad Ali for Petitioner.

Raza Munawar, I.A.C. and Nasir Maqbool Hashmi, Taxation Officer, Jhelum for Respondent.

DECISION/FINDINGS

This complaint has been filed contesting the selection of complainant's case for total audit under para. 9(a)(ii) of the SAS for the assessment year 2002-2003 as unjustified.

2. Brief facts of the case are that the complainant is a lady doctor and apart from salary drives income from private medical practice. Return of Income for the assessment year 2002-2003 was filed under S.A.S. declaring income at Rs.222,380. The RCIT, Northern Region, Islamabad vide his letter dated 22-1-2003 confronted the complainant for proposed selection of her case for total audit on the following grounds:--

(i) The assessee is very famous gynecologist, income has been declared at Rs.222,380 out of which salary from hospital amounts to Rs.136,380. Her practice is established. She is doing practice at Al-Qasim Clinic Lines as well as Al-Qasim Hospital and Maternity Home opposite Company Bagh Jhelum.

(ii) Her assessments for the assessment years 1997-98 and 1998-99 were completed on the basis of her clinical receipts at Rs.10,23,167 and Rs.889,555 for the above charge years respectively on the basis of original patients receipts provided by a nurse of her clinic as a complaint".

2. The complainant in her explanation to the RCIT stated that the criteria of being famous has no bearing on income. It is merely a matter of luck. She emphasized that she is a whole time Government employee and after normal working hours remains on emergency calls round the clock. She was posted at Sohawa away from her home at Jhelum and gets back from duty at about 4 O'clock after which she used to attend the domestic assignments besides other social events and subject to availability of time she attends the private hospital. It was further stated that the lady who filed a complaint against the petitioner was working in some other concern and had absolutely no connection whatsoever with petitioner's clinic. The assessments framed on the basis of her complaint/information for the years 1997-98 and 1998-99 have already been set aside by the CIT (Appeals) with the observation that the documentary evidence provided by the complainant /informer was not verified by the Assessing Officer to shape it as a definite information and order of the CIT (Appeals) was endorsed by the ITAT. The assessment orders which do not hold ground cannot be made basis for selection of the case for total audit. It was further stated that she was a salaried person and her return merits acceptance. This explanation of the petitioner was not accepted by the RCIT and her case was selected for total audit, hence this complaint.

3. In the reply respondent has submitted that the case has been validly selected in accordance with guidelines given by the C.B.R. and alter confronting the complainant with the basis of selection. It is stated that one Mst. Zarina Kausar, affirmed in the affidavit dated 23-6-1999 that she was working alongwith the complainant at her clinic being run under the name and style of Messrs Al-Qasim Clinic, Civil Lines, Jhelum and assessments for the years 1997-98 and 1998-99 were made after duly confronting the complainant through notice under section 62 regarding estimates of clinical receipts at Rs.10,23,167 and Rs.9,89,55 on the basis of the original material supplied by the complainant informer and available with the department at the material time. The evidence of suppression of receipts/income is stated to be very much there because after office hours the complainant attends patients at her clinics located at Civil Line and opposite Company Bagh, Jhelum. It is further submitted that although more than 50% of the 'complaint's income was from salary and as such the return qualified for acceptance under section 59(1) of the repealed Income Tax Ordinance, 1979 yet there was no embargo on the RCIT with regard to the selection of return for audit under para 9((a)(ii) in terms of C.B.R's Circular No.(7) S.Asst/2001 dated 14-5-2002 relating to the SAS for 2001-02 in which it was clarified that immunity, from audit, did not extend to those case! who have declared other incomes alongside salary and property. Since SAS for this year contains identical provisions and salary was not the only source of complainant's income, the return was lawfully selected for audit.

5. The representatives of both sides have been heard. The AR of the complainant emphasized that since the complainant's income include salary income which is more then 50% of her total income the case could not be selected for total audit either through random ballot or by the RCIT. He argued that C.B.R. Circular letter dated 14-5-2002 exclusively related to the SAS for 2001-02 and no such clarification was issued by the C.B.R. for the SAS pertaining to assessment year 2002-03. It was further contended that assessment orders for the year 1997-98 and 1998-99 having been set aside were not holding ground to form basis for comparison of income declared for the assessment year 2002-03.

6. The representative of the respondent reiterated the contentions that case was rightly selected as it was not purely a salary case and the income declared was much less than assessed for the assessment years 1997-98 and 1998-99.

7. The contentions of both sides have been considered. As regards the selection for the year 2002-03 there is no reason to consider that the complainant's return was not a salary return as envisaged in para. 9 of the S.A.S. for 2002-03. This issue has in fact been discussed in detail in the findings/decision dated 16-1-2003 in Complaint No. 1404 of 2002 in which the C.B.R.'s instructions to Regional Commissioners contained in its letter dated 14-5-2002 have also inter alia been considered and it has been found that there is no basis for applying a different criterion for cases considered as salary cases in the context of para 9 of the SAS when in the Income Tax Ordinance, 1979 and also in relevant C.B.R.'s Circulars the criteria was that salary cases are those in which salary income is more than 50% of the total income. It was also pointed out in those findings that the word "only" used in para 9 of the Scheme was in the context of property income and not salary income. In the light or these earlier findings the selection of the complainant's case for total audit for the year 2002-03 is found to be contrary to the provisions or para 9 of the SAS and, therefore, invalid.

8. Regarding quantum of income declared, the perusal of record shows that for the assessment years 1999-2000 to 2001-02 the complainant filed her returns under SAS declaring total income including income from salary and private practice at Rs.1,30,000, Rs. 170,910 and Rs.191,090 respectively which were accepted and were not selected for total audit on the basis of assessments relating to the charge years 1997-98 and 1998-99. There then seems no valid reason as to how said assessments which in fact, being set aside and do not hold ground can form a basis for selection of complainant's case for total audit for the year 2002-03 when the income declared at Rs.222,380 was higher than the income declaring in earlier years.

9. In view of the facts and circumstances of the case as discussed above, the selection of the case for total audit is considered invalid both on legal and factual grounds. It is therefore, recommended that : --

(i) The complainant's return for the assessment year 2002-03 be excluded from the cases selected for audit and be accepted under SAS.

(ii) Compliance be reported within 30 days of the receipt of this order.

C.M.A./877/FTO Order accordingly.