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

----S.65---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Additional assessment---Roving and fishing enquiries---Law does not permit making roving and fishing enquiries for reopening the assessment under S.65 of the Income Tax Ordinance, 1979---Issuance of show-cause notice without prior approval of Inspecting Additional Commissioner was not legally maintainable.  

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

----S.65---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Additional assessment---Purchase of property---Sale agreement was executed in the relevant assessment year 1994-95---Property was transferred in the name of .assessee in the assessment year 1997-98---Reopening of assessment year 1996-97 on the basis of such purchase of property---Validity---Sale agreement was executed on- 5-1-1994 which was relevant for the assessment year 1994-95---Property was transferred in the name of assessee in October, 1996 which related to assessment year 1997-98---No legal justification for reopening the assessment for the assessment year 1996-97---Facts had clearly established maladministration---Federal Tax Ombudsman recommended that notice under S.65 of the Income Tax Ordinance, 1979 issued on 1-4-2002 for the assessment year 1996-97 be withdrawn forthwith and appropriate action be taken strictly in accordance with law for the relevant year.  

Inayat-ur-Rehman for the Complainant.

Aftab Alam, ALIT, Circle-15, Multan Zone, Multan.

FINDINGS/ORDERS

The complainant, Mr. Muhammad Zafar Iqbal proprietor Messrs Sheikh Corporation, is an existing assessee of Circle-06, Multan on National Tax No.04-06-0827895. The main allegation of the complainant is against the reopening of the assessment for the year 1996-97 unlawfully under section 65 of the repealed Income Tax Ordinance, 1979. The facts of the case are briefly stated as under: --

(i) The complainant is an existing income tax assessee since assessment year 1988-89. The return of income for the assessment year 1996-97 was filed under the Broad Based Self Assessment Scheme, and was accepted under section 59 of the repealed Income Tax Ordinance, 1979. The complainant purchased 1/2 share in Commercial Property No. 2/X Block No. X, New Multan for a consideration of Rs.3,65,000 from Mr. Jan Muhammad son of Nathoo Khan of Mumtazabad, Multan. The sale agreement/Iqrarnama was made on 5-1-1994 as per photocopy of the sale agreement furnished by the complainant. However, the property was transferred in the name of Mr. Zafar Iqbal on 2-10-1996. Copy of the letter issued by the District Officer, Housing and Town Planning, Multan bearing No. 670 dated 29-4-2002 is available on record.

(ii) The Special Officer of Circle-06 issued a show-cause notice bearing No. 14 on 15-7-1999 asking the complainant to explain the investment in property from which rental income was shown for the first time in the assessment year 1996-97. Further information was requisitioned from the complainant vide Letter No.320 dated 15-1-2000. This was followed by another show cause notice dated 5-9-2000 stating therein that the examination of relevant bank drafts showed that remittances were received during the period 16-9-1981 to 23-1-1992 whereas the property was purchased on 2-10-1996. The complainant was required to furnish evidence as to whether the remittances were deposited in bank and if so the details of withdrawal were to be supplied on 12-9-2000 to the Special Officer. Thereafter the Special Officer of Circle-06 issued another notice under section 144(C) of the repealed Income Tax Ordinance, 1979 bearing No. 185 dated 14-12-2002 whereby the complainant was required to furnish his bank statement of Account No.135 in M.C.B., Multan for verification of investment. Notice under section 65 of the repealed Income Tax Ordinance, 1979 was, however, issued on 1-4-2002 after obtaining I.A.C's approval and was served on the complainant on 8-4-2002

(iii) It is alleged by the complainant that on receipt of notice under section 65 an application was addressed to the CIT, Multan requesting him to quash the aforesaid notice being illegal and void ab initio but the CIT rejected the application and intimated that proceedings under section 65 were initiated in accordance with law. It is further alleged that the RCIT also did not bother to consider the facts of the case and rejected his application.

(iv) It is further alleged by the complainant that the reopening of assessment for the year 1996-97 was absolutely unjustified as the complainant neither sold nor purchased any immovable asset during the income year 1995-96. The sale agreement executed on 5-1-1994 was relevant for the assessment year 1994-95. The property was, however, transferred in the name of the complainant on 2-10-1996 which was relevant for the assessment year 1997-98. The complainant has also alleged that issuance of show-cause notices without prior approval of the I.A.C. is illegal and void. It is further alleged that fishing- enquiries for issuance of notice under section 65 is contrary to law and has cited certain cases decided by the, superior Courts in this regard.

(v) The complainant has also asserted that no definite information was available with the Assessing Officer at the time of issuance of notice under section 65 and reopening of assessment without any fresh/new material has been declared illegal by the superior Courts. The complainant has prayed for acceptance of the declared version and quashing the proceedings initiated under section 65 being illegal and void ab initio.

2. The respondents have filed parawise comments stating therein that the assessment was reopened lawfully with prior approval of the I. A. C. and after providing adequate opportunity to the complainant. It is further stated that the assessment was reopened for the assessment year 1996-97 on the basis of information collected from Secretary, District Housing Committee regarding verification of Iqrarnama dated 5-11-1994 who vide Letter No.670 dated 29-4-2002 reported that the original allottee of the property Mr. Ejaz Muhammad submitted an application on 5-6-1995 for transfer his plot in the name of the complainant and the transfer was, however, matured on 2-10-1996.

3. It is further stated that if the contention of the 'assessee is considered as correct then total foreign remittance was received at Rs.4,02,130 and out of this amount, a sum of Rs.1,32,660 related to other individuals and, therefore, the total investment at Rs.5,67,500 still remains unexplained. It is also stated that the complainant received foreign remittances from 1981 to 1992 and it was not clear whether same was available with him at the of creation of asset referred above. The allegation of maladministration is denied.

4. The complainant's authorized representative pleaded that no definite information was available with the department at the time of issuance of notice under section 65. He has denied the receipt of Letter No.185 dated 14-12-2001 whereby the complainant was required to furnish his bank statement for verification of foreign remittances. He further argued that issuance of repeated show-cause notices without prior approval of the I.A.C. was absolutely illegal and void ab initio.

5. The departmental representative pleaded that the information regarding purchase of the plot was reported by the Audit Wing of the department and the notice under section 65 was issued strictly in accordance with law. He reiterated the contents of the parawise comments.

6. The arguments of both sides have been considered and the records of the case produced by departmental representative have also been examined. The arguments of the authorized representative of the complainant are quite well-founded and convincing: The law does not permit for making roving and fishing enquiries for reopening the assessment under section 65 of the repealed Income Tax Ordinance. 1979. The issuance of show-cause notice without prior approval of the I.A.C. is also not legally maintainable as already held by this forum in a number of complaints.

7. It is pertinent to note that the assessment for the year 1996-97 has been reopened on the basis of information supplied by the concerned authority vide Letter No. 670 dated 29-4-2002 as admitted by the respondents in the parawise, comments. The departmental representative has produced a copy of the aforesaid letter issued by the District Officer, Housing and Town Planning, Multan. It is clearly stated' therein that Mirza Ejaz Ahmad son of Mirza Nathoo Khan submitted an application on 5-6-1995 for transfer of his plot in the name of the complainant Sheikh Zafar Iqbal son of Muhammad Saeed and others but the process could not be completed till 2-10-1996. The property was transferred in the name of the complainant on 2-10-1996. The photocopy of sale agreement (Iqrarnama) has also been furnished by the departmental representative which shows that the agreement was made on 5-1-1994. The complainant has rightly pointed out in his complaint that the sale agreement executed on 5-1-1994 was relevant for the assessment year 1994-95. The property was, however, transferred in the name of the complainant in October, 1996 which related to assessment year 1997-98. There was, therefore, no legal justification for reopening the assessment for the assessment year 1996-97.

8. The facts stated above clearly establish maladministration committed by the functionaries of the department and it is, therefore recommended as under:--

(i) The notice under section 65 of the revealed Income Tax Ordinance, 1979 issued on 1-4-2002 for the assessment year 1996-97 be withdrawn forthwith and appropriate action be taken strictly in accordance .with law for the relevant year.

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

C.M.A./874/FTO Order accordingly.