2004 P T D 57

[Federal Tax Ombudsman]

Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman

ABDUL KARIM through Taxman Law Associates, Karachi

Versus

SECRETARY, REVENUE DIVISION, ISLAMABAD

Complaint No. 691-K of 2003, decided .on 12th July, 2003.

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

----Ss. 56, 62, 65, 13(1)(aa), 111 & 116---Finance Ordinance (XXI of 2000)---Civil Procedure Code (V of 1908), O.V, Rr.17 & 20-- Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Notice for furnishing return of total income---Service by affixture---Addition under S.13(1)(aa) of the Income Tax Ordinance; 1979 being income front sale, purchase of vehicles---Denial of service of notice---Validity---Assessment was completed without proper service of statutory notices on the complainant--Prima facie maladministration was committed by the Assessing. Officer---Preliminary objection raised was overruled as maladmnistration was established and the Federal Tax Ombudsman had jurisdiction to investigate the matter---Federal Tax Ombudsman recommended that the Commissioner concerned be asked to remand the case under S.122 of the, Income Tax Ordinance, 2001 to the Taxation Officer for refraining the assessment for the year 1994-95 after proper service of statutory notices.

Khalid Yousuf and Hussamul Haq for the Complainant.

Ejaz Asad Rasul, I.A.C. Range-I and Syed Nizamuddin, ITO, Circle-C-21, Zone-C; Karachi for, Respondent.

FINDINGS/DECISION

Mr. Abdul Karim the complainant is aggrieved by the assessment made for the year 1994-95 by the Assistant Commissioner of Income Tax, Circle C-21, Zone-C, Karachi :on an income of Rs.13,00,000. His other grievance is issuance of notice under section 116 of the repealed Income Tax Ordinance, 1979 for default of section 56 and concealment of income liable to penalty under section 111 of the repealed Ordinance. It is stated that the complainant was a labourer in the old Sabzi Mandi, University Road, Karachi and moved to his home village when the Sabzi Mandi was shifted from the University Road.

2. He has also stated that out of sale proceeds of vehicles in earlier years, he purchased Toyota Hilux No.KE-3160 on 16-6-1993 for a total consideration of Rs.2,75,000 which, was, subsequently sold to Mr. Ashraf for Rs.2,90,000. The complainant thereafter purchased Suzuki Pick up No.KE-4863 on 28-11-1993 for Rs. 1,05,000 out of sale proceeds of the vehicle sold earlier: This was also sold later on for Rs.1,12,000 -to Mr. Abdul Razzak. The complainant purchased Mazda loading Van No.JX-6009 on 7-7-1993 for a consideration of Rs.2,25,000 out of sale proceeds of the vehicle and this was also sold later on for Rs.2,40,000 to one Mr. Hasan.

3. It is stated that show-cause notice under section 65 read with section 13(1)(aa) of the repealed. Income Tax Ordinance, 1979 was received from . ACIT, Circlc-21 of Zone-C, Karachi requiring the complainant to explain the sources of investment in the purchase of vehicles during the year. The ACIT, Circle-21, again issued notice under section 65 read with section 13(1)(aa) of the repealed Ordinance on 24-10-2000 for explaining the investment in purchase of vehicles. The complainant submitted an affidavit in response to the aforesaid notices stating therein that he had purchased the vehicles out of sale proceeds of one after the sale of another.

4. It is alleged that thereafter no intimation was received from the Department and after a lapse of long time, on 25-1-2003 the complainant received through one of his relatives on his former address, assessment order under section 63 of the repealed Income Tax Ordinance, 1979 for the assessment year: 1994-95 dated 26-11-2001 for default of notice under section 56. The service of the said notice is denied as the complainant was not, residing at Karachi at that time. It is also alleged that notice under section.62 read with section 13(1)(aa) dated 14-5-2001 mentioned in the assessment order was never served on the complainant as he did not reside at Karachi. It is stated that unexplained investment for Rs.13,00,000 i.e. the cost of vehicles has been taxed under section 13(1)(aa) of the repealed Ordinance and a notice under section 116 has also been issued for imposing penalty under section 111 for non-compliance of the notice issued under section 56 dated 26-11-2001.

5. It is alleged that the assessment framed for the year 1994-95 in pursuance of notices under sections 56 and 13(1)(aa) of the repealed Ordinance is illegal as the said notices were issued after the expiration of prescribed limitation of time. It is further, alleged that completion of assessment after lapse of considerable time from the date of compliance of notices is also against the provision of law.

6. It is stated that the Assistant Commissioner of Income Tax acted illegally in completing the assessment on the basis of notice under section 56 which was never served as the complainant was not residing at Karachi. Similarly the framing of assessment under section 63 and estimating the prices of vehicles without making any verification from the open market is also against the provision of law.

7. It is reiterated that the impugned assessment order has been framed unlawfully without jurisdiction and the notice under section 116 has also been issued without any lawful justification. The complainant has prayed for redressal of his grievances as gross maladministration has been committed by the functionaries of the Department.

8. The Regional Commissioner of Income Tax, Southern Region, Karachi has furnished parawise comments on behalf of the respondents raising therein preliminary objection of jurisdiction in terms of section 9(2) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000. It is stated that on receipt of information from IAC, Range-III' Survey & Collation, Zone-D, Karachi that eight (8) vehicles. were registered in the name of the complainant Mr. Abdul Karim, a show-cause notice was issued to him bearing No.31 dated 24-10-2000 as to why assessment proceedings should not be initiated against him. In response to the said notice the complainant filed an affidavit dated 13-11-2000 admitting therein the ownership of the vehicles. The complainant was, thus involved in the business of purchase and sale of vehicles. It is further, stated that subsequently the complainant was served with another show-cause notice bearing No.87 dated 16-1-2001 (inadvertently typed as 2000) whereby he was required to submit the following:--

"(1)Return of Total Income for the year he had been doing the business of vehicle dealership/transport.

(2)Wealth Statement for all the years he had been doing the business.

(3)Proof regarding sale of Motor Vehicles.

(4)Complete names and addresses of the persons to whom he had sold Motor Vehicles."

9. The aforesaid letter was served personally on the complainant on 17-1-2001 and in pursuance thereof the complainant appeared alongwith his brother Mr. Muhammad Yousuf before the ACIT on 23-1-2001 and the case was adjourned to 27-1-2001 for filing the aforesaid documents etc. Since the compliance was not made, notices under section 56 of the repealed Income Tax Ordinance, 1979 were issued for the assessment years 1992-93 to 2000-2001 under registered cover. Due to non compliance of these notices and subsequent show-cause notice under section 13(1)(aa), the assessments for the years 1992-93 to 1997-98 were completed by making additions under section 13(1)(aa) of the repealed Ordinance, 1979 on account of unexplained investment in the purchase of vehicles.

10. It is further pleaded that the case was not hit by limitation of time as wrongly alleged by the complainant. The notices under section 56 were issued on 27-2-2001 and the assessments were made in consequence of these notices. The explanation introduced by Finance Ordinance, 2000 is therefore applicable to all the aforesaid assessments. The respondents have further stated that assessment was made strictly in accordance with law and no maladministration was committed by the Assessing Officer.

11. The authorised representative of the complainant argued that since the complainant had left Karachi for Quetta after the shifting of the old Sabzi Mandi, the notice issued under section 56 was not served on him. There is no acknowledgement receipt in possession of the Department regarding service of the notice. The departmental representative however, pleaded that notice under section 56 was issued under registered cover and since the same was not received back undelivered, it is established that the notice was served on the complainant. The postal receipt for issuing the notice on 27-2-2001 has been produced. He further, argued that the service of demand notice and assessment order at the given address has not been denied by the complainant and therefore his denial of receipt of notice under section 56 which was sent on the same address is absolutely unfounded. As regards the question of limitation of time he pleaded that since the notice under section 56 was issued on 27-2-2001 the same was strictly in accordance with law as clarified by the "'Explanation" inserted by Finance Ordinance, 2000. The amendment in this section in 2001 is applicable w.e.f. 1-7-2001.

12. The assessment records of the case produced by the departmental representative have been examined. It is distressing to note that the case has been dealt with in a very casual and irresponsible manner. The copies of relevant order sheets produced by the departmental representative show that most of the entries have not been signed of initialed by the Assessing Officer. There is no entry regarding issuance of show-cause notice bearing No.31 dated 24-10-2000 on the order sheet. Similarly the receipt of affidavit from the complainant dated 13-11-2000 has also not been recorded. in the order sheet. The departmental representative has not been able to establish that the notice under section 56 issued on 27-2-2001 was properly served on the complainant. The respondent's presumption that, since the notice was not received back unserved, the same must have been served on the addressee is not well founded. The apprehension of the complainant's authorised representative that the unserved notice received by the Department might have not been placed on record cannot be ruled out.

13. It has also been noted that notices under sections 62 and 13(1)(aa) were issued on 14-5-2001 for compliance on 30-5-2001 and the service was made by affixture The photocopies of the order sheet and the report of the notice server furnished by the departmental representative show that the service by affixture was not made in accordance with the procedure laid down in rules 17 and 20- of Order V of the Code of Civil Procedure, 1908.

14. The relevant order sheet does not indicate any instruction of the Assessing Officer for service of the notices by affixture. The serving official has not been examined on oath. The identifiable addresses of the witnesses have not been given by the notice server. In such circumstances, the validity of the service of the said notices is not established.

15. The irregularity pointed out by the complainant that the assessment, was completed after a lapse of considerable time from the date of compliance stipulated in the notice under sections 62 and 13(1)(aa) of the repealed Ordinance is also established from the record. The aforesaid notices were issued on 14-5-2001 for compliance on 30-5-2001 and the assessment was completed on 26-11-2001.

16. The facts stated above establish that the assessment was completed without proper service of the Statutory, notices on the complainant. This is prima facie a case of maladministration committed by the Assessing. Officer. The preliminary objection raised by the respondents regarding jurisdiction is misplaced and misconceived. It has been held by this forum in a number of complaints that where maladministration is established, the Federal Tax Ombudsman has jurisdiction to investigate the matter. This issue has been elaborately discussed in Complaint No. 1438 of 2002.

17. It is therefore recommended as under:--

(i)The Commissioner concerned be asked to remand the case under section 122 of the Income Tax Ordinance, 2001 to the Taxation Officer for reframing the assessment for the year 1994-95 after proper service of Statutory notices.

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

C.M.A./892/FTOOrder accordingly.