Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 154, 63/132 & 65‑‑‑Income Tax Ordinance (XLIX of 2001), S.122A‑‑‑General Clauses Act (X of 1897), S. 27‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑Non‑service of notices of Assessing Officer and order of First Appellate Authority‑‑‑Effect‑‑‑Ex parte re‑assessment ‑‑‑Validity‑‑ Service of notice was not in accordance with the provisions of S.154 of the Income Tax Ordinance, 1979 read with S. 27 of the General Clauses Act, 1897‑‑‑Assessee despite having participated in appellate proceedings before First Appellate Authority' had been deprived of his vested right to file an appeal due to improper dispatch of appellate order‑‑‑Whole process suffered from maladministration as the order was passed without serving proper notice thus depriving the complainant/assessee of being heard and defend the action‑‑‑Order was arbitrary and abuse of exercise of discretion which proved bias‑‑‑Federal Tax Ombudsman recommended that the order passed by the First Appellate Authority .be properly served on the complainant/assessee to enable him to file an appeal before the Appellate Tribunal and the Commissioner by resort to S.122A of the Income Tax Ordinance, 2001 should cancel the reassessment order framed on 16‑3‑2003 which also was framed without service of notice, as per procedure prescribed by law.

Ch. Muhammad Aslam for the Complainant.

Muzammil Hussain, (D‑CIT) for Respondent.

FINDNIGS/DECISION

These two complaints assail the dispensation in respect of the assessment year 1996‑97‑‑‑

(i) by AAC; Lahore by way of dismissal of appeal on 22‑11‑2001 and

(ii) refraining of assessment under section 63/162 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) on 4‑12‑2002.

The conduct of the two officers is characterized as arbitrary amounting to "maladministration" as defined in Clause (3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance; 2000 (hereinafter called the FTO Ordinance). .

2. Briefly the facts are that the Complainant‑AOP runs an Ice Factory. No books of accounts are maintained. Assessments since the years 1988‑89 are being made under SAS gradually increasing from Rs.35,000 in 1988‑89 to Rs.72,000 in 1996‑97. Return for the assessment year 1996‑97 was accepted under SAS on 4‑6‑1997. Later section 65 was invoked on 23‑11‑1999 alleging suppression of electricity expenses to the extent of Rs.204,965. Finally Income was determined at Rs.571,840 through an ex parte assessment on 30‑6‑2000. An appeal was filed with the AAC inter alia assailing validity of action under section 65. The AAC upheld the action as respects reopening of the assessment though on other grounds the assessment was set aside vide order, dated 22‑11‑2001. Reassessment was again framed ex parte under section 63/132 of the repealed Ordinance on 16‑3‑2003. This is the cause of grievance.

3. In respect of reassessment the respondent No.1 has forwarded parawise comments by the R‑CIT, . Eastern Region, Lahore which question the competence of the complaint for admission in view of the bar under section 9(2) and the delay in filing the complaint as per section 10(3) of the FTO Ordinance. It is further submitted that assessment had, to be passed ex parte because of non‑compliance of notices, which were "served on Mr. Gulzar Ahmad who happened to be the Manager/Munshi of the complainant. The service was valid". Moreover, this gentleman had been receiving notices in the past also. It is submitted that suppressed Electricity Expenses to the extent of Rs.204,965 were rightly taxed as unexplained expenses paid from undisclosed sources. '

4. The respondents have forwarded parawise comments separately in respect of two complaints. Respondent No.2, the Commissioner r (Appeals) Zone‑IV, Lahore, denies "maladministration" and justifies the adjudication made .on 22‑11‑2001. According to the CIT(A) the non -service of notice under section 65 "was not challenged before the Assessing Officer and that the complainant." has the knowledge of proceedings. The AAC blames the complainant for having not participated in the assessment proceedings. It is pointed out that as respects addition for unclaimed Electricity Expenses, by way of deemed Income, and the Social Security payments which were held debitable to Profit and Loss Account, the matter was .set aside to be considered de novo by the Assessing Officer because the scrutiny had revealed that assessment order had been passed in a causal manner and " the contention of the complainant regarding non‑service of notice carries weight as the appellant has been condemned unheard":

5. Ch. Muhammad Aslam (Advocate) appeared for the complainant. He explained that Ice Factory previously run by the complainant was handed over to some other party and the complainant started business in a different premises but the Department did not care to serve notices on him and dispatched notices, to the old address hence these did not reach the Complainant. The result was that the complainant remained unaware of the initiation of proceedings under section 65 and, in the second round he could not participate because this time also care was not taken to ensure that the notices were served on him or on the AR who had appeared before the AAC. The learned counsel raised the legal issue that admittedly details of Electricity Expenses were available on record from which the alleged discrepancy was picked up. Therefore, for a material which was already obtaining on record at the time of original assessment, the invoking of section 65 was not legal as held by the superior Courts. It was pleaded that for action under section 65, the condition precedent is the discovery of `definite information' subsequent to the framing of assessment but not on the basis‑of material already available on record. It also was insisted that the service of the notices was made in a casual and indifferent manner. When non‑compliance was noticed in the first round, the Assessing Officer should' have been more careful to effect valid service in the second round when reassessment was taken up consequent upon set aside ordered by the AAC. The learned counsel concluded his arguments by submitting, that non‑service of the order by the AAC has deprived him of the right to contest before the Appellate Tribunal where he would have challenged rejection by the AAC of legal objection as td the validity of the action under section 65. To this end he had moved an application on 16‑6‑2003 to the AAC for supply of official copy of appellate order but the same has not been provided so far.

6. Mr. Muzammil Hussain (D‑CIT) appearing for the Revenue admitted that there was no proof of (a) service of summons by the Assessing Officer in the first as also the second round of assessments and (b) of the service of the appellate order by the AAC; in the manners prescribed by‑law. He, however, insisted that when the complainant participated in the proceeding before the AAC, it was the duty of his AR to find out the fate of the appeal from AAC's office. The DR concluded by submitting that the complainant at no stage provided the new address nor informed about the change of business premises and, therefore, he alone is to be blamed if the notice initiating proceedings under section 65 of the repealed Ordinance followed by notice tinder section 61/62 and the notices at the reassessment stage, could not be properly served. According to the DR, it was not fair to blame the Assessing Officer for the improper dispatch of notice because the order by the AAC also is alleged not to have been received at the address given by the complainant. It was asserted that the two independent authorities could not be guilty of laxity in the service of notices.

7. After hearing arguments from both the sides the conclusion is inescapable that the service of notice was not in accordance with the provisions of section 154 of the repealed Ordinance read with section 27 of the General Clauses Act. However, the complainant despite having participated in the appellate proceedings before the AAC has beer deprived of his vested right to file an appeal due to improper dispatch or the appellate order. The whole process suffers from maladministration as the order was passed without serving proper notice thus depriving the complainant of being heard and defend the action. The order is arbitrary and in abuse of exercise of discretion which proves bias.

8. It is, therefore, RECOMMNEDED that:

(i) The order passed by the AAC be properly served on the complainant to enable him to file an appeal before the Appellate Tribunal.

(ii) The Commissioner by resort to section 122A of the Income Tax Ordinance, 2001 cancel the reassessment order framed on 16‑3‑2003 which also was framed without service of notice, as per procedure prescribed by law.

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

C.M.A./1047/FTO Order accordingly.