Messrs T.M. TEXTILE (PVT.) LTD. VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2005 P T D 1109
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs T.M. TEXTILE (PVT.) LTD.
versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 325-K of 2004, decided on /01/.
10th July, 2004. (a) Income Tax Ordinance (XXXI of 1979)---
----S.59(1)---Income Tax Ordinance (XLIX of 2001), S.122(9)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-Assessment---Total Audit---Discrepancies---Amendment of assessment---Profit---Maladministration---Complainant, a private limited company, filed return of income under Self-Assessment Scheme year 2001-2002 which was accepted by the Income Tax panel under section 59(1) of Self-Assessment Scheme---Show-cause notice under section 122(9) of the Income Tax Ordinance, 2001 was issued by Income Tax Additional Commissioner/Taxation Officer--Complainant was confronted with the discrepancies that previous year's assessment was completed at loss and tax was levied under section 80-D of the Income Tax Ordinance, 1979---By virtue of Circular No.7 of 1999 the return filed did not qualify under Self-Assessment Scheme---Validity---Central BoardofRevenuewasempoweredtoannouncetheSchemefor Self-Assessment for every year and formulate terms and conditions foracceptanceofthereturnundertheScheme---ConditionslaiddownbytheCentralBoardofRevenueforoneparticularyearwouldnotbeapplicabletoanysucceedingorprecedingyear---ReliancebythetaxationofficeronBoard'sclarificationissuedfortheyear1999-2000wasabsolutelymisplacedwhileconsideringthereturnfortheyear2001-2002---Noticewasunlawful---FederalTaxOmbudsmanrecommendedtheCentralBoardofRevenuetodirecttheTaxationOfficerconcernedtowithdrawandcancelthenoticeissuedundersection122oftheIncomeTaxOrdinance.
(b) Income Tax Ordinance (XXXI of 1979)---
----Ss. 2(24)b&59---CircularletterNo. 7(55)S.Asstt/99dated27-9-1999---Self Assessment---Income---Clarification--- Complainant private limited company was assessed under section 80-D of the Income Tax Ordinance, 1979beingatlossunderSelf-AssessmentSchemein2000-2001---Return of income for assessment year 2001-2002 at 10% increase was accepted by the Income Tax panel---Subsequent show-cause notice was issued on the ground that Central Board of Revenue had clarified that in the case of the complainant company since no tax was payable or paid on income last declared or due to loss, tax cannot be made the basis for turnover comparison for purposes of paras of the Self-Assessment Scheme---Complainant had pleaded that loss was included in the definition of income as provided in subsection (24) of section 2 of Income Tax Ordinance, 1979---Central Board of Revenue had no authority to interpret law---Interpretation relied upon by the department had no binding effect---Section 59(1) clearly envisaged for formulation of Self-AssessmentSchemeforeachyearseparately---AssessmentOrderwasneithererroneousnorprejudicialtotheinterestofrevenue as full tax was paid on the declared income---Provisions of section 122(5-A) of the Income Tax Ordinance, 2001 were not applicable---Argument of the Authorised Representative of the complainant was found to be based upon relevant provisions of law by the Federal Tax Ombudsman and view taken by department was rejected.
Qazi Anwar Kamal for Complainant.
Mushtaq Hussain Qazi, IAC for Respondent.
DECISOIN/FINDING
The complainant is a Private Limited Company assessed in Circle-02, Special Zone, Karachi on National Tax Number 32-02-0704141. The complainant company is aggrieved by issuance of show-cause notice under section 122(9) of the Income Tax Ordinance, 2001 for the assessment year 2001-2002 by the Taxation Officer Range-I, Special Zone, Karachi. TheFacts of the case stated in the complaint are as under.
2.The complainant filed return of income for the assessment year 2001-2002 under the Self-Assessment Scheme declaring income of Rs.1,00,665whichwasacceptedbytheIncomeTaxPanelundersection 59(1) (SAS) vide order, dated 11-5-2002. The return of the complainant was neither selected for total audit through computer balloting nor set apart by the RCIT. Thereafter show-cause notice under section 122(9) of the Income Tax Ordinance, 2001 was issued by the Inspecting Additional Commissioner/Taxation Officer, Special Zone, Karachi bearing No.532, dated 13-3-2004. The Taxation Officer confronted the complainant with the following discrepancies and intended to amend the assessment made under section 59(1) of the repealed Ordinance as the same was erroneous insofar it was prejudicial to the interest of Revenue in terms of section 122 (5A) of the aforesaid Ordinance.
(1)The assessment for assessment year 2000-2001 was completed at loss of Rs.10,540 against declared loss of Rs.20,276 and tax under section 80-D was levied amounting to Rs.13,010.
(2)C.B.R. Circular No.4 of 2001, dated 8th June, 2001 provides vide para 1.1(d) that all returns of private companies other than Public Companies quoted in Stock Exchange where tax payable on the income declared is higher by 10% or more compared to the tax payable on the last declared or assessed income, whichever is higher shall be eligible for acceptance under Self-Assessment Scheme.
(3)You have paid turnover tax of Rs.13,010 on loss declared at Rs.20,276 assessed at loss of Rs.10,540 for assessment year 2000-2001. Since C.B.R. Circular No.4 of 2001, dated 18th June, 2001 specifically provides that the tax payable on the declared income for the assessment year 2001-2002 should be higher by 10% or more as compared to income last declared or assessed, as such your case did not qualify under Self-Assessment Scheme.
(4)The above fact further gets fortified by Circular Letter No.7(55) S. Asstt/99, dated 27-9-1999 issued by C.B.R. whereby it has been clarified that the cases of RFs and eligible companies where no tax was payable or paid on income last declared or due to loss, turnover tax cannot be made the basis for comparison for the purpose paras of the Scheme. For your convenience para. 11 of the letter is reproduced as under:--
In cases of RFs and eligible companies where no tax was payable or paid on income last declared or assessed due to loss, turnover tax cannot be made the basis for comparison for the purposes of para. 5 of the Scheme.
3.The complainant s A.R. submitted a detailed reply/explanation in response to aforesaid show-cause notice vide his letter No.1450/208, dated 19-3-2004. It was explained in the said reply that the assessment for the year, 2001-2002 was completed by the panel of Income Tax was signed by the Inspecting Additional Commissioner and Two DcsIT, hence the proposed section 122 was beyond jurisdiction. It was further, stated that section 59(1) of the repealed Ordinance empowered the C.B.R. to formulate the Scheme of Self-Assessment for any year and prescribe conditions for acceptance of returns under the scheme of that year. For this purpose the C.B.R. issued Circular No.4 of 2001, dated 18-6-2001onSelf-AssessmentSchemefortheassessmentyear2001-2002 providing in para. 1(d) of the Scheme as under:--
Cases of other companies where tax payable on the income declared was higher by 10% or more compared to the tax payable on the Income last declared or assessed whichever is higher.
It was conceded that the assessment for the relevant year i.e. 2000-2001 wasmadeonlossandthecomplainanthadonlypaidtax undersection80-D. However, the complainant had paid more than 10% tax in theassessmentyear2001-2002 onthebasisofturnovertaxundersection 80-D. It was pleaded that loss was included in the definition of income as provided in subsection (24) of section 2 of the repealed Income Tax Ordinance, 1979. Subsection (1) of section 80-D provided for minimum tax on income and also provided that the aggregate of declared turnover was to be deemed to be the income of said company. It was further, pleaded that the perusal of the scheme and aforesaid provision of the repealed Ordinance made it clear that the case of the complainant was covered under the Self-Assessment Scheme. The Authorised Representative of the complainant also pointed out in his letter referred above that it was a settled principle that C.B.R. had no authority to interpret law and therefore the interpretation of Secretary C.B.R. relied by the department had no binding effect.
.The complainant s A.R. in the aforesaid explanation also pleadedthattheclarificationissuedbytheBoard sletter,dated27-9-1999 related to the assessment year 1999-2000 only. The Income Tax proceeding for every year was separate and independent and therefore, provisions of Laws/Rules of earlier years could not be applied on subsequent years. Section 59(1) clearly envisaged for formulation of Self-Assessment Scheme for each year separately. He also pleaded that Income Tax Ordinances, 1979 and 2001 were superior laws and Board vide sections 2(24) and 2(29) respectively provided definition of income which included loss. The said provision of law was binding all the functionaries of the department. It was also argued that subsection (5A) of section 122 provided jurisdiction if the order passed was erroneous and prejudicial to theinterestofRevenue. IntheinstantcaseneithertheorderwaserroneousnorprejudicialtotheinterestofRevenueas full tax was paid on the declared income. Hence the provisions of section 122(5A) of the Income Tax Ordinance, 2001 were not applicable. The said explanation submitted by the complainant s A.R. was not found satisfactory and the taxation officer after rejecting the same directed the complainant to submit necessary details and produce the books of account on a specific date i.e. 8-4-2004. It is alleged by the complainant that action under section 122 was unlawful and clearly fell under the definition of maladministration. It is prayed to declare the cancellation of order under section 59(1) and reopening of the case by the respondent vide letter, dated 29-3-2004 as illegal, void and without jurisdiction.
6.The respondents have forwarded the parawise comments prepared by the concerned Zonal Commissioner and endorsed by the Regional Commissioner of Income Tax, Corporate Region, Karachi. Both the Commissioner as well as the RCIT are convinced that the Taxation Officer was not justified to issue the notice under section 122 of the Income Tax Ordinance, 2001. His action was in violation of the relevant provision of law and the Board s Circular on Self-Assessment Scheme for the year, 2001-2002. The Regional Commissioner of Income Tax, Corporate Region, Karachi has made the following observations in this regard:--
The proceedings initiated by the Additional Commissioner of Income Tax under section 122 of the Income Tax Ordinance, 2001 are prima facie wrong because these are based on a clarification by the C.B.R. for the assessment year 1999-2000, whereastheyearunderconsiderationisAssessmentyear2001-2002. There is no such explanation in the SAS for the said year and for each Assessment year the C.B.R. separately issues circulars, clarification etc. regarding the provisions of SAS for that year. The view and arguments of the IAC are also enclosed since he is vehemently arguing for the correctness of his action. However, I also agree with the CIT, IAC s action is not correct in the facts and circumstances of the case even if tax paid under section 80D of the repealed Ordinance of 1979 is not to be consideredfor the purpose of comparison as tax paid for the year is more than 10% of the tax paid under normal law for the year, 2001-2002 which was zero due to completion of assessment at loss. IAC s action is not, therefore, correct even according to his own logic of applying clarification issued for 1999-2000 for this year, 2001-2002. The proceedings are, therefore, based on misconception of law and require to be dropped.
7.It is reported by the Commissioner of Income Tax, Special Zone, Karachi that the IAC Range-I, initiated action under section 122 of the Income Tax Ordinance, 2001 on the basis of clarification of the C.B.R. relating to the assessment year 1999-2000 whereas the year under consideration was 2001-2002. There was no such explanation in the S.A.S. for the assessment year 2001-2002. He has conceded that for each assessment year the C.B.R. separately issued Circulars and provisions of Self-Assessment Scheme. As regards the ground taken in para. 10 of the complaint that order passed by one Additional Commissioner of Income Tax could not be amended by another Additional Commissioner, it is pleaded that unlike section 66A of the repealed Ordinance, 1979 there was no express provision in section 122 whereby Additional Commissioner under delegated powers could not amend an order passed by another Additional Commissioner. It is further, stated that Self-Assessment Scheme was optional scheme for the taxpayers and C.B.R. had every right to formulate the rules for the scheme. The respondentshave cited decision of the Income Tax Appellate Tribunal reported as (1996) 74 Tax 172 (Trib.) wherein it was held that Self-Assessment Scheme was in the nature of special provision which overruled the general enactment/provisions. It is pleaded that the return filed within the ambit of Self-Assessment Scheme could also be reopened/amended on proper, legal/factual grounds.
8.The case has been discussed with the representatives of both the sides. The Departmental Representative vehemently contended that there was no bar in section 122 of the Income Tax Ordinance, 2001 for taking action where the assessment was made by a panel headed by an Additional Commissioner. He argued that Clause D of C.B.R. sCircular No.4 of 2001, dated 18-6-2001 fully justified the action under section 122 taken in the case of the complainant. Since the said Clause specifically provided that tax payable on declared income for the assessment year 2001-2002 should be higher by 10% or more as compared to the tax payable on the income last declared or assessed and therefore, the return of the complainant did not qualify for acceptance under the Self-Assessment Scheme. He cited C.B.R. s Circular letter No.7(55), dated 27-9-1999 whereby it was clarified that in the cases of registered firms and eligible companies where no tax was payable or paid on income last declared or assessed due to loss, turn over tax could not be made the basis for comparison for the purposes of the scheme.
9.The Authorised Representative of the complainant reiterated the pleas taken in the complaint and contended that the conditions/provisions for Self-Assessment Scheme of every year were quite independent and could not be applied in any succeeding or preceding year. The clarifications relating to the assessment year 1999-2000 were not relevant for the assessment year 2001-2002.
10.The arguments of the Authorised Representative of the complainant are quite convincing as these are based on the relevant provision of law and C.B.R. s Circular on Self-Assessment Scheme. Section 59 of the repealed Income Tax Ordinance, 1979 empowers the C.B.R. to announce the scheme for Self-Assessment for every year and formulate terms and conditions for acceptance of the return under the scheme. The relevant provision of subsection (1) of section 59 is produced as under:--
(59) Self-Assessment: (1) where the return of total income for any income year furnished by the assessee (not being a public company or a company engaged in the business of banking, leasing and modaraba.) Under section 55 qualifies for acceptance in accordance with the provisions of a scheme of self-assessment made by the Central Board of Revenue for that year or under any instructions or orders issued hereunder, the (Deputy Commissioner) shall assess, by an order in writing, the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessment).
It is therefore, established that conditions laid down by the C.B.R. for one particular year would not be applicable to any succeeding or preceding year. In the case of the complainant reliance by the Taxation OfficeronBoard sclarificationissuedfortheyear,1999-2000was absolutely misplaced while considering the return for theyear2001-2002. It is however supervising that the supervising officers i.e. Commissioner of Income Tax, Special Zone and Regional Commissioner of Income Tax, Corporate Region, despite being convinced that the contention of the complainant was sound and well-founded could not issue instructions to the Taxation Officer to withdraw and cancel the unlawful notice issued under section 122 of the Income Tax Ordinance, 2001 for the year under consideration. Maladministration is established and the following recommendations are made:--
(i)The C.B.R. to direct the Taxation Officer concerned to withdraw and cancel the notice issued under section 122 bearing No.532, dated 13-3-2004 for the assessment year 2001-2002.
(ii)Compliance be made within 30 days and reported within a week thereafter.
M.I./336/FTOOrder accordingly.