FARHAT MAHMOOD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1602 (2004)

(a) Income Tax Ordinance (XLIX of 2001)

----S. 122---Income Tax Ordinance (XXXI of 1979), Ss. 59(1) & 12(18)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Amendment of assessment---Issuance of notice under 5.122 of the Income Tax Ordinance, 2001 alleging' "you have wilfully camouflaged expenditure_ _which is not legally permitted" and "you have wilfully camouflaged figures"---Notice proposed addition of an amount said to be hit by the mischief of S.12(18) of the Income Tax Ordinance, 1979 and an amount of tax paid for amnesty but not disclosed---Complainant/assessee contended that initiation of proceedings was based on `change of opinion' and on "material already available on record" thus not covered by the provisions of S.122 of the Income Tax Ordinance, 2001---Validity---Contradiction found on record was, that in the notice, dated 7-6-2004 the Assessing Officer alleged that Income was `erroneously assessed' but in the notice, dated 20-8-2004 the allegationwas changed to: "You have wilfully furnished camouflaged figures"---Department was not too sure whether it was to proceed to amend the assessment by resort to S.122(1) or S.122 (5A) of the Income Tax Ordinance, 2001---Such distinction was all the more important because after insertion of subsection (5A) through Finance Act,. 2003 in S.122 of the Income Tax Ordinance, 2001, the Central Board of Revenue issued specific instructions on 18-5-2004 that, as required by letter of law, powers under S.12(5A) of the Income Tax Ordinance, 2001 should not be delegated to the Deputy Commissioner of Income Tax but to Inspecting Additional Commissioner and that any authorization if already made to the Deputy Commissioner of Income Tax earlier, be cancelled---All the relevant evidence was available on record and no new `definite information' was obtained to lend legality to the amendment proceedings---Department failed to establish any definite evidence unearthed after the framing of the original assessment under S.59 of the Income Tax Ordinance, 1979---Proceedings were not based on bona fides and were being continued arbitrarily ignoring explanation and evidence tendered by the complainant/assessee thus causing maladministration---Federal Tax Ombudsman recommended that Central Board of Revenue should direct the proceedings initiated through notice under S.122 of the Income Tax Ordinance, 1979 on 7-6-2004 and 2-8-2004 be dropped forthwith; that the officer should be advised not to insinuate introduction of evidence on record without conclusive proof because it primarily is the responsibility of the `tax functionaries' to ensure safety of record in their office; that it should be ensured that while adhering to the provisions of subsection (5A) of S.122 of the Income Tax Ordinance, 1979 powers assigned to amend an "assessment erroneous and prejudicial to the interest of Revenue" be forthwith withdrawn from Deputy Commissioners of Income Tax and assigned to Inspecting Additional Commissioner, as required by law and directed by the Central Board of Revenue and that it should be investigated with a view to initiate disciplinary action, regarding failure of the concerned' officer to carry out the Central Board of Revenue instruction, dated 18-5-2004.

1994 PSC 621; (2004) 88 Tax 83 (FTO); 1989 PTD 141; 1992 SC 939 (SCC); 1993 SC 1026 (SCC) and 1988 SCC 692 ref.

(b) Income Tax Ordinance (XLIX of 2001)---

----Ss.122(5A) & 122(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Amendment of assessment---Application of Ss.122(5A) and 122(1) of the Income Tax Ordinance, 2001---Principles---If `existing material' on record has been ignored, the remedy is S.122 (5A) of the Income Tax Ordinance, 2001 and if any "definite information" comes to the possession of the Assessing Officer, the remedy is S.122 (1) of the Income Tax Ordinance, 2001.

C. No. 182-L/2002 and C. No. 823-L of 2004 rel.

Tariq Javed for the Complainant.

Mukhtar Ahmad, D.-C.I.T. for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH, FEDERAL TAX OMBUDSMAN).---This complaint relates to the assessment year 2002-2003 and alleges arbitrary conduct amounting to "maladministration" in the proceedings initiated for `amendment' of the assessment by resort to section 122 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance).

2. Briefly the facts are that the complainant-Individual-runs a Dental Clinic and exists on NTN 24-23-0110429. Return for the assessment year 2002-2003 filed under SAS declaring Income at Rs.138,000 was accepted under SAS on 30-12-2002 (order served on 5-6-2003). After a lapse of two years the complainant was served on 9-2-2004 a letter inquiring about the source of investment in acquisition of 4.3 Marlas/1-2-S-81/F.E., Chistian property, the reply to which, filed on 12-2-2004, was considered by the Assessing Officer unsatisfactory and further details called for on. 20-2-2004. When the complainant approached the RCIT with copies to C.B.R., the notices were withdrawn on 23-4-2004 thus dropping the initiated proceedings. However, on 7-6-2004 the complainant was served statutory notice tinder section 122 accompanied by a show-cause notice under section 122(9) of the Ordinance alleging that due to incorrect particulars having been filed, the "assessment was erroneously finalized under section 59(1) of the Income Tax Ordinance, 1979 and is liable to be amended under section 122 of the Ordinance". This notice was replied and copies endorsed to the CIT whereafter yet another notice under section 122, dated 20-8-2004 was served alleging "you have wilfully camouflaged expenditure which is not legally permitted' and "you have wilfully camouflaged figures". This notice proposed addition of an amount Rs.4,50,000 said to be hit by the mischief of section 12(18) of the repealed Ordinance and Rs.50,000 for tax paid for Amnesty 2000 but not disclosed. The complainant considers that the initiation of impugned proceedings is based on `change of opinion' and on "material already available on record" thus not covered by the provisions of section 122. This precisely is the controversy.

3. Respondents have forwarded parawise comments by RCIT Central Region, Multan which deny the alleged harassment or maltreatment by the Assessing Officer and clarify that the show-cause notices on 9-2-2004 and 20-2-2004 were issued on the basis of information received from Sub-Registrar, Chishtian where sale/purchase of properties are recorded. These two notices were later withdrawn. The parawise comments explain that in an `inspection note' of 28-5-2004 the IAC Bahawalnagar observed that the assessment framed for the year, 2002-2003 under section 59(1) of the repealed Ordinance warranted amendment particularly because the complainant had not shown expenditure of an amount of Rs.50,000 which was paid as tax under the Tax Amnesty Scheme. Furthermore, Qaraz-e-Hassna claimed at Rs.4,50,000 was not received through cross cheque hence attracted the provisions of section 12(18) of the repealed Ordinance. The RCIT has rebutted any personal grudge or bias in the proceedings which are said to be strictly in accordance with law, full opportunity having been extended to the complainant to explain his position. The RCIT has insisted that filing of documents like wealth statement, purchase deed etc. was not a requirement for SAS Returns. It has been affirmed that the Assessing Officer was duly authorized on 1-7-2002 by the Commissioner under section 210 of the Ordinance hence no mala fide in the initiation of the proceedings. The allegation of `change of opinion' is rejected by the RCIT.

4. Mr. Tariq Javed (Advocate) appearing for the complainant vehemently denied introduction of any paper on record after the completion of original assessment under section 59(1) and drew support from the fact that the original "Return Acknowledgement Receipt" duly signed/stamped by Cricle-23, Chishtian clearly mentions enclosures spread over 27 sheets. An argument was built up that the list of enclosures inter alia mentioned the wealth reconciliation, details of which were subsequently incorporated by the Assessing Officer in his notice, dated 7-6-2004. Thus there was a full disclosure of immovable property and other assets hence it was wrong to allege that any fresh discovery was made which could be made a basis for initiation of amendment proceedings under section 122 for which acquisition of "definite information" is a condition precedent. Reliance for this assertion was placed on 1994 PSC 621, (2004) 88 Tax 83 (FTO) and 1989 PTD 141. Therefore, utilizing material already existing on record as a basis for amendment represents "change of opinion" which is not a valid ground for interfering with the assessment especially by the same authority who completed the original assessment as held in 1992 SC 939 (SCC) and 1993 SC 1026 (SCC). As respects utilization of existing material, the learned counsel relying upon Supreme Court judgment reported as 1988 SCC 692 pleaded that resort could be made to section 122 (5A) of the Ordinance for which the competent authority is the IAC and not the Assessing Officer. Therefore, the initiation of proceedings was not justified on legal grounds as well as the precedent.

Attributing mala fide and arbitrary conduct falling under the definition of "maladministration" as per section 2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance), the learned counsel prayed for recommendation to drop the impugned amendment proceedings.

5. Mr. Mukhtar Ahmad (D.-C.I.T.) appearing for the Revenue in his arguments repeated the pleas conveyed by the R.-C.I.T. in the parawise comments. It was insisted that no `change of opinion' was involved as the matter was examined and action suggested by a superior authority i.e. the IAC in his `inspection note' whereafter proceedings were initiated. The DR further asserted that before insertion of subsection (5A) in section 122 of the Ordinance through Finance Act, 2003, the Assessing Officers were delegated powers under section 210 to proceed with cases where `erroneousness' has caused prejudice to the Revenue. In addition, in this particular case, according to the D.R., "definite information" was available that tax paid to avail Amnesty Scheme was not claimed as expenditure in the reconciliation and that Qarz-e-Hassna was admittedly through bearer cheque thus attracting section 12(18) of the repealed Ordinance.

6. The rival arguments of the contesting parties have been earnestly considered and the record examined. The investigations reveal that impugned proceedings were not initiated on the basis of "inspection note", dated 28-5-2004, as claimed by the Department, because the first notice issued on 9-2-2004 unequivocally proclaimed that "information obtained from Tehsildar, Chistian shows that you have invested??..in the purchase of property??? and got it registered in the office of Sub-Registrar, Chistian??.." and that "you are required to furnish documents such as source of investment, copy of registered purchase deed, copy of NIC and NTN, if any". It is thus beyond doubt that the proceedings .were triggered by the communication received from the Tehsildar and not by the direction in the subsequent `Inspection Note'. It also is glaring that no attempt whatsoever was made to ascertain whether the person about whom information was received from the Tehsildar was an existing assessee and whether he had declared the property in question in his Return or Wealth Statement. In response, the complainant categorically asserted: "I have submitted Return of total income along with all the relevant documents as required by law within due date of the preceding year" but furnished the NTN and NIC. The Assessing Officer considered this explanation `unsatisfactory' vide letter, dated 20-2-2004 and required the complainant to file receipts of dowery, jewellery, wealth reconciliation, bank statement etc. Obviously no detail about (i) the taxes paid at the time of Amnesty, or (ii) obtaining Qarz-e-Hassna, was demanded which leads to the inference that information in respect 4 these two existed on record by way of annxures to the Return, as claimed by the complainant. The fact that proceedings were later closed by withdrawing notices as communicated on 23-4-2004, is indicative that the explanation by the complainant was considered convincing. It also is significant that these amendment proceedings were dropped on a date prior to -the IAC's inspection note of 28-5-2004 to which a reference has been made by the R.-C.I.T. This leaves us only to see whether any `definite information' subsequent to 23-4-2004 was obtained as could authorize resort to section 122. There appears none on record and the DR failed to submit any. Whatever reference was made by the DR related to the statements already available on record which have been proved by the complainant to have been submitted along with the SAS Return which was accepted under section 59(1) of the repealed Ordinance. A close scrutiny of record revealed that documents like Wealth Statement and Sale/Purchase Deed, of immovable property, have since been detached from the Return and placed in different covers to which these are said to belong. These documents/papers still carry, Serial numbers 1 to 27, in the writing of the complaint as claimed and as mentioned on the Return Acknowledgement Receipt though presently these are placed in different covers. Therefore, the assertion that all these documents were attached with the Return is clearly established and erodes the allegation by the R.-C.I.T. that the AR managed to introduce these documents after the completion of the assessment. No evidence to this effect exists on record nor any proof could be tendered at the hearing.

7. Another contradiction on record is that in the notice, dated 7-6-2004 the Assessing Officer alleged that Income was `erroneously assessed' but in the notice, dated 20-8-2004 the allegation was changed to: "you have wilfully furnished camouflaged figures". It appears that Department was not too sure whether they were to proceed to amend the assessment by resort to section 122(1) or section 122(5A). This distinction is all the more important because after insertion of B subsection (5A) through Finance Act, 2003 in section 122, the C.B.R. issued specific instruction on 18-5-2004 that, as required by letter of law, powers under section 122(5A) should not be delegated to the D.-C.I.Ts. but to IACs and that any authorization if already made to the D.-C.I.Ts. earlier, be cancelled. It is surprising that despite these unequivocal instructions which were dealt out to CITs in Eastern Region on 22-5-2004, the Assessing Officer was still allowed to continue the proceedings and no cognizance of this illegality has been taken even when drafting para-wise comments. It is now well-settled

that:--

(a) If 'existing material` or record has been ignored, the remedy is section 122(5A), and

(b) if any "definite information" comes to the possession of the Assessing Officer, the remedy is section 122(1).

This has already been held in Finding/Decision on C. No. 182-L of 2002, dated 12-10-2002 and C. No. 823-L of 2004, dated 25-10-2002.

8. In the present case, the complainant has successfully demonstrated that all the relevant evidence was available on record and no new `definite information' was obtained to lend legality to the amendment proceedings. This stand was taken by the complainant in reply to the show-cause notice on 9-2-2004 and he continues to stick to it. On the other hand, the Department has failed to establish any definite evidence unearthed after the framing of the original assessment under section 59 of the repealed Ordinance on 30-12-2002. The conclusion is thus inescapable that impugned proceedings are not based on bona fide and are being continued arbitrarily ignoring explanation and evidence tendered by the complainant thus causing "maladministration" as defined in clause (3)(i) of section 2 of the FTO Ordinance. It is, therefore, Recommended that the C.B.R. direct:--

(i) The proceedings initiated through notice under section 122 on D 7-6-2004 and 2-8-2004 be dropped forthwith.

(ii) The officers should be advised not to insinuate introduction of evidence on record without conclusive proof because it primarily is the responsibility of the `tax functionaries' to ensure safety of record in their Office.

(iii) It should be ensured that in adherence to the provisions of subsection (5A) of section 122 of the Ordinance powers assigned to amend an "assessment erroneous and prejudicial to the interest of Revenue" be forthwith withdrawn from DCITs and assigned to IACs, as required by law and directed by the C.B.R.

(iv) It should be investigated with a view to initiate disciplinary action, regarding failure of the concerned officer to carry out the C.B.R. instruction, dated 18-5-2004 (ibid).

7. Compliance report be submitted within 30 days of the receipt of this Order.

C.M.A./400/FTO(L)??????????????????????????????????????????????????????????????????????????? Order accordingly.