Rao KHURRAM ALI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2006 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1774 (2004)

Income Tax Ordinance (XXXI of 1979)---

----Ss.59(1), 61, '62, 63, 80-D & 86---C.B.R. Circular No. 21 of 2000, dated 11-9-2000, para. 4, Cl. (e)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9(2) & 2(3)---Self Assessment---Notice for production of books--Evidence on record---Additional Tax---Jurisdiction---Maladministration---Assessing Officer, after issuing notices framed ex parte assessment under section 63 of the Income Tax Ordinance, 1979---Complainant being aggrieved alleged that Return filed by him was qualified under Self-Assessment Scheme---Representative of Commissioner of Income Tax contended that the matter related to assessment and Federal Tax Ombudsman had no jurisdiction and maladministration was denied---Further plea was that last assessment was made under S.80-D of the Ordinance on basis of turnover as Return had shown a loss which had robbed of the basis for comparison percentage-wise and Assessing Officer had acted in accordance with law---Validity---Declared income for year under consideration was higher than the preceding year---Similar was the position with respect to turnover and the Tax paid---Return qualified for acceptance under Self-Assessment Scheme---Plea that there was no basis for comparison was against Central Board of Revenue's Circular 21 of 2000 para. 2(iv) Explanation (a)---Show-cause notice should have been per para. 5(b) of the Circular prescribing Self-Assessment Scheme---Such inconsistencies/ deficiencies exposed mala fide, neglect/inattention/ inefficiency---Framing of an ex parte assessment was maladministration--Federal Tax Ombudsman recommended the Commissioner to cancel the assessment framed ex parte and Return filed under Self-Assessment Scheme be accepted.

Rana Munir Hussain for the Complainant.

Mahmood Jafary, D-CIT for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR, FEDERAL TAX OMBUDSMAN.---The facts leading to the complaint are that a Private Limited Company Known as Amtul Subhan Textile (Pvt.) Ltd. carries on weaving of cloth for others. Return for the assessment year 2000-2001 was filed under SAS on 30-9-2000 declaring Income at Rs.120,806 on a Turnover of Rs.12,081,453 on which Tax aggregating Rs.60,408 (Rs.5,770 + 54,638) was paid. When the Assessing Officer issued notice under section 61 on 12-6-2003, the Complainant pointed out on 18-6-2003 that the Return qualifies for acceptance under SAS. The Assessing Officer, however, issued notice under section 62 on 23-6-2001 contending that the Tax paid was lesser than the one payable on the basis of last assessed income i.e. in the preceding year, 1999-2000. Despite the Complainant having intimated that assessment for 1999-2000 had never been served on them, the Assessing Officer framed an ex parte assessment under section 63 on 30-6-2003 determining Income at Rs.8,391,564. At the same time demand under sections 52/86 at Rs.21,268 and Rs.19,141 respectively, was raised. With these the Complainant is aggrieved.

2. The Respondents have forwarded parawise comments by R-CIT, Eastern Region, Lahore which question the competence of the complaint for admission in view of the bar as per section 9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance) and deny "maladministration". It is submitted by the RCIT: "the assessee did not observe the inherent requirement of Clause (iv) of para. 2 of the Self-Assessment Scheme, 2000 and as such the Return was not processed under section 59(1) of the Income Tax Ordinance, 1979". It is further conveyed that in the Scheme there was no requirement to send any intimation when excluding the Return from the ambit of SAS. According to the RCIT, the notices under sections 61 and 62 were duly issued as per Notice Server's report, dated 26-6-2002 but "the Complainant's Authorized Representative having read the notices, refused to receive the same". Therefore, these were dispatched through registered mail on 27-6-2003 which is a valid service of notices of which Acknowledgement Receipt has been forwarded by the Postal authorities. The acts of the Assessing Officer have been characterized by the RCIT, as "in harmony with law, within lawful jurisdiction and not barred by time" - hence no "maladministration" is said to have occurred. The RCIT further reports that in the preceding year, 1999-2000 the Tax was paid under section 80D at Rs.54,190 on the basis of Turnover though the Return had shown a loss of Rs.203,967. Therefore, "loss" declared in the preceding year robbed off the basis for comparison to judge whether in the year-under-consideration the Tax paid was percentage-wise more than the one paid in the preceding year, as required by the Scheme. The RCIT concludes: "the returned income is on the lower side as compared to the tax paid by the assessee".

3. Rana Munir Hussain (Advocate), AR for the Complainant, submitted that the assessment for the preceding year, 1999-2000 was framed on 29-4-2002 (communicated on 10-7-2002) determining income at Rs.2,001,111 against a claimed loss of Rs.203,967. Therefore, on the date when the Return for 2000-2001 was filed (i.e. 30-9-2000), the assessment framed under section 62 in the preceding year was not yet available. Consequently, adhering to the prescribed requirements the Complainant deposited Tax at Rs.60,408 on Income at Rs.120,806 representing the prescribed increase over the Tax paid at Rs.54,190 in the preceding year. The Return thus qualified for acceptance under SAS. The learned counsel highlighted the contents of para. (3) of the assessment, as framed for the year-under-consideration, which reads:--

"Assessment in this case for the charge year, 1999-2000 was finalized under section 62 at net income of Rs.2,001,1.11 as against the declared loss of Rs.203,967. As per Scheme the basis of comparison is the income last assessed or declared which ever is higher and not the loss. Moreover, the assessee had paid tax amounting to Rs.6,408 on account of minimum liability under section 80D but the declared income was at Rs.120,806 for the assessment year 2000-2001. Therefore, the income declared does not commensurate with the tax paid. If the income is worked back on the basis of tax paid the same would be on the higher side as compared to the returned income".

(here underlined for emphasis)

An argument was developed that since it was categorically mentioned in the "Summary of Return" on the prescribed IT-11 that Tax was paid under section 50(7E) at Rs.5,770 and under section 54 (with the Return) at Rs.54,638 (aggregate Rs.60,408), the Assessing Officer's mala fide was evident from the fact that he deliberately mentioned Rs.6.408 instead of Rs.60,408 for a pretext to exclude the Return from the SAS although the Tax paid was more than the Tax paid in the preceding year (Rs.60,408 vis-a-vis Rs.54,190). It was further canvassed that as "a departure from established practice or procedure" (i) no `short document' notice, or (ii) intimation that the Return does not qualify for SAS warranting normal law assessment proceedings; was ever served as required by the SAS. Therefore, according to the AR, mala fide overtook bona fide in the processing of Return and framing of assessment.

4. Mr. Mahmood Jafary (DCIT) appearing for the Revenue contended that as per Clause (e) of para. 4 of C.B.R. Circular 21 of 2000 all cases where Income was declared below the taxable limit, did not qualify for SAS. Since in the preceding year of 1999-2000 the declared position was a `loss', no basis existed to compare whether the `tax paid' was higher as required by SAS. The DR perused the same line of arguments as is contained in para-wise comments by the RCIT.

5. The contentions by the two sides and scrutiny of assessment order as also of record reveals the following position as respect declaration as per Return for 2000-2001 compared to the preceding year, 1999-2000:

??????????????????????????????????????? 2000-2001?????????????????????????????? 1999-2000

Income???????????????????????????????????? (+) Rs.120,806?????????????????????? (-) Rs. 203,967

Turnover????????????????????????????????????????????? 12,081,453????????????????????????????? 10,838,704

Tax under S. 80-D?????????????????????????????? 60,408???????????????????????????????????? 54,196

End

(i) It is evident that the declared Income for the year under consideration was higher than in the preceding year. Similar was the position with respect to the Turnover and the Tax paid. Therefore, at first glance it appears that the Return qualified for acceptance under SAS. It also is not denied that the Return for 2000-2001 was filed on 30-9-2000, and assessment under section 62 for the year 1999-2000 had not been framed by then.

(ii) It is significant that the Assessing Officer mentioned in the assessment for 2000-2001 that Tax was deposited at Rs.6,408 but on the IT-30 he gave credit only for Rs.5,770. On the other hand, the RCIT on the basis of record has admitted in para. (ix) of comments that Tax was deposited at Rs. 60,408. The contradiction exposes mala fide.

(iii) It is surprising that the RCIT in his comments has taken the stand that no basis existed to judge whether Tax paid was higher than last year. This plea goes against Explanation (a) to para. 2(iv) of the C.B.R. Circular 21 of 2000 where payment under section 80D has not been excluded for comparison.

(iv) In case it was suspected that Tax paid was not supported by evidence, a show-cause notice was required as per Para. 5(b) of the Circular prescribing SAS. This was not done.

The above inconsistencies/deficiencies expose mala fide, 'neglect/inattention/inefficiency in the discharge of duties and responsibilities' with which the `tax functionaries' handled the Return resulting in exclusion of the Return from SAS and framing of a ex parte assessment under section 63 thus betraying `maladministration' as defined in Clause (3) of the Section 2 of the FTO Ordinance. The Department failed (a) to reconcile the contradiction existing on its own record, or (b) to establish that bona fide was not sacrificed at the altar of mala fide, which caused `maladministration' in the process of assessment, thus brings in the jurisdiction of the FTO. Therefore, entertaining the complaint as competent, and on visualization of facts/circumstances, as identified above, it is recommended that:--

(i) The Commissioner, by resort to section 122A of the Ordinance, 2001 cancel the assessment framed on 30-6-2003.

(ii) The Return for 2000-2001 as filed under SAS on 30-9-2000 be accepted under SAS.

6. Compliance report be submitted within 30 days of receipt of this order.

M.I./304/FTO????????????????????????????????????????????????????????????????????????????????????? Order accordingly.