BASHIR AHMAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1088 (2004)

Income Tax Ordinance (XXXI of 1979)---

----Ss.61 & 63---Income Tax Ordinance (XLIX of 2001), S.122-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)(i)(a)(b) & (c)---Ex parte assessment---Maladministration---Complainant had leased "Ata Chakki" to "S"---Both had filed returns declaring income as Rs.36,000 & Rs.50,000 respectively---Assessing Officer had treated the income declared by the lessee as income of the lessor presuming that it was collusive arrangement between the lessor and the lessee and after issuance of statutory notices assessed income at Rs.150,000---Validity---Presumption of collusion was not based on any enquiry or other independent evidence---Assessing Officer had failed to do his duty---Assessment Order was arbitrary and based on irrelevant grounds and it was a case of maladministration---Federal Tax Ombudsman recommended that Commissioner of Income Tax should amend the assessment after fully ascertaining the facts of the case, under section 122-A of the Income Tax Ordinance, 2001.

Muhammad Tasawar Mufti for the Complainant.

Muhammad Saleem, DCIT for Respondent.

FINDINGS/DECISION

The main points in the complaint are as follows:

(i) The complainant, an individual, derived income from leasing out of his Ata Chakki (flour grinding unit) and filed his return of income for the assessment year 2001-2002 declaring net income at Rs.36,000. In the assessment order the income declared by the complainant has been mentioned as Rs.50,000 which is actually the income declared by Mr. Shabbir Hussain, lessee of the unit.

(ii) Both the lessor (complainant Bashir Ahmad) and the lessee (Mr. Shabbir Hussain) had filed returns in the same circle declaring income at Rs.36,000 and Rs.50,000 respectively. The complainant has been wrongly assessed ex parte for business income derived from running of Ata Chakki whereas he had leased out the Chakki to Mr. Shabbir Hussain during the period relevant to the assessment year 2001-2002.

(iii) The complainant was not available at the leased out premises and therefore did not receive the statutory notices under section 61. The ex parte assessment was thus illegal which is prayed to be vacated.

2. The respondent's reply contains the following main points:--

(i) The lessor and lessee had filed returns of income separately declaring income of Rs.36,000 and Rs.50,000 respectively. The income declared by the lessee has been taken to be the income of the complainant and the return filed by the lessee Mr. Shabbir B Hussain has been ignored being collusive arrangement to avoid the proper incidence of taxation. Further, no lease agreement was furnished by the complainant along with the return to support his declared version.

(ii) Ex parte assessment was properly made after affording two opportunities of hearing through service of notices under section 61 whereby hearing was fixed on 17-8-2002 and 24-8-2002. Both these notices were not complied with.

(iii) Income assessed at Rs.1,50,000 was not harsh and excessive. It was quite justified in view of the fact that the complainant had himself declared his income for the immediately preceding year (Asstt. year, 2000-2001) under SAS at Rs.135400.

3. The representatives of both sides attended and reiterated their contentions which were considered and relevant record was examined. Both the lessor and the lessee had filed their separate returns in the same circle declaring income of Rs.36,000 and Rs.50,000 respectively. The complainant had filed the return as a new assessee and the Department was justified in not accepting this status as the complainant had been filing returns for earlier years. The income declared by the lessee has, however, been treated as the income of the lessor/complainant presuming that there was a collusive arrangement between the lessor and the lessee to avoid the proper incidence of tax. This treatment is not tenable as it is not based on any enquiry or other independent evidence. Income declared by one person cannot be treated to be the income of another person on mere conjecture and without bringing conclusive material on record to justify such action. Since both the returns were available with the Assessing Officer it was for him to have made proper enquiries and to have brought necessary evidence on record. The assessment order as framed is thus arbitrary and based on irrelevant grounds. Mal-administration is therefore established in terms of section 2(3)(i)(a), (b) and (c) of the Ordinance No. XXXV of 2000.

4. It is, therefore, recommended that:---

(i) The assessment for the year 2001-2002 be amended by the Commissioner of Income Tax under section 122A of the Income Tax Ordinance, 2001 after fully ascertaining the facts of the case and affording the complainant a reasonable opportunity of being heard.

(ii) Compliance be made within 30 days.

M.I./285/FTOOrder accordingly.