ABDUR REHMAN HAROON VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1127 (2004)

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss. 63, 61 & 62---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Best judgment assessment---Ex parte assessment was finalized without giving due consideration to replies and document filed in response to notices under Ss.61 & 62 of the Income Tax Ordinance, 1979---Validity---Scrutiny of record revealed that day to day entries were not made on the order sheet---Documents received by the office, though entered in the Inward Register, were not placed on the record---Assessment as framed determining income at a net figure did not disclose its computation nor did it mention the extent of Receipts and the Expenses necessary to earn the income--Summary assessment was resorted to determine income in a slipshod summary manner---`Inefficiency' was evident for not bringing documents on record---`Inattention' was glaring from not recording day to day developments on the order sheet---`Unjust treatment' was eminent in determining income by a rule of thumb at a net figure without any computation or working---`Neglect' was displayed by ignoring to enquire into the source of investment---Process adopted by the Assessing Officer in making an ex parte assessment was unfair and in violation of principles of natural justice---Notices were replied but Assessing Officer insisted that no reply was available on record---Complainant/assessee was not responsible for placing the duly received reply on record--Inquiry by Commissioner or the, Assessing Officer could have revealed the negligence and maladministration on the part of the tax employee---To deny the facts available on their own record was nothing but dishonesty and mala fide---Such is high time the Department should learn to honestly admit their mistake which will make their wrong action bona fide otherwise it will be characterized mala fide and dishonest---Entire proceedings suffered from maladministration---Federal Tax Ombudsman recommended that ex parts assessment as framed on 31-3-2003 in the complainant's case for the assessment year 2002-2003 be cancelled by resort to section 122A of the Income Tax Ordinance, 2001; Assessing Officer be directed to reframe the assessment in accordance with law with due opportunity of hearing after proper enquiry/investigation and Assessing Officer (person not the office) be subjected to `Counselling' for his careless conduct in framing the assessment.

(b) Income Tax Ordinance (XXXI of 1979)---

----S. 63---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Best judgment assessment---If justification existed for ex parte action there was statutory obligation on the Assessing Officer to determine income to the `best of his' judgment' as near to the correct figure as possible; to this end it was necessary to conduct an enquiry with a view to find out the extent and volume of the activity to earn income and quantum of overheads---When framing first assessment of a new business it is essential to ascertain the initial investment and its sources.

S. Faiq Rizvi for the Complainant.

G.R. Mansoori (D-CIT) for Respondent.

FINDINGS/DECISION

This 'complaint pertains to the assessment year 2002-2003 and alleges arbitrary conduct in the framing of assessment under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance).

2. The circumstances leading to the complaint are that a teaching centre with the name and style `Pak-British Institute' is run by an Individual. Proceedings for assessment were initiated by issuing statutory notice under sections 61/62 on 2-12-2002 which accompanied a letter of same day specifying books of accounts and other, relevant particulars which were required to be filed by 18-12-2002. To this end reminders were issued on 28-1-2003 and 24-3-2003. The Assessing Officer finally framed an ex parte assessment under section 63 of the repealed Ordinance on 31-3-2003 determining Income at Rs.200,000. With this the complainant is aggrieved.

3. The Respondent have forwarded para-wise comments by the CIT, Companies Zone-V, Karachi, justifying resort to ex parte assessment because "as per record neither compliance by the assessee is noted nor any detail found to be furnished". It concludes by submitting that the "Taxation Officer duly passed the assessment order lawfully after providing lawful opportunity of being heard to the assessee". It is prayed that the "complaint being frivolous and baseless may be vacated".

4. Syed Faiq Rizvi (Advocate) the learned counsel for the complainant vociferously denied non-compliance which has been made a basis for ex parte action. The AR pointed out that a detailed reply to notice, dated 18-12-2002 was furnished on 16-1-2003 which was diarised at No.553 by the concerned Circle. Similarly response, dated 21-3-2003 to notice issued under section 62 on 28-1-2003, was assigned Inward No.707 and reply to notice of 29-3-2003 bears the stamp of Circle together with signatures of the concerned functionary to whom it was handed over. Photocopies of these documents were attached with the complaint. The AR expressed surprise as to why these documents were not placed on record and not given the consideration they deserved. This lapse, according to the AR, being mala fide rendered the assessment arbitrary.

5. Mr. G.R. Mansoori (D-CIT) appearing for the Revenue presented record to show that none of the replies, as mentioned by the learned counsel, are obtaining on record. The DR had, however, brought with him the "inward register" of the Circle wherein (he admitted and showed) that entries, as referred to by the complainant's counsel, do exist. The DR attempted, to justify ex parse action because these replies were not submitted by the due date. As respects the quantum of Income, as determined by the Assessing Officer, the DR canvassed that the Tuition Centres are a lucrative business specially those who teach foreign languages, like English in this case.

6. The consideration of arguments by the two sides and scrutiny of record reveals that:--

(i) Day-to-day entries were not made on the Order Sheet. ,

(ii) Documents received by the office, though entered in the Inward Register, were not placed on the record.

These deficiencies rob of justification for ex parte action. Moreover, the assessment, as framed determining Income at a net figure of Rs.2,00,000 does not disclose its computation nor does it mention the extent of Receipts and the Expenses necessary to earn the Income. Even if justification existed for ex parte action there was statutory obligation on the Assessing Officer to determine Income to the `best of his judgment as near to the correct figure as possible. To this end it was necessary to conduct an enquiry with a view to find out the extent and volume of the C 'activity to earn Income and quantum of Overheads. More importantly, when framing first assessment of a new business it is essential to ascertain the initial investment and its sources. All these obligations were bypassed and a summary assessment was resorted to determine Income in a slipshod summary manner at a net amount of Rs.200,000 against the declared Rs.68,000. Therefore, (i) `inefficiency' is evident for not bringing documents on record, (ii) `inattention' is glaring from not recording day-to-day developments on the Order Sheet, (iii) `unjust treatment' is eminent in determining Income by a rule of thumb at a net figure without any computation or working, and (iv) `neglect' is displaced by ignoring to enquire into the source of Investment. All these lapses are identifiable as "maladministration" defined in Clause (3) of section 2 of the FTO Ordinance. Furthermore the process adopted by the D Assessing Officer in making an ex parte assessment was unfair and in violation of principles of natural justice. There is ample proof on record that the notices were replied as discussed in paragraph 4 yet the learned Commissioner in reply insisted that no reply was available on record. Who is responsible for placing the duly received reply on the file surely not the complainant. A simple inquiry by the Commissioner or the Assessing Officer could have revealed the negligence and mal administration on the part of the tax employee. To deny the facts available on their own record is nothing but dishonesty and mala fide. This is high time the Department should learn to honestly admit their mistake. This will make their wrong action bona fide otherwise it will be characterized mala fide and dishonest. In the present case the entire proceeding suffers from maladministration.

7. It is, therefore, Recommended that:--

(i) Ex parte assessment as framed on 31-3-2003 in the complainant's case for the assessment year 2002-2003 be cancelled by resort to section 122A of the Income Tax Ordinance, 2001.

(ii) The Assessing Officer be directed to reframe the assessment in accordance with law with due opportunity of hearing after proper enquiry/investigation.

(iii) The Assessing Officer (person not the office) be subject to `Counselling' for his careless conduct in framing the assessment.

8. Compliance be reported within 30 days of the receipt of this Order.

C.M.A./220/FTOOrder accordingly.