PROGRESSIVE ASSOCIATES, GUJRAT VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1955 (2004)

(a) Income fax Ordinance (XLIX of 2001)---

----Ss.170, 177, 114(1) & 120(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Return was riled under S. 114(1) of the Income Tax Ordinance, 2001 and assessment in respect of such return was deemed to have been finalized under S.120(1) of the Income Tax Ordinance, 1979---Complainant/ assessee was entitled to a tax refund in consequence of such assessment and an application as prescribed by law was duly attached with the return---Department contended that complainant's case fell within the parameters determined for selection for audit under S.177 of the Income Tax Ordinance, 2001 as the refund claimed exceeded Rs.100,000---Refund could not be issued on account of selection of the case for audit and it was to be issued if found due after the audit is finalized---Validity---Commissioner could have no reason to believe that the income declared by the complainant/assessee was not the true income merely because the complainant/assessee had claimed a refund of over Rs.100,000---In principle, there was no reason for withholding the refund claimed by the complainant/assessee through an application under S.170 of the Income Tax Ordinance, 2001 and the failure to issue the refund was an act of maladministration---In however, any verification of the payments/deductions claimed was still pending the verification may be carried out expeditiously before the issuance of refund---Federal Tax Ombudsman recommended that the refund for the tax year 2003 as claimed by the complainant be issued to it and if verification of tax payments/deductions is required, it be carried out expeditiously.

Complaint No.363 of 2004 rel.

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

----Ss.177 & 170---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Audit---Refund---Reason that refund could not be paid because audit was to be conducted under S.177 of the Income Tax Ordinance, 2001 was not tenable in the light of provisions of S.177 of the Income Tax Ordinance, 2001.

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

----Ss.170, 177 & 122---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Audit---Audit could be undertaken by the Commissioner on the basis of any matter which he considered relevant but the audit under S.177 of the Income Tax Ordinance, 2001 was in the nature of preliminary enquiry to determine whether an amended assessment was to be made under S.122 of the Income Tax Ordinance, 2001 in which connection the requirements of that section would have to be met independently including an opportunity to the taxpayer under subsection (9) of S.122 of the Income Tax Ordinance, 2001---Mere selection of a case for audit under S.177 of the Income Tax Ordinance, 2001 could in no way mean that the assessment under S.120 of the Income Tax Ordinance, 2001 had been modified or the refund on the basis of the assessment was no longer payable---Income Tax Ordinance, 2001 did not envisage the withholding, a refund on the basis of any subsequent proceedings.

Mirza Muhammad Wasim, Adviser.

Z.H. Khawar for the Complainant.

Faqir, Hussain, DCIT, Circle 17, Gujrat for Respondent.

FINDINGS/DECISION

JUSTICE (RETD,) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The main points in the complaint filed on behalf of an association of persons are as follows---

(i) Income tax return for the tax year 2003 was filed by the complainant under section 114(1) of the Income Tax Ordinance, 2001 on 7-10-2003. Assessment in respect of the said return is deemed to have been finalized under section 120(1).

(ii) As per the return the complainant was entitled to a tax refund of Rs.233,168 and a refund application as prescribed by law was duly attached with the return.

(iii) Under, section 170(4) of the Income Tax Ordinance the Department is under legal obligation to issue refund order within 45 days of the receipt of the refund application. Thereafter the refund voucher is liable to be issued within next three months failing which the taxpayer is entitled to compensation under section 171.

(iv) Notwithstanding the above, no voucher has been issued as yet despite repeated oral and written applications. This act of the Department amounts to defiance of law which is cognizable by the Federal Tax Ombudsman.

(v) It has been prayed that directions be issued for prompt issuance of the refund.

2. In the respondent's reply the preliminary submission is that there has in fact been no act of maladministration and that the allegation of maladministration be properly examined and conclusively established before proceeding further in the matter. On facts the main points in the respondent's reply are as follows---

(i) The complainant filed income tax return for the tax year 2003 declaring an income of Rs.405,320 and claimed tax deductions and payments amounting to Rs.278,498.

(ii) The complainant's case fell within the parameters determined for selection for audit (under section 177 of the Income Tax Ordinance, 2001) as the refund claim exceeded Rs.100,000.

(iii) Refund has not been issued on account of the selection of the case for audit and it shall be issued if found due after the audit is finalized.

It has been prayed that the complaint be filed.

3. During the hearing the learned Advocate for the complainant contended that the selection of the return for audit had no bearing on the complainant's refund claim and that on the basis of the refund application filed under section 170 along with the return, the complainant was entitled to the refund as claimed. The Department's representative, however, referred to the contents of the reply in this context.

4. The contentions of the two sides have been considered and it is to be noted that the same issue has been dealt with in the findings/decision dated 6-7-2004 in Complaint No.363 of 2004 in which the withholding of refund under similar circumstances has not been found to be valid. As noted in the said findings the provisions of subsection (1) of section 120 of the Income Tax Ordinance, 2001 read as under---

"120. Assessrnents.---Where a taxpayer has furnished a complete" return of income (other than a revised return under subsection (6) of section 114) for a tax year ending on or after the 1st day of July, 2002---

(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and

(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished

5. In the present case it is not denied by the respondent that the complainant's assessment for the tax year 2003 stood completed under section 120. The argument that the resultant refund cannot be paid at present because audit is to be conducted under section 177 is not tenable in the light of the provisions of the said' section, the first three relevant subsections of which read as under---

"177. Audit---(1) The Commissioner may select any person for an audit of the person's income tax affairs having regard to---

(a) the person's history of compliance or non-compliance with this 'Ordinance;

(b) the amount of tax payable by the person;

(c) the class of business conducted by the person; and

(d) any other matter that the Commissioner considers relevant.

(1A) After selection of a person for audit under subsection (1), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts end records, enquiry into expenditure, assets and liabilities) of that person.

(IB) After completion of the audit under subsection (1A) or sub-section (3), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or sub-section (4) of section 122, as the case may be."

6. It is evident that ail audit call be undertaken by the Commissioner on the basis of any matter which he considers relevant but it is also evident that the audit under section 177 is in the nature of a preliminary enquiry to determine whether an amended assessment is to be made under section 122 in which connection, of course, the requirements of that section would have to be met independently including an opportunity to the taxpayer under its subsection (9). The mere selection of a case for audit under section 177 can, however, in no way mean that the assessment under section 120 has been modified or the refund on the basis of the assessment is no longer payable. It is also to be noted that the Income Tax Ordinance, 2001 does not envisage the withholding of a refund on the basis of any subsequent proceedings. Furthermore, at present the Commissioner can have no reason to believe that the income declared by the complainant is not the true income merely because the complainant has claimed a refund of over Rs.100,000.

7. In the light of the above, there is, in principle, no reason whatsoever for withholding the refund claimed by the complainant through an application under section 170 and the failure to issue the refund is an act of maladministration as defined in section 2(3)(v) of Ordinance XXXV of 2000. If, however, any verification of the payments/deductions claimed by the complainant is still pending the verification may be carried out expeditiously before the issuance of refund.

8. In view of the above it is recommended that---

(i) The refund for the tax year 2003 as claimed by the complainant be issued to it and if verification of tax payments/deductions is required, it be carried out expeditiously.

(ii) Compliance be reported within 30 days.

C.M.A./352/FTO(I)Order accordingly.