Messrs HAFEEZ CLOTH HOUSE, FAISALABAD VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2007 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2051 (2004)

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

----S.122(5A)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Finance Act (I of 2003)---C.B.R. Letter C.No.4 (530) TO-I/2002 dated 22-03-2004---CBR Letter C.No.3 (12) IT-Jud/04 dated 24-4-2004---C.B.R. Circular No.1 (48)/11-1-1979 dated 17-2-1981---S.R.O. 663(I)/2002 dated 14-9-2002---S.R.O. 608(I)/ 2003' dated 24-6-2003---Amendment of assessment---Initiation of proceedings by the Inspecting Additional Commissioner by invoking jurisdiction under S.122(5A) of the Income Tax Ordinance, 2001 for the assessment year 2001-2002---Validity---Proceedings were initiated under S.122(5A) of the Income Tax Ordinance, 2001 on 10-3-2004 for the assessment year 2001-2002---Assessment for the said year was made on 5-12-2002 after subsection (5A) was added to S.122 of the Income Tax Ordinance, 2001 through S.R.O. 663(I)/2002 dated 14-9-2002 which was rescinded by S.R.O. 608(I)/2003 dated 24-6-2003---No notice under S.122(5A) of the Income Tax Ordinance, 2001 could be issued on 13-3-2004 invoking already rescinded provisions---Substituted subsection (5A) in S.122 of the Income Tax Ordinance, 2001 was effective from 1-7-2003; hence inapplicable to a matter decided and closed prior to enactment of Finance Act, 2003---Alleged maladministration, on account of initiating a process which was contrary to the principles of law enunciated in the binding decision of High Court was proved---Department had no jurisdiction under S.122 of the Income Tax Ordinance, 2001 on 10-3-2004 to issue a notice under S.122(9) of the Income Tax Ordinance, 2001 to amend the assessment order that was either deemed to had been passed on 30-6-2002 or in any case on 5-12-2002---Process fell under the inclusive definition. of mal administration---Federal Tax Ombudsman recommended that the Member Income Tax, Central Board of Revenue ensures that the principles of law enunciated in the binding decision of High Court in which Central Board of Revenue Circular had been cited with approval is conveyed through another Circular to all field officers so as to save both the time and effort of the officers and unnecessary harassment to the assessee and that the proceedings initiated in the case of present complainant/assessee are dropped.

I.T.A. No.3996/LB of 2002; Complaint No.530 of 2002; Messrs Monnoo Industries Limited v. The Commissioner of Income Tax, Central Zone, Lahore 2001 FTD 1525 and 2001 PTD (Trib) 2902 ref.

Messrs Monnoo Industries Limited v. The Commissioner of Income Tax, Central Zone, Lahore 2001 PTD 1525 rel.

(b) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)---Maladministration---Mala fide---No mala fide is required to be proved for a finding of maladministration.

Complaints Nos.1472-L of 2003; 368 of 2004 and 329-K of 2004 rel.

(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)---Maladministration---Definition---In general terms bad or poor management or regulation of public affairs is maladministration---Bad or poor management/regulation of public affairs will remain bad notwithstanding that it is bona fide and for valid reason because goals of good management or regulation of public affairs cannot be achieved without eradication of such reasons/causes.

(d) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----S.2(3)(i)---Maladministration---Bona fide and valid reasons---Interpretation and explanations---Meanings of the term "bona tide" showed that a decision, process, recommendation, act of omission or commission which is contrary to law, rules or regulations or a departure from established practice or procedure may be claimed to be done in good faith (bona fide), the concept of malice in law notwithstanding---Attributing any "valid reason" to a decision, process, recommendation, act of omission or commission which is "contrary to law" (the law as settled by the binding decisions of judicial forums) is inconceivable ---Departure from established practice or procedure is the only act for which valid reason may be offered---Rider governs only the second part of sub-Cl(a) of Cl.(i) of Sub-S.(3) of S.2 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 i.e. the phrase, "act of omission and commission which is a departure from established practice or procedure" because it may be both bona tide as well as for valid reasons---Use of conjunction "and" in the rider requires the tax employee to prove that an act of omission or commission which is a departure from established practice or procedure on his part was both bona ride as well as for valid reasons---Failure to discharge onus on any one of the two counts or both shall not absolve him of maladministration because the use of the word "unless with rider suggests that it is for the Department to prove bona fide and valid reasons---Rider "unless it is bona fide and for valid reasons" governing the second part of sub-Cl.(a) of Cl.(i) of subsection (3) of S.2 of the Establishment of Office of Federal Tax Ombudsman. Ordinance, 2000 is an exception to -the common dictionary meanings of the word "maladministration"---Exception seems to have been made to suggest that the Federal Tax Ombudsman does not recommend any adverse action against a tax employee who is able to prove that departure from established practice or procedure on his part was bona fide and for valid reason.

Chamber 21st Century Dictionary -Revised Edition at page. 155 and Black's Law Dictionary, 7th Edition, at page 168 ref.

Saghir Tirmizey for the Complainant.

Khalid Farooque Mian, DCIT for the Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---Maladministration is alleged in the instant complaint on the part of Taxation Officer (BS-19) (Inspecting Additional Commissioner) Range-III. Companies Zone, Faisalabad for initiating a process contrary to settled law and for disregarding summarily the objections raised over the process initiated by invoking jurisdiction under section 122(5A) on the Income Tax Ordinance, 2001 (The Ordinance) for assessment year 2001-2002 on invalid grounds involving exercise of powers for administrative excesses.

2. Briefly, the facts found on investigation are that the assessment of income made under section 59(1) of. Income Tax Ordinance, 1979 (Repealed Ordinance) by the 'Taxation Officer (B5-18) Companies Circle-08, Faisalabad was considered erroneous in so far as it was prejudicial to the interest of revenue. A notice under section 122(9) of the Ordinance was issued on 10-3-2004 alleging errors in the order on the ground that the return was processed under Self-Assessment Scheme (SAS) in spite of the fact that a letter was issued requiring fulfilment of mandatory statutory requirement of filing wealth statement with the return wherein total income of Rs.290,000 was declared; hence the return filed by the complainant vas considered invalid. The other grounds on which the error was considered prejudicial to the interest of revenue were that the complainant declared gross turnover amounting to Rs.3,250,000 whereas sales estimated at Rs.7,000,000 by the team conducting survey under the Documentation of Economy Ordinance and that he avoided declaring particulars of his assets and liabilities.

3. The complainant filed objections to initiation of proceedings under section 122(5A) of the Ordinance on the ground that the complainant did not accept the estimate of sales by the survey team and it was' challenged before the competent authority. It was further submitted that the return filed by the assessee fully qualified for acceptance under Self-Assessment Scheme. The notice under section 61 was erroneously issued. The Assessing Officer was apprised of' `correct' legal position with reference to facts of the case. The Assessing Officer `realized his mistake' and passed order under section 59(1).

4. Responding to the notice under section 10(4) of the Ordinance XXXV of 2000 (FTO Ordinance) the RCIT, Central Region, Multan has forwarded respondent's comments stating that the returns of income filed for the assessment year 2001-2002 and 2002-2003 did not merit acceptance under SAS because returns were not accompanied with wealth statements for both the years as required by proviso to Section 58 of the repealed Ordinance and the turnover declared at Rs.3,250,000 was against the agreement made with. 'Army Survey Team' at sales amounting to Rs.7,000,000 for the assessment, year 2001-2002. Respondent added that the `sales in survey agreements' have been confirmed by Income Tax Appellate Tribunal vide I.T.A. No.3996/LB of 2002 in a case of NTN.03-21-0081661. The complainant also failed to comply with the short document notice as well as the notice under section 61 within the time allowed. The complainant preferred, first, to file complaint against the show cause notice for the assessment year 2002-2003 vide Complaint No. 399 of 2004 which has been heard by the Federal Tax Ombudsman on 22-6-2004 and now the assessee has preferred to file complaint "against show cause notice under section 122 for the assessment year 2001-2002. It is further submitted that the complainant could not substantiate with documentary evidence the filing of protest against sale estimation before the competent authority nor he has substantiated filing of statutory wealth statement under SAS as on 30-6-2001, even after issuance of notice under section 61 of the Income Tax Ordinance, 1979. No compliance was made to letter written for excluding the return from SAS. The complainant was accorded the opportunity of being. heard on the points mentioned supra in terms of subsection (9) of section 122 of the Income Tax Ordinance, 2001 and the explanation tendered by him was rejected.

5. The contention of complainant regarding inapplicability of section 122 for assessment year 2001-2002 of the Income Tax Ordinance, 2001, relying upon a ruling by the President of Pakistan in Complaint No.530 of 2002 endorsed by C.B.R. Letter C.No.4(530)TO -I/2002 dated 22-3-2004, was considered incorrect. The said issue was clarified, later on, vide C.B.R. C.No.3(12)IT-Jud/04 dated 24-4-2004; hence, a show-cause notice under section. 122 of the Income Tax Ordinance, 2001 was issued. However, no assessment order under section 122 of the Income Tax Ordinance, 2001 has so far been passed. Assessment is pending on the issue whether provisions of section 122 arc applicable 'in the assessments completed under the repealed Ordinance, 1979 before the date of commencement of the Income Tax Ordinance, 2001 i.e. (1-7-2002).

6. Counsel of the complainant, Mr. Saghir Tirmizey has submitted that a complaint riled by the complainant against arbitrary estimate of sales at Rs.7,000,000 by the Survey Team, Registered vide C.No.774/2001 was decided by the Federal Tax Ombudsman on 29-8-2001 with the findings recorded as under---

"Similar question arose in many cases which were decided in Complaint No.582/2001 where it was held that the signature on the survey form against the entries regarding estimated figures cannot be termed as an agreement nor can it be termed as an agreed figure. However if any one wishes to object to it he may file objection and according to law the authorities may recommend for detailed survey. The complainant has filed this complaint which means that he has objected to the estimate made in the survey form during the 3rd survey which is under consideration.

3. It is recommended that---

(i) Commissioners who have taken up the case for assessment in respect of an assessee who was selected for total audit under Para. 6(b) shall not finalise and the proceedings be terminated.

(ii) Assessment will not be finalised in cases selected under para.6(b) in compliance with instructions dated 9-6-2001 and the proceedings be terminated.

(iii) As assured by the learned Member, the C.B.R. to advise all Zonal Commissioners to vacate order of assessment except in cases in which the assessees agree to accept the assessment already made which will not be disturbed."

7. The counsel has further pleaded that the order under section 59(1) could only be framed by 30-6-2002 and not thereafter as provided under section 59(4). The assessment order was finalized vide order dated 5-12-2002. This was therefore not an order under section 59(1). The Assessing Officer has specifically stated in the body of the assessment order that the income declared is being assessed under section 59A, Any contention regarding short documents or other deficiencies in the return filed, or the assessment order with reference to Self-Assessment Scheme is irrelevant.

8. Regarding the process initiated under section 122(5A) it is alleged that subsection (5A) of section 122 was inserted vide Finance Act, 2003 and came into force w.e.f. 1-7-2003. No notice under this subsection can be issued in respect of any assessment order framed on or before 30th June, 2003. Reliance is placed on a decision by Lahore High Court reported in 2001 PTD 1525 as under---

"Section 66-A of the Income Tax Ordinance, 1979 is not procedural in nature, and therefore, it, could not have retrospective effect to touch the completed assessments before its introduction on the statute book. The interpretation made by the C.B.R. through the Circular No.1(48)/11-1-1979, dated 17-2-1981 appears to be more in consonance with law".

9. The complainant's counsel avers that assessment order cannot be considered erroneous on the grounds of deficiencies with reference to Self-Assessment Scheme. There is no prejudice to revenue. Even if (for argument's sake only) it be presumed that the income declared and return filed has been wrongly accepted, it does not by itself prove that it has caused prejudice to the revenue particularly when the agreement of sales for Rs.7,000,000 is found to be invalid. It cannot be presumed that assessment under normal law would produce more revenue. Notice under section 122(5A) cannot be issued on the basis of such presumption. Reliance is placed on the case reported in (2001 PTD (Trib.) 2902 wherein it is held--

"The Learned DR has taken the plea that normal assessment would result in a higher income being assessed. This is amore presumption, which cannot be allowed to empower the learned IAC to interfere under section 66A. The prejudice has to be clearly spelled out as a normal assessment does not automatically means a higher assessment".

10. The findings of investigation supra prove that proceedings were initiated under section 122(5A) on 10-3-2004 for assessment year 2001-2002., The assessment for the said year, in which assessment, in any case, was made on 5-12-2002 after subsection (5A) was added to section 122 through S.R.O. 663(I)2002 dated September 14, 2002 providing---

"(5A) where a person does not produce accounts and records, or details of expenditure, assets and liabilities or any other information required for the purposes of audit under section 177, or does not file wealth statement under section 116, the Commissioner may, based on any available information and to the best of Commissioner's judgment, make an amended assessment."

11. However, the S.R.O. ibid was rescinded by S.R.O. 608(I) of 2003 dated June 24, 2003 and no notice under section 122(5A) could be 'issued on 10-3-2004 invoking the already rescinded provisions. The substituted subsection (5A) in section 122 is effective from July 1, 2003; C hence inapplicable to a matter decided and closed prior to enactment of Finance Act, 2003. The finding of investigation is based on the principle settled by the binding decision of Lahore High Court in the case: Messrs Monnoo Industries Limited v, The Commissioner of Income Tax, Central Zone, Lahore (reported as 2001 PTD 1525) in which C.B.R. Circular No. 1(48)11-1-1979 dated 17-2-1981 conveying following clarification has been cited with approval.

"Certain queries have been made from the Board raising the following, questions---

(i) whether the proceedings under section 34A of the repealed Act pending on 1st July, 1979 have lapsed on repealed of the said act;

(ii) whether it is possible to revise assessments completed after the promulgation of Income Tax Ordinance, 1979 but before the insertion of section 66A in 1980.

The undersigned is directed to say that the principle applicable in such cases is given in section 6 of the General Clause Act, according to which the repeal does not affect the proceedings already commenced unless the repealing Act otherwise intends. The repeal does not revive anything not in force or existing at the time the repeal takes effect. Hence the proceedings which were pending under the repealed Act may continue under that Act, However, if 'proceedings under section 34A had not been initiated when the old Act was repealed Act (Sic). Similarly section 66A does not have retrospective application. The assessments finalised before 1st. July, 1980 cannot be reopened under section 66A of the Income Tax Ordinance, 1979."

12. The alleged maladministration, on account of initiating a process which is contrary to the principle of law enunciated in the binding decision of Lahore High Court ibid, is proved, The respondent has no jurisdiction under section 122 of the Ordinance on 10-3-2004 to issue a notice under section 122(9) to amend the assessment order that was either deemed to have been passed on 30-6-2002 or in any case on 5-12-2002. The process falls under the inclusive definition of maladministration provided under section 2(3)(i)(a) of FTO Ordinance. No mala fide is required to be proved for a finding of maladministration as considered at length in the decisions on complaints bearing numbers 1472-L of 2003, 368 of 2004 and 329-K of 2004. It has been observed in the decisions ibid in this regard--

"The meaning of the word maladministration given in Chambers 21st Century Dictionary Revised Edition, at Page 829 published 1999, Reprinted 2000 are---

maladminister >verb to manage (e.g. public affairs) badly, dishonestly or incompetently, maladministration noun

Further, the meaning of the term "maladministration" as given in Black's Law Dictionary, 7th Edition at Page 967 published---1999, 6th Reprint---2003 are

maladministration. Poor management or regulation, esp. in an official capacity----Also termed misadministration.

Thus in most general terms bad of poor management or regulation of public affairs is maladministration. Bad or poor management/regulation of public affairs will remain bad notwithstanding that it is bona fide and for valid reason because goals of good management or regulation of public affairs cannot be achieved without eradication of such reasons/causes. This is the pronounced objective in the Preamble of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 reproduced hereunder:

"Whereas it is expedient to provide for the appointment of the Federal Tax Ombudsman to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by functionaries administering tax laws:" (Emphasis provided)

Coining to the traits specifically included in the definition of "mal administration" provided in the ITO Ordinance, sub-clause (a) of clause (i) of subsection (3) of section 2 ibid includes in the definition of maladministration a decision, process, recommendation, act of omission or commission, which.

(i)is contrary to law, rules or regulations

or

is a departure` from established practice or procedure, unless if is bona fide and for valid reasons.

In order to comprehend the rider; "unless it is bona fide and for valid reasons, "supra literally, a reference to the dictionary meanings of the term bona ride may be beneficial. Chamber 21st Century Dictionary - Revised Edition at page 155 offers the meanings of the word as under:

bona fide > adj. genuine or sincere; done or carried out in good faith a bona fide offer. > adverb genuinely or sincerely; in good faith. 16c ad adverb: Latin.

Meanings of the word in Black's Law Dictionary, 7th Edition, at Page 168, Published 1999, 6th Reprint are as under--

bona fide- adj. (Latin "in good faith"] 1.Made in good faith; without fraud or deceit. 2.Sincere; genuine. See GOOD FAITH.--bona fide, adv.

The foregoing meanings of the term "bona fide "show that a decision, process, recommendation, act of omission or commission which is contrary to law, rules or regulations or a departure from established practice or procedure may be claimed to be done in good faith (bona fide), the concept of malice ill law notwithstanding. However, attributing any "valid reason" to a decision, process, recommendation, act of omission or commission which is "contrary to law" (the law as settled by the binding decisions of judicial forums) is inconceivable. Departure from established practice or procedure is the only act for which valid reasons may be offered. Thus the rider supra governs only the second part of sub-clause (a) of clause (i) of subsection (3) of section 2 ibid i.e. the phrase, "act of omission and commission which is a departure from established practice or procedure" because it may be both bona fide as well as for valid reasons."

Further, the use of conjunction "and" in the rider supra requires the tax employee to prove that an act of omission or commission which is a departure from established practice or procedure on his part was bosh bona fide as well as for valid reasons. Failure to discharge the onus on any one of the two comets or both shall not absolve him of maladministration because the use of the word "unless" with the rider suggests that it is for the respondent to prove bona fide and valid reasons.

It is also significant that the rider "unless it is bona fide and for valid reasons "governing the second part of sub-clause (a) of clause (i) supra, is an exception to the common dictionary meanings of the word "maladministration". The exception seems to have been made to suggest that the Federal Tax Ombudsman does not recommend any adverse action against a tax employee who is able to prove that departure from established practice or procedure on his part was bona fide and for valid reason.

13. It is recommended---

(a) That the Member Income Tax, Central Board of Revenue ensures that the principle of law enunciated in the binding decision of Lahore High Court ibid in which C.B.R. Circular supra has been cited with approval is conveyed through another Circular to all field officers so as to save both the time and effort of the officers and unnecessary harassment to the assessees.

(b) That proceedings initiated in the case of instant complainant are dropped.

(c) The compliance is reported within 30 days.

C.M.A./313/FTOOrder accordingly.