Messrs A.K. TEX through Mirza M. Waheed Baig VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2007 P T D 943
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
Messrs A.K. TEX through Mirza M. Waheed Baig (Adv.)
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 1657 of 2003, decided on 15/05/2004.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.59 & 61---Income Tax Ordinance (XLIX of 2001), S.120---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.10(3) & 2(3)---Self-Assessment---Setting aside of Return for Total Audit---Assessment---Limitation---Maladministration---Complaint under consideration filed on 22-11-03 was received in Federal Tax Ombudsman's Office on 25-11-03---Setting-apart of the return for Total Audit and issuance of notice under section 61 of the Income Tax Ordinance, 1979 on 3-6-03 were the causes of grievance---Competence of complaint for admission was claimed along with request for affording proper opportunity before selecting complainant's case for Total Audit---Validity---Federal Tax Ombudsman found that there were deficiencies in the proceedings as the notice conveying intention to set-apart the Return was not carefully drafted, figure of capital was picked from statement of preceding year, service of notice was not established and the estimate of sales was half of the sales shown in the Return---Limitation was counted from alleged notice actually not served---Conduct of neglect, inattention, delay amounted to maladministration---Federal Tax Ombudsman recommended order of setting-apart complainant's Return and notice issued under section 61 of Income Tax Ordinance, 1979 for Total Audit be withdrawn---Notice was not served before 30th June of that year---Complainant's Return under Self-Assessment Scheme should be treated as accepted under section 59(4) of Income Tax Ordinance, 1979.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.59---Self-Assessment Scheme, para. 9---Guidelines issued by the Central Board of Revenue---Complainant's objection that setting-apart of the return was to be made on recommendation of the Commissioner and Guidelines issued by Central Board of Revenue---Validity---Such objection was overruled by the Federal Tax Ombudsman as Central Board of Revenue had issued circular for the relevant year.
(c) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---
----S.10 (3)---Limitation---Department counted limitation from the date of notice which was not served on authorized agent of the complainant or complainant himself---Limitation was counted from the date of notice actually served when intimation was made available to the complainant---Objection as to limitation was overruled.
Mirza M. Waheed Baig and Malik Amin for the Complainant.
Qaiser Mahmood DCIT for Respondent.
FINDINGS/DECISION
This complaint agitates against "setting apart" of the return for the assessment year 2001-2002 for Total audit by resort to para. 9 of the Self-Assessment Scheme.
2. The Complainant AOP earns income by operating power looms. Admittedly no books of accounts were kept. Return for the year, 2001-2002 was filed under SAS declaring Income at Rs.115,000 on Receipts of Rs.8(M) and Closing stock was shown at Rs.5,694,514. No Wealth Statement was filed. When notice under section 61 to commence proceedings was received on 9-7-2002, the Complainant protested that he was never informed about the action of setting apart of the return for Total Audit. The RCIT then directed the Commissioner on 4-4-2003 to look into the claim of the Complainant regarding non-receipt of intimation for the `Set-apart' and added that "a copy of the intimation letter maybe supplied to the assessee, if not already received by him". On 3-6-2003 the Taxation Officer supplied to the Complainant copy of the intimation, dated 25-6-2002 setting aside the Return for Total Audit. The Complaint under consideration was then filed on 22-11-2003 (received in FTO Office on 25-11-2003). The Set-apart of the return and issuance of notice under section 61 of the repealed Ordinance on 3-6-2003 are the causes of grievance.
3. The Respondents forwarded parawise comments by RCIT, Central Region, Multan, which questioned the competence of the complaint for admission having been filed on 22-11-2003 whereas the order which was said to have aggrieved the Complainant was passed on 25-6-2002 hence hit by limitation under subsection (3) of section 10 of the FTO Ordinance. It was explained that the show-cause notice was initially issued by the RCIT on 22-5-2002 for compliance on 28-5-2002. But the Complainant sought adjournment through telegram on 1-6-2002, which was duly considered. According to the RCIT, "the case was selected for Total Audit strictly in accordance with the directions of the respective Self-Assessment Scheme and-Guidelines issued by the CB.R." keeping in mind "the observations of the Lahore High Court" which, according to the RCIT, were under challenge before the Supreme Court. The RCIT conveyed that "intimation letter was duly served upon the assessee on 25-6-2002" through his own office. Therefore, proper opportunity was extended before selecting Complainant's case for Total Audit.
4. Mirza Muhammad Waheed Baig (Advocate), Counsel for the Complainant, argued that the fact about show-cause notice having never been served on the Complaint stood conceded by the Department when the copy of this intimation was supplied to the Complainant on directions by the RCIT. An argument was developed that had the intimation been served earlier, as alleged now, the copy thereof would not have been supplied because the RCIT in his letter of 4-4-2003 had instructed the CIT a copy of the intimation letter may be supplied to the assessee, if not already supplied to him".
4.1 The Counsel introduced in the 'record a copy of show-cause notice, dated 22-5-2002 to highlight discrepancies therein. Some of them are enumerated as follows:
(i) When Sales were characterized as not in conformity with the Survey and Registration Profile, no comparative figures were quoted in the schedule attached with that intimation.
(ii) Similar was the position with respect to the Business capital and Overhead Expenses as spaces in the relevant columns were left blank excepting the figure of Income for the year, 2001-2002.
(4.2) Refuting the objection raised by the RCIT with regard to the irreconcilability of business capital with closing stock being Rs.300,000 and Rs.5,694,514, the A.R stated that no wealth statement for the year under consideration was filed. The figure of the business capital was, in fact, picked up from the Return of the preceding year i.e. 2000-2001. Hence the objection has no relevance.
(4.3) The learned counsel raised the following legal objection. The "setting apart" of the return, as per para. 9 of SAS, was to be made by the RCIT on the recommendation of the Commissioner and the Guidelines issued by the C.4.R. However, no such Guidelines for the year, 2001-2002 were ever issued. Therefore, in the absence of the Guidelines, according to the learned counsel, no set apart of Returns could be made for the assessment year 2001-2002 by resort to para. 9 of the SAS 2001. The AR concluded by submitting that the set apart was, therefore, "not in accordance with law and the procedure". Thus the conduct of the RCIT and of those functionaries who took up subsequent proceedings, were arbitrary falling in the category of "maladministration" as per FTO Ordinance.
5. Mr. Qaiser Mahmood, (DCIT), appearing for the Revenue presented a copy of the decision, dated 25-6-2002 by the RCIT intimating that the Return had been set apart for Total Audit. This document bears the signatures of one Mr. Mazhar Shah as token of receipt. The DR, admitted that as per record no other document was ever served on this gentleman and all other correspondence was either delivered to the Counsel or was served on the Complainant. The DR, however, insisted that notice proposing set apart was admittedly served on the Complainant on 22-5-2002 thus he had full knowledge of reasons prompting the `Set-apart'.
6. The argument of the two sides and the scrutiny of record reveal that proceedings suffered from several deficiencies such as:
(i) The notice conveying intention to set-apart the Return was not carefully drafted and relevant figures were totally omitted from the chart attached with the notice.
(ii) The figure of Capital in the show-cause notice was picked up from a Statement of the preceding year which was not relevant for comparison with the Closing Stock of the year under consideration.
(iii) Due care had not been exercised in the service of the intimation that the Return was set apart for Total Audit so much so that the Department has not been able to establish that it was served on any authorized person.
(iv) The show-cause notice, dated 22-5-2002 refers to profile of Survey and Registration. Scrutiny of this document revealed estimate of Sales at Rs. 4.0 (M) whereas, the Return for 2001-2002 declared Sales at an higher amount of Rs.8(M).
7. The objection by the Department about the complaint having been filed beyond the limitation laid down in section 10(3) of the FTO Ordinance was considered. The Department based its objection by counting the limitation from the date when the notice was purported to be initially issued. However, since it has not been proved to have been legally served on 25-6-2002, (or there about) the limitation is to be counted from 3-6-2003 when the intimation was made available to the Complainant on directions from the R-CIT. Counting from this date, the complaint is in time. Hence competent for admission and investigation.
8. The argument by the learned AR that as no Guidelines were issued in conjunction with the SAS 2001 and hence setting apart under para. 9(a) of Scheme was illegal has been successfully rebutted by the Department. The RCIT has since faxed a copy of C.B.R. Circular No.7(7)S.Asstt/2001, dated 26-3-2002 which lays down criteria for setting apart Returns for Total Audit. These are the same as in the preceding years viz:
where there is evidence/information/reason to believe that true particulars of Income have been suppressed,
where the case has revenue potential,
where there is evident decline in business,
where there is addition to asset which in not covered by the income declared,
where there is disparity in Expenses on Utilities vis-a-vis Income declared
It was advised that tax profiles of Survey and Registration be consulted while identifying cases.
Since the Department has demonstrated that the procedure for set apart was followed, as per Guidelines (ibid) and due opportunity was afforded, the legal objection by the AR is overruled.
9. The scope of the investigation is thus confined to determine the bona fide of the decision to Set-apart the Return of the Complainant. Here the arguments by the learned AR appear convincing that:
(a) Due care was not taken to confront the Complainant in specific terms with regard to the discrepancies which were made a ground for belief about revenue potential (etc.);
(b) The improper service of letter, dated 25-6-2002 on a person whose identity and authority to receive of documents for the Complainant remained in the realm of speculation; and
(c) The elapsed time has brought into operation the deeming provisions of section 59(4) of the repealed Ordinance.
The above-mentioned acts expose a conduct of `neglect, inattention, delay' falling in the sphere of `maladministration' as defined in subsection (3) of section 2 of the FTO Ordinance. It appears that in their anxiety to avoid the provision of subsection (4) of section 59 of the' Repealed Ordinance whereby the assessment was to be deemed to have been made by 30-6-2002, the tax functionaries overlooked the requirements of section 154 of the repealed Ordinance and the section 27 of the General Clauses Act.
10. It is, therefore, Recommended that:
(i) RCIT's order, dated 25-6-2002 Setting-apart Complainant's Return for 2001-2002, and notice, dated 3-6-2003 issued under section 61 for Total Audit be withdrawn.
(ii) Notice of Set-apart having not been objectively drafted nor legally served on (or before) 30-6-2002, Complainant's Return for 2001-2002 be treated as accepted under the SAS by operation of law as per subsection (4) of section 59 of the repealed Ordinance.
11. Compliance be reported within 30 days of the receipt of this Order.
M.I./306/FTOOrder accordingly.