MUHAMMAD ASHRAF VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2007 P T D 988
[Federal Tax Ombudsman]
Before Justice (Retd.) Saleem Akhtar, Federal Tax Ombudsman
MUHAMMAD ASHRAF
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.511-L of 2004, decided on 14/09/2004.
(a) Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---
----S.9(2)---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Complaint not against the quantum of assessed income but against the non-compliance of directions of the First Appellate Authority, did not attract the bar as per S.9(2) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.
(b) Income Tax Ordinance (XXXI of 1979)---
----Second Sched., cl. (86A)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Exemption----Condonation of delay---Delay in-filing appeal was condoned by the Federal Tax Ombudsman considering the special circumstances, and the interest of justice because the complainants entitlement to exemption from tax under Cl. 86 of the Second Schedule of the Income Tax Ordinance, 1979 warranted consideration.
(c) Income Tax Ordinance (XXXI of 1979)---
----Ss.61, 63 & 62/132---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Notice of production of accounts, etc---Finalization of assessment without issuance of specific notice under S.62 of the Income Tax Ordinance, 1979; ignoring the directions of First Appellate Authority and determination of income in slip-shod manner at "net" figures without attempting to determine the volume of receipts and the extent of overhead expenditures---Validity---Maladministration was committed by the Assessing Officer disregarding the directions of First Appellate Authority which resulted in framing of unsustainable assessments; creation of fictitious demand and harassment to the taxpayer--Disregard of First Appellate Authority's direction though mentioned by the Regional Commissioner of Income Tax in para wise comments had still not be reviewed with disfavour by the senior officers of the Central Board of Revenue and the comments proposed that "the complaint be rejected being without jurisdiction and devoid of merit"---View canvassed by the Regional Commissioner of Income Tax was misconceived and would tantamount to exercise of power involving administrative excess---Maladministration on account of disregarding the directions of First Appellate Authority was proved---Federal Tax Ombudsman recommended that the Commissioner of Income Tax undertakes written counselling of both the Special Officers and the Taxation Office who framed the assessments about the neglect in duties and deficiencies in the assessments framed by them and Copies of these be placed on their personal files and that the Commissioner in discharge of his responsibility under S.122A of the Income Tax Ordinance, 2001 may call for the record of proceedings considered supra in which the said orders had been passed by the Taxation Officer working under him and proceed under subsection (2) of S. 122A as he deemed fit.
Multan v. Allahyar Cotton Ginning & Pressing Mills (Pvt.) Limited 2000 PTD 2958 rel.
(d) Income Tax Ordinance (XXXI of 1979)---
----Ss. 14, 55, 56, 61 & Second Sched., Cl. (86A)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Exemption---Return of total income--Notice for furnishing return of total income---Complainant/assessee contended that this income having been specified under Cl. (86) of Part I of the, Second Schedule, was exempted from tax under S.14 of the Income Tax Ordinance, 1979 and as income was not assessable under the Income Tax Ordinance, 1979, he was not liable to file returns of income under S.55 of the Income Tax Ordinance, 1979---Validity---Incomes as specified under Part I of the Second Schedule which were exempt from tax under S.14 of the Income Tax Ordinance, 1979 were liable to be included in the total income assessable under the Income Tax Ordinance, 1979 and then exemption from tax such income was to be claimed---Income was to be assessed under appropriate section of the Income Tax Ordinance, 1979 and them the admissible exemption from tax was to be allowed---Complainant/ assessee was liable not only to file the returns of income but to comply with the notices issued under S.56 as well as under S.61 of the Income Tax Ordinance, 1979.
Nemo for the Complainant.
Karamatullah, D-CIT for Respondent.
FINDINGS/DECISION
This complaint alleges "maladministration" by way of ignoring the directions given by the CIT(A), Zone-V, Lahore in his order, dated 24-4-2000 for the years, 1994-95 to 1997-98 when framing re-assessment under sections 63/132 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance). The complaint for the assessment years 1998-99 to 2001-2002 is an off-shoot of the same decision by the CIT(A) as exemption under Clause 86A of the Second Schedule to the repealed Ordinance was not considered for these years also.
2. The relevant facts are that the complainant runs an educational institution under the name of Quaid-e-Azam Public School, in the status of an Individual. He came to the notice of Department during Survey operation. Notices under section 56 and section 61 were issued for the years, 1994-95 to 1997-98 and Returns obtained. However, subsequent notices having remained uncomplied, a consolidated ex parte assessment was framed on 25-7-1999 as under.--
| Assessment Year | Income Declared | Income Assessed |
| 1994-95 | Loss: Rs.16,362 | Net Amount Rs.35,000 |
| 1995-96 | Loss: Rs.3,965 | Net Amount Rs.45,000 |
| 1996-97 | Profit: Rs.6,457 | Net Amount Rs.50,000 |
| 1997-98 | Loss: Rs.17,059 | Net Amount Rs.55,000 |
On appeal the CIT(A) accepted the plea that (i) statutory notices were not properly served and (ii) the educational institution having been established between 1-7-1991 and 30-6-1995 got registered with the Director of Education on 2-2-1994 and allotted registration No.402 on 4-6-1995. It was entitled, prima facie, to exemption from tax under Clause (86A) of the Second Schedule to the repealed Ordinance. The CIT(A) therefore, remanded the case back to the Assessing Officer with the direction: "the matter be, looked into afresh in the light of above contention of the appellant and the same be allowed after proper verification of the facts". The Assessing Officer then issued fresh notices under section 61 (said to be six in number) whereafter alleging non-compliance he framed a consolidated ex parte assessment under section 63 on 23-5-2001 for the years, 1994-95 to 1997-98 repeating the same figures of `net income' as in the original consolidated assessment of 25-2-1999. For the assessment, years 1998-99 to 2001-2002 notices under section 56 were issued but no Returns were filed nor subsequent notices under section 61 responded. A consolidated ex parte assessment was then framed as under:--
| | 1998-99 | 1999-2000 | 2000-2001 | 2001-2002 |
| Receipts estimated | Rs.1,00,000 | Rs.110,000 | Rs.125,000 | Rs.130,000 |
| Less Expenses Allowed | 35,000 | Rs.40,000 | Rs.50,000 | Rs.50,000 |
| Net Income Assessed | Rs.65,000 | Rs.70,000 | Rs.75,000 | Rs.80,000 |
These have prompted the complaint.
3. The Respondents have forwarded para-wise comments by RCIT, Eastern Region, Lahore raising objections against the competence of the complaint for admission, it being hit by limitation as per section 10(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance). It also is asserted that the complaint relates to assessment, thus hit by the bar in section 9(2)(b) of the same Ordinance. Denying "maladministration" the RCIT has explained that at the time of re-assessment, as many as six notices under section 61 of the repealed Ordinance were issued but remained un-responded leaving no option with the Assessing Officer but to proceed ex-parte. As respects the combined notice for several years under section 56, the RCIT has expressed the view: "this may be procedural lacunae for which legal remedy of filing of an appeal is available to the assessee".
4. None was present for the complainant when called out, however, an application has been received by post seeking adjournment for the reason: "the undersigned are busy in, civil Court, Depalpur". This is not a valid reason for seeking adjournment and the application is a routine pro forma type with no date. It is, therefore, rejected and proceedings are taken up for decision on merits with the help of DR.
5. As respects objection by the RCIT about the competence of the complaint for admission, it is evident that the bar as per section 9(2) of the FTO Ordinance is not attracted because the complaint is NOT against the quantum of assessed income but against non-compliance of the directions of the CIT(A) in his order of 24-4-2000. The delay in filing the complaint, as pointed by the RCIT, is condoned considering (i) the special circumstances, and (ii) in the interest of justice because the complainant's entitlement to exemption for tax under Clause 86A of the Second Schedule warrants consideration.
6. The DR had no way from conceding that above dispensation was flawed in many ways:--
No specific notice under section 62 was issued to carry out the directions of CIT(A) so as "to look into the matter afresh" nor such a document was required through section 61 notice (copies obtained for record).
The observations by the CIT(A) relating to exemption of Income under Clause (86A) of the Second Schedule specifying the Registration granted by the Director Education was altogether ignored.
No direct approach by way of enquiry was made to the Director of Education to ascertain the veracity of the document on which the CIT(A) based his finding about exemption from tax.
Income was determined in a slip-shod manner at "net" figures without attempting to determine the volume of Receipts, and the extent of Overhead Expenditures (etc).
7. The foregoing investigation indicates ignorance as well as disregard of settled law on the part of both the complainant as well as the respondents. The complainant appears to be nursing the wrong notion that his income having been specified under clause (86A) of Part I of the 2nd Schedule, is exempted from tax under section 14 of the Repealed Ordinance; hence it is not assessable under the Repealed Ordinance and he is not liable to file returns of income under section 55. Binding decision of Lahore High Court in the case: CIT Multan v. Allahyar Cotton Ginning and Pressing Mills (Pvt.) Limited reported in (2000) PTD 2958 holds that incomes as specified under Part I of the Second Schedule that are exempt from tax under section 14 of the Repealed Ordinance are liable to be included in the total income assessable under the Repealed Ordinance and then exemption from tax on such income is to be claimed. It is to be assessed under appropriate section of the Repealed Ordinance and then the (admissible exemption from tax is to be allowed. The complainant was liable not only to file the returns of income but to comply with the notices issued under section 56 as well as under section 61 of the Repealed Ordinance.
8. The respondent, on the other hand, committed maladministration as identified in para. 6 supra. The disregard by the Assessing Officer of the directions by the CIT(A) resulted in (a) the framing of unsustainable assessments, (b) creation of fictitious demand, and (c) harassment to the taxpayer. It is surprising that the aberrant disregard of CIT(A)'s specific direction though mentioned by the RCIT in parawise comments, has still not been reviewed with disfavour by the senior officers of the C.B.R. and the comments propose that "the complaint be rejected being without jurisdiction and devoid of merit". The view canvassed by the respondent is misconceived. It tantamount to exercise of power involving administrative excess. The maladministration alleged on account of disregarding the directions of the CIT(A) in the remand order ibid is proved; hence objection raised over jurisdiction of this forum is overruled.
9. It is Recommended:--
(i) That the CIT undertakes written counselling of Mr. Liaqat Ali Khan, Mr. Muhammad Ashraf (both Special Officers) and Mr. Muhammad Pervez (Taxation Officer) who framed the assessments on 25-2-1999, 23-5-2001 and 18-6-2003 about the neglect in duties and deficiencies in the assessments framed by them. Copies of these be placed on their personal files.
(ii) That the Commissioner in discharge of his responsibility under section 122A of the Ordinance may call for the record of proceedings considered supra in which the orders ibid have been passed by the Taxation Officers working under him and proceed under subsection (2) of section 122A as he deems fit.
(iii) Compliance report be submitted within 30 days of the receipt of this order.
C.M.A./298/FTOOrder accordingly.