AMEER BEGUM VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1246 (2004)

Income Tax Ordinance (XXXI of 1979)---

----S.62---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Assessment on production of accounts, evidence etc.---Estimation of sales---Capital declared for use in business was Rs.60,000 including furniture and fixtures---Sales had been estimated at Rs.12 lacs without any inquiry or verification and without issuing a show-cause notice confronting assessee with the basis on which sales were so estimated and the income assessed---Validity---Sales had been estimated at Rs.12 lacs (i) without any basis (ii) without bringing any material evidence on record (iii) without confronting assessee with, the proposed figure and (iv) without regard to the case history--Estimation of sales at 20 times of the working capital (Rs.60,000) was, on the very face of it, without valid reason, if not outright mala fide--Assessment order passed was bald inasmuch as it lacked the basis on which sales were estimated and income worked out which demonstrated incompetence, inefficiency and inaptitude in the discharge of duties and responsibilities---Order suffered from serious maladministration---Federal Tax Ombudsman recommended that the Commissioner, by resort to S.122A of the Income Tax Ordinance, 2001, recall assessment order, dated 13-1-2003 for de novo consideration and detailed examination for passing a fresh speaking order on merits in accordance with law.

Muhammad Sadiq for the Complainant.

Anwar Sheikh, A.C.I.T. for Respondents.

Muhammad Akbar, Advisor (Dealing Officer).

DECISION/FINDINGS

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN)---This complaint alleges maladministration and arbitrary conduct in the framing of assessment on 13-1-2003 for the years 2000-2001.

2. The facts, as explained in the complaint, are that the complainant's husband used to operate a small retail merchandise shop in a small section of his house, which was closed following, his demise. Tax authorities have assessed the payable tax at Rs.9,250 without considering the financial condition of the complainant and without conducting any inquiry to ascertain whether or not the shop in question was operating. It is prayed that the demand notice for Rs.9,250 issued under section 85 of the Income Tax Ordinance, 1979 in consequence of assessment be declared illegal as being arbitrary to mitigate complainant's hardship.

3. In parawise comments, the respondents have taken preliminary objections to F.T.O's. jurisdiction on the grounds that (i) the complaint is not entertainable in view .of section 9(2)(b) of the Establishment of the Office" of the Federal Tax Ombudsman Ordinance, 2000 basically because legal remedy of appeal was available to the complainant, (ii) approaching the Honourable F.T.O. in the absence of maladministration amounts to misrepresentation of legal procedure, which may be deprecated by invoking provisions of section 14(4) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000. It is explained that the complainant derived income froma General Store. No doubt, the complainant's husband died, the computation chart showing Trading and Profit and Loss Account was submitted on estimation basis as no books of accounts were maintained. Declared income of Rs.45,000 was based on mere estimate. In the wealth statement (as on 30-6-2002), the complainant had declared capital in business at Rs.60,000 and electricity bills with deduction of tax also accompanied the return of income. During the proceedings before the Taxation Officer the AR did not contend that the business had been closed. There was sufficient material available on record to show that the complainant conducted business during the whole year. There was no need to conduct any inquiry. The estimate of income was warranted by facts of the case. The complainant did not challenge the assessment in appeal. There is no maladministration. The complaint is devoid of merit.

4. During the hearing the AR stated that mala fide is evident from the fact that when he' had appeared before the Taxation Officer on 31-1-2003 he announced that the income would be assessed at Rs.65,000 only but the complainant was surprised to find that the assessment order determined it at Rs.165,000. It is explained that the owner of the shop died on 1-11-2002 and the business had remained dormant for 5 or 6 months even before his death, as he was seriously ill during the time. The respondents did not consider these facts. The capital declared for use in business was merely Rs.60,000 including furniture and fixtures yet the sales have been estimated at Rs.12 lacs without any inquiry or verification and without issuing a show-cause notice confronting the complainant with the basis on which sales were so estimated and the income assessed. Demand notice supposedly issued on 13-1-2003 was mutilated and was actually served on the complainant on 9-7-2003. In 1999-2000 the income was assessed at Rs.55,120. Similarly in 1996-97 the income declared at Rs,47,000 was accepted.' The AR put on record various decisions by the Appellate Tribunal and by the F.T.O. (e.g. in Complaint No.1174 of 2001) in support of his contention that assessments without any substantial basis or made on pure guesswork were not sustainable.

5. The DR challenged the AR's contention that the Taxation Officer had announced that income would be taken at Rs.65,000. The file cover, he argued, showed the figures of Rs.1,65,000 and not Rs:65,000 as alleged. The complainant admitted in written complaint that the shop closed after the demise of the owner and not before that. Thus AR's contention that it was closed 5 to 6 months before assessee's death is wrong. The medical report shows that the assessee died of brain haemorrhage meaning thereby that his death was sudden. Assessment order is dated 13-1-2003. Even the demand notice carries the same date. Overwriting on the demand notice was a clerical mistake.

6. The DR was asked to explain as to how the sales in the case were estimated at Rs.12 lac, especially when the business capital was a mere Rs.60,000. He indicated that in the case of retailers the sales were normally estimated at 5 to 6 times of the capital as against 10 times of the capital in the case of wholesalers. How could anybody explain the estimation of sales at Rs.12 lac (20 times of capital) when the complainant was admittedly running a retail shop. The DR stated that the complainant should have filed an appeal before C.I.T. (Appeals). The complaint may be rejected.

7. The arguments of the parties and the record of the case have been considered and examined. As far respondent's objection to F.T.O's. jurisdiction in terms of section 9(2)(b) of the Establishment of Office of the Federal Tax Ombudsman Ordinance, 2000 it is pointed out that in such cases of assessment' that are found tainted with any of the traits of defined `maladministration', the bar on jurisdiction envisaged in clause (b) of subsection (2) of section 9 does not become applicable. In the present case `maladministration' is quite manifest. Complainant's allegations that the sales in the case have been estimated at Rs.12 lac (i) without any basis, (ii) without bringing any material evidence on record, without confronting the complainant with the proposed figure and also (iv) without regard to the case history, carry validity. Estimation of sales at 20 times of the working capital (Rs.60,000) is, on the very face of it, without valid reason, if not outright mala fide. Furthermore, the assessment order passed is bald inasmuch as it lacked the basis on which sales were estimated and income worked out. This demonstrates incompetence, `inefficiency and inaptitude in the discharge of duties and responsibilities'. Accordingly, the order suffers from serious `maladministration' as defined in section 2(3)(i) and (ii) of the Establishment of Office of the Federal Tax Ombudsman Ordinance, 2000. Accordingly, it is recommended that:---

(i) The Commissioner, by resort to section 122A of the Income Tax Ordinance, 2001, recall Assessment Order, dated 13-1-2003 for de novo consideration and detailed examination for passing a fresh speaking order on merit in accordance with law.

(ii) Compliance be reported within 30 days.

C.M.A./479/F. T.O.Order accordingly.