MICRON LAB through Ex Proprietor VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1589 (2005)

Income Tax Ordinance (XXXI of 1979)---

----Ss.72(1) & 63---Income Tax Ordinance (XLIX of 2001), S.1, 2-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), 2(3)---Assessment in the case of discontinued business or profession---Assessee intimated the relevant Taxation Officer through notice under S.72(1) of the Income Tax Ordinance, 1979 regarding closure of its business---Ex parte assessment order was passed in spite of producing evidence in respect of intimation regarding closure of business and copies of statements of the landlord and neighbours who confirmed the contention of the assessee---Validity--Factum of closure of business was on the file which could be verified from the neighbours and the landlord of the building in which the complainant/assessee has hired a room for business---Taxation Officer, instead of taking evidence of the landlord and the neighbours of the complainant/assessee, had relied upon an uncorroborated and un-confronted report of the Inspector after the closure of business---Such report was contradicted on oath and in writing that business was closed---Rejection of the statement of assessee was not only unreasonable but also arbitrary amounting to `maladministration'---Order passed on fudged report was liable to be set aside---Federal Tax Ombudsman recommended that the Secretary Revenue Division, should advise the concerned Commissioner of Income Tax to set aside the impugned order under S.122-A of the Income Tax Ordinance, 2001.

2005 PTD 1390 rel.

Muhammad Sirjees Nagi, Advisor (Dealing Officer).

Malik Tabasam Maqsood Khan for the Complainant.

Jafar Nawaz Natt (DCIT) for Respondents.

DECISION/FINDING

JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).----The complaint has been filed by Ms. Samina Khan who was Ex-Proprietor of Messrs Micron Lab 89-D, Jail Road, Lahore. She allegedly operated the laboratory on part time basis and due to decline in business closed it with effect from 30-6-2001 and intimated the relevant Taxation Officer through notice under section 72(1) of the repealed Income Tax Ordinance, 1979. Despite this intimation the Taxation Officer passed an ex parte order, dated 28-12-2004 under section 63 of the repealed Ordinance creating a demand of Rs.9,300 for the assessment year 2002-03. This order was passed on a false report, dated 14-5-2002 of the Income Tax Inspector, the contents of which were denied by her Ex-employee in a written statement on oath before the predecessor of the Assessing Officer. Her contention is that despite the Taxation Officer's knowledge about closure of the business, the notices were sent at the address of the closed laboratory and the impugned order at her residential address. The impugned order was unreasonable, arbitrary, based on fudged evidence and amounted to 'maladministration'.

2. In the reply submitted by Regional Commissioner of Income Tax, Eastern Region, Lahore, a preliminary objection has been raised that the complaint relates to assessment of Income Tax and determination of Tax liability which is outside the ambit of investigation by the FTO. Legal remedies including appeal and revision are available in respect of these issues.

3. On the merit of the complaint it is submitted that respondent No.2 did not receive any intimation from the complainant regarding closure of the laboratory nor in this regard there was any entry in. the dak receipt register. The complainant was required to furnish the proof of filing of the notice under section 72 of the repealed Ordinance but the compliance was not made. For the proceedings of assessment year 2002-03, notices under section 61 were issued on 19-10-2004 and 31-11-2004 through registered post (express post service). Notice under section 62 was also issued and served through registered post. Since the predecessor of the Taxation Officer had not accepted the statement of Mr. John Lab. Technician that the business had closed on 30-6-2000 there was no justification in accepting the version of the complainant. The statement of Mr. John had no evidentiary value in view of the assessment order for the year 2001-02.

4. In the hearing on 30-6-2005, the complainant was represented by Malik Maqsood Khan, Advocate and the respondents were represented by Chaudhry Jaffar Nawaz Natt (DCIT), Circle 13, Companies Zone-I, Lahore. They reiterated the arguments contained in their pleadings. The D.R. added that no intimation about closure of the laboratory was received by him as Taxation Officer. Therefore, he was justified in framing the impugned order. He got the notices served on the complainant through express post courier in order to provide an opportunity of hearing to her. The A. R. submitted that the intimation of closure of business bore the seal of the office of the Income Tax Officer and signature of the recipient. If the entry of the letter was not in the dak register, it was the fault of the office for which the complainant was not to be penalized. Had the complainant's business been yielding profit as alleged by the Taxation Officer then there was no need to close it. The story of extending the operation of the laboratory upto 30-3-2002 has been fabricated with a mala fide intention in order to subject the complainant to taxation. The A.R. stated at the bar that he had drafted notice, dated 30-6-2001 under section 72 of the repealed Ordinance at the request of the complainant. The A.R. was asked to produce evidence in support of his contentions. He produced copies of statements of the landlord Muhammad Nawaz Khan, the complainant's neighbours Messrs Farooq and Saeed Ahmad who confirmed his contention.

5. The respondents objection that the complaint is not maintainable is not tenable, as the complainant has proved `maladministration' of the Taxation Officer discussed in the succeeding para. Moreover, this issue has been set at rest in F.T.O's. finding reported at 2005 PTD 1390. So the respondents objection is overruled.

6. The crucial point for determination is whether the complainant closed the laboratory on 30-6-2001 or on 31-3-2002. The factum of closure of laboratory on 30-6-2001 was on the file of assessment year 2001-02 when it was not in issue. This could be verified from the neighbours and the landlord of the building in which the complainant had hired a room for the laboratory. The Taxation Officer instead of taking the evidence of the landlord and the neighbours of the complainant has relied upon an uncorroborated and unconfronted report of the Inspector after the closure of business. This was contradicted by Mr. John, Technician who stated on oath and in writing before the predecessor of the Taxation Officer that the laboratory was closed on 30-6-2001. So the rejection of the statement was not only unreasonable but also arbitrary amounting to `maladministration'. Therefore, the impugned order based on this fudged report is liable to be set aside.

7. In view of the finding in the preceding paragraph, it is recommended that:

(i) The Secretary Revenue, Division, Islamabad should advise the concerned Commissioner Income Tax to set aside the impugned order under section 122-A of the Income Tax Ordinance, 2001.

(ii) Compliance to be reported within 30 days from the date of receipt of the findings.

C.M.A./563/FTOOrder accordingly.