ABDUL RASHEED VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 447 (2004)

(a) Income Tax Ordinance (XXXI of 1979)---

----Ss.13. 62, 111 & 116---Income Tax Ordinance (XLIX of 2001), S.122-A---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 11---Re-framing of assessment by making additions---Imposition of penalty during pendency of appeal against assessment order---Assessing Officer during penalty proceedings undertook to have elaborate discussion on specified points after decision of appeal---Assessing Officer later on deviated from his undertaking and imposed penalty without hearing complainant---Validity---Such deviation without any bona fide reason had rendered penalty order arbitrary, vindictive and illegal resulting in maladministration---Federal Tax Ombudsman recommended to Commissioner to cancel penalty order under S.122-A of Income Tax Ordinance, 2001 and reconsider matter after decision of such appeal.

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

----Ss.2(3) & 9---Tax matters---Action/order contrary to law, arbitrary, baseless or biased---Validity---Assessment of income and wealth must necessarily be according to law---Such action/order not protected under S.9(2) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Duty of department in order to justify such action/ order to prove bona fide as envisaged by S.2(3)(i)(a) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 stated.

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

----Ss. 2(3) & 9---Jurisdiction of Federal Tax Ombudsman---Scope---Ombudsman, as a general rule, would not interfere with merits of a decision, though unmeritorious, but free of maladministration---Order/ decision/process tainted with maladministration could justifiably be questioned by Ombudsman, even if law provided appeal.

A. A. Zuberi, Advisor, Dealing Officer.

Muhammad Younas Bhatti, (ITP) for the Complainant.

Muhammad Hajjan Bughio, (D-CIT) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---This complaint alleges "maladministration" in passing of a "capricious and vindictive order" imposing penalty at Rs.72,703 under section 111 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) for the assessment year 2002-2003.

2. The facts leading to the grievance are that the Complainant-Individual, owns a Dal Factory for which assessment for the year 2002-2003 was framed under section 62 on 14-4-2003 determining Total Income at Rs.593,600 including the following as `deemed income' by resort to section 13 of the repealed Ordinance---

During pendency of appeal before the C.I.T.(A) Hyderabad, against assessment order passed under section 62 on 14-4-2003, the assessing officer initiated penalty proceedings by issuing notice under section 116 on 27-4-2003 of which reply was submitted on 2-5-2003. Further query raised on 4-9-2003 was responded as per Order Sheet entry of 10-9-2003. whereafter Order under section 111 of the repealed Ordinance was passed on 15-9-2003 imposing penalty at Rs,72,703. With this the Complainant is aggrieved.

3. Respondent had sought extension on 8-12-2003 for 15 days for submission of para-wise comments. These were not received from the C.B.R. till the time of hearing today. However, the D.R. presented a copy of the comments by R-CIT; Southern Region, Karachi which, according to him are on their way from the C.B.R. The AR of the Complainant was provided a copy thereof which be read and consented to participate in the proceedings.

4. The R-CIT in addition to raising objection as to the competence of the complaint for admission in view of the bar as per section 9(2)(b) of the F.T.O. Ordinance, has denied "maladministration It is explained that after framing the assessment which gave rise to the cause for penalty, due notice as prescribed by law, was issued and further explanation sought on specific points. According to the R-CIT consideration was given to these before passing the impugned order for which the prescribed approval also was obtained from the IAC. Thus no "maladministration" was caused. Moreover, the R-CIT has canvassed, that, appeal has already been filed before the CIT(A) against the assessment order dated 14-4-2003 hence the penalty order also should have been contested before that very authority.

5. The A.R. of the Complainant submitted that capricious and vindictive conduct was evident from the facts that at the last, hearing on the penalty issue held on 10-9-2003, the assessing officer noted on the Order Sheet.

"Present Bhatti M. Younis, learned AR. Contends that, while penalizing the assessment, for the year, few facts have been ignored, like---

(i) Amnesty declaration filed by the assessee;

(ii) Comparison of Income of assessee individual has been made with that of URN', the previous status of assessee.

Hence, if above aspects are taken into consideration, addition under section 13 will not stand which order passed by this office is presently contested before CIT (A), Hyd., hence elaborate submission of learned AR. who makes requests for keeping penalty proceedings in abeyance till the decision of CIT (A). Appropriate decision will accordingly be taken".

Therefore, the AR of the Complainant was under the impression that further hearing would take place for "elaborate submissions" on specified points, after the C1T (A) pronounces verdict about impugned addition under section 13. Surprisingly, without granting any further hearing on these aspects (as noted on the Order Sheet), a penalty order was passed on 15-9-2003. The AR built up the argument that in this background approval for penalty by the IAC was without application of mind and a mere mechanical approval. Had the IAC applied his mind, he would have at once noticed that proceedings were inclusive and penalty premature.

6. The D.R. on his turn supported the penalty order for the some reasons as assigned by the R-CIT in his para-wise comments. Referring to the record the DR offered the defence that not only opportunity was extended to rebut the reasons which the assessing officer had in mind to impose penalty, but whatever remained unresolved was sorted through a fresh opportunity on 27-8-2003 as is borne out by Order Sheet entry of that date. Therefore, opportunity of hearing having been extended before the imposition of penalty, stamped out of possibility of capricious nor vindictive conduct.

7. The arguments from both the sides have been heard and case record examined. The Order Sheet entry dated 10-9-2003 (reproduced above, especially the underlined portion) is indicative that appellate decision by the CIT (A) was promised to be taken into consideration in respect of those aspects which had led to additions under section 13 of the repealed Ordinance whereafter the possibility of imposing penalty was to be re-examined. The deviation from that understandings without any bona fide reason rendered the Order arbitrary and vindictive because `elaborate submissions' to rebut the view of the assessing officer were not allowed to be addressed. Looked at from this angle, the allegation about penalty being `capricious and vindictive' appears justified thus rendering the order contrary to law causing "maladministration", as defined in clause (3) of section 2 of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance). It has to be borne in mind that to justify action/order which apparently is `contrary to law', 'arbitrary or biased' it is the duty of the Department to prove bona fide as envisaged by sub-clause (i) (a) of the Clause (3) of section 2 of the FTO Ordinance. In the case-in-hand the Department has clearly failed to discharge this onus. It is beyond dispute that all determination, relating to "assessment of Income or Wealth" must necessarily be according to law hence to those, which are "contrary to law, arbitrary, baseless or biased", subsection 2(b) of section 9 of the FTO Ordinance will not provide protection. It is well recognized that, as a general rule, the Federal Tax Ombudsman may not interfere with the merits of a decision, even though unmeritorious but free of "maladministration", but a process/order/decision which is tainted with "maladministration" can justifiably be questioned by the Federal Tax Ombudsman even if an appeal is provided by law. On this visualization, the objection to the jurisdiction of the FTO, on the facts unfolded in this case, is clearly misconceived. It is, therefore, recommended that---

(i) The Commissioner invoke the provisions of section 122A of the Income Tax Ordinance, 2001 to cancel the impugned penalty order dated 19-9-2003.

(ii) The matter be reconsidered in the light of decision by the CIT(A) on the appeal against assessment framed under section 62.

(iii) Compliance be reported within 30 days of the receipt of this Order.

S.A.K./229/FTOOrder accordingly.