HAJI AMIN SONS &CO., SIALKOT VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2008 P T D 505
[Federal Tax Ombudsman]
Before Justice (Retd.) Munir A. Shaikh, Federal Tax Ombudsman
Messrs HAJI AMIN SONS &CO., SIALKOT
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 636-L of 2005, decided on 19/07/2005.
Income Tax Ordinance (XXXI of 1979)---
---Ss. 96, 85, 80C, 50(4), 143B & 156---C.B.R's. Letter No.1(17) WHT/91.Pt.IV, dated 28-4-1992---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Tax was deducted on the gross amount of payment while the payments were made after deduction of cost of material supplied---Complainant/assessee contended that in this manner an excess amount of tax was withheld which was refundable but the same was not determined by the Department while framing assessments under S.143B of the Income Tax Ordinance, 1979---Rectification order was passed resulting in creating of refunds---Complainant/assessee was deprived from the due refund by passing another rectification order and charged the tax on gross amount of receipts for want of verification of documents---Validity---Complainant/assessee was in possession of relevant contract document which could be furnished to the department for verification of the claim---Neither due opportunity of hearing had been afforded nor due attention was, given to Central Board of Revenue's letter, dated 28-4-1992---Claim of refund was hit by limitation which was not admissible---Being a hard case and to meet the ends of justice, Federal Tax Ombudsman remanded the case with the recommendation that Commissioner of Income Tax should personally look into the matter and afford due opportunity of hearing to the complainant for producing relevant agreement of contract with the Military Authorities (if any) as alleged by the complainant/assessee for the verification of his claim of refund.
Imtiaz Ali Khan, Advisor, Dealing Officer.
Mian Muhammad Asif for the Complainant.
Manzoor Hussain shad, (IAC) for Respondent.
FINDINGS/DECISION
JUSTICE (RETD.) MUNIR A. SHAIKH, (FEDERAL TAX OMBUDSMAN).---The main grievance of the complainant is against non-issuance of Refund amounting to Rs.420,338 for the assessment years 1992-93 to 2000-01.
2. Brief facts of the case, 'as submitted by the complainant, are that the complainant is a Contractor and being assessed in Circle-03, Sialkot. The complainant filed statements under section 143B of the repealed Income Tax Ordinance 1979 for the assessment years 1992-93 to 2000-01 declaring net payments/receipts on account of contract executed with Military Authorities and tax deducted under section 50(4) of the repealed Income Tax Ordinance, 1979. Assessment were finalized under section 59(A) of the repealed Income Tax Ordinance, 1979. As contended by the complainant "the contract awarding authorities allegedly supplied material for construction as per contents of the contract. The Military Authorities while making payment withheld the tax deducted under section 50(4) on the gross amount of payment while the payments were made after deduction of cost of material supplied". The complainant has submitted that in this manner an excess amount of tax was withheld which was refundable but the same was not determined by the respondent while framing assessments under section 143B of the Repealed Income Tax Ordinance, 1979. An application, for issuance of refund amounting to Rs.420,338 of tax deducted over and above the tax deductable on payments received by the complainant, was submitted to the Taxation Officer Circle-03, Sialkot on 8-6-2004 in response to which the Taxation Officer made verification from the concerned deducting authorities. Consequently, rectification order was passed on 11-8-2004 for the assessment years 1998-99 to 2000-01 resulting in creation of refund as under:-
| 1998-1999 | Rs.27,853 |
| 1999-2000 | 35,746 |
| 2000-2001 | 25,124 |
Later on the Taxation Officer passed another rectification order on 8-3-2005 and charged the tax on the gross amount of receipts under sections 156/221 and thus allegedly deprived the complainant from the due refund. The complainant further submits that action of the Taxation Officer is against the instructions of C.B.R's. Letter No.1(17)WHT/ 91.Pt.IV dated 28-4-1992.
3. Respondents, have filed parawise comments as under:-
(i) That the complainant filed statement under section 14313 of the repealed Income Tax Ordinance, 1979 for the assessment years 1992-93 to 2000-01. The complainant derives income from execution of contracts. As envisaged under section 80C of the repealed Income Tax Ordinance, 1979 tax deducted under section 50(4) constituted final discharge of tax liability w.e.f, assessment year 1992-93 and the taxpayer was not required to file Return of income under section 55. Subsection (7) of section 80C stipulates that in such cases," assessment under section 59(A) shall be deemed to have been made. As per record neither the complainant filed any return of income for the assessment years 1992-93 to 2000-01 nor claimed any refund for these years. However, statements under section 143B were filed. Although no column for, refund exists on the prescribed statement under section 143B but the taxpayer had indicated refund due of Rs.27,853, Rs.36,495 and Rs.25,124 on statement for the years 1998-99 to 2000-01. The prescribed procedure for claim of refund was not adopted, therefore, refund was not determined.
(ii) That the complainant filed application for issuance of refund for the assessment years 1992-93 to 2000-01 for the first time on 8-6-2004. Rectification application filed was rejected for the assessment years 1992-93 to 1997-98 being hit by limitation as provided in section 156(4) of the repealed Income 'Tax. Ordinance, 1979 read with section 221 of the Income Tax Ordinance, 2001 pertaining to which complainant was informed vide Taxation Officer's letter No.372 dated 13-5-2005. So far as assessment years 1998-99 to 2000-01 are concerned assessment were rectified under section 221 of the Income Tax Ordinance, 2001.
(iii) That the action of the department was not against the instructions contained in C.B.R's. letter No.1(17)WHT/91-Pt.IV dated 28-4-1992 which says:-
"Nature of contract will determine, on case-to-case basis, as to whether exclusion of the cost of material supplied by the client from the total amount of contract payment is called for. It has, therefore, been decided that a contract asking for such exclusion shall apply to the Income Tax Officer giving complete details of facts supported by documentary evidence who after proper examination/verification may allow the same with the prior approval of the Commissioner of Income Tax.",
On the basis of above instructions of C.B.R. the complainant was under obligation to apply for exclusion of the contractual receipts pertaining to materials/stores supplied by the Principals. The assessing officer was to examine the facts of the case in detail and even seeking of C.I.T's. approval was necessary for him to allow the exclusion of such receipts from presumptive taxation. The complainant failed to substantiate his claim with the required documents/evidence in spite of opportunity provided to him vide letter dated 26-11-2004. Since the complainant did not produce copies of contract agreement showing terms and condition of the relevant contract and other supporting evidence, therefore, was not entitled for exclusion of receipts on the basis of supply of material/stores by the deducting authorities, as such rectification under section 221 dated 8-3-2005 was rightly made for the assessment years 1998-99 to 2000-01.
(iv) That the first rectification order dated 11-8-2004 was made by the then assessing officer without verification of gross receipts and tax deducted thereon by the paying authorities. After verification, rectification order dated 8-3-2005 was made resulting NIL refund due to the complainant for the years 1998-99 and 1999-2000, however, refund of Rs.10,004 was determined for the year 2000-01. Refund order under section 170 was passed on 25-4-2005 which could not be delivered to the complainant as reportedly he had gone abroad.
(v) That the action of the assessing officer with regard to the rectification made under section 221 on 8-3-2005 is legal and in order because an opportunity was afforded to the complainant to explain his view point before finalizaiton of the rectification proceedings but he failed to furnish any reply. Thus no "maladministration" is involved in this case.
4. Today i.e. 7-7-2005, on the date of hearing, Mian Muhammad Asif (Advocate, A.R., appeared for the complainant and Mr. Manzoor Hussain Shad (I.A.C.), D.R., attended on behalf of respondents. Both the A.R. and D.R. reiterated their view points made in the complaint and para wise comments respectively.
5. Arguments advanced by both the representatives of parties have been heard and record examined. During the hearing the complainant vociferously submitted that he is in possession of relevant contract documents which can be furnished to the respondents for verification of his claim. It has been observed that neither due opportunity of hearing to the complainant has been afforded (before finalization of rectification proceedings on 8-3-2005) nor due attention was given to C.B.R's. letter dated 28-4-1992. As far as complainant's claim for refund relating to assessment years 1992-93 to 1997-98 is concerned, it is hit by limitation, hence it is not admissible. However, this case appears to be a hardship case and to meet the ends of justice it needs to be remanded with the following recommendations:---
"Commissioner of Income Tax should personally look into the matter and afford due opportunity of hearing to the complainant for producing relevant agreement contract with the Military Authorities (if any) as alleged, by the complainant for the verification of his claim of refund."
5A. The result of above proceedings should be submitted within 45 days of the receipt of this order.
C.M.A.560/F.T.O.Order accordingly.