TAYMUR COTTON MILLS (PVT.) LTD., LAHORE CANTT. VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 593 (2005)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 221, 170(4) & 171---Income Tax Ordinance (XXXI of 1979), Ss.62, 64(1), 34, 35, 73 & 102---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Rectification of mistake---Refund---Losses declared by the predecessor---Brought forward and set off---Rectification application was moved requesting that losses declared by the predecessor in the assessment years 1999-2000 and 2000-2001 be brought forward and set off against the Income determined in the assessment year 2001-2002 under S.62 of the Income Tax Ordinance, 1979---Application was rejected on the ground that the matter "did not fall within the scope of S. 221 of the Income Tax Ordinance, 2001" because as per record "no assessed losses for the assessment years 1999-2000 and 2000-2001 were. available for adjustment" and as complainant was not correct in claiming that returns for earlier years were filed and came to be accepted by operation of law as per S.64(1) of the Income Tax Ordinance, 1979---Validity---Conclusion was inescapable that returns for 1999-2000 and 2000-2001 were filed in the case of predecessor and have attained finality due to the operation of law per S.64 of the Income Tax Ordinance, 1979---Complainant was entitled to set off the brought forward loss in terms of Ss.34 & 35 of the Income Tax Ordinance, 1979, subject to the satisfaction of the requirement of S.73 of the Income Tax Ordinance, 1979---Federal Tax Ombudsman recommended that the complainant be allowed refund arising due to set-off of brought forwarded loss, if allowable, within 45 days after the date of application as per S.170(4) of the Income Tax Ordinance, 2001; that additional payment for delayed refund also accrued and be allowed as per S.102 of the Income Tax Ordinance, 1979 read with S.171 of the Income Tax Ordinance, 2001; that Officers who committed the lapses as respects maintenance of files, and recording of proceedings on "Order Sheet", be identified and addi tion to written warning, to be made part of their Performance Evaluation Reports (old A.C.Rs.) and be made to undergo a course in Office Procedure at the Tax Management Academy.

A.A. Zuberi, Advisor, Dealing Officer.

M. Ashraf Ch. for the Complainant.

Qamar Haider, (D.-C.I.T.) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---This complaint relates to assessment year 2001-2002 against rejection of rectification application filed under section 221 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) through which refund was to emerge at Rs.6,958,498.

2. Briefly the facts are that the complainant, a Private Limited Company, runs a spinning unit. Upto the assessment year 2000-2001, the unit was run in the name and style of Asad Umar Textile Mills (Pvt.) Ltd. (hereinafter called the Predecessor) but on change of ownership it was designated as Taymur Cotton Mills (Pvt.) Ltd. (hereinafter called the Successor) with effect from the assessment year 2001-2002 for which return was filed declaring Income at Rs.170,017. The assessing officer took up proceedings and finally completed the assessment under section 62 on 30-6-2004 determining Income at Rs.4,726,670. A rectification application was then moved on 12-8-2004 requesting that losses declared by the Predecessor in the assessment years 1999-2000 and 2000-2001 at Rs.6,161,398 and Rs. 799,100 respectively be brought forward and set off against the Income determined in the year 2001-2002 under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance). This application was rejected on 31-8-2004 on the ground that the matter "does not fall within the scope of section 221 of the Income Tax Ordinance, 2001" because as per record "no assessed losses for the assessment years 1999-2000 and 2000-2001 are available for adjustment". The complainant then made a representation to the Commissioner, Special Zone on 18-9-2004 which having remained unresponded is the cause of grievances.

3. Respondents have forwarded parawise comments by R-C.I.T., Eastern Region, Lahore which, in addition to questioning the competence of the complaint for admission in view of subsection (2)(b) of section 9 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the F.T.O. Ordinance), deny "mal administration". It is contended that the complainant is not correct in claiming that returns for earlier years were filed and came to be accepted by operation of law as per section 64(1) of the repealed Ordinance. Several deficiencies/contradictions have been pointed out in the `acknowledgment slips' for filing of returns as are in the possession of the complainant. The R-C.I.T. asserts " .neither the returns were filed nor it was claimed that the returns .had already been filed which the assessee has now claiming". On this ground the R-C.I.T. has justified the rejection of application for rectification moved under section 221.

4. Mr. M. Ashraf Ch. (Advocate) learned counsel for the complainant brought on record `acknowledgment slips' as also photocopies of the returns of which the one for 1999-2000 bears the date (pf receipt as 31-7-1999. According to the A.R., this was entered in the Receipt Register at Serial 165. Dealing with the contradictions and the inaccuracies as pointed out by the R-C.I.T., the learned counsel attributed the mention of the Zonal Code as `03' instead of "30" to a "clerical mistake". The learned counsel brought on record a copy of notice under section 61 dated 21-1-2000 for the assessment year 1999-2000 to establish that such statutory notice could be issued only when return was obtaining on record. The A.R. built up the argumment that although proceedings were taken up, yet these were not finalized and, therefore, assessments have become time barred resulting in acceptance of returns in which losses were claimed. Therefore, now the Department was attempting a cover up the lapses of its functionaries with the result that the complainant is being deprived of the benefit of carry forward (and consequential set off) of losses as provided by law and the resultant refund of the tax paid in excess.

5. Mr. Qamar Haider (D-C.I.T.) appearing for the department on his turn insisted that no return could be traced out despite efforts, thus no rectification to give benefit by setting off the so-called brought forward losses is legally possible unless such losses were determined on record. The D.R. referred to the deficiencies, as pointed out by the R-C.I.T. in his parawise comments, to tarnish the trustworthiness of "acknowledgment slips" presented by the complainant.

6. A scrutiny of record in the light of arguments by the two sides reveals/exposes innumerable deficiencies in the maintenance of record. It is apparent that when the change in the ownership occurred and the name/title of the business was changed from Asad Umar Textile Mills Private Limited to Taymur Cotton Mills Private Limited, the record of the Predecessor should have been merged with that of the Successor. The Department seems to be ignorant of the implication of section 73 and no reference to it has been made even by the R-C.I.T. when discussing the merger of the two units. The first step to determine is whether there was succession-in-business falling under section 73 or a mere change of name, with ownership remaining the same. Presently, the objection by the Department is that for 1999-2000 and 2000-2001 returns were not at all filed. This instance could not stand the test of scrutiny because--

(i) the filing of the return is established not only through the `acknowledgement slips' bearing Department's stamp, presented by the complainant but also by the notice under section 61 issued on 21-1-2000 which has been brought on record by the A.R.

(ii) The Order Sheet (=IT-39) for the assessment year 1998-99 (copy obtained for record) shows that the application for NTN was filed on 16-4-1998 by the Predecessor.

(iii) This Order Sheet bears NTN 30-01-TR-193. This very Order Sheet further records on 13-5-2002 that proceedings for the years 1999-2000 to 2001-2002 were "filed" subject to action under sections 65/156 and that no NTN was issued. No reason for non-issuance of NTR is specified.

(iv) The same Order Sheet for the year 2002-2003 records: "as per history of the case proceedings are filed". This is dated 30-10-2002.

(v) There is another IT-39 (Order Sheet) for the Predecessor for the year 1999-2000 which bears a different NTN 30-02-000182 (copy obtained for record). On 30-5-2002 it records: "issue notice under sections 56/61 for 10-6-2002". There is. no entry as respects compliance of notices, if issued. There is no record of further proceedings.

(vi) It is significant that the notice under section 61 dated 13-1-2000 which the complainant brought on record mentioned NTN 30-01-TR-000015 for the Predecessor.

7. The above deficiencies are indicative that record has been maintained in an haphazard manner with the result that despite application having been moved on 10-12-1998 no NTN was issued and proceedings continued to be `filed'. Even discounting the allegation by the A.R. that fresh notices under sections 56/61 for the assessment years 1999-2000 to 2001-2002 dated 30-5-2002 were subsequently inserted to infuse new life in the proceedings which already have attained finality by operation of law, the fact remains that even after the issuance of this impugned notice on 31-5-2002 no further action was taken and the Department has no proof whether proceedings were taken to their logical and legal end. It is thus evident that at the whims and fancy of whosoever was posted in the Circle, files were opened without caring to find out the previous record with the result that for Asad Umar Textile Mills (Pvt.) Ltd. (=the Predecessor) three NTN were mentioned on Order Sheet/Notices i.e.

NTN:30-01-TR-000015

NTN:30-01-TR-000182

NTN:30-01-TR-000192

The lapses patently fall under the realm of "maladministration" as defined in clause (3) of section 2 of the F.T.O. Ordinance, thus eroding the objection about lack of jurisdiction to entertain the complaint.

8. In the final analysis, the conclusion is inescapable that-

(i) Returns for 1999-2000 and 2000-2001 were filed in the case of the Predecessor and have attained finality due to the operation of law as per section 64 of the repealed Ordinance.

(ii) The complainant is entitled to set off the brought forward loss in term of sections 34 and 35 of the repealed Ordinance, subject to the satisfaction of the requirement of section 73, as discussed above.

9. It is consequently recommended that:-

(a) The complainant be allowed refund arising due to set-off of brought 'forwarded loss, if allowable, within 45 days after the date of application as per section 170(4) of the Ordinance.

(b) Additional Payment for delayed refund also accrues and be allowed as per section 102 of the repealed Ordinance read with section 171 of the Ordinance.

(c) Officers who committed the lapses as respects (i) maintenance of C files, and (ii) recording proceedings on "Order Sheet", be identified and in addition to written warning to be made part of their Performance Evaluation Reports (=old ACRs) be made to undergo a course in Office Procedure at the Tax Management Academy (=DOT).

10. Compliance report be submitted within 30 days of the receipts of this order.

C.M.A./403/F.T.O.(L)Order accordingly.