SALIM S. SALAMAT VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 629 (2004)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 132---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Disposal of appeal by the Appellate Tribunal---Non-following of directions of Appellate Tribunal---Department conceded that the directions as contained in Appellate Tribunal's order were not even remotely referred to by the Assessing Officer in the assessment order nor the estimate of receipts and the extent of expenses was made on the same lines as specified by the Appellate Tribunal---Validity---Department admitted that directions by the Appellate Tribunal in the second round of litigation had not been followed; it was a pity that assessments were now over a decade old history yet the matter was still not finally settled despite present assessment being the third attempt after setting aside of two earlier assessment efforts---Scenario was highly unsatisfactory and a genuine cause of grievance besides being a pathetic example of "mal administration'---Matter had to be decided once and for all as quickly as possible after suitable reprimand to all concerned `tax functionaries' who participated in the three rounds of assessments---Federal Tax Ombudsman recommended that the Commissioner by resort to S.122(5A) of the Income Tax Ordinance, 2001 revised the assessment at his level so as to bring it in line with the directions of Appellate Tribunal; that the Assessing Officer (the person not the office) who framed the second and third assessments be suitably warned and a copy thereof, placed on the Performance Evaluation Report to be considered at the time of promotion and that the Assessing Officer who made a change in Income year in total disregard of provisions of S.32(3) read with S.2(26) of the Income Tax Ordinance, 1979 in the year 1990-91 be reprimanded wherever he is presently posted.

(b) Income Tax Ordinance (XLIX of 2001)---

----S. 32(3)---Income Tax Ordinance (XXXI of 1979), S.2(26) Explanation (b)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Method of accounting---Income year---Assessing Officer, without any rhyme or reason, switched over to `financial year' while determining income---No reason for switch over had been recorded as was necessary keeping in mind the provisions of S.32(3) of the Income Tax Ordinance, 2001 read with Explanation (b) to S.2(26) of the Income Tax Ordinance, 1979---Income for the assessment year 1989-90 had been determined for the period 1-1-1988 to 31-12-1988---Income for the immediately following year of 1990-91 was for the period of 1-7-1989 to 30-6-1990, in consequence either income for the period 1-1-1989 to 30-6-1989 had been totally omitted from assessment, or the assessment for the year 1991-92 was for a period of 18 months but the assessment order was silent about the same---Such vital infirmity in the assessment had not been noticed during inspection by the Inspecting Additional Commissioner in any of the last ten years nor by the Regional Commissioner of Income Tax when preparing parawise comments which was glaring example of "neglect, inattention, incompetence, and inefficiency in the discharge of duties and responsibilities", falling in the category of `maladministration'.

A.A. Zuberi, Advisor, Dealing Officer.

S. S. Salamat for the Complainant.

M. Majid, D.-C.I.T. for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHAIKH (FEDERAL TAX OMBUDSMAN).---This complaint alleges mala fide disregard of the directions conveyed by the Appellate Tribunal in its order dated 28-12-2002 in respect of assessment years 1991-92 to 1993-94 thus committing an act contrary to law, and a departure from established practice and process resulting in `maladministration' as per the F.T.O. Ordinance.

2. Briefly the facts are that the complainant A.O.P. exists at NTN 07-06-0455359-4 and runs an educational institution. No books of accounts are said to have been maintained. The assessments framed for the years 1991-92 to 1993-94 were taken in appeal to the C.I.T.(A) and finally to the Appellate Tribunal in its consolidated order dated 13-8-1997 set these aside. On reassessment the matter again went upto the Appellate Tribunal who vide consolidated order dated 28-12-2002 ordered:--

(i) "No implicit reliance can be placed at the Enquiry Report by the Inspector on 11-4-1994 because the same related to a period subsequent to the years under consideration.

(ii) Controversy be resolved by estimating Receipts by adopting 20% increase in each year; but

(iii) Fee Receipts for Class-10th be determined keeping in mind that permission for enrolment of students for this class was granted on 1-4-1995.

(iv) Though Profit and Loss expenses as per declared version could not be accepted, considering that Salary and Rent constitute 81% of the total Receipts, appropriate expenses should be allowed to determine Taxable Income, keeping in mind (a) net profit in the preceding assessment year as well as in the succeeding assessment years and comparable cases, so that the issuance is set at naught.

The assessment so set aside was reframed on 23-5-2003 determining Income as under:-

In addition, penalty under section 111 of the Income Tax Ordinance, 1979 was imposed at Rs.1,431,284 in 1991-92 and Rs.1,555,234 in 1992-93 and at Rs.2,086,912 in 1993-94. This, dispensation, according to the complainant, has disregarded the directions by the .Appellate Tribunal hence arbitrary amounting to "maladministration" as defined in Clause (3) of section 2 of the Establishment of Office of Federal Tax Ombudsman Ordinance 2000 (hereinafter called the F.T.O. Ordinance).

3. Respondents have forwarded parawise comments by R-C.I.T.,' Eastern Region, Lahore which question the competence of the complaint for admission in view of the bar as per section 9(2)(b) of the F.T.O. Ordinance. "Maladministration" is denied contending that assessments were framed after due opportunity but the required details "were never produced by the assessee". The failure of the assessing officer not to apply the net profit: as obtaining in the preceding and succeeding years, has been justified by the R-C.I.T. on the ground that onus for this was on the complainant but "the assessee did not provide documentary evidence and it proved that the assessee filed incorrect particulars of Income vis-a-vis Fee Receipts etc". Similarly, according to the R-C.I.T., no documentary evidence was furnished to support the claim of Overhead expenses. The imposition of penalty under section 111 has been justified by the R-C.I.T. "because the Fee Receipts computed in the light of Appellate Tribunal directions did not commensurate with the receipts declared by the assessee".

4. Mr. Salim S. Salamat, Principal-Member of the A.O.P. appeared personally to pursue the complaint. He pointed out that as per directions by the Appellate Tribunal it was the obligation of the assessing officer to estimate the receipts keeping in mind the upper limit of 20% from the past. This obviously was not done as is evident from the estimate of receipts. In support of this contention the complainant furnished the following data:-

CALCULATIONS OF FEE RECEIPTS AFTER APPELLATE ORDERS

Again, according to the complainant, the receipts for Class-10th were not to be taken into account prior to the year 1995-96 and the expenses were to be around Rs.81 % of the receipts. None of these instructions were adhered nor there is any mention of the Appellate Tribunal's directions in the impugned assessment order. This betrays that no respect or regard was shown to the directions by the Appellate Tribunal though it is the highest fact-finding forum under the Income Tax Law so much that as per subsection (10) of section 132 of the Ordinance its decisions "shall be final".

5. Mr. M. Majid (D-C.I.T.) representing the Department advanced the same arguments as are contained in the para wise comments. He, however, frankly conceded, that the directions as contained in the Appellate Tribunal's consolidated order dated 28-12-2002 have not even remotely referred to by the assessing officer in the impugned consolidated assessment order nor ,the estimate of receipts and the extent of expenses is on the same lines as specified by the Appellate Tribunal.

6. The rival arguments of the contending parties have been considered and 'record examined. It must at once be pointed out that the complaint does not assail the quantum of assessment and determination of tax thereon but alleges mala fide misconduct reflected by disregard of the directions given by the Appellate Tribunal in its consolidated order of 28-12-2002. The objection by the R-C.I.T. as respects competence of the complaint for admission is, therefore, overruled.

7. The examination of record brought out that the complainant has been filing returns calendar, year wise corresponding to the relevant assessment year. Assessment upto the year 1989-90 were made on this basis. Surprisingly, the assessing officer, without any rhyme or reason, switched over to `financial year' when determining Income for the assessment year 1990-91. No reason for switch over has been recorded as was necessary keeping in mind the provisions of subsection (3) section 32, read with Explanation (b) to section 2(26) of the repealed Ordinance. The result is that whereas income for the assessment year 1989-90 has been determined for the period 1-1-1988 to 31-12-1988 Income for the immediately following year of 1990-91 is for the period 13 1-7-1989 to 30-6-1990. In consequence (i) either income for the period 1-1-1989 to 30-6-1989 has been totally omitted from assessment, or (ii) the assessment for the year 1991-92 is for a period of 18 months but the assessment order is silent about it. It is surprising that this vital infirmity in the assessment has not been noticed during inspection by I.A.C's. in any of the last ten years (or so) nor by the R-C.I.T. when preparing para wise comments. This is a glaring example of "neglect, inattention, incompetence, and inefficiency in the discharge of duties and responsibilities", thus falling in the category of `maladministration' as defined in clause (3) of section 2 of the F.T.O. Ordinance.

8. Turning to the three impugned assessments, the D.R. has already admitted that the directions by the Appellate Tribunal in the second round of litigation have not been followed. It is a pity that assessment years 1991-92 to 1993-94 are now over a decade old history yet the matter is still not finally settled despite the present assessment being the third attempt after set-aside of two earlier assessment efforts. The scenario is highly unsatisfactory and a genuine cause of grievance besides being a pathetic example of "maladministration". It is, therefore, imperative that the matter be decided once and for all as quickly as possible after suitable reprimand to all concerned `tax functionaries' who participated in the three rounds of assessments. It is, therefore; recommended that:-

(i) Commissioner by resort to section 122(5A) of the Income Tax Ordinance, 2001 revise the assessment at his level so as to bring it in line with the directions of Appellate Tribunal vide order dated 28-12-2002.

(ii) The assessing officers (the person not the office) who framed the second and third assessments on 26-6-1999 and 28-2-2003 be suitably warned and a copy thereof, placed on the Performance Evaluation Report to be considered at the time of promotion.

(iii) The assessing officer who made a change in Income year in total disregard of provisions of section 32(3) read with section 2(26) of the repealed Ordinance in the year 1990-91 be reprimanded wherever he is presently posted.

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

C.M.A./396/F.T.O.Order accordingly.