TANVEER AND BROTHERS, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 694 (2004)

(a) Qanun-e-Shahadat (10 of 1984)---

----Art. 129(e)---Actions performed in normal course of duties would be presumed to be bona fide.

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

----S. 126(1)---Evidence of assessment---Assessment order being an original document was cognizable evidence, thus, all particulars contained therein would be treated as correct.

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

----S.66-A---Income Tax Ordinance (XLIX of 2001), S.122(5-A)---Revision of assessment---Prerequisites---Where assessment order was erroneous as well as prejudicial to interest of revenue, then jurisdiction to invoke, S.66-A of Income Tax Ordinance, 1979 (S.122(5-A), Income Tax Ordinance, 2001) would arise---Mere disagreement among officers on result of assessment order or possibility of framing a better or more revenue yielding assessment by IAC/CIT would not be valid ground to treat completed assessment as erroneous and prejudicial to revenue---Where assessment order was not in accordance with law, then erroneousness causing prejudice to revenue would occur---Element of erroneousness would be ruled out, where department never pleaded for enhancement of income in appeals filed against assessment order---Prejudice to revenue alone would not vest jurisdiction for revision of assessment.

1997 PTD (Trib.) 902 fol.

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

----S.122(5-A)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 11---Issuance of notice to revise already completed assessment---Validity---Impugned notice had ignored that matter had already been considered at assessment stage and reconsidered in the light of Inspection Note at re-assessment stage with approval of superior officers---Mere disagreement or possibility of framing a better or more revenue yielding assessment by IAC/CIT would not be valid ground for revising such assessment---Pre-conditions prescribed by law to revise completed assessment had not been fulfilled rendering impugned notice without jurisdiction, contrary to law, perverse and arbitrary falling in realm of maladministration---Ombudsman would have jurisdiction to investigate such case, particularly when department had failed to establish bona fides of proposed action---Repeated issuance of notices on same issue was a cause of constant anxiety and harassment revealing maladministration---Federal Tax Ombudsman recommended to revenue to withdraw impugned notice and allow completed assessment to stand good.

1992 PTD 545 rel.

A.A. Zuberi, Advisor, Dealing Officer.

Rehan Hassan Naqvi for the Complainant.

Agha Hadaytullah, (IAC) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN):---This complaint has been filed to agitate against issuance of notice under section 122(5A) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) in respect of assessment year 1997-1998 which is alleged to be "a process contrary to law, rules and regulation and a departure from established practice and procedure, hence perverse, arbitrary, unjust, biased, oppressive and discriminatory".

2. The facts leading to the complainant are that the Complainant is a Registered Firm who have dealings in raw hides and skins. Return for the year, 1997-1998 was filed declaring Business Income at Rs.1,147,599 and Capital Gain at Rs.21,318,332 the latter was claimed exempt. The Return when selected for Audit in a computer draw was out-sourced under section 4A of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) to a special officer (a Chartered Accountant). Assessment was then framed under section 62 of the repealed Ordinance treating the receipts of the complainant as earning from `supplies of raw hides/skins on which tax was charged under the presumptive tax regime of section 80C. This dispensation was contested before the C.I.T. (A) who, vide order, dated 8-3-1999, set aside the assessment with the direction to reframe the same on the lines of earlier years where the complainant was treated as Commission Agent and not a `supplier'. The appeal by the Department before the Appellate Tribunal failed on 11-8-1999 when the Tribunal confirmed that in order to deviate from the past treatment the Department was required to bring sufficient material on record to establish that the business was not that of a Commission Agent but that of a purchaser who made `supplies' to various tanneries etc. This, according to Appellate Tribunal, the Department had failed to do hence the order by the C.I.T. (A) was upheld. During the period intervening the order by the Tribunal and its implementation, the IAC of the concerned range inspected the record and vide Inspection Note, dated 3-1-2001 directed the Assessing Officer "to take corrective measures in accordance with the law immediately, in order to retrieve the loss of revenue" because, in his view, the purchase of a plot by the complainant in the year, 1991-1992 and its sale in the year 1996-1997 (at time relevant to the assessment year 1997-1998) was not exempt because the purchase of a commercial plot in Lahore by a Registered Firm of a Commission Agent was "a lucrative investment made for the purpose of profit on sale in subsequent years". The Assessing Officer was consequently directed to raise this issue during the set aside proceedings. When taking up re-assessment under sections 62/132, the Assessing Officer did issue a notice under section 62 on 14-4-2001 confronting the complainant as to why the transactions be not treated as "adventure in the nature of trade" and charged under section 22 of the repealed Ordinance as Business Income. In their reply dated 29-5-2001, the complainant's AR contested the legality of enlarging the scope in reassessment proceedings because assessment was set aside by the two appellate authorities with the direction to compute Income according to the established history of the case. Capital gain on the sale of the property was justified to be exempt and attention was drawn by the learned counsel to the fact that initially the return, when selected for total audit, was outsourced under section 4A of the repealed Ordinance to a special officer namely Mr. Asad Ali Shah, a Chartered Accountant, who after issuing notice under section 62 examined all aspects in detail and the gain on sale of property was not treated as taxable being an income of capital nature. Therefore, according to the A.R., the issue stood settled and no further probe could be made specially when the directions by the C.I.T. (A) as confirmed by the Appellate Tribunal were restricted and specific. The Assessing Officer accepting this contention summarized the issue of capital gain as under:--

"According to the A.R., the queries raised are irrelevant and do not arise out of order passed by the learned C.I.T. (A), dated 8-3-1999. The issue has been examined and contention of the assessee that issue was probed and discussed while proceedings of the original assessment have been found correct. Therefore, no action is being taken at this end".

The assessment was then finalized and necessary Demand Notice issued on 30-6-2001. After about two years on 27-9-2003 the C.I.T., Zone-C, Karachi issued a show-cause notice to the complainant under section 122(5A) of the Ordinance conveying that the Assessing Officer erroneously accepted the plea of exemption from tax of surplus amount representing capital gain on sale of Lahore property and had thus caused prejudice to the interest of Revenue. This notice is the case of grievance.

3. The respondent have forward para-wise comments by R-CIT, Southern Region, Karachi taking the plea that the matter is subjudice before the Commissioner concerned and, therefore, the complaint is not competent for admission as per section 9(2) of the Establishment of the Office of (Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance). "Maladministration" is denied contending that the assessing officer treated the capital gain as exempt at his own without consulting his superiors and wrongly mentioned in the Office. Note of assessment order that superior officers were consulted by the IAC hence the matter had their approval because ".the record does not show any such approval". According to the R-CIT "the explanation of the officer in this regard was called by the Commissioner and the reply of the officer concerned is under examination for further action".

4. Mr. Rehan Hassan Naqvi (ASC), A.R. for the complainant recalled that after selection by computer ballot for Total Audit the return was out-sourced to a Special Officer of high repute who thoroughly investigated the matter and issued statutory notices under sections 61- and 62 and the explanation tendered in this behalf was considered satisfactory. The only disagreement with the Special Officer was about the nature of business-Commission Agent vis-a-vis supplier of hides/skins. The assessment was challenged before the C.I.T. (A) who directed that past practice be followed where the complainant was treated a Commission Agent. This finding was confirmed by the Appellate Tribunal as well. Therefore, when implementing the order of the two appellate authorities, scope of re-assessment was restricted to recomputation of Business Income alone whereas the capital gain was never in controversy. Drawing attention to section 122 of the Ordinance, the learned Counsel pointed out that orders In pursuance of and to give effect to, decisions pronounced under sections 132 and 135 were beyond the scope of section 122 which specifies action in respect of any "order treated as issued under section 120 or issued under section 121 or issued under sections 59, 59A, 63 or 65 of the repealed Ordinance". The learned counsel brought on record copy of order sheet entry, dated 30-6-2001 where the assessing officer has specifically mentioned:--

"Considering facts available on record. The explanation furnished by `a', case has been discussed with the IAC who informed that the issue of taxability of capital gain was also discussed by him with R-CIT. He informed that learned R-CIT was of the view that in view of argument of `a', the gain on sale of property does not constitute adventure in the nature of the trade. Having guidance from IAC, R-III, assessment proceedings are completed. Drafts shown to IAC who agreed to assess Total Income atRs.1,582,319".

Therefore, the matter having once been consciously decided upto the level of head of the region, the issuance of impugned notice under section 122(5A) by the Commissioner was not justified and was an act "contrary to law, rules and regulation" and a `departure from established practice and procedure' falling in the realm of "maladministration". The learned counsel emphasized that he was not seeking any interruption of law but was agitating against the irregularity in the process of assessment which falls in the jurisdiction of the FTO.

5. Agha Hadayatullah (IAC) representing the revenue advanced the same arguments as conveyed by the R-CIT in the para-wise comments. He submitted that the CIT(A) had set aside the order for de novo assessment and, therefore, at the time of renaming of assessment under section 62 read with sections 132/135 of the repealed Ordinance, all aspects including those, not considered before, could be examined for decision according to law. The DR referred to the notice which discussed in detail the reason for the view that there was no justification for (i) treating the property as intended to be used for residence by the joint families of the partners, (ii) for ignoring the directions conveyed through the Inspection Note dated 30-1-2001. Therefore, accepting the claim for exemption was a dispensation erroneous and prejudicial to the interest of Revenue warranting action under section 122(5A) of the Ordinance.

6. The investigation in the light of rival arguments revealed the Order Sheet entry, dated 30-6-2001 reproduced in para. 4 (ibid) which has not only been signed by the Assessing Officer but also contains his full signature and the stamp of his office, erodes the conclusion by the Commissioner that the Assessing Officer erroneously accepted the plea of exemption from tax of the surplus amount causing prejudice to the interest of Revenue. It is significant that (i) though the show-cause notice of 29-9-2003 blames the Assessing Officer for several lapses, and (ii) the parawise comments go to the extent of accusing him of putting a misleading foot-note to the assessment order wrongly mentioning approval of the Additional Commissioner and the C.I.T., and (iii) his explanation called for in this behalf "is under examination for further action"; the fact is that admittedly no disciplinary action for alleged neglect (or misconduct) has so far been taken despite the Assessing Officer having affirmed on 19-9-2003 that he sought approval on 7-6-2001 before finalizing the assessment and also dispatched copies of the final order to R-CIT on 18-7-2001 to CIT on 25-7-2001 and to the IAC on 19-7-2001. The CIT has now furnished copy of the correspondence with the assessing officer and has admitted "no further action has been taken against the officer till today" (i.e. 7-1-2004).

7. In the circumstances discussed hereinabove, it does not appeal to reason that the Assessing Officer misreported that the IAC had discussed the matter with R-C.I.T. This fact has categorically been mentioned in Order Sheet entry dated 30-6-2001, in the Office Note to the assessment (not on the copy filed by the complainant) and affirmed in the explanation, dated 19-9-2003 tendered by the Assessing Officer.

Therefore, the legal presumption that actions performed in the normal course of duties are bona fide. Moreover, the assessment order is an original document characterized as cognizable evidence as per the provisions of subsection (1) of section 126 of the Ordinance so much so that "all particulars" contained in it are to be treated as correct. Judged on this criterion of the sanctity of the assessment order and particulars contained therein, there appears no justification to doubt the affirmation in the assessment and on record, that a well considered decision was consciously arrived at after careful examining of all issues including those pointed out by the IAC in his Inspection Note of 3-1-2001.

8. It may be relevant to recall that verdict by superior judicial forums that jurisdiction to invoke section 66A[section 122(5A) of the Ordinance] arises when an order is `erroneous' as well as "prejudicial to the interest of Revenue". The simultaneous existence of those two conditions have repeatedly been impressed by superior Courts. In this context reference may, with advantage, be made to a decision of Appellate Tribunal reported as 1997 PTD (Trib.) 902 where it was held that the mere disagreement among officers on the result of an assessment order is not a criterion to treat it as "erroneous and prejudicial to revenue" for invoking section 66A, now section 122 (5A), because the pre-requisite for exercise of revisional jurisdiction is existence of such erroneousness as causes prejudice to Revenue which occurs only when an assessment order is not in accordance with law. In the complainant's case the assessment for the year under consideration went through riggers at two appeal stages where the department never pleaded for enhancement of Income to include capital gain, despite there being specific provisions to this effect in the law. The element of `erroneousness' thus stands ruled out, leaving `prejudice to revenues' which alone does not vest jurisdiction from revision of assessment under section 66A or section 122(5A).

9. To sum up, the impugned show-cause notice dated 27-9-2003 for invoking section 122(5A) lacks bona fide because it:--

(a) ignores that the Assessing Officer had taken a conscious decision after confronting the complainant with the contents of IAC's Inspection Note;

(b) disregards the fact that approval of superior officers was obtained and specifically brought on record on the order sheet and in the office note to the assessment order; and

(c) overlooks the fact that mere disagreement, or the possibility that the IAC/CIT can frame a better, or a more revenue yielding assessment, is not a valid ground for revising already completed assessment.

These deficiencies erode the preconditions for invoking jurisdiction for revision of assessment by the CIT rendering without jurisdiction `contrary to law, perverse and arbitrary' hence falling in the definition of "maladministration" as per sub-clauses (i) (a)/(b) of clause (3) of section 2 of the FTO Ordinance. Since proposed action is without jurisdiction, the FTO has the authority to investigate moreso when the department has failed to establish the bona fide of the proposed action.

10. On the aforementioned visualization, the arguments and objections by the learned counsel for the complainant appear valid that "maladministration" was occasioned by issuance of notice for afresh proceedings on a point which has already been considered at the assessment stage and reconsidered, in the light of Inspection Note at the reassessment stage for which approval/opinion of higher authorities of the region was also obtained. The conclusion thus emerges that pre-conditions prescribed by the law to revise a completed assessment, as confirmed by the superior courts in decision reported as 1992 PTD 545 (etc.) remained unfulfilled thus rendering the exercise arbitrary, oppressive and discriminatory besides lacking jurisdiction thus falling in the realm of "maladministration" as defined in clause (3) of section 2 of the FTO Ordinance. Moreover, repeated issuance of notices on the same issue is a cause of constant anxiety and harassment revealing "maladministration". It is therefore recommended that:---

(i) The show-cause notice issued by the Commissioner of Income Tax, Zone-C, Karachi on 27-9-2003 showing intention to initiate under subsection (5A) of section 122 of the Ordinance be withdrawn.

(ii) Assessment as framed under sections 62/132/134 on 30-6-2001 be allowed to stand good.

11. Compliance report be submitted within 30 days of receipt of this order.

S.A.K./226/FTOOrder accordingly.