KHALEEQ AHMED VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2008 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 896 (2004)

Income Tax Ordinance (XXXI of 1979)---

----Ss.22, 23, 61, 62, 63, 66A, 132, 156(3) & 102-Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)--Refund---Ex parte assessment---Best judgment assessment---Deductions--Notice---Rectification---Compensation on delayed refund---Complainant had challenged non-issuance of refund for the assessment year 1997-98 along with compensation and it was alleged that in ex parte assessment deductions were not made---Complainant filed rectification application which was not decided within statutory time "and therefore the mistake was deemed to be rectified and refund was created=--Department, in reply had alleged that rectification application was never filed and tax deducted was adjusted against demand and no refund was created---Validity---Claim of filing the rectification application was not established---Commissioner Appeal had directed to compute the income under sections 22 and 23 of the Income Tax Ordinance, 1979---No appeal was filed before the Income Tax Appellate Tribunal by the Department---Ex parte assessment was made after a lapse of more than nine months from the date of non-compliance of statutory notice---Such order was served after a lapse of two and half years---No expenses were allowed against substantial receipts in the ex parte order---Ex parte assessment must be best judgment assessment---Order passed by the Assessing Officer under sections 63/132 of the Income Tax Ordinance, 1979 on 20-6-2000 was arbitrary, unreasonable, unjust and oppressive---Federal Tax Ombudsman therefore recommended that Central. Board of Revenue to direct the concerned Commissioner of Income Tax to set aside the order passed under sections 63/132 dated 20-6-2000 for Assessment year 1997-98 and to pass fresh order strictly following the directions given in Appellate Order in presence of complainant.

S.A. Asghar Abbas, Consultant (Officer).

Abdul Razak along with Khaleeq Ahmed, Manager Finance for the Complainant.

Sohaib Ahmed Sehi, I.A.C. for and Saleem Pervaiz, A.C.I.T. for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) SALEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The complainant a Cooperative Society is an existing Income Tax Assessee of Companies Zone-V on National Tax Number 33-09-2720722.

2. The complainant has challenged non-issuance of refund by the assessing officer for the assessment year 1997-98 along with compensation @ 15% as provided by section 102 of the repealed Income Tax Ordinance, 1979. The facts of the case are briefly stated as under:--

2. The complainant filed return for the assessment year 1997-98 declaring loss of Rs. 3,91,520. The assessment was made under section 62 of the repealed Ordinance and. the net loss was determined at Rs.2,42,769. No tax demand was created due to deduction of tax at source. The assessment was subsequently cancelled by the Inspecting Additional Commissioner of Income Tax under section 66A, of the repealed Ordinance, 1979. The re-assessment was completed under sections 63 and 66A on income of Rs.4,02,29,569 and tax payable was determined at Rs.1,54,34,484.

3. It is stated that the impugned assessment under sections 66A/63 was made in a way that the expenses incurred against the receipts subjected to tax were not prorated and therefore, an application under section 156 of the repealed Ordinance for rectification was submitted in the office of the assessing officer of Circle-07, Zone-C, Karachi on 28th April, 1999. It is alleged that since the order was not made by the expiration of the financial year next following the date on which the application for rectification under section 156 was submitted i.e. 30-6-2002 and therefore the mistake was deemed to have been rectified as provided by subsection (3) of section 156 of the repealed Income Tax Ordinance, 1979. It is stated that since the aforesaid application under section 156 was barred by time, the taxation officer was requested to refund the amount at Rs.5,00,000 which was claimed on the basis of evidence of payments made after one order under sections 66A/63. The said payment was stated to have been made on 30-5-2001. It is further, stated that the taxation officer was requested by the A.R. vide his letter dated 21-8-2003 to issue the refund voucher along with the compensation @ 15% as provided in section 102 of the repealed Ordinance, 1979. It is also prayed by the complainant that welfare expenditure incurred, duly verified may kindly be held as an admissible expenditure.

5. The case has been discussed with the representatives of both the sides and the records produced by the Departmental Representative have also been examined.

6. The respondents have filed parawise comments prepared by the Commissioner of Income Tax, Companies Zone-V, Karachi. It is reported therein that the case record was transferred from Zone-C, on 20-1-2003 and as per records received, the claim of complainant regarding filing of rectification application was not verifiable. The receipt of rectification application dated 28-4-1999 has been denied. It is further, reported that the allegations of the complainant that welfare expenses were allowed by the department was unfounded. The fact was that the D.C.I.T. made a speaking order and disallowed welfare expenses outrightly. The departmental representatives have filed written comments on 9-12-2003. It is reported by the Departmental Representative that the complainant's claim of filing of rectification application was not verifiable from the records received from Zone-C, Karachi. The Inward Register of Zone-C, was also not traceable. The Departmental Representative has stated in the written arguments that for the sake of argument even if it was presumed that the rectification application was filed on 28-4-1999, the same had become infructuous as the complainant had agitated the same issue in' the grounds of appeal before the Commissioner of Income Tax (Appeal) on 10-5-1999 for allowing expenses against business of income. It is further argued that in view of numerous decisions of superior Courts, the application allegedly filed under section 156 was merged with the decision of C.I.T. (Appeals) dated 31-5-1999. The photocopy of ground for appeal for the year under consideration has been filed in support of the aforesaid arguments.

7. The Departmental Representative has further, argued that the complainant's claim of refund of Rs.5,00,000 on the basis of payments made by him after the order was passed under sections 66A/63 was also incorrect as the payment of the aforesaid amount had already been adjusted against the outstanding demand of the complainant as reported by the taxation officer Circle-02, Zone-C, Karachi vide his letter No.29 dated 4-11-2003. The details thereof are reproduced as under:-

8. The complainant's A.R. contended that the Commissioner of Income Tax Appeal Zone-VI, in his order dated 31-5-1999 ordered to allow expenses as admissible under section 23 of the repealed Income Tax Ordinance,' 1979. He further, stated that orders whereby appeal effect was given under section 132 for the assessment years 1996-97 and 1997-98 had not been received by the complainant.

9. The Authorized Representative of the complainant has produced copy of the relevant entry of the Peon book in support of his contention that the rectification application was filed on 29-4-1999 in Circle-C-7, Zone-C, Karachi. There is no stamp of the circle against receipt of the said application. The complainant's A.R. has also failed to identify as to who had received the rectification application. The name of the recipient is also not legible. The claim of filing the rectification application is therefore, not established.

10. The photocopy of grounds of appeal furnished by the D.R. however, confirms that the impugned issue of expenses admissible under section 23 was raised at serial No.5 of the ground of appeal in the following words:-

"That the Deputy Commissioner of Income Tax has erred in taking entire sales of fishing appliances at Rs.1,66,05,026 without allowing and deduction as provided in under section 23 of I.T. Ordinance, 1979."

11. The perusal of appellate order of the Commissioner of Income Tax Appeal Zone-VI, Karachi dated 31 5-1999 confirms the contention of the complainant's A.R. that the Commissioner Appeal had directed to compute the income under sections 22 and 23 of the repealed Ordinance, 1979. The relevant extract is reproduced hereunder:-

"I further hold that the assessee's income should be computed in the manner as laid down under sections 22 and 23 of the Ordinance, 1979 which is accordingly ordered."

12. The Departmental Representative in his written arguments dated 9-12-2003 has also confirmed that no appeal was filed before the Income Tax Appellate Tribunal by the department or the complainant against the order of C.I.T. (Appeals) dated 31-5-1999.

13. The departmental representative has also filed the photocopy of the order passed under sections 63/132 of the repealed Ordinance, 1979 dated 20-6-2000.

14. The perusal of the order shows that the assessment was completed ex parte under section 63 for non-compliance of notices under sections 61 and 62 issued for 20-9-1999. The departmental representative has failed to produce the relevant order sheet from which issuance of notices and compliance thereof could be ascertained. Order is however, dated 20-6-2000, which was passed for non-compliance of notices on 2-9-1999. The ex parte order could not be passed after a lapse of more than nine months from the date of non-compliance 'of' statutory notices i.e. 2-9-1999 without recording any reasons/justification therefor on the order sheet. The allegation of the complainant that the aforesaid order under sections 63/132 dated 20-6-2000 was not served on the complainant so far stands established as the D.R. has not been able to produce any evidence that the impugned order was served on the complainant or any other authorized person earlier. The order was however, served on 3-12-2003. The D.R. has not been able to explain this gross irregularity in service of order after a lapse of about two and half years. It is however confirmed that no expenses were allowed against substantial receipts in the ex parte order passed under sections 63/132 of the repealed Ordinance. It is pertinent to point out that even an ex parte assessment is to be made strictly on merit. It has been repeatedly held by the superior Courts that ex parte assessment must be best judgment assessment. This is a clear case of mal?administration committed by the assessing officer.

15. The facts stated above clearly establish that the order passed by the assessing officer under sections 63/132 on 20-6-2000 was arbitrary, unreasonable, unjust and oppressive.

It is therefore, recommended as under:--

(i) The C.B.R. direct the concerned Commissioner of Income Tax to set aside the order passed under sections 63/132 dated 20-6-2000 for the year 1997-98 with the directions to the taxation officer to pass a fresh order strictly following the directions of the C.I.T. (Appeals) and after providing a reasonable opportunity to the complainant to present his case.

(ii) The compliance be made within 30 days of receipt of this order and reported within a week thereafter.

M.I./266/F.T.O.?????????????????????????????????????????????????????????????????????????????????? Order accordingly.