Mst. LAIL UN-NISA VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 1242 (2004)

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

----Ss.170(4), 164(2) & 165(1)--Income Tax Rules, 2002, Rr.51, 51A & 52---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Refund---Non issuance of refund despite returns having been accepted under the Self Assessment Scheme and by operation of law---Department admitted that assessments had either attained finality by acceptance under Self-Assessment Scheme or by operation of law, however contended that IT-30/Demand Notice was not available hence no refund was obtaining on record---Lack of action for rectification and issuance of refund was attributed to non-availability of original challan/documents---Validity---Deduction certificates were made available; copies of challans provided--Applications under S.170 of the Income Tax Ordinance, 2001 moved for claiming refund---Complainant had fulfilled their part of obligation under S.164(2) of the Income Tax Ordinance, 2001 and it was for the Department to carry out verification through DPC or through the scrutiny of monthly/annual statements received by the Commissioner under S.165(1) of the Income Tax Ordinance, 2001 read with rule 51/51A and 52 of the Income Tax Rules, 2002---If there was any infraction in filing of statements, the fault lay with the "withholdings agents" or in the procedure prescribed by the Central Board of Revenue, but there was no lapse of responsibility by the complainant from whom recovery or tax had already been effected and certificate to that effect issued---Federal Tax Ombudsman recommended that refund be issued promptly after carrying out prescribed formalities and Central Board of Revenue issue instructions/direction to remove the malady identified in the present order.

2007 PTD 1217 and C.No.421--L/04, decided on 14-12-2004 rel.

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

----S.59(1)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Self-assessment---While accepting a return under Self-Assessment Scheme it was obligatory that the Deputy Commissioner shall assess, by an order in writing the total income of the assessee on the basis of such return"-Non-passing of such assessment order was "maladministration".

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

----Ss.120(1)(a)(b) & 170---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)---Assessment---Refund---For the assessment year 2002-2003 a combined reading of Cls.(a) and (b) of S.120(1) of the Income Tax Ordinance, 2001 would suggest that though "the return shall be taken for all purposes to be an assessment order issued to the taxpayer on the day the return was furnished" but `the tax due thereon' had to he the "respective amount specified in the return" which required preparation of IT-30 showing calculation of tax whereafter, in those cases where further demand was created (or a refund worked out), the result had to be communicated through a demand notice to the taxpayer---Prescribed office procedure required that proceedings be recorded on the Order Sheet to support the posting of demand/refund in the DCR---By-passing such procedure, prescribed by law and laid down in the Office Manual, besides representing "maladministration" was by itself alarming inasmuch posting "No Demand" in the DCR carried an impression to higher functionaries that entire deposit in the Treasury was net "Receipt" of Government whereas in reality considerable sums of money remain claimed as refund in the returns---Central Board of Revenue had to look into the matter with a view to remove loopholes as they were causing difficulty to the taxpayers and resulting in reporting exaggerated figures of tax collection at the national level.

A.A. Zuberi, Advisor (Dealing Officer).

Nemo for the Complainant.

Muzammil Hussain Butt (D-CIT) for Respondent.

FINDINGS/DECISION

JUSTICE (RETD.) MUNIR A. SHEIKH (FEDERAL TAX OMBUDSMAN).---These two complaints agitate against non-issuance of refunds despite Returns having been accepted under the Self-Assessment A Scheme or by operation of law.

2. The relevant facts are that both the complainants are ladies and both enjoy income from house property alone on which tax under section 155 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) was deducted by the tenants. Returns were filed under S.A.S. claiming refunds as under:---

Mst. Lail-un-Nisa

Mst. Shah Japan

In both cases, "certificates about deductions at source and bank Challans" are said to have been attached with the returns. Moreover, for the tax year 2003 application for refund by both the complainants were duly moved under section 170 of' the repealed Ordinance on 22-1-2004 which having not been responded are the cause of complaints.

3. Respondents have forwarded parawise comments by R.C.I.T., Eastern Region, Lahore. It is admitted in respect of both complainants that assessment have either attained finality by acceptance under S.A.S. or by operation of law in all the years-under-consideration. It is, however, reported that IT-30/Demand Notice are not available hence no refund is obtaining on record. The receipt of any application for rectification is totally denied. Lack of action for rectification and issuance of refund is attributed to non-availability of original Challan/documents. The R.C.I.T. has, however, promised "as refund due to the assessee is still to be determined, and refund voucher will be issued subsequently", therefore, no "maladministration" is said to have been committed by the Department.

4. None was present for the complainants when called, however, Mr. Muzammil Hussain Butt (D.C.I.T.) appeared for the respondents. The D.R. repeated the arguments as conveyed by the R.C.I.T. in the parawise comments. He brought on record letter, dated 11-10-2004 and reminder, dated 28-10-2004 requesting both the complainants separately to furnish original documents/challan for the deposit of tax to enable verification so that rectification is made for creating refund and to issue the same.

5. The arguments of the D.R. have been heard. Examination of record with the help of D.R., revealed that:---

No assessment orders as such have been passed in any of the two years in the cases of the two complainants.

Although on the Returns, D.C.R. numbers and date of entry have been noted but there is no corresponding order-sheet entry indicating the provision of law and the relevant section under which the returns were accepted.

There is no record of correspondence or directions to the staff, to suggest that any independent effort was made to verify the correctness of the challans for withholdings, neither the `withholdings agents' were ever approached.

No cross-verification was made with the statements filed under rule 49 of the Income Tax Rules which are expected to be available in C.I.T. office.

On query, the D.R. explained that now-a-days Returns filed under USAS are automatically accepted and; ignoring the refund claim the words "No Demand" are noted in the D.C.R. if ever any taxpayer comes forward to claim refund, his assessment is rectified under section 156 of the repealed Ordinance to create a refund for issuance of which an application is obtained. According to the D.R. in the case of the two complainants, rectification would now be made as soon as proof is tendered about the deposit of tax by the deducting/withholding agents.

6. The assessment procedure, as explained by the D.R., is clearly "contrary to law and rules". As respects assessment years upto 2001-2002, even when accepting a return under S.A.S. it was obligatory: "The Deputy Commissioner shall assess, by an order in writing the Total Income of the assessee on the basis of such return ..". Therefore, non-passing of assessment orders for the years 2000-2001 and 2001-2002 in the case of both the complainants is "maladministration" as defined in clause (3) of section 2 of the F.T.O. Ordinance.

7. For the assessment year 2002-2003 a combined reading of clauses (a) and (b) of section 120(1) suggests that though "the return shall be taken for all purposes to be an assessment order issued to the taxpayer....on the day the return was furnished" but `the tax due thereon' has to be "respective amount specified in the return". This obviously requires preparation of IT-30 showing calculation of tax whereafter, in those cases where further demand is created (or a refund worked out), the result has to be communicated through a demand notice to the taxpayer. Moreover, the prescribed office procedure requires that proceedings in this behalf be recorded on the order sheet to support the posting of demand/refund in the D.C.R. This process seems to have been completely ignored. By-passing this procedure, prescribed by law and laid down in the office manual, besides representing "maladministration" is by itself alarming inasmuch posting "No Demand" in the D.C.R. carried an impression to the higher bosses that entire deposit in the treasury is net "receipt" of Government whereas in reality considerable sums of money remain claimed as refund in the returns. It appears expedient that the C.B.R. look into the matter with a view to remove loopholes as are causing difficulty to the taxpayers and resulting in reporting exaggerated figures of tax collection at the National level.

7A. Coming to the complaints-in-hand it is noticed that (i) deduction certificates were made available, (ii) copies of challans provided, and (iii) applications under section 170 moved for claiming refund. Therefore, the complainants have already fulfilled their part of the obligation under subsection (2) of section 164 of the Ordinance and it is for the department to carry out verification through DPC or through the scrutiny of monthly/annual statements received by the Commissioner under section 165(1) read with rules 51/51A and 52A of the Income Tax Rules. This aspect has already been exhaustively discussed in C.No.488-L/04, dated 16-8 2004 which has since been reported as 2007 PTD 1217 (F.T.O.-PAK) and also in a recent findings/decision on C.No.421-L/04, dated 14-12-2004. If there is any infraction in the filing of statements, the fault lies with the "withholdings agents" or in the procedure prescribed in this behalf by the C.B.R., but there is no lapse of responsibility by the complainants from whom recovery of tax has already been effected and certificate to that effect issued. On this visualization it is recommended that:---

(i) Refund at Rs.45,986 for 5 years in the case of Mst. Lail-un-Nisa and refund at Rs. 15,600 for two years in the case of Mst. Shah Jahan be issued promptly after carrying out prescribed formalities.

(ii) C.B.R. issue instructions/direction to remove the malady identified in paras. 6 and 7 hereinabove.

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

C.M.A./398/FTOOrder accordingly.