QUDRATULLAH WEAVING FACTORY TANDO ADAM VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2009 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2205 (2009)

Income Tax Ordinance (XLIX of 2001)---

----S. 122(5-A)---Income Tax Ordinance (XXXI of 1979), Ss.61 & 62---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.10 & 11---Amendment of assessment---Complainant had alleged that return filed for the assessment year 2001-2002 under the Self-Assessment Scheme based on C.B.R. Circular dated 18-6-2001 was wrongly processed under normal proceedings taken up under Ss.61 & 62 of (repealed) Income Tax Ordinance, 1979---Subsequently amendment in assessment already finalized under S.62 under the repealed Ordinance was made under the provisions of S.122(5-A) of Income Tax Ordinance, 20017--Both the orders under S.62 of the repealed Ordinance, 1979 and S.122(5-A) of Income Tax Ordinance, 2001 were alleged to. be wrong and illegal---Assessee's authorized representative had contended that the return should have been processed under Self-Assessment Scheme, but Assessing Officer had wrongly issued notice under S.61 of repealed Ordinance, 1979---Representative had further pointed out that notice under S.62 of repealed Ordinance, 1979 for the assessment year 2001-2002 was also wrong and illegal---Additional Commissioner issued notice to amend order under S.62 of repealed Ordinance, 1979 by invoking the provisions of S.122(5-A) of Income Tax Ordinance, 2001---Additional Commissioner processed the return and enhanced income raising tax demand---Validity---For amendment in assessment, relating to any assessment year prior to tax year 2003, the provisions of S.65 or S.66-A of the repealed Income- Tax Ordinance, 1979 could be invoked---Action taken under S.122(5-A) of Income Tax Ordinance, 2001 was not sustainable---Even on the basis of fact, action under S.122(5-A) of Income ,Tax Ordinance, 2001 was not warranted as statement of accounts furnished with the return did not show any head of expenses with regard to wages and electricity in the trading account/manufacturing account, but those heads were mentioned in the pro forma in the Profit and Loss Account---Maladministration, having been established, it was recommended that Revenue Division could direct the FBR to cancel the order of Commissioner Income Tax (Appeals) under S.122(5-A) of Income Tax Ordinance, 2001 in terms of S.214-B as those were against facts and law; to direct cancellation of order under S.62 of repealed Income Tax Ordinance, 1979 which was also illegal to accept declared income for two years under Self Assessment Scheme and action be completed within specified period.

Dealing Officer: Mumtaz Ahmad, Advisor.

K.A. Khan, and A.R. for the Complainant..

Syed Zulfiqar Shah, Deputy Commissioner Income Tax RTO for the Department.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---A complaint has been filed on 11-7-2009, alleging that return filed for the assessment year 2001-2002 under the Self-assessment Scheme, based on C.B.R. Circular No.4 of 2001 dated 18-6-2001 was wrongly processed under normal proceedings taken up under sections 61 and 62 of the Income Tax Ordinance, 1979. Subsequently, amendment in assessment already finalized under section 62 was made under the provisions of section 122 (5A) of the Income Tax Ordinance, 2001. Both the orders under section 62 of the repealed Ordinance, 1979 and 122(5A) of Income Tax Ordinance, 2001, are claimed to be wrong and illegal. Mr. Khurshid Ali Khan, Advocate and A.R. of the complainant attended and Syed Zulfiqar Shah, Deputy Commissioner of Income Tax represented the Department.

2. Facts of the case are that this proprietory concern filed return of income for the assessment year, 2001-2002 on 29-9-2001 (which was in time) declaring income at Rs.100,000 and tax payable at Rs.3,300. The tax payable at Rs.3,300 was higher by about 45% than the tax of Rs.2,250 paid for the assessment year, 2000-2001. Since the impugned return for 2001-2002 was on time and qualified for the self-assessment scheme, and also as no notice with regard to any disqualification for exclusion of return' from the Self-assessment Scheme as laid down in para. 7 of the circular, was issued and the return was also not set apart for total audit, the A.R. contended that the return should have been processed under self-assessment scheme. He pleaded that the assessing officer wrongly issued Notice under section 61 on 25-11-2002, and passed assessment order under section 62 on 8-12-2002. The A.R. pointed out that order under section 62 for the Assessment year 2001-2002 was void and illegal. The A.R. has also pointed out that order under section 62 was a "pro forma order" and was cyclostyled. The assessment order under section 62 reads as under:--

"Return of income filed showing income of Rs.100,000. The case does not qualify for Self-assessment Scheme for the following reasons:--

(1) Declared Income is below Taxable Limit.

(2) Tax paid for the year under consideration is less than that paid in preceding year.

() Evidence of tax paid under sections 54/50(7E) was not filed within 15-days of issue IT-106.

In response to notice under section 61 the assessee/AR of the assessee Mr. M. Ramzan attended without books of accounts which- are denied td have .been maintained. Case discussed. This year sales are declared at Rs.1031000 on which G.P. shown Rs.206,200 at the rate of 20%. Expenses are claimed Rs.106,000. No evidence of declared sales and expenses furnished and claimed that this is no account case. The declared income being un-verifiable is rejected.

Keeping in view above facts net income is estimated on summary basis at Rs.160,000.

Total income assessed. Rs.160,000.

Assessed under section 62 of I.T. Ord.1979. Issue Demand Notice and Challan as per I.T. 30 accordingly."

No basis was given for the estimation of income at Rs.160,000.

3. Subsequently, the Additional Commissioner issued notice to amend order under section 62 by invoking the provision of (5A) of section 122 of the Income Tax Ordinance, 2001, as in his opinion, the assessee claimed wages and electricity bills in the profit and loss account and also in the Trading account. He therefore, processed the return and enhanced income to Rs.256,000 raising the tax demand by an amount of Rs.17,380. Similar treatment has been given' to the return for the assessment year, 2002-2003.

4. Mr. Zulfiqar Shah, D.R. has brought assessment record of the proceedings and the circulars. The A.R. and D.R. went through the circulars issued' by the C.B.R. on self-assessment. Consensus was there that returns for 2001-2002 and 2002-2003 apparently qualified under Self-assessment Scheme.

5.The D.R., however, raised objections that taxpayer had availed himself of the remedy of the first appeal and could have pursued the matter at the Tribunal level. He stated that the complaint was hit by the time limitation. The A.R. on the other hand maintained that the Advocate who was representing the assessee expired in the year, 2005. The taxpayer was not informed about the proceedings under section.62 or 122(5A) and when the complaint was asked to be taken up for the blatant mistakes committed and illegal orders made to create exaggerated tax demand, the request for condonation of delay was granted.

6. The Honourable Supreme Court in the judgment cited as CIT v. Elilly Pak. (Pvt.) Limited, 2009 PTD 1392, has held that for amendment in assessment, relating to any assessment year prior to tax year, 2003, the provisions of section 65 or 66A of the repealed Income Tax Ordinance, 1979, could be invoked. Therefore, action taken under section 122(5A) is not sustainable. Even on the basis ,of facts, the action under section 122 (5A) was not warranted as the statement of accounts furnished with the return did not show any head of Expense with regard to wages and electricity in the trading account/manufacturing account, but these heads were mentioned in the pro forma in the profit and loss account. The learned IAC thought that claim of wages and electricity has been made twice i.e. trading account as well as in the profit and loss account which observation is also not correct. By claiming wages in electricity in the profit and loss account, although GP rate was effected, there was no effect on net profit as the claim was made only once. Since the pro forma of the accounting statement has been filed by some non accounting persons, therefore the Additional Commissioner should have appreciated this fact being a senior officer.

Recommendations:

Based on the ;hove discussion, maladministration is established.

It is therefore recommended that Revenue Division may direct the D F.B.R.:--

(i) to cancel the order of CIT(Appeals) and also cancel the order under section 122(5A) in terms of section 214B, as these are against facts and law as laid down by the Supreme Court;

(ii) direct cancellation of order under section 62 which was also illegal;

(iii) to accept declared income for the two years under Self-Assessment Scheme.

(iv) Action be completed within 3 weeks, and compliance reported within one week thereafter.

H.B.T./150/FTOOrder accordingly.