ZIA INDUSTRY, GUJRANWALA VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2010 P T D 913
[Federal Tax Ombudsman]
Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
Messrs ZIA INDUSTRY, GUJRANWALA
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No. 503-L of 2009, decided on 03/12/2009.
(a) Income Tax Ordinance (XXXI of 1979)---
----Ss.102, 59A, 62, 63/132, 103, 156---Income Tax Ordinance (XLIX of 2001), S.122A---Additional payment for delayed refund---Assessments made under S.62 of the Income Tax Ordinance, 1979 were set aside by the First Appellate Authority---Said assessments were re-assessed ex parte under Ss.63/132 of the Income Tax Ordinance, 1979 reinstating the income tax demand determined earlier for the years, neutralizing the refund determined---After five and a half years, the complainant had finally been paid the refund due to him---Complainant claimed that the additional payment for the delayed disbursement of refund should also be made "in accordance with law"---Validity---Manner in which assessments were made for assessment years 1999-2000 and 2000-2001 after assessments for assessment years 2001-2002 and 2002-2003 created a strong presumption that this was done deliberatelyin orderto thwart issuance of refundcreated in assessmentyears 2001-2002 and 2002-2003-Ambient circumstances were indeed compelling,becausethe subsequent years of assessments and re-assessments made for such two assessment years becamethevehicle for obstructingissuance of refunds---Inescapable conclusionwas that suchwas a case of gross maladministration---Departmental functionaries involved had not acted in the manner the law required them to do, they obstructed `due process', flouted directions given by the First Appellate Authority and had also violated instructions issued by the Federal Board of Revenue--Refundable amount due to the complainant had been disbursed after five and a half years---Case having gone in appeal the reckoning for the additional payment due to the complainant as per law was required to be made on the basis of order of the Appellate Tribunal, which annulled order for assessment years 1999-2000 and 2001---Claim of complainant for compensation on delayed payment in accordance with the provisions of Income Tax Ordinance, 1979 was justified---Federal Tax Ombudsman recommended that short payment in the additional payment for delayed issuance of refund, as per rate of compensation under the provisions of Income Tax Ordinance, 1979 be made good and amount due under the law paid to the complainant within 30 days and that Officers dealing with the complainant's case be asked to explain their conduct, and appropriate departmental action taken within 60 days under intimation to Federal Tax Ombudsman Office.?
(b) Income Tax Ordinance, (XXXI of 1979)---
----Ss. 62 & 59A---Assessment on production of accounts, evidence etc.---Amendment of assessment on the basis of gross profit rate---Legality---Illegality was attempt to "amend" the assessment made under S.59A of the Income Tax Ordinance, 1979 on the ground that the gross profit rate was inadequately disclosed and the nature of business was not properly. stated---Departmental Officers should have known that there was nothing sacrosanct about the "Gross Profit Rate" and there was no fixed "Gross Profit Rate" for any business, there were "industry norms" and a business was expected to conform to industry norms and the "Gross Profit Rate" was part of such norms and the same type of business were expected to have more or less similar results as regards profitability wastage etc.---Wide variations could be there depending upon the facts and circumstances peculiar to each such business---One business may be showing a "loss" when others were showing "profit"---Although business norms were a useful reference point when evaluating the results shown by a business enterprise, they could by no means be used to "amend" the disclosed results---No such thing as a "fixed Gross Profit Rate" for a business existed which had got to be disclosed under all circumstances---Plenty of "case-law" on the subject was on record and this was also "common knowledge" in the Department---Officer charged with "assessment" work would have to be an ignoramus not to be aware of this.?
(c) Income Tax---
----Turnover---Estimation of---Principles---No doubt the Assessing Officer is empowered to "estimate" turnover where the declared version is not properly substantiated, but he certainly has no licence to make the estimate whimsically as he chooses---Officer has to specify proper objective basis for discarding the declared turnover and substituting it by higher level of turnover.?
(d) Income Tax Ordinance (XLIX of 2001)---
----S.171---Additional payment for delayed refunds---Rate of additional payment---As per amendment made in S.171 of the Income Tax Ordinance, 2001 through Finance Act, 2004 the compensation rate was reduced from 15% to 6%---Said change was affected only on those refunds that were to be created after 1st July, 2004---Refund created on 28-6-2003 was not affected by such change in law---Statutory enactments were always prospective in their application and could be made applicable retrospectivelyonly when the enactment itself said so.
Muhammad Munir Qureshi, Advisor (Dealing Officer).
Yawar Mehdi Naqvi for Authorized Representative.
Dr. Muhammad Idress, Addl. C.I.T. for Departmental Representative.
FINDINGS/RECOMMENDATIONS
DR. MUHAMMAD SIIOAIB SUDDLE, (FEDERAL TAX OMBUDSMAN).---The complainant, an individual manufacturer of plastic drums for washing machines and importer of steel sheets, is aggrieved by the delayed disbursement of refund for assessment years 2001-02, 2002-03 and 1999-2000 and 2000-01 of the repealed Income Tax Ordinance 1979 and by the Department's failure to make additional Payment for delayed disbursement of refund for these years in accordance with law.
2. The bare facts in this case are that refund of Rs.22,46,050 determined for assessment year 2001-02 under section 59A of the repealed Income Tax Ordinance, 1979 vide order dated 28-6-2003 and another refund of Rs. 394,965 for assessment year 2002-03 under section 156 of the repealed Income Tax Ordinance, 1979 vide order passed on the same date was not paid to the complainant as the refund was first withheld under section 103 of the repealed Income Tax Ordinance, 1979 on 18-6-2004 and later the department set off the demand of income tax raised in assessments made for 1999-2000 and 2000-01 against the refund determined in assessment years 2001-2002 and 2002-03. However, the assessments made under section 62 of the repealed Income Tax Ordinance, 1979 on 26-6-2004 were set aside by the Commissioner of Income Tax (Appeals) Gujranwala vide order dated 19-8-2004. The set aside assessments for 1999-2000 and 2000-2001 were then re-assessed ex parte under sections 63/132 of the repealed Ordinance vide order dated 30-6-2006 reinstating the income tax demand of Rs.18,95,518 determined earlier for these years, largely neutralizing the refund determined in 2001-2002 and 2002-2003. This was then set aside under section 122 A of the repealed Ordinance by the Commissioner of Income Tax, Gujranwala Zone, Gujranwala vide Order dated 13-7-2007 following directions issued by the Federal Tax Ombudsman. These set aside orders were then re-assessed again on 14-4-2008 and a huge addition was made in turnover so that resultant refund determined after allowing credit for tax deducted under section 50(5) of the repealed Ordinance stood at only Rs.8959 in assessment year 1999-2000 and Rs.9974 in 2000-2001. In appeal filed by complainant, the CIT(A) vide order dated 28-6-2008 confirmed the re-assessment orders. The complainant then filed appeal before the Income Tax Appellate Tribunal and the Tribunal vacated the order of the CIT(A) dated 28-6-2008, cancelled the re-assessments made on 14-4-2008 for assessment years 1999-2000 and 2000-2001 and re-instated the re-assessment order passed on 30-6-2006 with the direction that credit be allowed to the complainant for income tax deducted under section 50(5) of the repealed Ordinance of 1979. This revived the refund determined under section 59A for 2001-02 and under section 156 for 2002-2003 aggregating Rs .26,42,015.
3. In written reply submitted by respondent (DG RTO Gujranwala) before the FTO, it is asserted that the delayed disbursement of refund determined in the assessment years 2001-2002 and 2002-2003 was due to the Income Tax assessment and re-assessment proceedings taken in the assessment years 1999-2000 and 2001-2002 that either largely neutralized the refund determined in 2001-2002'and 2002-2003 or else when the assessment was set aside required the refund for 2001-2002 and 2002-2003 ,to be held in abeyance pending re-assessment. Respondent asserts that assessments and re-assessments for 1999-2000 and 2000-2001 were made routinely during the normal course of assessment work and there was no design to thwart issuance of refund determined in 2001-2002 and 2002-2003. As for no additional payment for the delayed disbursement of refund for 2001-2002 and 2002-2003 after making additional payment of Rs.67,152 on 28-3-2005 it is the respondent's contention that the provisions of section 171(2)(a) now make such payment unnecessary. The payment of refund was made to the complainant on 29-1-2009 in pursuance of Income Tax Appellate Tribunal's judgment dated 13-12-2008, which is in less than the three-month period allowed under the law before additional payment for delayed issuance of refund becomes due. With reference to the rate at which compensation has been paid for delayed disbursement of refund on 28-3-2005, it is contended that compensation has been paid at the rate of 6% which is consistent with the applicable rate at that point in time. As regards refund for 2001-2002 and 2002-2003 withheld under section 103 of the repealed Ordinance of 1979 on 18-6-2004 and the subsequent attempt to "amend" the assessments for 2001-2002 and 2002-2003, the respondent admits to no wrong doing and insists that the actions were consistent with applicable law. The respondent categorically denies any mala fide on the part of departmental functionaries. On matter pertaining to respondents failure to allow credit to the complainant for tax deducted at import stage under section 50(5) of the repealed Ordinance it is contended that such credit was duly allowed on 16-12-2008 vide order passed under section 221 of the Income Tax Ordinance, 2001 when the complainant filed application for rectification on 19-4-2008.
4. The Departmental Representative has reiterated written submissions made by the DG, RTP Gujranwala routed to this office through the Member (Legal) FBR.
5. According to the complainant, the refund, duly determined under the law in assessment years 2001-2002 and 2002-2003 vide order dated 28-6-2003, was not issued and instead shortly thereafter there commenced an elaborate and at times clumsy exercise by departmental officers aimed at thwarting disbursement of the duly determined refund of income tax. On 18-6-2004, an order was passed under section 103 of the repealed Income Tax Ordinance, 1979, directing that the refund be withheld. This was followed by assessment order passed ex parte under section 63 of the repealed Income Tax Ordinance, 1979 for the assessment years 1999-2000 and 2000-2001 creating a tax demand of Rs.18,95,568 and this demand of income tax was set off against the refund determined for 2001-02. On 26-10-2004 the ex parte assessments made for 1999-2000 and 2000-2001 were set aside in appeal thereby breathing new life into the refund determined for assessment year 2001-2002 at Rs.22,46,050. While setting aside the ex parte assessments for 1999-2000 and 2001-2002 the Commissioner of Income Tax (Appeals) had expressly directed that the complainant be treated as a manufacturer-?cum-importer and credit be allowed for income tax deducted under section 50(5) of the repealed Ordinance of 1979. However, the departmental officer then sought to "amend" the assessments for 2001-2002 and 2002-2003 under section 122 of the Income Tax Ordinance, 2001 on the ground that a higher gross profit rate was required to be applied at 25% as against 15% shown as the complainant was a manufacturer. The nature of business was also amended to "manufacturer of plastic drums for washing machines" instead of "manufacturer of steel drums of washing machines".
6. The departmental attempts to "amend" the assessments for 2001-2002 and 2002-2003 are seen by the complainant as an attempt to thwart issuance of refund determined for these years vide order dated 28-6-2003 under section 59A of the repealed Ordinance of 1979. He accordingly filed a complaint before the Federal Tax Ombudsman. The FTO in his order dated 4-3-2005 held that the departmental action to thwart disbursement of determined refund to the complainant was `mala fide' and hence refund due to the complainant was directed to be issued forthwith. The department then issued refund in the amount of Rs.745,447 plus additional payment for delayed refund at Rs.67,152. However, on 30-6-2006 the assessments for 1999-2000 and 2000-01 that had earlier been set aside by the Commissioner of Income Tax (Appeals) were re-assessed re-instating the income tax demand of Rs.18,95,568 raised earlier vide order dated 26-6-2004. No credit was given for tax deductions under section 50(5) of the Ordinance of 1979.
7. The complainant again approached the Federal Tax Ombudsman and prayed that the concerned departmental officials be directed to allow credit for tax deductions made under section 50(5) of the Ordinance of 1979 as the complainant was admittedly a manufacturer-cum-importer. The FTO directed the competent authority to set aside the reassessment order for 1999-2000 and 2000-2001 and allow credit to the complainant for tax deducted under section 50(5) at import stage. Re-assessments for 1999-2000 and 2000-2001 were then made afresh and resultant refund determined at Rs.8959 in assessment year 1999-2000 and at Rs.9974 in 2000-2001. The complainant contested the treatment accorded in reassessment before the Commissioner of Income Tax (Appeals) but the treatment accorded in reassessment was upheld. However, the Income tax Appellate Tribunal vide order dated 13-12-2008 cancelled the re-assessments made on 14-4-2008 for assessment years 1999-2000 and 2000-2001 and re-instated the assessments made on 30-6-2006 with the express direction that the complainant be allowed credit for tax deducted under section 50(5) of the repealed Ordinance of 1979.
8. After almost five and a half years, the complainant has finally, on 29-1-2009, been paid the refund due to him for the assessment years 2001-2002 and 2002-2003 aggregating to Rs.18,95,568. Earlier, on 28-3-2005, a refund of Rs.7,45,447 had been issued relevant to these years on directions by the FTO. The complainant now claims that the additional payment for the delayed disbursement of refund should also be made "in accordance with law". The Department had earlier made additional payment for delayed issuance of refunds at Rs.67,152 on 28-3-2005 reckoned from the date the refund for 2001-2002 was created i.e. 28-6-2003 to 28-3-2005 on which date refund of Rs.7,45,447 was paid to the complainant due to the FTP's intervention. This the complainant submits is wholly inadequate and he submits that as the refund rightly due to him for the assessment years 2001-2002, 2002-2003 and 1999-2000 and 2000-2001 has been deliberately, illegally and malafidely delayed, the additional payment for delayed disbursement of refund should be reckoned from the date the refunds were originally due till the date these have been actually paid i.e. 28-6-2003 to 19-1-2009.
9. After perusal of the record and considering the submissions made by Complainant's Authorized Representative and the Departmental Representative, it seems obvious that timely refund of income tax due to the complainant has been unduly delayed. A whole plan apparently appears to have been put into play to thwart timely disbursement of refund to the complainant.
10. The second illegality was the attempt to "amend" the assessment' made under section 59A of the repealed Ordinance for assessment year 2001-2002 on the ground that the gross profit rate was inadequately disclosed and the nature of business was not properly stated. It should have been known to the departmental officers that there was nothing sacrosanct about the "G.P. Rate" and there is no fixed "G.P. Rate" for any business. True there are "industry norms" and a business is expected to conform to industry norms and the "G.P. Rate" is part of such norms and the same type of businesses are expected to have more or less similar results as regards profitability, wastage etc. In fact there can be and there are-wide variations depending upon the facts and circumstances peculiar to each such business. A business may be showing a "loss" when others are showing "profit". That is why although business norms are a useful reference point when evaluating the results shown by a business enterprise they can by no means be used to "amend" the disclosed results. There is no such thing as a "fixed G.P. Rate" for a business that has got to be disclosed under all circumstances. There is plenty of "case-law" on the subject and this is also "common knowledge" in the Department. An officer charged with "assessment" work would have to be an ignoramus not to be aware of this.
11. The third major illegality committed was not to allow the complainant credit for income tax deducted at source under section 50(5) of the repealed Income Tax Ordinance 1979 at import stage when the Commissioner of Income Tax (Appeals) Gujranwala had expressly directed in his order of 26-10-2004 that the complainant was to be treated as a "manufacturer-cum-importer." As this was clearly a `composite business' credit for tax deductions under section 50(5) was required to be allowed. Nevertheless, in the re-assessments framed for assessment years 1999-2000 and 2000-2001 on 30-6-2006, credit for tax deduction under section 50(5) was not allowed and the total tax demand was again pitched at exactly the same level (Rs.18,95,518) as determined earlier in the assessments made on 26-6-2004.
12. When the FTO intervened on the treatment being accorded to the complainant, the re-assessments made for 1999-2000 and 2000-2001 were set aside by the Commissioner of Income Tax and in the re-assessments made yet again on 14-4-2008 the Assessing Officer this time did allow credit for tax deductions under section 50(5) because of specific directions given by the FTO in this regard but in yet another act of illegality chose to deliberately neutralize any benefit that accrued to the taxpayer by allowing him credit for tax deductions made under section 50(5) through a huge and utterly baseless addition in the turnover assessed. No doubt the Assessing Officer is empowered to "estimate" turnover where the declared version is not properly substantiated, but he certainly has no license to make the estimate whimsically as he chooses. He has to specify proper objective basis for discarding the declared turnover and substituting it by higher level of turnover. No such basis has been specified here leading to the inescapable conclusion that the abrupt increase in turnover was deliberately contrived to sharply reduce the refund that would have followed a reasonable estimate of sales.
13. Yet another illegality is evident in the additional payment made for delayed disbursement of refund made on 28-3-2005. A refund of Rs.7,45,447 was issued (assessment year 2001-2002) to the complainant on the directions of the FTO along with additional payment amounting to Rs..67,152 calculated at the rate of 6% from the date it was due (i.e. three months after the date of creation of refund 28-6-2003) to the date of its issuance (28-3-2005). Here it is to be noted that as per amendment made in section 171 (additional payment for delayed refunds) through Finance Act, 2004 the compensation rate was reduced from 15% to 6%. However, this change was to affect only those refunds that were to be created after 1st July, 2004. Refund in complainant's case had been created on 28-6-2003 and was therefore not affected by the change in law. It is law that statutory enactments are always prospective in their application. They can be made applicable retrospectively as well but only when the enactment itself says so. There is no such observation in the amendment made in section 171 through Finance Act, 2004.
14. Besides the observations recorded (supra), there is another odd feature of the case in that the manner in which assessments were made for assessment years 1999-2000 and 2000-2001 after assessments for assessment years 2001-2002 and 2002-2003 creates a strong presumption that this was done deliberately in order to thwart issuance of refund created in 2001-2002 and 2002-2003. The ambient circumstances are indeed compelling because the subsequent cycle of assessments and re-assessments made for these two assessment years became the vehicle for obstructing issuance of refunds to the complainant.
15. Based on the analysis made above the inescapable conclusion is that this is a case of gross maladministration as defined in the Establishment of Federal Tax Ombudsman Ordinance, 2000. The departmental functionaries involved have not acted in the manner the law requires them to do. They appear to have obstructed `due process', flouted directions given by the Commissioner of Income Tax (Appeals) and have also violated circular instructions issued by the Federal Board of Revenue. What is more surprising is that senior FBR officers found nothing wrong with the behaviour and conduct of those dealing with this case.
16. The refundable amount due to the complainant has been disbursed (after five and half years). The case having gone in appeal the reckoning for the additional payment due to the complainant as per law is required td be made on the basis of order of the Income Tax Appellate Tribunal, which annulled order for assessment years 1999-2000 and 2001, reviving re-assessment order dated 30-6-2006. The claim of the complainant for compensation on delayed payment in accordance with the provisions of repealed Income Tax Ordinance is therefore justified.
17. In view of the discussion above, the following recommendations are made:
(i) Short payment in the additional payment for delayed issuance of refund, as per rate of compensation under the provisions of repealed Income Tax Ordinance, 1979, be made good and amount due under the law paid to the complainant within 30 days.
(ii) Officers dealing with the complainant's case be asked to explain their conduct, and appropriate departmental action taken within 60 days under intimation to FTO Office.
C.M.A/184/FTO????????????????????????????????????????????????????????????????????????????????? Order accordingly.