PORT QASIM AUTHORITY, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD
2011 P T D 1225
[Federal Tax Ombudsman]
Before Dr. Muhammad Shoaib Suddle, Federal Tax Ombudsman
Messrs PORT QASIM AUTHORITY, KARACHI
Versus
SECRETARY, REVENUE DIVISION, ISLAMABAD
Complaint No.31JKH1/IT(08)/190 of 2010, decided on 10/04/2010.
Income Tax Ordinance (XLIX of 2001)---
---Ss. 53, 54, 55 &,122(5-A)---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.2(3)(i), 9 & 10---Creating fictitious demand of amount despite availability of tax exemption---Complainant had prayed that Federal Board of Revenue and Chief Commissioner be directed to cancel erroneous order passed under S.122(5-A) of Income Tax Ordinance, 2001 on the ground that though tax exemption was available to the complainants for relevant year, a fictitious demand of amount had been wrongly created by invoking inapplicable provisions of Income Tax Ordinance, 2001---Acts of omission and commission by the Departmental Officials, indicated their arbitrariness and unlawful behaviour---Such conduct of Departmental Officers also showed their tendency to involve the taxpayer in protracted and unwarranted litigation---Arbitrary, oppressive and Perverse conduct of the officials of the department had been established in the case, which tantamounted to maladministration under S.2(3)(i) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Recommendations were made to the Federal Board of Revenue to report compliance of Federal Tax Ombudsman's earlier recommendations in complaint within 7 days; to adopt transparent measures to eliminate mala fide practice in blocking issuance of large refunds, in particular; to conduct enquiry and initiate appropriate disciplinary action against officials responsible for mala fide, biased and arbitrary conduct in the case and compliance report be sent on first recommendation within 10 days and on second and third within 45 days.
Mumtaz Ahmad, Advisor Dealing Officer..
G. Abbas Karjatwala, F.C.A, Authorized Representative.
Mrs. Seema Jabeen, Additional Commissioner, Departmental Representative.
FINDINGS/RECOMMENDATIONS
DR. MUHAMMAD SHOAIB SUDDLE, FEDERAL TAX OMBUDSMAN.---In the complaint filed on behalf of PQA, it is prayed that the F.B.R. and Chief Commissioner, RTO, Karachi be directed to cancel the erroneous order passed under section 122(5A) of the Income Tax Ordinance, 2001, for the tax year 2008, on the ground that though tax exemption was available to the Complainants for the impugned year, a fictitious demand of Rs.1,271,877,660 had been wrongly created by invoking inapplicable. provisions of Income Tax Ordinance, 2001.
2. The matter was fixed for hearing on 10-3-2010, 22-3-2010 and finally on 31-3-2010. In the meantime, comments from the Department were received to the effect that as PQA had also filed appeal before the Commissioner Income Tax (Appeals), their complaint before the FTO was not maintainable.
3. On the last date of hearing on 31-3-2010, the AR made a request to withdraw the complaint on the ground that appeal was filed against the amended order for tax year 2008 before CIT(A), who had annulled the order of the Taxation Officer vide order dated 29-3-2010, and so the grievance of the complainant stood redressed.
4. The perusal of record and the facts narrated in the complaint reveal intriguing aspects of gross maladministration in this case, including:
(i)the complainant had earlier lodged a Complaint No.244/KHI/ IT(107)/726/2009 dated 11-3-2010 wherein it was alleged that the Department had blocked refunds amounting to Rs.712 million for assessment years 1995-96 to tax year 2005 despite clear orders of the appellate authorities and the Chairman of Central Board of Revenue that Port Qasim Authority being a 'local authority' was exempt from levy of income tax. In his Recommendations dated 11-3-2010 in Complaint No.244/KH/ IT(107)/726/2009 dated 11-3-2010, the FTO had also recommended to issue refund/compensation due to thecomplainant within 21 days, and to initiate action against officials responsible for inordinate delay in rectification of assessment orders.
(ii)apparently with a view to thwart the issuance of refund, the Income Tax Department 'amended' order for tax year 2008 and created huge demand of Rs. 1,221,775,699 under section 122(5A) by passing ex parte order;
(iii)the 'amended' order was made on the pretext that as per amendment made in section 49(4), PQA's income was taxable as a 'regulatory authority' whereas PQA being a 'local authority' was exempt under section 49(2) upto tax year 2008. The amendment under section 49(2) was made through Finance Act2008, and therefore, the income of PQA remained exempt prior to tax year 2009. Due to this reason the CIT(A) annulled' the illegal order for tax year 2008;
(iv)the amount of Rs.762,160,472 was added in the income of the complainant under the head "provision for reinsurers" which was never claimed in the account. Likewise depreciation amounting to Rs.380,339,854 was disallowed without justification apparently just to inflate the income. Another" amount of Rs.4,183,237,593 was added on account of Federal Government loan/liability, just to create tax liability of over Rs.1.27 billion to cover up the amount of refund payable to the complainant, in violation of directions of FTO in the decision referred to earlier.
(v)minimum tax liabilities were also created under section 113 of the Income Tax Ordinance, 2001 despite the fact that PQA being " a 'local authority' enjoyed exemption from such tax;
(vi)the punitive actions against the taxpayer were apparently to teach him a lesson for claiming refund and compensation for the preceding years, and so the huge demand was created ex parte without allowing him opportunity to submit explanation regarding the illegal points relied upon by the Department.
5. The above acts of omission and commission by the departmental officials clearly indicate their arbitrariness and unlawful behaviour, which is amply proved by the decision of the CIT(A). Such conduct of the departmental officers also shows their tendency to involve the taxpayers in protracted and unwarranted litigation. It is observed that the departmental functionaries in a bid to thwart issuance of large refunds, often resort to raising issues not supported by law. This appears to be a systemic issue which needs urgent attention of the F.B.R. for adopting transparent and lawful measures while dealing with refund cases.
Findings:
6. The arbitrary, oppressive, and perverse conduct of the officials of the Department has been clearly established in the instant case, which tantamounts to maladministration under section 2(3)(i) of the FTO Ordinance, 2000.
Recommendations:
7. F.B.R. to--
(i)report compliance of FTO's earlier recommendations in Complaint No.244/KHl/IT(107)/726/2009 within 7 days;
(ii)adopt transparent measures to eliminate mala fide practices in blocking issuance of large refunds, in particular;
(iii)conduct enquiry and initiate appropriate disciplinary action against officials responsible for mala fide, biased, and arbitrary conduct in the instant case;
(iv)compliance report be sent on Recommendations No.(i) within 10 days and (ii) and (iii) within 45 days.
H.B.T./99/FTOOrder accordingly.