ZAFAR ULLAH KHAN CHATTHA, OIL TRADERS, BHAKKAR VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2012 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 298 (2011)

Income Tax Ordinance (XLIX of 2001)---

----Ss.122 (5A), 170(4) & 171---Establishment of the Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S. 2(3)---C.B.R. letter C.No.1(9)S(Legal-DT)/09 dated 25-11-2009---Amendment of assessment---Refund---Carriage receipts---Refund claimed was rejected on the ground that income was covered under Presumptive TaxRegime---Appellate Tribunal found that carriage contracts were in the nature of services rendered and were assessable under normal tax regime---Department initiated proceedings for amendment of assessment on the same ground relied upon earlier by the Taxation Officer and carriage receipts were assessed under Presumptive Tax Regime without bringing any fresh evidence on record---Validity---Assessment of income and determination of tax thereon fell within the jurisdiction of Audit Division and not within the competence of the Enforcement Division---Appellate Tribunal settled the issue that assessment of income of the complainant was to be done under normal tax regime---Amendment of assessment by the Audit Division on the same ground was unjustified---Refund had been issued during the processing of complaint---Although grievance of complainant to the extent of issuance of refund had been resolved after the intervention of the Office of the Federal Tax Ombudsman, the issue of compensation due was yet to be settled---Arbitrary and unreasonable treatment and the delay in disposal of refund claim within the time limit prescribed under S.170(4) of the Income Tax Ordinance, 2001 was tantamount to maladministration which also created right to compensation---Federal Tax Ombudsman recommended the Federal Board of Revenue to direct the Chief Commissioner to issue compensation due, as per law and towarn the officials to stop behaving unfairly and unreasonably, failing which they will be dealt with under S.22 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000, in addition to any other action deemed fit against them.

Haji Ahmad, Advisor Dealing Officer.

Najam-ul-Hassan, Authorized Representative.

Shakeel Ahmad Shakeel, DCIR for Departmental Representative.

FINDINGS/RECOMMENDATIONS

DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---This complaint is filed against non-issuance of refund of Rs.284,077 for Tax year, 2006.

2.The complainant filed refund application on 27-2-2008. As no order was issued within the time limit prescribed under section 170(4) of Income Tax Ordinance, 2001 (the Ordinance), he filed a representation dated 3-12-2008 to the Chairman F.B.R. However, the refund claim was rejected vide order dated 28-3-2009 by the Taxation Officer, Enforcement Unit-14, RTO, Faisalabad, on the ground that the complainant's income was covered under Presumptive Tax Regime (PTR). The complainant preferred an appeal before the Commissioner (Appeals) and contested the jurisdiction of Taxation Officer, Enforcement, to determine as to whether carriage receipts were covered under PTR or normal tax regime. The Commissioner (Appeals) vide order dated 16-6-2009 decided the appeal in favour of the complainant. Aggrieved with the decision, the Department filed appeal before the Income Tax Appellate Tribunal, but the same was rejected and decision of Commissioner (Appeals) confirmed vide order dated 5-1-2010:--

"we are of the opinion that CIT(A) has rightly held that carriage contracts are in the nature of services rendered and are therefore assessable under normal tax regime. Departmental appeal is not maintainable for being without any merit. We would also like to add that the impugned order of the taxation officer is totally illegal because while passing a refund order he could not sit as a judge to determine as to whether receipts of the assessee are assessable under presumptive tax regime or normal tax regime. If in his opinion the taxpayer's income was assessable under presumptive tax regime, he should have amended the assessment under relevant provisions of section 122. He did not take any action for amendment of assessment. Therefore, impugned order under section 170(4) is based on improper application of law. In these circumstances we do not feel any hesitation to confirm the order of learned CIT(A). Consequently departmental appeal is hereby rejected."

3.Thereafter, the DCIR, Unit-II, RTO, Faisalabad, requisitioned evidence of tax payment which the AR provided on 22-3-2010. Instead of issuing refund, Mr. Muhammad Akram, Additional Commissioner, IR, Audit-II, RTO, Faisalabad, initiated proceedings for amendment of assessmentundersection122(5A)videshow-causenoticedated31-5-2010 on the same grounds as relied upon earlier by the Taxation Officer (Enforcement). The assessment was amended on 21-6-2010 by Mr. Ahsan Raza, Additional Commissioner (Audit), RTO, Faisalabad, and the carriage receipts assessed under PTR, without bringing any fresh evidence on record. The complainant again preferred an appeal. The Commissioner (Appeals) relying upon the above referred decision of the Tribunal annulled the amended assessment vide order dated 6-12-2010. The complainant sent a reminder to the Department on 27-4-2011 for issuance of refund but to no avail. No order was passed within the time limit prescribed under section 170(4) of the Ordinance. Hence this complaint.

4.The Department vide comments dated 14-7-2011 admitted the facts narrated in the complaint. It however contended that the complainant derived income from carriage as well as commission being an agent of PSO. Since tax deducted on commission was covered in PTR, the refund due would be settled after obtaining clarification on this issue. Also, the show-cause notice for amendment of assessment under section 122(5A) was issued in the light of judgment of the Tribunal.

5.The DR reiterated what was stated in the written arguments of the Deptt. He submitted that the Tribunal vide order referred above had observed that it was the function of the Audit Division to determine tax liability by invoking the provisions of section 122 of the Ordinance and not of the Enforcement Division. The DR also referred to F.B.R. C.No.1(9)S(Legal-DT)/09 dated 25-11-2009, issued in the case of another taxpayer namely Tanveer Gas Company, Faisalabad, clarifying that if any illegality or flaw was found in the completed assessment, the matter could be referred to Audit Division for action under the Ordinance. The case of the complainant was referred to the Audit Division for taking remedial measures. He contended that amendment of assessment was made in accordance with law. According to him, there was no mala fide or maladministration involved in the case.

6.The AR contended that no tax was deducted by PSO on commission income. In support, he produced certificates, wherein PSO certified that ex-retail outlet sale price fixed by the company included the dealer's commission on which no tax was deducted. The refund was claimed on account of excess deduction in carriage account only. As regards the Departmental contention that remedial measures were taken in accordance with the order of the Tribunal, the same was misconceived. Although, the Tribunal observed that if the Taxation Officer was of the opinion that the income was assessable under PTR, he could amend the assessment under the relevant provisions of section 122, the Tribunal had settled the main issue that income of the complainant was assessable under normal tax regime. According to the AR, the whole range of actions of the Department were arbitrary, unreasonable, unjust, biased and vindictive. He contended that the refund had been delayed by passing illegal orders on one pretext or the other.

7.Boththepartieshavebeenheard,andrelevantrecordperused. The assessment ofincomeanddeterminationoftaxthereonfall within the jurisdiction of Audit Division and not within the competence of the Enforcement Division. The clarification of F.B.R.and thedecisionoftheTribunalinthecaseofthecomplainanttothe extent of taking remedial measures by Audit Division only complement each other. However, the Tribunal vide judgment referred above also settled the issue that the assessment of income of the complainant was to be done under normal tax regime. The amendment of assessment by the Audit Division on the same grounds was therefore unjustified.

8.During the processing of complaint, however, the AR submitted that refund amounting to Rs.284,077 had been issued vide voucher No.048 dated 1-10-2011. The AR wished to withdraw the complaint to the extent of issuance of refund vide application dated 1-10-2011.

9.Although grievance of the complainant to the extent of issuance of refund had been resolved after the intervention of the Office of the Federal Tax Ombudsman, the issue of compensation due is yet to be settled.

Findings:--

10.The complainant contested the arbitrary treatment meted out to him by the tax functionaries referred to in para 3 above. Such an arbitrary and unreasonable treatment and the delay in disposal of refund claim within the time limit prescribed under section 170(4) is tantamount to maladministration under sections 2(3)(i)(b) and 2(3)(ii) of the FTO Ordinance. It also creates the complainant's right to compensation under section 171 of the Ordinance.

Recommendations:

11.F.B.R. to direct the Chief Commissioner to-

(i)issue compensation due, as per law;

(ii)warn the officials referred to in para 3 to stop behaving unfairly and unreasonably, failing which they will be dealt with under Section 22 of the FTO Ordinance, in addition to any other action deemed fit against them; and

(iii)report compliance within 30 days.

C.M.A./265/FTOOrder accordingly.