ORDER FINDINGS/DECISION JUSTICE (RETD.) SALEEM AKHTAR, FTO.-- The complainant is a Private Ltd. Company earning its income from development of Computer Software. For the Assessment Year 2002-03, the complainant filed its return under Self-Assessment Scheme declaring income at Rs. 11,044. The complainant received a letter dated 15.1.2003 from the DCIT, Circle 02, Companies Zone- II, Lahore indicating that the complainant has claimed donation of Rs.80,621 as direct deduction from the income although u/S. 61(2) of I.T. Ordinance, 2001 the complainant is not entitled to direct deduction but to rebate only. This letter further indicated that because of the above discrepancy the return of the complainant fell outside Self Assessment Scheme and that the complainant should furnish its objection if any by 23.1.2003. The complainant furnished its reply vide letter dated 23.1.2003 indicating that the objection raised was not correct but the explanation furnished by the complainant was ignored by the DCIT and he proceeded to complete the assessment under normal law by issuing notice u/S. 61 of the repealed Ordinance dated 7.6.2003 for 16.6.2003. The complainant attended the office of DCIT and came to know that an order excluding the return of the complainant from Self Assessm ent Scheme had already been passed by the DCIT under para. 8(c) of the self Assessm ent Scheme for Assessment Year 2002-03. The complainant alleges that this was in violation of provisions contained in paras. 8(b), (c) and 9(b) of Self Assessment Scheme. This has caused grievance to the complainant.
2. In reply the RCIT Eastern Region Lahore has submitted that in this case the only controversy between the Income Tax Department and the complainant revolves round the question whether donations paid by the complainant rank for direct deduction as profit and loss expense or only rebate can be allowed on donations. But this controversy, by no stretch of imagination, can be called as maladministration hence this complaint, keeping in view the provisions of Section 9(2)
(b) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000 falls out side the jurisdiction of the Federal Tax Ombudsman. The RCIT has submitted that this was not a case of short documents as the complainant has tried to show it but it was a case of wrong determination of income. According to the RCIT the complainant did not attach any evidence along with the return indicating that donations were made to the approved institution nor any evidence was provided in compliance of notice issued by the Taxation Officer, rather it was admitted that the donations were given for the business purposes and not for charitable purposes. Finally it was submitted by the RCIT that the exclusion of return from the Self Assessment Scheme was in accordance with the provision of Self Assessment Scheme.
3. Mr. Younas Khalid, Advocate attend for the complainant. He has reiterated the contentions made in the complaint and has pleaded that the return filed by the complainant under Self Assessment Scheme could be disqualified only according to the provisions of Self Assessment Scheme, In was explained by the A.R. That the complainant was not required to attach proof of donations along with the return but even if any of the documents were not attached with the return, the Taxation Officer should have issued a notice under para. 8(b) of the Self Assessment Scheme but Taxation Officer instead of issuing a notice under para. 8(b) of Self Assessment Scheme issued a notice under Section 61(2) of the Ordinance, 2001 which was in fact not a notice but intimation to the complainant that its return has been excluded from Self Assessment Scheme and that the complaint should furnish its objections by 23.1.2003. The A.R. Submitted that under para. 8(b) of Self Assessm ent Scheme a time of 15 days is to be given to the complainant for compliance. Again the Taxation Officer made an undated order under para. 8(c) of the Self Assessment Scheme, which was in violation of para. 8(c) of Self Assessment Scheme. The A.R. Has further submitted that in case of inadmissible expenses the Taxation Officer should have made adjustment under para. 9(b) of Self Assessm ent Scheme but the return could not be excluded from Self Assessment Scheme.
Finally it was submitted by the A.R. That it was not a case of difference in interpretation of provisions of Self Assessm ent Scheme as submitted by the RCIT but exclusion of return of the complainant from Self Assessm ent Scheme in violation of provisions of para. 8(b)(c) of Self Assessm ent Scheme, which is illegal and constitutes maladministration.
4. Mr. Muhammad Jamil Bhatti, DCIT attended for the Revenue and defended his action of exclusion of return from Self Assessm ent Scheme by reiterating the contentions made in the report of RCIT Eastern Region Lahore.
5. The complaint and respondent's reply have been examined and arguments of the two sides have been considered. There is no dispute regarding the fact that this return qualified for Self Assessm ent Scheme except that the complainant claimed Rs. 80,626 as a donation in profit and loss account as direct deduction and did not attach any evidence that this donation was paid to the approved institutions. The Taxation Officer was required by the provisions of Self Assessment Scheme to call for the documents not attached with the return under para. 8(b) of the Self Assessm ent Scheme giving the complainant a time period of fifteen clear days for compliance but the Taxation Officer instead of issuing a notice under para. 8(b) issued a letter dated 16.1.2003 for compliance by 23.1.2003. This letter which is reproduced as under can by no stretch of imagination be considered as a notice under para 8(b) of Self Assessment Scheme rather it gives an impression that this letter was issue I u S. 61(2) of Income Tax Ordinance, 2001.
No. 1177293 Office of the Taxation Officer of Income Tax, Circle-02. Companies Zoife-ll. Lahore.
SUB:- FILING OF RETURN OF TOTAL INCOME ASSESSMENT YEAR 2002-03.
Please refer to the subject cited above.
You have filed return of total income to declare total income at Rs.11,044/-. Perusal of profit and loss account has been revealed that during the year under consideration you have claimed a deduction of Rs.80,626/- under the head "Charity and Donation" as per Note No. 12 to the accounts.
No evidence in this regard has been enclosed with the return wherefrom it could be ascertained whether the said donations have been made to approved institutions or otherwise. Even if it is considered that the said donations have been made to approve charitable institutions, yet the expense is not admissible as a direct deduction and only rebate in tax was admissible as elaborated under sub-section (2) of Section 61 of the Income Tax Ordinance, 2001.
This discrepancy has made your return of total income out side the purview of Seif Assessment Scheme. Therefore, the undersigned intends to proceed under normal law. If you have any objection, please convey the same in black and while by 23.1.2003.
(MUHAMMAD JAMIL BHATTI)
Taxation Officer of Income Tax Circle-02 Companies Zone-ll, Lahore.
The issuance of above letter was a serious mistake and indicated ignorance of law by the Taxation Officer because Self Assessm ent Scheme for Assessment Year 2002- 03 was issued under Section 59 of repealed Ordinance, 1979. Application of provisions of Income Tax Ordinance, 2001 to the facts of this case was totally illegal. The complainant was required to attach evidence of donations as provided under para. 4 of Self Assessment Scheme but it did not do so. After issuing letter dated 16.1.2003 the Taxation Officer issued an undated letter under para. 8(c) of the Scheme which is again in violation of provision of Para. 8(c) of the Self Assessment Scheme. This letter is reproduced as under:- "Order under para. 8(c) of SAS of 2002-03.- The assessee is a private limited company, derives income from developing and sale of software. This income tax return for the Assessment Year 2002-03 was filed claiming that the said return is to be processed under Self Assessment Scheme.
The assessee- Company has claimed expenses under the head donation/charity amounting to Rs.80,626. Perusal of enclosures revealed that no evidence regarding this expense has been attached with the return. The assessee- Company has been provided an opportunity showing that the expense under the head donation/charity was incurred with reference to approved charitable institutions."
On 23.1.2003, Mr. Muhammad Younis Khalid, A.R. Of the assessee-Company filed reply vide his letter No. 04/2002-03/01, dated 23.1.2003 in which he claimed:-
(1) That the evidence in respect of deduction under the head donation/charity at Rs.80,626 was not required to be enclosed with the Income Tax Return for the Assessment Year 2002-03.
(2) The A.R. Repeatedly stressed that the expense was incurred for the purpose of business of the company.
The contention of the A.R. Of the assessee-Company is not tenable in the eyes of law as he is misinterpreting the provision of Self Assessment Scheme for the Assessment Year 2002-03.
As on para. 4 of the Self Assessm ent Scheme for the Assessment Year 2002-03, the evidence of donation/charity should be attached with the return of income. The said para, is reproduced as under:- "Evidence of payments made on account of donations, or contributions to any approved institutions or funds and rebates and tax credits as admissible under the Ordinance, shall be attached with the return of income."
The contention of the A.R. Of the assessee-Company that this expense has been incurred for the purpose of business of the company is not understandable. The expense under the head donation/charity is for the purpose of public affairs etc. As evident from its nomenclature.
In is established that the donation/charity amounting to Rs.80,626 claimed by the assessee- Company is not made to approved charitable institutions, therefore, the assessee- Company is not providing evidence of such expense. This is violation to para. 4 of Self Assessment Scheme for the Assessm ent Year 2000-03. Therefore, the case of the assessee- Company is excluded from the Self Assessm ent Scheme and will be processed under normal law.
(MUHAMMAD JAMIL BHATTI) Taxation Officer of Income Tax, Circle-02 Companies Zone-ll, Lahore".
6. From the above facts it is quite obvious that Taxation Officer although excluded the return of the complainant from Self Assessm ent Scheme under para. 8(c) of the scheme but the provisions of paras. 8(b) and 8(c) were not followed by the Taxation Officer. These provisions of para. 8 are reproduced as under:- PROCESS/NG OF RETURNS FILED UNDER THE SCHEME.
(a) The Assessing Officer, will make initial scrutiny of the returns with respect to the provisions of Scheme to determine the acceptability thereof.
(b) In case of non-filing of documents as required by this Scheme, a notice shall be issued to the person indicating the deficiency to be made up within 15 days of the receipt of such notice.
(c) In cases of non-compliance within the time so allowed, the DCIT shall exclude the case from the SAS by passing a speaking order immediately but not later than fifteen days from the expiry of prescribed time.
From the above provision of the scheme it is quite obvious that if the complainant had not attached any document along with the return required under Self Assessment Scheme a notice under para. 8(b) was to be issued. This para, indicates that a time period of 15 days is required to be given for compliance but in this case Taxation Officer issued only letter dated 16.1.2003 for compliance by 23.1.2003 and did not indicate that it was issued under para. 8(b) rather it gave the impression that it was issued u/S. 61(2) of I.T. Ordinance, 2001. Secondly, this letter did not call for any documents but informed the complainant that its return was excluded from Self Assessment Scheme and that the complainant should furnish its objection it any. However if the complainant did not make up the deficiency of short documents within 1 5 days then the Taxation Officer was required to exclude the return from Self Assessment Scheme within 15 days from the date of expiry of the time required to be give under para. 8(b) of the Self Assessment Scheme and in any case not later than after expiry of 1 5 days of the time period given under para. 8(b) of Self Assessment Scheme but in this case letter under para. 8(c) of the scheme issued by Taxation Officer does not indicate that it was issued within mandatory time period of 1 5 days as indicated in para. 8(c). The letter dated 16.1.2003 and undated letter under para. 8(c) indicate gross violation of provision of paras. 8(b) and 8(c) of Self Assessme nt Scheme. Under para. 9(b) of Self Assessment Scheme the Taxation Officer had the authority to accept the return under Self Assessment Scheme by making and back of donations in accordance with the provisions of Section 59(3) of repealed Ordinance but instead of taking action under para. 9(b) the Taxation Officer illegally excluded the return from Self Assessm ent Scheme which constitutes a serious maladministration.
7. The RCIT has raised a preliminary objection that the issue involved in this complainant relates to interpretation of provisions of Section 61(2) of I.T. Ordinance, 2001 and that this complaint does not fall in the jurisdiction of the Federal Tax Ombudsman. The learned RCIT in order to protect the illegal action of the Taxation Officer has totally ignored the provisions of law. The return of the complainant was excluded form Self Assessment Scheme illegally and arbitrarily. The Revenue Authorities have failed to prove that deviation from the procedure under Self Assessment Scheme for exclusion of return was bona i.e and for valid reasons. The onus to prove this fact lay on the respondent which has not been discharged. Furthermore, the exclusion of return from the Self Assessm ent Scheme is an independent action not relating to assessment against which no appeal is provided. The objection to jurisdiction is over ruled. Maladministration is proved. The entire action and proceeding constitute maladministration within the provisions of Section 2(3)(i)(a)(b) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000.
8. In is, therefore, recommended that:-
(i) The Taxation Officer accepts the return of the complainant but after making addition of inadmissible expenses in respect of donations.
(ii) Compliance report be submitted within 40 days of receipt of these recommendations by the Revenue Ordinance.