FINDINGS /DECISION This complaint alleges "maladministration" represented by (a) illegal withholding of WWF refund for the assessm ent years 1991-92 to 2001-2002, and (b) in the initiation of amendment proceedings under section 122 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) for the assessm ent year 2001-2002.
2. The facts, as these emerged, are that the Complainant AOP is a Manufacturer and vendor of auto-parts which are supplied to various auto and tractor manufacturers. The Complainant exists on NTN 19-02- 0680029-7 and was initially assessed in Circle-03, Sialkot, before the transfer of the case to Daska and again to Circle-02, Sialkot. For the purpose of manufacture, imports were made on which tax was deducted at source. Consequently assessments framed on the basis of Statements filed under section 143B of Income TA Ordinance, 1979 (hereinafter called the repealed Ordinance) crystallized in a refund at Rs.957,372 which was issued on 30-8-2000 but the dispute remained about refund in respect of Workers Welfare Fund (WWF) which was claimed at Rs.424,381.
The Complainant now asserts for refund of this amount together with additional payment for delay in its issuance. Another controversy relates to initiation of amendment proceedings for the year 2001-2002 where assessm ent on the basis of Statement under section 134B was framed on 25-6- 2003 (under, section 59A/80C) of the repealed Ordinance creating a refund of Rs.1,435,394. Later amendment proceedings were initiated on 5-11-2003 through issuance of notice under section 122 of the Ordinance alleging:-- "As you had not exercised option under section 80C the assessm ent completed under section 59A/80C is incorrect and liable to be amended under section 122 of the Income Tax Ordinance, 2001. This is a case of misclassification of income in terms of section 122(5) of Income Tax Ordinance, 2001 was to be assessed under normal which has assessed incorrectly under section 59A/80C". (Here undeclined for emphasis)
The Complainant's reply, dated 10-11-2003 and the proof regarding filing of an option on 30-9-1998 in Circle-03, Sialkot were considered unsatisfactory on the ground "no such letter of irrevocable option had been received .. Subsequent elucidation concerning circumstantial evidence about the exercise of option vide letter, dated 11-5-2004 also do. Not find favour with the Assessing Officer. On 24-6-2004 the Assessing Officer conveyed the intention to adopt the declared Sales/ Supplies as per Statement under section 143B, to work out Income by applying GP rate at 25% after allowing reasonable expenses for administrative and other expenses. An assessment was later framed on 29-6-2004 determining Income at Rs.8,307,440, resulting in a tax liability of Rs.2,873,568. Thus there are two causes of grievances viz:--
(a) Non-issuance of WWF refund together with Additional Payment of delay, for the years, 1991-92 to 2001-2002.
(b) Initiation of 'amendment' proceedings under section 122 of the Ordinance for the year, 2001- 2002.
3. Respondents have forwarded parawise comments by the RCIT, Northern Region, Islamabad who, in addition to questioning the competence of complaint for admission in view of section 9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance), deny "maladministration". As respects issue of WWF refund pertaining to the assessment years 1991-92 to 2001-2002, the RCIT has conveyed that although according to the Lahore High Court "industrial establishment covered by the provision of section 80C of the Income Tax Ordinance, 1979,is not liable to charge of the fund contemplated in section 4 of the WWF Ordinance, 1971," the Department is in appeal before the Supreme Court of Pakistan where the matter is pending for adjudication hence refund cannot be issued as the same is sub judice.
4. On the issue of amendment proceedings under section 122 of the Ordinance, the RCIT has insisted. "the taxpayer failed to exercise this option for assessment under section 80C within 3 months of the Income year relevant to the assessm ent year 2001-2002 as required by provisions of Clause (9), Part-IV of the Second Schedule. The assessment made under section 59A/80C was, therefore, incorrect and liable to be amended ...... ".
The filing of option in Circle-03 at Sialkot has been denied by the RCIT. The initiation of section 122 proceedings have been justified pleading. That income was `misclassified' when assessed under section 59A/80C on 25-6-2003 hence no "maladministration" was committed.
5. On the issue of refund of WWF payment aggregating at Rs.424,381 for the assessment years 1991- 992 to 2001-2002, the Complainant's counsel, Mr. Ahmad Shuja Khan (ASC) submitted that as per subsection (10) of Section 132 of the Ordinance, the order by the Appellate Tribunal is 'final' more so when it has been upheld by the High Court hence denial to issue the refund relating to WWF was a conduct arbitrary falling in the realm of "maladministration". Furthermore, the learned counsel brought on record Lahore High Court judgment in ITAT-447/98 where the Court has unequivocally ruled that industrial establishments covered by the presumptive tax regime are not liable to the charge of WWF. The learned counsel insisted that a question of law decided by a Superior Court is to be followed by subordinate judicial and qausi-judicial forums. In the face of this legal position, according to the learned counsel, the RCIT's plea about the matter being sub judice before the Supreme Court is frivolous and effect has to be given to the order by the Appellate Tribunal until a verdict is given by any superior Court reversing this decision. Mr. Khan concluded his arguments with the submissions that no order under section" 102 of the repealed Ordinance was ever passed withholding the refund or any specific instructions issued in this behalf.
6. Taking up the issue of proposed amendment of assessment for the year, 2001-2002, the learned counsel drew .Attention to subsection (1) of section 80C of the repealed Ordinance which prescribes that the amounts representing payments made to 'residents' on which tax has been deducted under subsections (4), (4A),- (5AAA), (7A), (7H) of section 50 were deemed to be the.
Income of the said person and tax thereon charged at the rate specified in the First Schedule. At the same time section 143B which requires filing of Statement regarding. Income under section 80C, nowhere makes it obligatory for such importers to file a Return of Income; consequently, those having Income under section 80C only file Statement under section 143B, for assessment to be made under section 80C read with the First Schedule. In the opinion of the learned counsel no assessm ent order as such was required under section 59A particularly when the section 59A becomes operative when a Return is furnished under section 55. In the Complainant's case, according to the learned counsel, admittedly no Return was filed (nor was required to be filed), hence the original assessm ent framed on 25-6-2003 was under section 80C on which section 59A was erroneously typed along with section 80C. Since, it is not legally permissible to amend a section 80C assessm ent by invoking section 122 of the Ordinance, the learned counsel insisted, notice, dated 5-11-2003 represented an arbitrary conduct, contrary to law, rules or regulations thus perverse, arbitrary and unjust. The learned counsel carried his arguments further by emphasizing that it was wrong to suggest that the issue related to "misclassification" of the Income because "misclassification" is possible when Income falling under one Head is erroneously taken as ,falling in a different Head a situation totally missing in the present controversy.
7. Another point which the learned counsel advocated with vehemence was that the option under clause (9) Part-IV of Second Schedule for assessment under section 143B. Was duly expressed by the complainant and tangible evidence was tendered for record but the Department has failed to disprove the validity of the office copy bearing signature of a 'tax functionary' hence the lame excuse that delivery of the document is not recorded in the Receipt Register of the Circle amounts to an admission that all documents received by the officials are not necessarily entered in the Receipt Register which by itself an example of "maladministration". The learned counsel further explained that the option filed in 1997 was for one year only because the amendment to file a consolidated option for three years came subsequently, through an amendment in 1998. It was for this reason that the option was filed in Circle-03 on 30-9-1998 which was to be operative for three years up to 2001-2002 hence it was too late in the day to deny the exemption facility in the year, 2001-2002. The learned counsel concluded his arguments by summarizing:--
(a) The assessm ent under section 80C could not amended under section 122 as this section was not specifically mentioned in section 122(1).
(b) Subsection (5) of 122 was not applicable because not 'definite information' had come in the possession of the Assessing Officer subsequent to the assessment under section 80C on 25-6- 2003 which could justify action for amendment. For this assertion reliance was placed on cases (2000).81 Tax 139 (Trib.) = 2000 PTD 1299.
(c) The proposed action was a 'change of opinion' which was not permissible by law and the case- law.
The learned counsel categorically affirmed that no appeal against the impugned order has been filed to CIT(A).
8. Mr. Anwar-ul-Haq Jillani (DCIT) appearing for the Respondents first of all insisted that the matter was beyond .The jurisdiction of FTO because it involves assessment of Income and classification of Income thus hit by section 9(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance). He repealed the stand taken .By the RCIT in the parawise comments to plead that the original assessment having been framed under section 59A, the jurisdiction to amend it was. Available by pressing into service subsection (1) of section 122.
Mr. Jillani made out the point that the Income having been treated as one chargeable under section 80C implied its classification as 'Income arising from import' and not as Income from Business or Profession hence the 'misclassification' resulted in incorrect assessment and inappropriate tax.
9. The arguments of the rival parties have been considered and record examined. As respects the WWF refund of Rs.424,381 for the years 1991-92 to 2001-2002 is concerned the Department has withheld the refund because the view taken by the Tribunal in the case of the Complainant and the law interpreted by the High Court in its judgment on ITAT 447 of 1998 where it has been ruled that those taxpayers who are subject to presumptive tax regime are not liable to pay WWF, are sub judice before the Supreme Court. There can be no two opinions that merely filing of an appeal before the Supreme Court against the judgment of the High Court or an appeal against the Tribunal's order, cannot operate as a stay or detract from the provisions of section 132(10) of the Ordinance which confers finality on the decision of the Tribunal till such time as it is reversed by the High Court nor any interim prohibitory order had been passed earlier. This view has since been enshrined in the Ordinance where section 124A specifically lays down that the decision enunciating a law shall be followed notwithstanding filing of an appeal against in a higher forum. Non-issuance of refund Under section 170 of the Ordinance together with Additional Payment under section 171 is, therefore, a clear disregard of law and thus "maladministration" as defined in subsection (3) of section 2 of the FTO Ordinance.
10. As about the initiation of proceedings to amend the assessment for the years, 2001-2002 by pressing into service subsection (5) of section 122 of the Ordinance on the plea that the tax charged on the basis of Statement under section 143B of the repealed Ordinance was incorrect firstly because no option under Clause 9 of the Second Schedule was filed and that there was 'misclassification' of Income, the validity of the arguments advanced by the learned counsel for the complainant gets support from the decision of the Supreme Court reported 1997 SCM R 1256 in re: Pakistan Herald Limited where at page 1261 the learned Judges observed that: if after framing the assessm ent consciously the Assessing Authority realized having ignored any provision of law or having not applied or misapplied the law; such discovery would not fall within the ambit of term "definite information" as is necessary to initiate amendment proceedings. The view has been followed in the Sindh. High Court recently reported decision 2004 PTD 1901 in re: Muslim Commercial Bank Ltd. The insistence to carry on proceedings ignoring the dictum pronounced by the highest judicial forum of the realm is clear "maladministration" as defined in Clause (3) of Section 2 of the FTO. Ordinance more so when the Department is not able to disprove the authenticity of the official receipt issued about filing of the, option as required by Clause 9 of the Second Schedule.
11. The "maladministration" having been established on two counts, it is Recommended that:--
(i) WWF refund at Rs.424,381 together with Additional Payment for delayed refund for the years 1991-92 to 2001-2002 be issued forthwith.
(ii) The amendment proceedings initiated on 5-11-2003 under section 122 of the Ordinance for the year, 2001-2002 be dropped.
12. Compliance report be submitted within 30 days of the receipt of this order. .