FINDINGS /DECISION Maladministration is alleged in the instant complaint on the part of Taxation Officer Circle 6 Zone-C Lahore for arbitrarily reopening the assessment under section 122 of Income Tax Ordinance, 2001 for the assessm ent year 1999-2000 and issuing notices under section 62 of the repealed Ordinance, 1979 for the assessm ent years 2000-2001 to 2002-2003.
2. The Complainant is an 'individual' earning his income from manufacture and sale of Polythene bags. For the assessm ent year 1999-2000 the Income Tax assessment was completed under section 59 (1) of repealed Ordinance, 1979. For the assessment years, 2000-2001 to 2001-2002 Income Tax Returns were also filed under Self-Assessment A Scheme but assessments for these two years were pending when a show-cause notice was issued by the Taxation Officer Circle 6 Zone-C Lahore vide his letter, dated 31-7-2002 indicating his intention of reopening the assessment for the assessm ent year 1999-2000 under section 122 of Income Tax Ordinance, 2001 and completing the assessm ent for the assessment years, 2000-2001 to 2002-2003 on the basis of enquiry report, dated 4-7-2002 although the return of income for Assessment Year 2002-2003 was yet to be tiled and the enquiry report did not provide any definite information for proposed action.
In spite of explanation furnished by the Complainant vide his letter, dated B 27-8-2002, the Taxation Officer Circle 6 issued a notice under section 122 of Income Tax Ordinance, 2001 for the assessm ent year 1999-2000 and notices under section 62 for the next three years. This has caused grievance to the Complainant.
3. In reply, the RCIT Eastern Region Lahore has raised a preliminary objection that the complaint relates to assessm ent proceedings for which remedy of appeal has been provided hence it falls outside the jurisdiction of Federal Tax Ombudsman. The RCIT has submitted that proceedings in this case were started on the basis of complaint received against the Complainant wherein a number of allegations were made. In order to verify the allegations in the complaint an enquiry was conducted through Inspector had the following facts were discovered:---
(i) That the Complainant had not disclosed agriculture income to the extent of Rs.10,000 per annum.
(ii) That the business premises of the Complainant belonged to his were and the Complainant incorrectly claimed rental expenses.
(i.e) That the Complainant had declared G.P. @ 15% of the sales in computation of income furnished along with the Income Tax Return indicating that the Complainant was earning his income from trading but actually the Complainant was a manufacturer.
(iv) That the Complainant incurred electricity expenses to the extent of Rs.300,415 for the assessm ent year 1999-2000 and Rs.287,383 for the assessment year 2000-2001.
(v) That the value of machinery was admitted by the Complainant at Rs.300,000 to Rs.400,000 but the Complainant had declared income at Rs.50,100 for the assessment year 1999-2000. According to S.A.S. The capital of the Complainant at three times of the income works out at Rs.1,50,000 which is less than the admitted capital indicating suppression of capital. In the enquiry report the Inspector had estimated the capital at Rs.600,000.
(vi) That the Complainant owned a car bearing No.LXC-5544 which was used by his son.
The RCIT has submitted that on the basis of above information notice under section 122 of Income Tax Ordinance, 2001 was issued for the assessment year 1999-2000 and notices under section 62 were issued for the assessm ent years, 2000-2001 to 2002-2003 which according to him, was quite justified keeping in view the above information.
4. Mian Bilal Bashir, Adyocate, attended for the Complainant. He has explained that action under section 122 for the assessm ent year 1999-2000 and notices under section 62 for the rest of the three years are illegal and unjust for the reason that the Taxation Officer Circle 6 was still an Inspector when these notices were issued. He was temporarily given the charge of Circle 6 but he was still Inspector and post of Inspector does not exist in the Income Tax Ordinance, 2001. He cannot make enquiry and cannot record statement of the Complainant because he is not one of the Taxation Authorities in the new Ordinance, hence all his actions under section 122 are illegal. As far as issuance of notices under section 62 for the assessment years 2000-2001 and 2001-2002 are concerned, these cannot be issued on 31-7-2002, firstly because the returns have been filed under the respective Self-Assessm ent Schemes and assessments are deemed to have been passed on 30th June, 2001 and 30th June, 2002 respectively. Secondly, no notice under section 62 of the Repealed Ordinance can be issued after 30-6-2002 because Income Tax Ordinance, 2001 has been made applicable i.e.f. 1-7-2002. The AR has submitted that the Taxation Officer did not have any definite information for action under section 122 or under section 62 as above. The AR pleaded that the Taxation Officer did not have any evidence that the Complainant was having agriculture income and there was no evidence that the Complainant was not paying any rent to his were who is the owner of the business premises. As far as capital is concerned, this is based only on estimate adopted by the Inspector. There was no evidence that value of the machinery is Rs.600,000 as indicated in the show-cause notice or notice under section 122 of Income Tax Ordinance, 2001 or notices under section 62 of the repealed Ordinance. As far as electricity expenses are concerned these are covered by G.P. Rate applied to the sales. The AR has explained that the Complainant furnished computation of income declaring G.P. @ 15% of sales and then deducting Profit and Loss expenses from the G.P. Evolved which does not mean that the Complainant did not disclose manufacturing activity. Electricity expenses were covered by the cost of sales. According to the AR another allegation made against the Complainant is that sales declared by the Complainant are not commensurate with the electricity expenses. These allegations are hypothetical hence the action taken by the Taxation Officer Circle 6 Zone-C Lahore was illegal and without any definite information. Thus, it is contrary to law and without valid reasons which constitutes maladministration as defined under clause (i)(a) of subsection (3) of section 2 of the FTO Ordinance.
5. Mr. Muzammal Hussain Butt DCIT attended for the Revenue. He explained that in this case detailed enquiry was conducted by the Inspector under section 146 of repealed Ordinance, 1979 and statement of the Complainant was recorded under section 148 of the repealed Ordinance, 1979. As a result of enquiry the aforesaid 'definite' information was discovered against the Complainant; hence action as above was justified. The D.R. Further submitted that meanwhile assessm ent orders have been passed in pursuance of impugned notices.
6. Both the complainant as well as the Respondent's reply have been examined and arguments of the two sides have been considered. The RCIT has raised a preliminary objection that the complaint relates to assessm ent proceedings for which remedy of appeal has been provided; hence this complaint does not fall with in the jurisdiction of the Federal Tax Ombudsman. The foregoing objection is misconceived because the bar on FTO's jurisdiction envisaged in clause (b) of subsection (2) of section 9 of FTO Ordinance relates only to a decision on the matters enumerated therein because remedies of appeal, review or revision are available only in respect of the decisions and not against or in respect of a process being employed, a recommendation being made and an act of omission or commission. Since the matter in the instant complaint relates to a process being employed by the respondent, against which action no appeal is provided provisions of section 9(2)(b) of the FTO Ordinance are inapplicable. Investigation can be made in respect of the process.
7. The submissions of the AR that there was no definite information for action under section 122 of the Income Tax Ordinance, 2001 for the assessment year 1999-2000 and that the law did not permit issuance of notices under section 62 for the assessment years 2000-2001 to 2002-2003 is correct. An investigation into the facts of the case revealed that the complainant owns 10-12 Kanals of agricultural land but agricultural income is exempt from tax under Second Schedule of Income Tax Ordinance, 1979. The agricultural income is considered only for the rate purpose. The notice under section 122 indicates that the complainant has admitted having agricultural income of Rs.10,000 but the complainant in his statement at the time of inquiry has stated that the land yields agricultural produce of Rs.10,000 12,000 per annum. The taxation officer has mistook the total value of produce to be income though there is different between the produce and income; hence agricultural income cannot be made basis of action under section 122 of Income Tax Ordinance, 2001. Similarly the respondent has failed to prove that the complainant was not paying rent of the premises to his were. The assertion by the respondent that the complainant has not disclosed manufacturing activities is also without any basis. The respondents have asserted that the G.P. Disclosed by the complainant @ 15% of sales is considered reasonable in trading business only while in manufacturing cum trading business G.P. Rate of 25% is applied.
However, such parameters are inapplicable for invoking jurisdiction under section 122 in cases where assessm ent is made or returns qualify under the scheme of Self-Assessment made by the C.B.R. Under section 59(1) of the Repealed Ordinance. The G.P. Rate of 15% disclosed by the complainant may be considered low but in order to D invoke jurisdiction under section 122 the Respondent has to prove that the rate of actual G.P. Available in the business is more than 15% which has not been done in the instant case. Objection has also been made by the Revenue Authorities that the sales declared by the Complainant are not commensurate with the electricity expenses but this assertion too is not a definite evidence for reopening of the case.
8. For the foregoing reasons, the process initiated by issuing notice under section 122 of Income Tax Ordinance, 2001 issued by the Taxation Officer Circle 6 for assessment year 1999-2000 is perverse, arbitrary, and oppressive and unjust. Regarding notices under section 62 for the assessment years 2000-2001 and 2001-2002 as well, it is now settled that the issuance of such notices is contrary to law because subsection (4) of section 59 added by Finance Ordinance, 2001 is operative with effect from 1st July, 2001. Assessm ent for Assessment year 2000-2001, therefore, is deemed to have been passed on 30-6-2001 and assessme nt for Assessment year 2001-2002 is deemed to have been passed on 30th June, 2002. The notice under section 62 purported to have been issued in respect of Assessm ent year 2002-2003 on 30-7-2002 is ab initio void in law because no return of income for income year ended on 30th June, 2002 had been filed by such date It proves neglect, inattention and ineptitude in the discharge of duties by the Taxation Officer concerned which is defined as maladministration under section 2(3)(ii) of the FTO Ordinance.
9. The act committed by the Taxation Officer of issuing notice under section 122 Income Tax Ordinance, 2001 in respect of Assessment year 1999-2000 and the notices under section 62 of the Repealed Ordinance on 31-7-2002 in respect of assessment years 2000-2001, 2001-2002 and 2002- 2003 is contrary to law and proves his incompetence and ineptitude in the discharge of his duties which amounts to maladministration as defined under clauses (i)(a) and (ii) of subsection (3) of section 2 of the FTO Ordinance.
10. It is now recommended:---
(i) That the Commissioner invokes jurisdiction under section 122-A of Income Tax Ordinance, 2001 to consider revision of the reassessm ent order passed in pursuance of invalid notice under section 122 of Income Tax Ordinance, 2001 for the assessment year 1999-2000 and the double assessments made for Assessm ent years 2000-01 and 2001-2002 in pursuance of ab initio void notices issued under section 62 of the Repealed Ordinance.
(ii) Compliance report be submitted within 60 days.