FINDINGS /DECISION This complaint pertaining to the assessment year 1995-96 points out "maladministration" in (a) the initiation of proceedings under section 66A of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance), and (b) blames the Commissioner for arbitrarily passing over order under section 122A of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) without providing opportunity of hearing.
2. Briefly the facts are that the Complainant, a Private Ltd. Company, is engaged in the manufacture and sale of different items. Return for the assessment year 1995-96 comprised of two periods (12 months and 18 months each) for which Income was declared at Rs.3,228 and Rs.5,404 respectively. A combined assessm ent was framed finally under section 62 of the repealed Ordinance on 5-12-1997 determining Total Income at Rs.20,009. Proceedings initiated under section 65 of the repealed Ordinance vide notice, dated 13-2-2001 were dropped in view of the reply furnished on 26-6-2001. Subsequently, for the same reason the IAC initiated proceedings under section 66A of the repealed A Ordinance on 21-11-2001 and passed an order on 4-12-2001 setting aside the assessm ent with the direction to reframe it in the light of directions (a) regarding transaction with the associated concern, and (b) source of money employed by the Complaint for the purchase of land in Moza Bhai Kot, Raiwind Road, Lahore for a consideration of Rs.2,461,279. The Assessing Officer finally framed the assessment under section 63/66A of the repealed Ordinance on 16-12-2002 and (allegedly) did not serve it on A the Complainant who came to know about it when recovery of tax as attempted. The Complainant then approached the Commissioner, through the RCIT, on 4-3-2004 for suo motu action under section 122A of the Ordinance which the Commissioner refused on 25-3-2004. This is the cause of grievance.
3. The Respondents have forwarded para-were comments by the RCIT, Eastern Region, Lahore which in addition to questioning the competence of the complaint for admission in view of the bar as per section 9(2)(b) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance), deny "maladministration". It is admitted that proceedings initiated under section 65 on 13-2-2001 were dropped on the realization that the matter did not relate to section 65 but was cognizable under section 66A of the repealed Ordinance. Taking up proceedings under section 66A, the RCIT reports, after proper confrontation an order was passed by the IAC with certain directions to the Assessing Officer on 4-12-2001. This was not contested in appeal. The RCIT further reports that when notice under section 62 issued on 3-12-2002 remained uncompiled, the Assessing Officer framed an ex parte assessment under section 63/66A of the repealed Ordinance on 16-12-2002. According to the R-CIT, the officers of the Department acted in a bona fide manner and no "maladministration" was caused. Moreover, it was nbw established that the Complainant had (i) received 'share deposit money" over and above the authorized capital, (ii) otherwise than through banking channel, which attracted the provisions of section 18(12) of the repealed Ordinance. The R-CIT concludes by submitting that the Complainant's application of 4-3- 2004 for suo motu Revision under section 122A of the Ordinance was rejected because "the CIT formed an opinion that the order under section 63/66A for the assessment year 1995-96 passed by the Taxation Officer does not require revision under section 122A of the Ordinance".
4. Mr. Nisar Ahmad (FCA) the learned counsel for the Complainant, confined himself to argue-
(i) the Taxation Officer did not follow the instructions by the IAC in his section 66A order of 16-12- 2002 for ascertaining the nature and source of the deposit for shares and source of investment in the purchase of land appearing in the Balance Sheet, to determine the applicability of provision of subsection 18(12) of the repealed Ordinance.
(ii) C.B.R. Circular No.3 of 1992, dated 27-1-1992 was totally ignored by the Taxation Officer, and (i.e) the CIT passed an order under section 122A of the Ordinance prejudicial to the interest of the Complainant, without affording an opportunity of hearing.
It was emphasized by the AR that mala fide of the Department was evident from the fact that despite reply, dated 26-6-2001 in response to notice under section 65, having been found satisfactory for dropping the proceedings, the same issue was raised again through a notice under section 66A causing double jeopardy. Further, the learned counsel continued, the IAC did not give a finding himself but referred the matter back to the Assessing Officer for re-examination although the record had already been examined at the initial stage as also at the time of reply to notice under section 65. These aspects, according to the learned AR, were once again explained to the Assessing Officer when he took up reassessment proceedings and attention was drawn to the C.B.R. Notification No.3 of 1992 which unequivocally affirmed: "genuine loans received from identifiable persons through banking channels were not to be subjected to the provisions of section 12(18)" of the repealed Ordinance, merely on the ground that the "amount of such loan had not been received through bank cheques" and the "basic purpose of aforesaid provisions of law is to check fictitious loans and to preclude back dated introduction of creditors in the books of accounts". The learned counsel emphasized that in the Complainant's case the transactions was above board as money had passed through (i) banking channel, (ii) was posted in books of accounts, and (i.e) had originated from an identifiable associated concern. Therefore, the Assessing Officer acted arbitrarily in ignoring these and also in disregarding' the C.B.R. Circular.
Lastly, the learned counsel criticized the Commissioner for denial of opportunity of hearing to the Complainant and for rejecting Revision Petition at the Complainant's back.
5. Mr. Amjad Zubair Tiwana (DCIT) appearing for the Revenue supported the para-were comments by RCIT to contend that since the matter related to the assessment of Income, it was beyond the jurisdiction of FTO as per provisions of section 9(2)(b) of the FTO Ordinance. The DCIT submitted that at the time of reassessm ent the Assessing Officer had issued notice under section 62 on 3-12- 2002 but the same was not responded leaving no option but to proceed ex parte under section 63 of the repealed Ordinance. The conduct of Commissioner was supported by the DR by pleading that no proper Revision Petition as such was filed and the RCIT was approached by passing the Commissioner. Therefore, the CIT rightly rejected the Application which, in any case, was filed much beyond the prescribed period of limitation.
6. The arguments from the two sides and scrutiny of record reveal that the provision of section 9(2)
(b) of the FTO Ordinance are not attracted because the Complainant questions the bona fide of action by the officers of the Department in addition to alleging "maladministration" an arbitrary conduct which falls in the definition of "maladministration" as per Clause (3) of section 2 of the FTO Ordinance. The objection is, therefore, overruled.
7. Coming to the issue of Assessing Officer's failure to carry out the directions by the IAC in section 66A order, dated 16-12-2002, there appear sufficient merit. If, as alleged by the DCIT notice under section 62 of 3-12-2002 was not responded, still it was mandatory for the Assessing Officer to frame a 'best judgment' assessm ent for which an enquiry was necessary to determine the genuineness of the transaction keeping in mind Circular No.3 of 1992 issued by the C.B.R. Which was D binding on him in view of provisions of section 8 of the repealed Ordinance and incorporated as section 214 in the Ordinance. This lapse falls in the category of 'maladministration' as per clause 3(i)(a) of section 2 of the FTO Ordinance.
8. As respects the grievance about Commissioner having passed an order under section 122A at the back of Complainant, the conduct is "maladministration" for being unreasonable and unjust as per Clause (3)(i)(b) of section 2 of the FTO Ordinance more so because:--
(a) Notwithstanding the arguments by the DR that no proper Revision Petition was moved, the RCIT and the CIT did admit it, as is born out by the very subject of order, dated 25-3-2004, and the verdict; Assessing Officer's action "does not require revision under section 122A of the Ordinance".
(b) Treating the application a Revision Petition, placed a burden on the CIT, as per subsection (2) of section 122A to consider it on merits "after making such enquiry as is necessary". This mandatory duty warranted some further steps than a simply study of record at-least a hearing to the Complainant, adhering to the principles of natural justice which are to be read in every statute even if not specifically provided.
(c) The failure to afford opportunity of hearing assumed further gravity because the CIT passed an order "prejudicial" to the Complainant thus violating the provisions of subsection (3) of section 122A of the Ordinance.
It seems prudent to point out that 'declining to interfere' which was previously "not deemed to be an order prejudicial to assessee", is no longer so because the legislature in its wisdom has not incorporated the provisions of clause (a) of subsection (5) if section 138 of the repealed Ordinance in section 122A of the Ordinance.
8. For the foregoing reasons, it is Recommended that:--
(i) The CIT, at his on motion, invoke the provisions of section 221 of the Ordinance to cure the deficiencies and bring section 122A of the Ordinance in conformity with the prevalent law.
(ii) All recovery steps in pursuance to the impugned section 63/66A order be held in abeyance till decision by the CIT(A), as per (i) above.
(i.e) The whole exercise as above, be completed within 30 days.
9. Compliance report be submitted within 45 days of receipt of this order. .