FINDINGS /DECISION This complaint alleges delay in issuance of refund of Rs.789,671 for the assessment year 2002-2003 which was allowed at Rs.785,712 on IT-30 and communicated vide Demand Notice, dated 31-1- 2004.
2. The relevant facts are that the Complainant AOP is an IATA approved Travel Agent. Return for 2002-2003 filed under SAS declaring Income at Rs.831,252 came to be accepted by operation of law on 30-6-2003 though order under section 59A was conveyed through IT-30 and Demand Notice, dated 31-1-2004. An alleged clerical mistake in the IT-30 showing refund at Rs.785,712 instead of the claimed figure of Rs.789,671 was pointed out by the Complainant on 25-5-2004. The latter figure was worked out on the basis of figures adopted in IT-30 itself. This matter remained unattended. The refund was not issued either despite reminder and furnishing of challans/certificate in respect of deductions under section 50(4). This is the cause of grievance.
3. The Respondents have forwarded para-were comments by RCIT, Eastern Region, Lahore that refund could not be allowed "at the time of original assessment on the basis of photocopies of non-prescribed tax deduction certificates" and on 11-12-2003 the taxpayer was asked "to furnish original challan/certificate in respect of deductions of tax on payment of Commission". It is admitted by the RCIT that the Complainant moved an application for rectification on 25-5-2004 on which the IAC directed the Assessing Officer to ask for proof of tax deductions for the purpose of verification. According to the RCIT, since so far "no refund order has been passed, therefore, the assessee is not entitled to any compens4tion". Maladministration has been denied by the RCIT.
4. Mr. Jamil Akhtar Baig (FCA), the learned counsel for the complainant, submitted that whatever proof was available in the shape of original challans/certificates has been tendered and now onus is on the Department to either disprove the evidence or to issue the refund. The learned counsel strongly relied on section 100 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) which clearly provided that when refund becomes due to the Deputy Commissioner must issue the amount to the taxpayer irrespective of the fact whether application has or has not been made in that behalf.
5. S.A. Masood Raza (IAC) was at the ouset reminded that in an earlier hearing of the complaint on 29-6-2004, at the request of the D.R. (Mr. Muzammil Hussain, DCIT), time of one month was allowed to carry out whatever verification of evidence tendered by the Complainant was necessary and to issue the refund. On this the IAC pleaded that communications were addressed to the persons from whom certificates were filed but no reply has been received and, therefore, refund could not be issued. Mr. Masood Raza emphasized that verification was necessary because in another case when reference was made to the withholding agent, they admitted having made the deductions but could not provide copy of challan whereupon the taxpayer/claimant abandoned his claim.
This, according to the IAC, confirmed the suspicion of the Department that at times false claims are preferred. Hence the need for caution to ascertain the factum of deposit of deducted amount in the Government treasury.
6. The rival arguments have been considered and the record examined. It emerges that the demand for furnishing the deduction certificates was made on 11-12-2003 after the Complainant's application, dated 30-9-2003 for issuance of refund. In case the claim for refund was not properly documented with the Return, a 'short document' notice was necessary but none was served and the Return was accepted under section 59A of the repealed Ordinance. .
One noteworthy point of the RCIT's report is that the Taxation Officer requested the Complainant to furnish original challans/ certificates in respect of withheld tax on 11-12-2003. The assessment was finalized on 31-1-2004. The finalization of the assessment on a date subsequent to the one on which the aforesaid request was made implies that the Taxation Officer either got the verification he was seeking or did not consider it necessary any longer. In either case his passing the order is a clear evidence of the acceptance of the claim of the withheld tax. There is no convincing explanation of questioning the veracity of the deduction certificates when IT-30 showed the refund at Rs.785,712 after admitting the 'deductions at source' at Rs.956,104 and 'tax liability' at Rs.166,438. This is a glaring instance of mala fide and "wilful error in the determination of refund" defined as "maladministration" as per Clause (3)(v) of section 2 of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance).
7. It was pleaded that 'withholding agents' have not responded to the communications by the Assessing Officer seeking verification of payment. But admittedly neither notices under sections 161/205(3) of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) were issued nor any action was contemplated against the withholding agents. It is evident that the Department made no meaningful effort to verify the genuineness of the certificates submitted by the Complainant. Therefore, a simple belated enquiry by the Department cannot be made an excuse to withhold issuance of refund, more so when the Refund Voucher should have accompanied the IT-30 and the Demand Notice on 31-1-2004.
8. It has been noticed in innumerable complaints that issuance of refund is delayed on the pretext that certificate of deductions filed by the taxpayer is being referred to the 'withholding agent' or to the DPC, for verification. It seems expedient to categorically affirm that this practice is contrary to the requirements of law. Subsection (2) of section 164 of the Income Tax Ordinance, 2001 reads as under:-- "A person required to furnish a return of taxable income or a tax year shall attach to the return any certificate provided to the person under this section in respect of tax collected or deducted in that year and such certificate shall be treated as sufficient evidence of the collection of deduction for the purposes of section 168". (Emphasis added)
It is beyond doubt that the law does not require a taxpayer to furnish a "prescribed tax deduction certificate", the absence of which has been made an excuse for non-issuance of refund by the RCIT. As specifically laid down in subsection (1) of section 164 the responsibility to provide "a certificate setting out the amount of tax collected or deducted and other particulars as may be prescribed" has been cast on "every person collecting or deducting tax". Therefore, if the withholding agent fails to provide to the taxpayer the 'prescribed certificate' the taxpayer can annex to the return "any certificate" provided to him by the collecting/ deducting agency. On this view, to call upon a taxpayer to furnish a certificate from the withholding agent on the prescribed form (or otherwise) is glaring "maladministration" especially when it is mandatory for the Assessing Officer to accept "any certificate" in terms of the compelling provisions of subsection (2) of section 164 whereby "such certificates shall be treated as sufficient evidence of the collection or deduction for the purpose of section 168 ("Credit for tax collected or deducted"). In fact the Department's instance to furnish proof about the deducted amount having been deposited by the withholding agent in the Treasury, betrays shirking of its on responsibility for initiating action:--
(i) Under section 160 for mandatory deposit by the withholding agent of tax collected or deducted.
(ii) Under section 161(1) for failure of the withholding agent to pay H tax collected or deducted.
(i.e) Under sections 165/182(2) for mandatory filing of Statement by the withholding agent of tax collected or deducted.
The failure of the Department in fulfilling the responsibility entrusted on it by law cannot be an excuse to compel taxpayers to run from pillar to post begging for refund, which is theirs as a lawful right.
9. The foregoing lapses represent "maladministration" as defined in clause (3) of section 2 of the FTO Ordinance. It is, consequently, recommended that:--
(i) Rectification as sought by the Complainant may be carried out and refund issued alongwith additional payment for delay in issuing refund as per section 171 of the Ordinance.
(ii) All RCITs and CITs instructed to ensure compliance by the withholding agents, of the provisions of Chapter X in the Ordinance particularly sections 160, 161, 164(1), 165 and 182(2).
(i.e) The Assessing Officer who signed the IT-30 be issued a warning (and placed on PER) for not having verified the payment before preparing IT-30 and entering the same in the DCR.
10. Compliance report be submitted within 30 days of receipt of this order. .