DECISION /FINDINGS Facts of the complaint are that despite completion of complainant's tax assessments for assessm ent years 2000-2001 and 2001-2002 and submission of various applications for payment for refund the respondents have failed to issue refund vouchers to which the A complainant is entitled. As the payment of refund has been unduly delayed without any cogent reason the department may be directed to pay up the amounts of refund involved together with additional payment under the appropriate provisions of law for delaying the payment.
2. In reply, the department has submitted that no maladministration is established within the meaning of section 2(3) of the FTO Ordinance, 2000. The allegation of maladministration may be considered and conclusively established before entertaining the complaint. Assessment for A.Y.
2000-2001 was finalized under section 59 of the repealed Ordinance, 1979 at net income of Rs.
196,339. Assessm ent for 2001-2002 was finalized under section 62 of the repealed Ordinance at net income of Rs.367,502 which was reduced in appeal to Rs.102,609. Refunds were not created for both the years for want of verification of some challans and certificates issued by the principal companies. Letters have since been issued to the concerned quarters for verification. Refund vouchers, if any, would be issued after verification.
3. During the hearing, the AR stated that his client had submitted tax return for Assessment year 2000-2001 on 16-11-2000 claiming tax deductions amounting to Rs.80,235 and of Rs.4130 under section 50(4) and section 50(7) of the repealed Ordinance aggregating to Rs.84,365. The assessm ent was completed under section 59 of the repealed Ordinance on 27-3-2001 for an amount of Rs.17,469 leaving a balance of Rs.66,896. Even though a period of more than four years has elapsed the respondents have not allowed credit for the aforesaid amount, which amounts to maladministration. Similarly respondents are not issuing refund voucher for Assessment year 2001- 2002 on the pretext of verification of deductions. The AR submitted that in so far as the verification of challans etc. Is concerned the respondents were required to complete the task of verification during the assessm ent proceedings as laid down in the C.B.R. Circular No.2 of 1998. Since the proceedings were closed long ago the department cannot hold back the refunds on the pretext of verification. The refund was claimed for Assessment year 2000-2001 vide application, dated 27-10- 2001 to which the respondents replied vide their letter, dated 28-12-2001 asking the complainant to supply original challans for verification. The challans were supplied for the aforesaid assessment year to the department vide complainant's letter, dated 17-1-2002. Even otherwise, most of the amounts have been verified. As to Assessment year 2001-2002 assessment was finalized at an income of Rs.367,502, IT-30 was issued giving credit of an amount of Rs.30,242. However, the CIT(A) reduced the tax liability only to Rs.5,414 as it reduced the income to Rs.102,609. As such the credit of Rs.30,242 which had already been given vide IT-30 referred to above could have been reduced by Rs.5,414 (the tax liability) and the balance credit of Rs.24,828 could have been considered as already verified. Refund in this case was also applied for vide letters, dated 27-7-2002 and 9-6- 2003 etc. Again the respondents held it back for want of verification of challans. The department wrote letter, dated 2-8-2002 asking the complainant to furnish evidence in support of credit claimed. The complainant could not respond to department's letter. The AR, however, stated that the amounts mentioned in department's letter for verification Were more or less the same as covered in the previous letter and out of a total amount of Rs.30,242 only an amount of Rs.2885 remained unverified. Since credit for Rs.30,242 had already been allowed it meant that the task of verification had been completed to that extent. The respondents should, therefore, refund an amount of Rs.66,896 for Assessment year 2000-2001 and an amount of Rs.24,828 for Assessm ent year 2001-2002 aggregating Rs.91,734. The respondents may also be directed to pay compensation at the appropriate rate under the relevant provisions of law.
4. The DR submitted that for Assessme nt year 2000-2001, an amount of Rs.31,439 was got verified and an amount of Rs.35,453 still needed verification. The department had written letters to the Sugar Mills on 28-12-2001, 2-8-2002, 12-6-2003 to confirm and verify the deductions but the mills have not so far complied, hence verification was still pending. The DR acknowledged that while the rest of the amounts relevant to Assessment year 2001-2002 have been verified only an amount of Rs.2885 is yet to be verified. The DR opposed payment of compensation at 15% on account of delay in payment of refund because refund could not be given due to on-going and time-consuming verification.
5. The arguments of the parties to the dispute and the record of the case have been considered and examined. It is observed that assessment for each of the two assessment years were completed long ago yet the refunds were/are being held back on the pretext of pending verification. The task of verification should have been completed during the proceedings as clearly laid down in C.B.R. Circular No.2 of 1998, dated 16-2-1998, the relevant portion of which reads:- "The verification of payments/deductions should be made during the assessment proceedings so that the refund may be issued in orderly and transport manner....".
Earlier the C.B.R. Had, vide Circular letter No.ITP-3(21)/85, dated November 24, 1985, laid sown that:-- "Calculations of tax payable are made on IT-30 form which is a part of the assessment order. While preparing IT-30 credit for payments made by the taxpayer is required to be given. Credit for tax paid once given legally becomes final. Thus subsequently, tax already paid shown in the IT-30 cannot be challenged by the department nor can the department, for the purposes of refund, ask the taxpayer concerned to produce further evidence in support of the tax claimed and shown to have been paid...".
Viewed in the light of the aforesaid Circular AR's contention that since in regard to assessment for Assessm ent year 2001-2002 credit for payment deducted at Rs.30,242 under sections 59(4) and 50(7) of the repealed Ordinance had been given there was no need for further verification of this particular amount is correct because once the credit was given the question of verification did not arise. It is a pity that although the payment of refunds became due to the complainant long ago the task of so-called verification is still going on. Even so out of total refund claim of Rs.24,828 for Assessm ent year 2001-2002 an amount of Rs.21,943 stands verified leaving a small amount of Rs.2885 requiring verification. Similarly, out of total amount of refund claim of Rs.66,896 for Assessm ent year 2000-2001 an amount of Rs.31,443 stands verified leaving an amount of Rs.35,453 requiring verification. In any case, the task of verification should have been completed, during the proceedings. The failure of the department to complete this task has resulted in nonpayment of refund to the complainant,iespecially when there were clear- E cut instructions regarding verification of deductions during the proceedings.
6. It has been observed in a large number of complaints that there is general malpractice of allowing credit of tax, claimed to have been paid, only to the extent of determined tax liability on the assessed income. This is deliberately done despite the fact that the evidence for payment of tax, enclosed with the return, to the extent of determined F liability is identical to the evidence of tax paid in excess of such liability. If any further verification is needed, it is needed for the entire payment of tax claimed in the return.
7. Besides, the established practice and procedure of placing on assessee's assessment record the official copy of challan or certificate of the tax paid by or deducted or collected from the assessee after posting it in the cash book of the Circle has either disappeared or deliberately discontinued.
However, no electronic system of placing evidence of collected amount on official record directly accessable to Assessing Officer has been adopted. In case there exists a system enabling the G Assessing Officer to make the required verification during assessment proceedings (which includes return in respect of which assessment is deemed to have been made, the moment its receipt is acknowledged by the Department) as indicated by instructions issued vide C.B.R.
Circular, dated 10-2-1998 (quoted in para. 5 supra) then non-payment of refund (due on account of excess of payment through various modes over the determined liability on assessed income) soon after such assessm ent and putting such assesses to hassle of producing original evidence of such payment is tantamount to maladministration on the part of Assessing Officers. But if the fault lies in the system/software devised for the purpose or in monitoring of its operation it is a persistent maladministration on the part of C.B.R. It persists despite the approval of the Honourable President of Pakistan to adopt the comprehensive Special Report of Federal Tax Ombudsman on Accounting of Income Tax Collection. Requiring assessee to produce their original copies of challans, electricity and telephone bills and certificates of tax payment, deduction and collection is one single largest irritant to taxpayers because it is not their legal obligation. It is for the C.B.R. To ensure collection of such information/figures from their statutory withholding agents and its posting to individual assessm ent records of the assesses.
8. Maladministration is clearly established inasmuch as the refunds due to the complainant were not settled despite applications made to that effect by the complainant and despite there being clear administrative instructions of the C.B.R. Regarding completion of verification during the proceedings. Respondents' failure to do has resulted in an inordinate I delay in payment of refund of the amount collected from the complainant in excess of his determined liability of tax, which is tantamount to `maladministration' within the meaning of section 2(3)(ii), (iv) and (v) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000. 'Maladministration' is, therefore, clearly established.
9. It is recommended that the Revenue Division direct the concerned authorities and tax employees to:
(i) Address the common malady of the system on priority.
(ii) Issue refund vouchers for the amounts due to the complainant for the subject assessment years without further delay.
(i.e) Pay compensation @ 15% under section 102 of the repealed Ordinance on account of delay in payment of refund to be reckoned from three months after the assessment under section 59(1) for assessm ent year 2000-2001 and from the date the order in appeal was received in the Office of the Commissioner, Gujranwala Zone.
(iv) Compliance of recommendations (ii) and (i.e) supra be reported within 30 days.
(v) Comprehensive plan to address the malady and the time frame of its implementation be reported within 45 days. In case it is expected to take more than a year, reasons must be given for non-implementation of Special. Report of Federal Tax Ombudsman on Accounting of Income Tax Collection ibid.