DECISION /FINDINGS JUSTICE (RETD.) SA LEEM AKHTAR (FEDERAL TAX OMBUDSMAN).---The main points in the complaint are as follows:
(i) The complainant, a registered firm, derived income as octroi Assessment Year Assessed Under sectionDate of Assessment Refund Created 1994-95 62 30-6-1997 83,750 1995-96 59(1) 23-6-1996 143,107 1996-97 59(1) 30-6-1997 216,316 Total: 443,173
(ii) The complainant made several verbal requests for issuance of refund, and filed written requests on 20-3-2000, 12-11-2001 and 14-7-2003 but no refund has so far been issued.
(iii) Instead the Taxation Officer issued notice under section 221 of the Income Tax Ordinance, 2001 for rectification of the assessm ents which notice is illegal and barred by time. The issue raised in this notice has already been settled in the assessment year 1993-94 wherein the proceedings initiated on the basis of notice under section 66A of the repealed Ordinance, 1979 were dropped after the complainant's explanation and the refund due was issued.
(iv) Non-payment of refund and issuance of notice on baseless grounds was illegal, unjust and was misuse of power by the respondent just to harass the complainant and to deprive it of its legal right.
It is prayed that the respondent be ordered to issue refund along with compensation @ 15% for the period of delay and the notice issued under section 221 of the Ordinance 2001 be declared as illegal.
2. In reply the respondent has stated as follows:---
(i) Examination of record of tax payments/proofs thereof revealed that none of the tax payments, has been made on behalf of the firm M/s. Masood & Company, and instead tax had been deposited to the credit of various persons/partners in their own capacity against lease contracts awarded to them, hence the firm does not seem to be entitled to the refund claimed.
(ii) Certain tax payment has been made in the name of one Mr. Abdul Majeed who is not even a partner of the firm. Hence the order resulting in creation of refund also appears to be of no legal effect.
(iii) The Honourable F.T.O. In a similar situation in his findings dated 26-3-2003 in Complaint No, 695 of 2002 decided the matter in favour of the Department with the following observations: ".Unless such a documentary evidence is on record, amounts received from the members of complainant in their individual names or in the name of another smaller A.O.P. Of such individual members and tax withheld thereof cannot be charged and credited respectively in the hands of complainant A .
0. P. "
(iv) As the refund was wrongly created, a show-cause notice under section 221 of the Income Tax Ordinance, 2001 for assessm ent years 1994-95 to 1996-97 was issued to the complainant for rectification of mistake in order to safeguard the interest of revenue.
(v) The contention of the complainant that the show-cause notice was illegal or barred by time, is based on misconception because section 221(1A) empowers the Commissioner to amend any order passed under the repealed Ordinance by the D . C . I. T .
(vi) The tax payments can be claimed for credit by the persons to whom these relate.
(vii) No maladministration is involved in the case.
3. The representatives of both sides attended and reiterated their contentions, which were considered, and relevant record was examined. It is seen that the assessment for the years 1994- 95 and 1995-96 were made under sections 62 and 59(1) on 30-6-1997 and 23-6-1996 respectively.
The intended action under section 221 for rectification of the assessments vide show-cause notice dated 28-5-2003 is thus obviously barred by time because according to subsection (4) of section 221, an order cannot be rectified under that section after five years from the date of the said order.
The assessm ent orders for the years 1994-95 and 1995-96 could, therefore, be rectified by 30-6- 2002 and 23-6-2001 respectively at the latest. The show-cause notice dated 28-5-2003 being time barred is, therefore, of no legal effect.
4. As regards the assessm ent year 1996 97 it is seen from the record that return for this year was filed in time under the Self-Assessm ent Scheme. An order under section 59A of the repealed Ordinance was later passed on 30-6-1999 accepting the declared income but without giving full credit for tax paid/deducted. This assessment was subsequently rectified under section 156 on 14- 6-2002 to give credit of tax payments resulting in a refund of Rs,216;317. The contention of the department was that the intended action for rectification relating to this year was not barred by time in view of the date of the order under section 59A viz 30-6-1999 which was rectified on 14-6- 2002. The argument of the complainant's learned Advocate, however, was that return for the assessm ent year 1996-97 was filed under S.A.S. And E since no assessment order was passed till 304-1997 it was deemed to have been passed on 30-6-1997 by operation of law as laid down in section 59(4) of the repealed Ordinance. It was argued that the order passed under section 59A on 30-6-1999 was, therefore, illegal and rectification of an illegal order would in itself be an illegal action. The contention of the learned Advocate has been found to be quite valid as it is actually the assessm ent deemed to have been made under section 59(4) on 30-6-1997 which holds the field and this assessm ent could be rectified within 5 years i,e, by 30-6-2002. The intended action for rectification in respect of the assessment year 1996-97 has also thus become time barred.
5. In the right of the above, the action of the assessing officer in issuing a time barred notice dated 28-5-2003 under section 221 of the Income Tax Ordinance, 2001 is contrary to law and is perverse, arbitrary and unjust and thus falls within the definition of maladministration as contained in section 2(3)(i)(a) and (b) of the Ordinance No,XXXV of 2000.
6. It is therefore recommended that:---
(i) The show-cause notice under section 221 dated 28-5-2003 for the assessment years 1994-95 to 1996-97 be withdrawn and refunds due to the complainant for the said years be issued along with compensation under the law.
(ii) Compliance be reported within 30 days.