FINDINGS /RECOMENDATIONS DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---These three complaints are against illegal, and arbitrary demand of tax (Rs.21,418,998) ostensibly raised under section 161 of the Income Tax Ordinance, 2001 (the Ordinance), extorsion of Rs.200,000 as bribe and raising a further demand for additional tax of over Rs.3,000,000.
2. The complainants deal in fertilizers for Fuji Fertilizer Co. Ltd. (FFC). According to them, Rana Sajjad Hussain, IRO, Burewala, raised tax demand of Rs.10,372,378 and Rs.11,046,620 against Mr. Sohail Amin, managing partner in Messrs Jeddah Traders and Zamindara Corporation and his were, Javeria Amin, managing partner in Umer Trading Company respectively on account of non deduction of withholding tax on payments made to FFC for purchase of fertilizer in Tax Years 2009 and 2010. The complainants applied for rectification on the ground that FFC had already paid its due tax liability along with the Returns filed for Tax years 2009 and 2010.
3. When confronted, the Deptt. Raised a preliminary objection that the complaints were 'time- barred' in terms of the limitation laid down in section 10(3) of the FTO Ordinance. The Deptt. Further contended that the orders passed being appealable before the Commissioner (Appeals) the complaints did not lie before the Hon'ble FTO because of the bar laid down in section 9(2)(b) of the FTO Ordinance. On merits, the Deptt. Defended the action under section 161 of the Ordinance as justified, denying that the complainants had been discriminated against in any manner.
4. The preliminary departmental objections have been considered and found misconceived/non- maintainable.
5. The complainants filed rectification applications before Rana Sajjad Hussain, IRO, and his successor, Ghulam Nasir, IRO, to apprise them of the fact that there was no default of payment of withholding tax. This contention of the complainants ultimately proved correct, when, during the course of this investigation, the Deptt. Vacated the orders passed by Rana Sajjad Hussain, IRO.
6. Rana Sajjad Hussain, IRO, initially justified the tax demand raised by him, as also his refusal to rectify the tax demand. However, when confronted with the evidence that he himself at one stage had advised the Commissioner Inland Revenue (Mr. Saleem Raza Asif, and his successor, Mr. Basharat Ahmad Qureshi) that the tax demand raised under section 161 of the Ordinance was not tenable in law and needed to be struck down, Rana Sajjad Hussain acknowledged that the tax demand was indeed bereft of any objective basis and needed to be vacated.
7. On transfer, Rana Sajjad Hussain, IRO, was succeeded by Mr. Ghulam Nasir, IRO. Even though the successor officer was aware that Rana Sajjad Hussain had written to Mr. Basharat Ahmad Qureshi, CIR, E&C, RTO, Multan, advising him that the tax demand under section 161 of the Ordinance was not tenable in law, he took no action on the rectification applications filed before him.
8. During the hearing, the AR requested to be allowed to confront Rana Sajjad Hussain, IRO, with evidence in his possession purporting to show that he had demanded and indeed received Rs.200,000 from the complainant by way of illegal gratification. He was permitted to do so. He then played five recordings of mobile phone conversations with Rana Sajjad Hussain, IRO.
9. The first recording done in May, 2011 pertains to modus operandi for avoiding selection of the complainants case for audit. Rana Sajjad Hussain, IRO, makes it clear that audit selection could be avoided by making the desired illegal payment.
10. The second recording was done on 1st January, 2012 when Rana Sajjad Hussain, IRO, was no longer posted in Burewala (he was transferred to Layyah on 23rd July, 2011). In this recording the discussion pertains to the complainant's meeting with Mr. Basharat Qureshi, CIR, in which the complainant asks the CIR to take Rs.500,000 as bribe and delete the entire demand raised against the three AOPs. Rana Sajjad Hussain, IRO, is heard attempting to re-assure the complainant that the additional tax would automatically stand vacated once the principal demand of tax under section 161 was deleted.
11. In the third recording, the complainant complains to Rana Sajjad Hussain, IRO, that his successor, Ghulam Nasir, IRO, had telephoned him and threatened that unless a bribe of Rs.500,000 was paid to CIR, Basharat Qureshi, the bank accounts of the complainant would be frozen. However, Rana Sajjad Hussain, IRO, assures the complainant that he would talk to Ghulam Nasir, IRO, and sort things out.
12. In the fourth recording, the complainant again complains that as against original agreed amount of lump-sum bribe of Rs.500,000, the CIR, Basharat Qureshi, was expecting a further bribe of Rs.500,000. The recording contains a categorical reference about payment of Rs.200,000 to Rana Sajjad Hussain, IRO, by the complainant. Rana Sajjad Hussain, IRO, can be heard repeatedly asking the complainant to get the entire demand deleted against payment of Rs.500,000.
13. In the fifth recording also done on 1-1-2012, Rana Sajjad Hussain,. IRO, exhorts the complainant to get the entire tax demand deleted, as also part of the default surcharge. He is heard saying that the CIR had told him that while the tax demand under section 161 could be deleted in its entirety, it would not be possible for him to do so in the case of default surcharge. He also says that he would make all efforts to get the balance default surcharge deleted in appeal.
14. During the hearing on 16-3-2012, Rana Sajjad Hussain, IRO, acknowledged that the voice in the recordings was his. He, however, denied receiving any bribe from the complainant and said that he was being unduly targeted for levying tax on the complainant. He said that he was posted out of Burewala on 23-7-2011 and was in no position to do anything for the complainant thereafter.
15. Rana Sajjad Hussain, IRO, was given a copy of the recordings along with a translated (urdu) transcript and asked to make a written response on 19-3-2012 but no response was received from him.
16. The complaint was next heard on 19-3-2012. Rana Sajjad Hussain, IRO, appeared on the due date but did not make any written response. He stated verbally that the recordings were tampered with and L important segments of the conversation between him and the complainant had been doctored. He denied receiving any amount by way of bribe from the complainant.
17. Playback of the recordings apparently does not reveal any gap or break in the flow of conversation or any other sudden change in conversation between the two persons (Rana Sajjad Hussain and Mr. Sohail Amin). Prima facie, the recordings appear to be authentic.
18. Rana Sajjad Hussain appears to have created the basis to extort a N bribe by raising heavy tax demand without proper enquiry and without giving sufficient opportunity to the complainant to explain his position with regard to his role as tax withholding agent. When the complainant found out that there was no bona fide reason for raising demand under section 161 as the due tax had already been paid by FFC along with the Return, he filed a rectification application before Rana Sajjad, which was ignored, on two occasions: on 11-5-2011 and 22-6-2011. His successor, Ghulam Nasir, IRO, went a step further. Not only did he ignore three 0 reminders for rectification sent by the complainant on 12-8-2011, 21-11-2011 and 15-12-2011, but issued notice to levy default surcharge under section 205 of the Ordinance. He knew that his predecessor, Rana Sajjad Hussain, had written to the CIR that the demand raised under Section 161 of the Ordinance was not maintainable as there was no withholding tax default by the three AOPs. On 17-1-2012, Ghulam Nasir rejected the pending applications for rectification.
19. The ambient circumstances of this complaint strongly suggest that Ghulam Nasir, IRO, and Rana Sajjad Hussain, IRO, were in contact with each other and were acting in concert in pressurizing the complainant to extort more and more money from him. During the conversations between Rana Sajjad Hussain and Sohail Amin, the former kept on taking names of different tax functionaries in the Deptt., conveying the message that in order for the complainant to get complete relief from the undue tax burden with which he had been saddled and P also to avoid being targeted in audit, he would have to make payments over and above Rs.200,000 that he had already paid. The complaint case proceedings before the Hon'ble Federal Tax Ombudsman however sobering effect on Rana Sajjad Hussain, IRO, Ghulam Nasir In, and the senior officials in the RTO, Multan, with whom they were in league, as, vide order dated 23-2-2012, the entire illegal demand raised under section 161 was recalled by the CIR.
20. The hope was that the complainant would withdraw from the case after the illegal demand had been vacated under section 122A and would not press any further action. Rana Sajjad got extremely worried when he was told on 16-3-2012 that there was recorded evidence Q available with the complainant that pointed to corruption in the Deptt. Part of the recorded evidence was played before Rana Sajjad during the hearing at FTO's Regional Office, Lahore, and transcripts of the recordings also given to him. However, he did not make any written response.
Findings:
21. Although the complainants' grievance to the extent of illegal tax demand has been redressed due to the intervention of the Hon'ble Federal Tax ombudsman, the alleged acts of omission 'and commission committed by officials of RTO Multan are tantamount to maladministration as defined under section 2(3) of FTO Ordinance, 2000. Rana Sajjad Hussain, IRO, passed an illegal order under section 161 of the Ordinance on 25-4-2011 when there was no default by the complainant, or his were, Javeria Sohail. Prima facie, Rana Sajjad Hussain, IRO, deliberately raised heavy demand of tax in order to extort bribe from the complainant for himself and for other officials in RTO, Multan, connected with the case. He received a bribe of Rs.200,000 from the complainant, on 29-4-2011, in his office, as per the affidavit dated 15-3-2012 filed by Sohail Amin. The mobile phone recordings also apparently support this contention.
Recommendations:
22. FBR to -
(i) take necessary corrective/disciplinary action as provided under section 13 of the FTO Ordinance against the relevant officials, to ensure that such schemes to extort bribes are not resorted to in future; and
(ii) report compliance within 30 days.
23. A copy of the above Findings/Recommendations, along with CD of recordings and copy of transcripts, be forwarded to Chairman NAB for initiating criminal investigation into the matter, as per law. .