' DR. MUHAMMAD SHOAIB SUDDLE (FEDERAL TAX OMBUDSMAN).---This complaint is against alleged illegal assessm ent made for Tax year, 2008.
2. The Complainant is an individual taxpayer with NTN 2154562 and a member of AOPs (Messrs Warraich Trading Co., District Gujrat, NTN 16852958 and Messrs Azam Flour Mills, District Gujrat, NTN 33271607). Having 50% share in each AOP, he was assessed to tax for Tax Year 2008 under section 122(1) of the Ordinance vide order dated 29-6-2009, at Total Income of Rs,12,402,589 with a tax liability of Rs,3,100,647. The complainant contested the assessment before the Commissioner (Appeals) who vide Order No,133 dated 26-10-2009 annulled the same. The Deptt. Filed appeal before the Appellate Tribunal Inland Revenue (ATIR), who vide I.T.A. No, 634/IB/2010 dated 26-72010 remanded the assessm ent back to the Assessing Officer with the direction that a speaking order be passed after proper appraisal of the evidence on record, including bank statements.
3. Complying with the ATIR orders, the Assessing Officer started re-assessment proceedings and issued notices to the complainant under sections 176, 111 and 122(9) of Income Tax Ordinance, 2001 (the Ordinance) for the period 6-10-2010 to 30-4-2012. The re-assessment proceedings were underway when the complainant filed a complaint before the Hon'ble Federal Tax Ombudsman on 17-5-2012 (registered on 23-5-2012). The complainant apprehended that the Deptt. Was likely to repeat the treatment accorded in the first assessment that was annulled in appeal by the first appellate authority for the reason that the complainant's explanation regarding his sources of investment in Azam Flour Mills was ignored and an adverse inference was drawn against him without any justification. The complainant had earlier submitted details of loan taken from Habib Bank Ltd. Mangowal, Gujrat (Account Nos. 0823-500003,78403 and 0823-500003027-03) in the name of Warraich Trading Co., Gujrat (AOP) that was operated by the complainant. He had explained that his drawings from the said account over the period 15-9-2006 to 29-6-2007 aggregated to Rs,22,824,830 and his investment in Azam Flour Mills was contrived therefrom.
Furthermore, foreign remittances, aggregating to Rs,2,208,000, available to the complainant were also ignored by the Assessing Officer. The complainant also explained that he had filed a revised Wealth Statement for Tax Year 2007 along with a wealth reconciliation statement and complete details of all transactions were given to justify the investment made by him. However, the reconciliation was arbitrarily ignored by the Assessing Officer. Even the inflow of foreign remittances through banking channels was not taken into account. The complainant contended that he had specifically requested the Assessing Officer not to proceed with the reassessment, pending disposal of his complaint before the Hon'ble FTO. However, his request was ignored and re-assessm ent was made in haste vide order dated 22-5-2012 and demand notice served on 8-6- 2012 repeating exactly the treatment accorded in the first assessment and ignoring the express directions of the ATIR to carefully appraise the evidence on record regarding the complainant's sources of investment, especially the bank statements. The complainant contends that he had reason to believe that the re-assessment w-as actually finalized on 30-5-2012 and backdated to 22-5-2012 to make it appear that the reassessment was finalized before the complaint was filed.
Apparently the Dept. Treated the date of registration of the complaint in the FTO office (23-5-2012) as the date the complaint was actually received in the FTO office. In actual fact the complaint was received in the FTO office on 17-5-2012. The re-assessment shown to have been made on 22-5- 2012 was therefore made after the complaint was filed on 17-5-2012.
4. When confronted, the Dept. Filed a reply in which a preliminary objection was made that as proceedings relating to assessm ent of income were involved these did not fall within the Hon'ble FTO's jurisdiction in view of the bar laid down in section 9(2)(b) of the Ordinance. It was also contended that the first order under section 122(1) of the Ordinance having been passed on 29-6- 2009, the complaint filed on 17-5-2012 and registered on 23-5-2012 was late in terms of the time limitation laid down in section 10(3) of the FTO Ordinance. The Dept. Confirmed that re-assessment had been made by the Dept. On 22-5-2012 under section 122(1) of the Ordinance to implement the' order of the ATIR dated 26-7-2010.
5. Both sides have been heard and record examined.
6. The preliminary objection by the Dept. Has been considered and found to be misconceived.
Assessm ent per se is not the subject matter of the complaint. Rather, multiple acts of maladministration by the Assessing Officer have been agitated in the complaint. The maladministration involves arbitrarily ignoring the evidence on record regarding the drawings made by the complainant from HBL Loan Account Nos. 0823-50000378403 and 0823-500003027- 03 and the foreign remittances received through banking channels to finance his investment in Azam Flour Mills. As for the alleged delay in filing the complaint before the Hon'ble FTO, it is noted that the re-assessm ent finalized on 22-5-2012. In fact there-assessment finalized on 22-5-2012 is nothing but a repeat performance of the first assessment finalized on 29-6-2009. As the two events are interlinked the present complaint covers both. After the first assessment was finalized -the complainant filed an appeal before the first appellate authority who annulled the assessment. The Dept. Then filed appeal before the ATIR that resulted in remand of the case to the Dept. For re- assessm ent. The complaint was not filed earlier before the Hon'ble FTO as the complainant had received relief from the first appellate authority when he annulled the assessment dated 29-6- 2009. However now when the complainant realized that the Deptt. Was likely to repeat the earlier assessm ent he had no option but to file a complaint before the Hon'ble FTO in which a specific request was made that the Dept. Be asked to stay re-assessment till disposal of complaint by the Hon'ble FTO. No sooner was the complaint filed on 17-5-2012 that the Dept. Finalized the re- assessm ent on 22-5-2012, before the complaint was even registered in the ' FTO office on 23-5- 2012. Thus the complaint covers both the first assessment made on 29-6-2009 as well as the second re-assessm ent finalized on 22-5-2012 and 'given the sequence of events detailed above, there is no delay in filing the complaint in terms of the limitation given in section 10(3) of the FTO Ordinance.
7. On merits, it is noted that after the CIR (Appeals) order No,133 dated 26-10-2009 annulling the amended assessm ent for Tax Year 2008 was set aside by the ATIR on 26-7-2010, the complainant filed a Return of Income for Tax Year 2007 for the first time on 5-3-2011 along with a revised wealth statement as on 30-6-2007 and a wealth reconciliation statement. A revised Return of Income was also filed for Tax Year 2008 on 8-4-2011. From the documentation on record it was evident that the complainant did not make the investment in question in the income year relevant to Tax Year 2008.
Rather, it was shown to have been made as under:-- Income Year Tax Year Investment 2004-2005 2005 Rs.2,373,000 2005-2006 2006 Rs.342,560 2006-2007 2007 Rs.9,984,440 TOTAL: Rs.12,700,000 Furthermore, as per record, foreign remittances were received by the complainant in his Bank Account No,1064-00078158, Habib Bank Ltd., Dinga Branch, Gujrat, as under: Date Amount 10-3-2004 Rs.1,000,000 13-11-2004 Rs.1,208,000 Rs.2,208,000
8. In the re-assessm ent made on 22-5-2012 the reconciliation statement accompanying the revised wealth statement as on 30-6-2007 including the indisputable inflow of foreign remittances have not been considered at all. Furthermore, ignoring the specific direction of the ATIR, the Loan Account Nos. 0823-50000378403 and 0823-500003027-03 of Warraich Trading Co, Gujrat, AOP, which is exclusively operated by the complainant, has not been put to scrutiny objectively. .The complainant tabulated total drawings of Rs,22,824,830 over, the period 15-9-2006 to 29-6-2007 from the said accounts whereas his investment in Azam Flour Mills, Gujrat, was only Rs,12,700,000 as on 30-6-2007, as shown in the wealth statement. The Assessing Officer has arbitrarily rejected the funds available therefrom to the complainant as a source of investment and has made no attempt to properly analyze the drawings. This glaring deficiency in the re-assessment order was present in the original assessm ent made on 29-6-2009 and was the reason that the Commissioner (Appeals) annulled the assessm ent. The same deficiency persists in the re-assessment order dated 22-5-2012 even though the ATIR had specifically directed that bank accounts be examined in detail. The Assessing Officer has referred to this account but has failed to correctly quantify the availability of amounts drawn therefrom to the complainant for purposes of investment in Azam Flour Mills. An amount of Rs,2,208,000 received by the complainant by way of foreign remittances was also completely ignored. Needless to say, unless the cited bank drawings and foreign remittances are taken into account and a considered opinion givens by the Assessing Officer the Deptt. Cannot hold that the complainant has no explanation at all for the entire amount of investment of Rs,12.7 million made by him in the flour mill.
9. During complaint proceedings the complainant contended that the re-assessment shown to have been made on 22-5-2012 was actually made on 30-5-2012 and backdated to 22-5-2012. He pointed out that when the Assessing Officer came to know that the taxpayer had filed a complaint before the Hon'ble Federal Tax Ombudsman he hurriedly issued notice antedated to 17-5-2012 for 22-5-2012 that was received by the taxpayer on 17-5-2012. A reply was filed by the complainant and sent to the Assessing Officer by UMS on 17-5-2012 that was received on 22-5-2012. However, the reply was ignored. Findings:
10. The Assessing Officer has failed to objectively appraise the complainant's sources of investment contrived against bank drawings and foreign remittances although the complainant ; had made specific submissions in this regard. This deficiency was present at the time that the original assessm ent was made on 29-6-2009 and is again in evidence on 22-5-2012 when the re- assessm ent was shown to have been finalized. It is tantamount to inefficiency and arbitrariness and falls well within the definition of maladministration as given in section 2(3) of the FTO Ordinance.
Recommendations:--
11. F.B.R. To direct the Commissioner to--
(i) enquire into and submit a report on the Assessing Officer's failure to implement the ATIR directions in I.T.A. No,634/IB of 2010 dated 26-7-2010;
(ii) exercise revisionary jurisdiction under section 122A of the Ordinance and finalize assessment for Tax Year 2008, de novo, in accordance with the directions of the ATIR; and
(iii) report compliance within 30 days.