FINDINGS/RECOMMENDA TIONS MUSHT AQ AHMAD SUKHERA, FEDERA L TAX OMBUDSMAN .----The complaint was filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) against the alleged maladministration of the Deptt: while making amendment in assessment, for tax year 2013 under Section 122(1) of the Income Tax Ordinance, 2001 (the Ordinance).
2. Precisely , the Complainant a member of AOP, filed return of total income declar ing income @ Rs. 0.928 million.
Statedly , bank account of the Complainan t in the Allied Bank Ltd. (ABL), was concealed and Deptt: by taking action under Section 122(1) of the Ordinance, completed amendment of assessment proceedings on account of unexplained/concealed credit entries in bank account No'.001001 113850049, Allied Bank Ltd. Nasir Road, Sialkot.
Total unexplained credit entries amounted to Rs.685.279 million for which the Com plainant was issued show-cause notice. The complainant stated that he had availed tax amnesty scheme for an amount of Rs. 42.834 million. After allowing the said amount, claimed in amnesty , amendment in assessment was made as under:- Description Tax YearTotal Amount Credited ABL, Nasir Road, Sialkot (Total Credit entries).2013 685,279,406/- Less declared under amnesty scheme2013 42,833,970/- Balance 642,445,436/- Add: income declared as per return 928.382/- Net income amended under section 122(1) 643,373,818/- Tax 35% 225,180,836/- Already paid 61,757/- Balance payable 225,119,079/- A show-cause notice under section 182(2) of the Ordinance, for imposition of penalty on account of concealment of income/furnishing of inaccurate particular s of income was also issued. Total liability in this case worked out was as under:- Tax levied = Rs. 225,180,836/- Penalty (to be imposed) = Rs. 225,180,836/- Total liability = Rs. 450,361,672/-
4. The Complainant alleged that amendment in assessment, could not have been made because of availing tax amnesty scheme and it was prayed that impugned order of amended assessment may be declared contrary to law .
In response to notice under Section 10(4) of the Federal Tax Ombudsman Ordinance, read with section 9(1) of Federal Ombudsman Institutional Reforms Act, 2013, the depth submitted reply dated 04.12.2018, wherein preliminary objection regarding jurisdiction of this forum was raised, contendin g that the matter pertained to determination of tax liability and was appealable, hence under the provisions of Section 9(2)(b) of the FTO Ordinance, jurisdiction of this forum is barred.
6. On facts, it was stated that the Complainant availed Tax Amnesty Scheme (TAS) by declaring peak balance amounting to Rs. 34.216 million, whereas the amount of undisclosed deposits in the bank was confronted at Rs.685.279 million. Total amount on which amnesty was claimed (including other assets) amounts to Rs.42.834 million and whole of the amount was allowed and balance unexplained credit entries (Rs.685.279 million -- Rs.42.834 million) = Rs.642.445 million was taxed. Since the addition was made after giving the credit of income shown by the Complainant through TAS, hence no maladministration was involved . Action of the Assessing Officer 'was justified as unexplained credit entrie s had been taxed after allowing the mount claimed in the TAS. It was, however , reported by the CIR that order passed by the DCIR had been set-aside by invoking provisions of Section 122A of the Ordinance and at present no adverse order is in the field, so' it was prayed that proceedings of complaint may be dropped.
7. While attending the question-of jurisdic tion, it has been found that contradictory comments had been submitted by the Deptt: i.e on one hand order passed by the Deptt: under Section 122(1) of the Ordinance, was quite in accordance with law and simultaneously it was stated that the same had been set-aside by the CIR, Sialkot Zone, Sialkot by invoking provisions of Section 122A of the Ordinance. Question arises that when order passed by the DCIR under Section 122(1) of the Ordinance was strictly in accordance with law then why the same was set-aside by the Zonal CIR by invoking provisions of Section 122A of the Ordinance. Moreover , order under Section 122(1) of the Ordinance passed by the DCIR was appealable under Section 127 of the Ordinance, so Zonal CIR was not competent to invoke provisions of Section 122A of the Ordinance. As the Zonal CIR had gone beyond his jurisdiction while invoking the provisions of Section 122A of the Ordinance, in an appealable case, so his action is cognizable under Section 2(3)(i)(a)(b)(d) of the FTO Ordinance. The objection of the Deptt: regarding bar of jurisdiction under Section 9(2)(b) of the FT O Ordinance, stands overruled on all counts.
8. In order to ascertain the true position, record was perused which revealed certain illegal acts/glaring discrepancies. The chronology of events is as under:- S.No. Description Date
1. Order passed under section 122(1) amending the Assessment and raising demand of Rs .225.
180. 836 million and along with proposed penalty of Rs.225.180.836 million.29-9-2018
2. Demand notice served on the Complainant on:-2-10-2018
3. Time for filing of appeal (30 days) 1-11-2018
4. Application for revision of order under section 122A received in CIR Office.18-10-2018
5. Appeal,filed before CIR (Appeals) 29-10-2018
6. Application for withdrawal of appeal from CIR (Appeal)31-10-2018
7. Complaint filed before this forum on:- 30-10-2018
8. Application for withdrawal of complaint before this forum on:-31-10-2018
9. Submission of DFA of Order under section 122A by the SA to CIR.31-10-2018
10. Order passed under section 122A by the CIR1-11-2018
11. Receipt . Of Order By The AR From CIR (Appeals) Of fice.1-11-2018
12. Despatch of Order to Zonal CIR7-11-2018
9. The file of CIR of fice was consulted which shows following order sheet entries.
"18.10.2018 : Application received from the taxpayer regarding revision application under Section 122A and POF.
Letters received from taxpayer regarding withdrawal of appeal and complaint befor e Federal Tax 'Ombudsman and POF. Submitted please.
SO/- Az/IIR "31.10.2018 : DFA of order under Section 122A of the Income tax Tax Ordinance, 2001 is submitted for perusal and signature please.
Sd/- (Special Assistant)(S/A)
CIR Issue order under Section 122A".
Sd/- 02.1 1.2018
10. The above entries reveal that an application for revision was filed on 18.10.2018 and on the same date an appeal too was filed before the CIR (Appe als). Whereas actually on 18.10.2018, no appeal was pending before the CIR (Appeals) which was filed on 29.10.2018 and the complaint before this office was filed on 30.10.2018. The only inference which can be drawn is that some collusive arrangement was arrived at, amongst the Complainant and the Zonal CIR on 18.10.2018, about filing of the appeal and complaint and then withdrawal of both:
11. The CIR, Sialkot Zone, Sialkot has not only gone beyond his jurisdiction while invoking the provisions of Section 122A of the Ordinance, in an appealable case, but the mechanism given under Section 122A of the Ordinance, had also been ignored. Under the provisions of Section 122A of the Ordinance, no revision could be made unless time for filing of appeal had been expired. In this case, demand notice was served on the Complainant on 02.10.2018 and thirty days were expiring on 01.11.2018 and an application for revision under Section 122A of the Ordinance, was received on 18.10.2018 (before expiry of appeal period). Further draft order was prepared by SA to CIR on 31.10.2018 (as per order sheet entry dated 31.10.2018) and was put up on the same day, which was signed by CIR on 01.11.2018 and released on 02.11.2018. The SA to CIR submitted his response to the notice of this office addressed to Zonal CIR, stating as under:- "Regarding observation of the Honourable FTO that why I put up draft under Section 122A of the Ordinance on 31.10.2018 when time for filing of appeal was available. Sir, in this regard it is respectfully submitted that your honour handed over me file of Sh. Qaiser Mehmood on 31.10.2018 and I prepared draft under your honour's instructions. Furthermore, Sir I, have to obey your honour's order and as directed by your honour , I prepared the draft under Section 122A of the Ordinance on 31.10.2018 and order under Section 122A was passed by your honour on 02.1 1.2018"
12. When confronted the CIR, stated that appeal was filed before CIR (Appeals) on 29.10.2018 which was withdrawn on 31.10.2018, hence order passed is in accordance with law. CIR (Appeals) was asked to apprise the actual position. He vide letter No.265 dated 01.01.2019 stated as under:- "On 31.10.2018 Authorized Representativ e filed application for withdrawal of appeal and my predecessor allowed the same and passed order vide No.CIR(A)/SKT -I.Tax/225 dated 31.10.2018 which was served upon the Authorized Representative on 01.11.2018 and also dispatched the batch containing the said order to the Commissioner Inland Revenue, Sialkot Zone, Regional Tax Office, Sialkot vide this office letter No.216 dated 07.11.2018".
13. From the above, it is evident that appeal was filed on 29.10.2018 and application for its withdrawal on 31.10.2018. Order .of the CIR (Appeals) (accepting withdrawal) was received by the AR on 01.11.2018. The said order was formal:y sent to Zonal CIR by the CIR (Appeals) vide letter No.216 dated 07.11.2018. Draft order under Section 122A of the Ordinance, was prepared on 31.10.2018 when even the Complainant had not received the order of CIR (Appeals). This indicates some collusive arrangement amongst the Complainant and the Zonal CIR.
14. While passing order under Section 122A of the Ordinance, following footnote is given by the CIR:- "Foot Note (Not for the taxpayer) :- The order of revision U/S-122A of the Income Tax Ordinance, 2001 has been passed under the directions and guidance of the W orthy Chief Commissioner , Inland Revenue, R TO, Sialkot".
15. The Chief Commissioner was confronted who denied of having issued any directions regarding initiation of action under Section 122A of the Ordinance, and explained that only academic discussion regarding TAS was made. His reply is reproduced as under:- "As regards the foot note inserted in office copy of the order under Section 122A, it is stated that academic discussion was held in the subject case with the concerned Commissioner-IR with reference to various provisions of Voluntary Declaration of Domestic Asse ts Ordinance, 2018. However , no written directions were issued since the Commissioner-IR is competent to proceed as per law by application of his independent judicious mind".
16. Case was fixed for hearing for 10.01.2 019. The Complainant did not appear but filed application for withdrawal of his complaint. The CIR, however , appeared and submitted his written reply vide his letter No.3319 dated 10.02.2018. It was stated that it is option of the taxpayer whether he avails revisional 'jurisdiction under Section 122A of the Ordinance, or the appellate jurisdiction as per Section 127 of the Ordinance. It was admitted that in appealable cases, provisions of Section 122A of the Ordinance, cannot be invoked by the Zonal CIR, if appeal is pending before the CIR (Appeals) or period of limitation for filing of appeal has not yet expired. In this case, revision application was filed under Section 122A of the Ordinance, on 18.10.2018 whereas time for filing of appeal was available till 01.11.2018. The CIR's stance is that order under section 122A of the Ordinance, was issued on 02.11.2018, after withdrawal of appeal by the Complainant. The fact remains that proceedings under Section 122A of the 'Ordinance, were initiated on 18.10.2018 when time for filing of appeal had not expired. Moreover , order under section 122A of the Ordinance was passed, when appellate order had formally not been received in the office of CIR. It is also pertinent that while submitting para-wise comments, it was stated by the CIR that the DCIR had framed assessment strictly in accordance with law whereas same was set-aside by the CIR himself by invoking provisions of section 122A of the Ordinance.
17. As per Dept'l practice, action under Section 122A of the Ordinance, is to be taken only in hardship cases like where no appeal lies against the order or order is patently illegal etc. Whereas the order under reference was regular order and normal appellate forum was available, which had also been availed by filing of appeal on 29.10.2018 and its withdrawal or otherwise is immaterial.
18. Order passed by the DCIR under Section 122(1) is appealable under Section 127 of the Ordinance and provisions of Section 122A of the Ordinance, are not attracted. Action of CIR, Sialkot Zone Sialkot seta siding the assessment by taking action under Section 122A of the Ordinance, is contrary to law. Amendment in assessment was made by DCIR on 29.09.2018 and demand notice was served on the Complainant on 02.10.2018 when the Complainant had sufficient time of filing of appeal before CIR (Appeals) till 01.11.2018 and during this period, no activity under Section 122A of the Ordinance, could be made. Application for revision under Section 122A of the Ordinance, was received on 18.10.2018. Draft order under Section 122A of the Ordinance, was prepared by the SA on the direction of CIR on 31.10.2018. Similarly , on 18.10.2018. an entry was made on the order sheet that appeal filed before CIR (Appeals) and complaint filed before this forum, had been withdrawn, whereas on 18.10.2018 neither any appeal nor any complaint was filed.
19. It is evident that the CIR, Sialkot Zone, Sialkot had gone beyond his jurisdiction, in setting-aside the assessment framed by DCIR under Section 122(1) by invoking provisions of Section 122A of the Ordinance. The CIR has also misstated in the footnote of the order that he had framed assessm ent, under Section 122A of the Ordinance, under the directions and guidance of the CCIR, Sialkot. This all leads to an irresistible conclusion that the order under section 122A of the Ordin ance is not only contrary to law but also involves the exercise of powers for corrupt motives.
Findings :
20. The complaint has become infructuous. However , action of the CIR setting-aside the order passed by the DCIR under Section 122(1) by invoking provisions of section 122A of the Ordinance being contrary to law, procedure, established Dept'l: practice and involving exercise of powers for corrupt motiv es is established, which does tantamount to maladministration as defined in Section (2)(3)(i)(a)&(d) of the FT O Ordinance.
Recommendations:
21. FBR to:-
(i) direct the Zonal CIR concerned to rectify the order passed under section 122A of the Ordinance, while exercising powers conferred under section 221 of the Ordinance, as per law ,
(ii) initiate disciplinary proceedings in terms of Section 14(6) of the FTO Ordinance, against the Zonal CIR for passing order under Section 122A of the Ordinance, which was contrary to law, procedure, established Deptt'I practices and exercise of powers for corrupt motives to extend huge illegal benefit to the Complainant and causing substantial loss of revenue to the state; and
(iii) report compliance within 45 days.