FINDINGS/RECOMMENDA TIONS DR. ASIF MAHMOOD JAH, FEDERAL TAX OMBUDSMAN .----The above referred complaint was filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000, highlighting various acts of taxpayer's harassment, blatant violation of protocols/SOPs/Fiscal laws and misuse of powers by Income Tax Authorities, LTO Islamabad . The complaint was referred to the respondents for comments, in terms of Section 10(4) of the FT O Ordinance, read with Section 9(1) of the Federal Ombudsmen Institutional Reforms Act, 2013.
2. The Complainant Company alleges that though Income Tax Return for TY 2014 was filed in time yet the department with mala fide intent has issued Notice under section 120(3) on 11th February , 2021 so as to invalidate the said return. Taxpayer also alleged that all this is being done with design to block company's legal/admissible refunds. Following specific areas were communicated for comments/reply from the concerned tax authorities. i. When was the return for TY, 2014 filed by the Taxpayer Company? Exact date may be confirmed after verification from the system.
Does the Notice under section 120(3) of Income Tax Ordinance, 2001 issued on 11th February , 2021 for TY, 2014 in the case of Messrs Sprint Oil and Gas Services FZC fully comply with the overriding provisions of section 120(6) or not. iii. Does the earlier Notice under section 120(3) of Income Tax Ordinance, 2001 issued on 18th January , 2017 for TY, 2014 in the case of Messrs Sprint Oil and Gas Services FZC adhere to the timelines provided under section 120(6) or not. iv. Notwithstanding the legality of Notice under section 120(3), case record reveals that in the instant case of an LTO company admittedly first Notice under section 120(3) was issued on 18-1-2 017 and then after the lapse of over 4 years second and final Notice under section 120(3) is issued on 11th February, 2021. LTO's comments on this extraordinary gap are required.
3. In response to the aforesaid the Chief Commissioner-IR, LTO Islamabad furnished Para wise comments vide letter No. F . Nos. 1485 to 1489/FT O/FTQ/L TO/2021/287, dated 27th August, 2021.
Hearings and Findings
4. The case was fixed for hearing vide Notice dated 30th August, 2021. The depart ment requested for adjournment of proceedings and finally the case was fixed for hearing on 13th September , 2021. Later on it was adjourned till 14th September , 2021. Mr. Kamran Ullah Khan, ADCIR (Legal), Mrs. Quratul Ain, DCIR (Enforcement) and Mr. Hassan Bin lzhar , DCIR (Enforcement) LTO, Islamabad attended on behalf of department whereas Mr. Waheed Shahzad Butt. Advocate High Court, appeared as AR of the complainant company . Detailed hearing has been conducted and the case has been discussed at length. All the core issues have been thoroughly examined, analyzed, entailing the following findings.
CORE ISSUE FINDINGS Filing of Complete/incomplete Tax ReturnsIt has been observed from record and correspondence that from TY 2014 onwards almost all Tax Returns have been filed without Notes, an integral part of mandatory Audited Accounts. Timelines under section 120(6) apart, issuance of Notices on 1 1th February , 2021 and all earlier Notices under section 120(3) of Income Tax Ordinance, 2001 witness this trend indicating perpetual filing of incomplete tax returns.
Legality of Notice under section 120(3) dated 1 1th February , 2021 for TY 2014.Examination of record, discussions during the hearing confirm the following facts: i. For TY 2014 return was admittedly filed on 5th December , 2014, within due date. ii. Mandatory Audit Notes were not submitted electronically , as required under relevant Rules. iii. Due to incomplete nature of return Notice under section 120(3) (calling for Notes) was issued on 21st January , 2015, within legal timelines. iv. No compliance was made and second Notice was issued on 8th March. 2017. v. From March, 2017 to 1 1th February , 2021 department never took up the issue of non-filing of Notes, electronically . vi. AR argues that Notes had been filed manually and departmental order under section 122 5A for TY 2014 dated 25th June, 2020 duly incorporates the alleged Notes. Thus the order itself validates the return for TY 2014 and filing of Notes.
In view of above facts, especially in the face of Assessment Order under section 122 5A, issuance of notice under section 120(3) on 1 1th February , 2021, is totally uncalled far . How a return already , assessed can be termed as incomplete and that too after the lapse of 4 years.
Departmental mechanism to check the authenticity of returned version. Though L TO Islamabad claimed in written comments that all returns filed are examined, scrutinized through desk audit, incomplete returns are segregated, Notices in Short Documents cases are issued. V et on ground position is dif ferent. TY, 2014 is the classical example wherein non-compliance of stereo type Notices issued on 21st January , 2015 and 8 March, 2017 were not monitored till 1 1 February , 2021.
Efficiency and efficacy of Functional System at L TOsFBR has organized L TOs/CT Os on functional lines, whereby dif ferent functions are performed By dif ferent dedicated Zones i.e. Audit, Enforcement, Legal etc. This scheme is the cornerstone of latest Tax Reforms implemented by FBR. The instant case however indicates following glaring pitfalls in implementation of this functional scheme: i. In the absence of electronic filing of Notes, the Notices under section 120(3) though remains non-complied with, yet the incomplete return for TY 2014 was treated as valid by Audit Zone while passing order under section I225A, whereas Enforcement Zone still counts the return as invalid. Treatment of one return by two Zones of L TO Islamabad is diametrically opposite. ii. While passing order under section 1225A Audit Zone L TO Islamabad had not taken into account the non-compliance of Notices dated 21st January , 2015 and 8th March, 2017, issued by Enforcement Zone. Likewise while issuing Notice dated 1 1 February , 2021 the Enforcement Zone altogether ignored the validation of return accorded by Audit Zoneth th th through order under section 1225 dated 25th June, 2020. Thus Audit and Enforcement Zones are working in silos without talking to each other , despite the fact that under Iris both have complete access to the taxpayer's record.
FINDINGS:
5. In view of above Maladministration embedded in routine neglect, inattention, delay and incompetence of FBR's functionaries, in the administration or discharge of duties and responsibilities is visible even at LTOs, the flagships of revenue collection.
RECOMMENDA TIONS:
6. FBR to:- (1), withdraw Notice under section 120(3) dated 11th February , 2021 for TY 2014, issued by Enforcement Zone LTO Islamabad, being illegal; as Order under section 1225A dated 25th June. 2020 for TY 2014 had already validated the return,
(ii) FBR's IT wing to review Iris application so as to ensure that;
(a) system must not allow completion of Audit/Assessment in cases where returns are incomplete .
(b) indiscreet Notices under section 120(3) are not issued by Enforcem ent officers for TYs wherein audit/assessment proceedings are completed.
(iii) immediate implementation of system based scrutiny of returns, (at least at LTOs and CTOs), identifying short documents cases, generating necessary notices, maintaining updated profile for all concerned officers and invalidating incomplete returns; and
(iv) report compliance within 45 days.