FINDINGS/RECOMMENDATIONS: The above-mentioned complaint has been filed in terms of Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) against issuance of alleged illegal assessment order dated 30.06.2022 for tax year 2016 and consequent recovery notice dated 05.09.2022 issued under Section 138(1) of Income Tax Ordinance (the Ordinance)
2. Briefly the Complainant, an individual filed income tax return for Tax year 2016. The DCIR observed discrepancy in closing balance of net assets for Tax year 2015 declared at Rs. 10.458,100 in comparison with opening balance of net assets of Tax year 2016 declared at Rs. 13,458,100. The DCIR considered this discrepancy as 'definite information' and issued a show cause notice under section 122(9) read with section 122(5) & 111(1)(b) of the Ordinance on 30.03.2021 for compliance on 13.04.2021. Thereafter, after more than one year when the case was going to be time barred, an assessm ent order was passed on 30.06.2022 without giving any opportunity of being heard and creating tax liability of Rs. 469,500. The complainant came to know about this assessment when notice for recovery under section 138 of the Ordinance for Tax year 2016 was issued on 05.09.2022; hence this complaint.
3. The complaints were sent to the Secretary, Revenue Division for comments, in terms of Section 10(4) of the FTO Ordinance read with Section 9(1) of the Federal Ombudsmen Institutional Reforms Act, 2013. In response, the Commissioner IR Zone-II, RTO-I Karachi submitted reply vide letter dated 19.12.2022. At the outset, preliminary objection regarding bar of jurisdiction, was raised under Section 9(2)(b) of the FTO Ordinance on the ground that the matter was related to assessment of income, determination of tax liability and interpretation of law against which legal remedy is available under the Ordinance.
4. On merit, it was contended that the taxpayer was issued notice to amend assessment under Section 122(9) of the Income Tax Ordinance, 2001 on 30.03.2021. Hearing was duly fixed on 13.4.2021.
The taxpayer failed to furnish explanation to the issues confronted. The assessing officer was in possession of definite information which was duly confronted to the taxpayer vide notice No. 100000095260838 on 30.3.2021. The notice under Section 138 was issued after the lapse of stipulated time of the 137 notice already issued. The taxpayer failed to make compliance to the said notice therefore, to recover the demanded tax liability; notice under Section 138 was issued on 05.9.2022.
5. Arguments of parties heard and record perused.
6. The preliminary objection regarding bar of jurisdiction, raised under Section 9(2)(b) of the FTO Ordinance, is misconceived as the Complainant is not aggrieved against the assessment as such but against failure of the Deptt to allow adequate opportunity of hearing and conducting illegal proceedings in brazen violation of FBR's instructions vide letter no. 2(22)Rev.Bud./2020 dated 25.05.2021. The preliminary objection regarding bar of jurisdiction being misconceived, is hereby overruled.
7. It is a matter of fact that the DOR raised an issue of discrepancy in closing balance of net assets for Tax year 2015 declared at Rs. 10,458,100 in comparison with opening balance of net assets of Tax year 2016 declared at Rs. 13,458,100. This issue was based on audit suspicion picked from within the declarations lodged by the Complainant. Therefore, this was not definite information in terms of Section 122(8) of the Ordinance which says that:-- "For the purposes of this section, "definite information includes information on sales or purchases of any goods made by the taxpayer, receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer "
Further, FBR issued instructions vide letter no. 2(22)Rev.Bud./ 2020 dated 25.05.2021 which stipulates: Subject: Amendment proceedings u/s 122(5) of Income Tax Ordinance, 2001 - Instructions Regarding I am directed to refer to the subject and to say that representations have been received in the Board suggesting that field officers are recklessly issuing notices u/s 122(5) read with 122(9) of Income Tax Ordinance (thereafter the Ordinance') where purportedly the threshold of "definite information" as defined u/s 122(5) is not met. It goes without saying that amendment proceedings u/s 122(5) of the Ordinance, merely on the basis of audit suspicion picked from within the declarations lodged by the taxpayers themselves, is an enforcement travesty and need to abate.
The scheme of law warrants that a taxpayer must be dealt with precisely as per principles of justice and fair play"
Thus, violating the above instructions of FBR, the DCIR invoked section 122(5) of the Ordinance and framed assessm ent order on 30.06.2022 by picking an issue from within the declarations lodged by the Complainant and creating tax liability of Rs. 469,500. At best it was an issue to be confronted under Section 122(5A) being erroneous & prejudicial to the interest of revenue or through detailed audit under Section 177 and not under Section 122(5) of the Ordinance. Hence, if an action is deemed illegal, the whole superstructure built upon it is also illegal.
8. It is further observed that the DCIR issued a show cause notice under section 122(9) read with section 122(5) & 111 (1)(b) of the Ordinance on 30.03.2021 for compliance on 13.04.2021. Thereafter, DCIR slept over the issue and woke up after more than one year when the case was going to be time barred. Finally, an assessm ent order was passed on 30.06.2022 without giving any opportunity of being heard creating tax liability of Rs. 469,500.
9. In addition, service of notice under section 122(9) read with section 122(5) & 111(1)(b) of the Ordinance dated 30.03.2021 was not ensured & it is assumed that uploading on IRIS was valid service. Complainant's duly updated profile is available on record with mobile number and email address. Complainant denied receipt of any SMS or email through which he can be alerted about the placement of any notice or order. Neither has the department placed anything on record in this respect. Service under Section 218(d) on the basis of mere placement of notice or order on IRIS profile is not a valid service as per Section 218(1)(d) which is reproduced for reference; "218. Service of notices and other documents.--
(1) Subject to this Ordinance, any notice, order or requisition required to be served on a resident individual (other than in a representative capacity) for the purposes of this ordinance shall be treated as properly served on the individual if
(d) Served on the individual electronically in the prescribed manner."
The prescribed manner as per Rule 74 is also reproduced for reference; "74. Service of documents electronically--
(1) This rule applies for the purposes of the service of documents under the Ordinance or these rules.
(2) Where a person has notified the Commissioner in writing of an electronic address for service of documents under the Ordinance or Rules, a document required to be served on the person by the Commissioner or Chief Commissioner shall be considered sufficiently served if sent to that address.
(3) For the purposes of sub-rule (2), a document is considered sent to an electronic address if the sender receives.--
(a) in the case of a message sent to a facsimile number, confirmation from the sending facsimile machine that the transmission is sent;
(b) in the case of a message sent to an electronic mail address, confirmation from the server of the recipient that the message has been received".
10. It is thus clear that mere placement of notice on the IRIS does not constitute valid service within the meaning of Section 218(1)(d) read with Rule 74 of the Income Tax Rules, 2002. Even otherwise the department IT system is expected to ensure that the taxpayers are informed about any event through an SMS or email rather than expecting every taxpayer to keep checking his IRIS profile on daily basis, which is against the principles of natural justice & fair play.
11. From the foregoing discussed facts, it is established that while passing the impugned order dated 30.06.2022, the Deptt not only failed to allow adequate opportunity of hearing but also passed an order brazenly violating the instruction of FBR vide letter no. 2(22)Rev.Bud./2020 dated 25.05.2021 read with Section 122(5) & 122(8) of the Ordinance. Thus, the impugned order for Tax year 2016 passed on 30.06.2022 is contrary to law & procedure, principle of natural justice and the trite maxim of audialtermpartem, hence, unlawful per se.
FINDINGS:
12. Passing of adverse order dated 30.06.2022 for Tax year 2016 without providing fair opportunity for compliance and proper service of notice for hearing, brazenly violating the instruction of FBR vide letter no. 2(22) Rev. Bud./2020 dated 25.05.2021 read with Section 122(5) & 122(8) of the Ordinance; causing administrative excesses is tantamount to maladministration, in terms of Section 2(3)(i)(a), (b) & (d) of the FTO Ordinance.
RECOMMENDATIONS:
13. FBR to--
(i) direct the Commissioner-IR, Zone-II, RTO-I Karachi to revisit the impugned order dated 30.06.2022 for Tax Year 2016 in terms of Section 122A of the Ordinance, after affording proper opportunity of hearing to the Complainant as per discussions in para 7 on its merit in accordance with law; and
(ii) report compliance within 45 days.