FINDINGS /DECISION ' The complainant Justice Law College Jhangi, Abbottabad is a registered trust under the name and style of Justice Raza Islamic Trust Pakistan, registered with the University of Peshawar on 23-5- 1995. Following submissions were made by the complainant:--
(a) The trust was exempt from the levy of Income Tax for a period of five years. As such the exemption was allowable to the Trust up to assessment year, 2000-2001.
(b) For the assessm ent year, 2001-2002 return of income was filed under Self-Assessment Scheme in view of C.B.R. Circular No,4 of 2001, dated 18-6-2001.
(c) The Return was not selected for total audit. However, the DCIT of Income Tax and Wealth Tax Circle-16, Abbottabad has issued illegal notice under section 61 and 62.
(d) No assessm ent order was issued by the DCIT which is clear violation of the instructions of C 13.R.
Contained in Para. 9(b) of Circular No,4 of 2001.
(e) That instead of issuing assessme nt order for the year 2001-2002 under SAS, the DCIT Circle-16 issued notice under section 122 of the Income Tax Ordinance.
2001. Dated 19-4-2003.
(f) In the return filed for the assessme nt year, 2001-2002 under Self-Assessment Scheme, income of the Justice Raza Islamic Trust Pakistan Abbottabad was declared which included income of Justice Law College and JRK Hazara College of Education Abbottabad. All the relevant details of income and expenditure of the Trust were given.
(g) Lastly the notices issued are illegal and incorrect stating different dates of expid of exemptions in the same notice.
2. It is pleaded that, the, concerned' DCIT may be directed to withdraw the show-cause notice under section 122 referred to above and the return may be accepted under Self-Assessment Scheme.
3. In reply, the respondents submitted that the profits and gains derived by educational institutions set up between 1st day of July, 1991 and 30th June, 1995 were exempted from tax for a period of 5 years beginning from the month in which the institution was set up. The period of exemption, in the instant case expired on 30-5-2000. Again, pleaded that it was a 23-5-2000. Thus the income for the month of June, 2000 became liable to tax. It is submitted that the complainant filed return declaring net income of Rs,170,931 as exempt. No profit and loss account was filed alongwith the return. Notice under section 62 was issued for finalizing the assessment as it was getting time- barred. However, respondents admitted that the notice issued under section 61 for the assessment year 2001-2002 was dropped vide order sheet, dated 26-3-2002 after due consideration. It was pleaded that assessm ent for the year 2001-2002 was 'deemed to have been finalized under section 59(1) of the repealed Income Tax Ordinance, 1979. It is stated , that source of investment of newly started business under the name of justice Raza Khan Hazara College of Education Abbottabad declared in the return for the assessment year, 2001-2002, is to be probed. It has been pleaded that the correct date of exemption is 23-5-2000, therefore, income for the month of June for assessm ent year, 2000-2001 is liable to tax. Further, a show-cause-notice under section 122 of the Income Tax Ordinance, 2001 was issued for assessment year, 2001-2002 on the basis of inspection note.
4. After considering the arguments and facts of the case, it appears from the record that the institution was registered with the University of Peshawar on 23-5-1995 therefore its income and profits were exempt ' from tax as per clause 86-A of the 2nd Schedule of the Income Tax Ordinance, 1979 (repealed) for a period of five years from the date of its registration i,e, 23-5-2000 which was subject-matter of assessm ent year, 2000-2001. The return for the assessment year, 2001-2002 was deemed to have been finalized under section 59(1) of the repealed Income Tax Ordinance, 1979.
The department issued a combined notice under section 61 of the repealed Income Tax Ordinance, 1979 for the assessm ent year, 2000-2001 and for 2001-2002. As proceeding initiated in pursuance of this notice was dropped, after due consideration a fresh show-couse notice was issued under section 122 of the Income Tax Ordinance, 2001 which reads as follows:-- "Your assessm ent for assessm ent year 2001-2002 is deemed to have been assessed under section 59(1) of the Income Tax Ordinance, 1979.
' Perusal of the documents annexed with the return, however, reveals that another institution in the name and style of "JRK Hazara College of Education, Abbottabad" has been set up by you within the year under consideration, for which net income was declared at Rs,58,000. Wealth statement, quantum and sources of the investment, however, have not been produced and explained to the department.
' Your case also does not qualify under SAS in view of the fact that in the preceding year, you had been enjoying exemption under clause 86A to the 2nd Schedule of the Income Tax Ordinance, 1979 and that the proceedings for the immediate preceding year in which the exemption was expired on 23-5-2000 are still in progress.
' The above situation therefore warrants action under section 122 of the Income Tax Ordinance, 2001 in view of the fact that the Repealed Ordinance has been incorrectly applied in making assessment and also that incorrect payment of tax was made with the return of income.
' You are therefore, requested to file your wealth statement and also produce complete books of accounts comprising over case book, general ledger, salad register and proper vouchers of the receipts and expenses declared/claimed in the income and expenditure statement".
5. From the facts stated and arguments addressed it is clear that the notice under section 122 of the Income Tax Ordinance, 2001 was issued in respect of assessments year 2001-2002 mainly on the ground that the case did not qualify under SAS as exemption was claimed in the preceding year and the proceeding for the said year were in p and further that the repealed Ordinance was incorrectly making assessm ent and incorrect payment of tax was made with the return. The eligibility and non-eligibility of return is governed by the SAS being Circular 4 of 2001. From the averments made in notice, B dated 19-4-2003 no case for non-eligibility can be made out because none of the conditions stated in para. 7 of the SAS apply to the case as alleged.
6. The next ground of bringing the case under section 122 of the Income Tax Ordinance, 2001 is also frivolous and contrary to law. Section 122(5) 'of the Ordinance, 2001 before amendment by Finance Act, 2003 does not speak of incorrect application of "repealed is Ordinance" 1979. It states about the incorrect application of "this) Ordinance" i,e, Income Tax Ordinance, 2001 and not the repealed Ordinance. The complainant has stated that the income of the Justice Law College Abbotabad was duly declared supported by necessity details regarding the source of investment which were required under the Self-Assessm ent Scheme. The Department has not pointed out any lacuna, defect or incorrect payment of tax with the return. This is a general statement without giving a basis for it. It clearly shows that the notice issued and action initiated are' not based on any valid or legal ground. It is arbitral and exhibits a predetermined mind to reopen the assessment without any basis or legal ground. Such proceedings establish bias and excessive exercise of power., Any notice issued, or proceeding taken without complying with the precondition& bring it in the realm of mala fide exercise of power. There being no appeal or revision provided by the relevant statute against such action, the Federal Tax Ombudsman has jurisdiction to investigate. Even if it be argued that the action relates to assessment, the fact that no appeal is provided against such action, it falls within the jurisdiction of the Federal Tax Ombudsman. The notice and entire action in pursuance thereof is contrad to law, arbitrad and biased.
7. It is recommended that:
(i) Notices, dated 19-4-2003 and all actions taken in pursuance thereof be withdrawn.
(ii) Compliance is reported within 30 days.