FINDINGS/DECISION Maladministration is alleged in the instant complaint on the part of the RCIT, Eastern Region, Lahore for arbitrarily setting apart the return filed by the complainant under Self-Assessment Scheme, for total audit by invoking Para. 9(a)(ii) of C.B.R. No,4 of 2001, dated 18-6-2001. The complainant, an old assessee with the status of individual, engaged in selling bakery products, declared total income at Rs,325,514 for assessm ent year, 2001-2002.
2. The RCIT confronted the complainant, through a notice envisaged under para. 9(a)(ii) of C.B.R.
Circular No,4 of 2001, dated 18-6-2001, that return of income filed by the complainant, warranted audit for following reasons:--
(i) Aggregate claim of wages and gas bills amounting to Rs,250,000 against purchases of Rs,6,753,103 indicates that assessee is a baker selling self-produced stuff. As such the declared G.P.
Amounting to Rs,1,303,329 @ 15.23% of declared sales of Rs,8,552, 30 is too low because G.P. Is being declared @ 25% by others selling self-baked products.
(ii) Salaries claimed at Rs, 360,000 in P&L A/c are less than salaries shown in survey form at Rs, 470,000 indicating that inaccurate particulars of income are declared in the return.
3. It has been submitted before the RCIT on behalf of the complainant;--
(a) G.P. Rate accepted by the Department varies in the case of different assessee having same line of business.
(b) In the Self-Assessm ent Scheme announced, income declared and tax payable was to be compared with the previous year without considering the G.P. Declared.
(c) G.P. Has been declared @ 15% of sales because most of the bakery products sold are not self- manufactured; only a few are self-produced.
(d) Salaries paid to staff/workers as shown in the Survey Form differ from those declared in the Profit and Loss Account because survey form was filed on 5-9-2000 showing the figure of Rs,470,000 relating to the assessm ent year, 2000-2001. It comprised of wages paid to workers: Rs, 230,000 and salaries paid to staff: Rs, 240,000. In assessment year, 2001-2002 wages paid to workers are Rs,250,000 and salary paid to staff are Rs,360,000 aggregating Rs,610,000. No inaccurate particulars of income are declared in the return.
4. However, the RCIT, found the foregoing explanation unsatisfactory and conveyed his decision through letter, dated 17-6-2002 in following terms:-- "Contention of the taxpayer regarding variation in G.P. Rate can only be verified at the stage of assessm ent. The contention regarding sale of bakery products manufactured by others has to be examined in view of the consumption of gas which is a relevant measure to gauge production of bakery products. Inquiries have also revealed that business is being conducted on an extensive scale. CIT Zone-C has adduced good reason for setting apart the return for 2001-2002 for audit."
5. Hence the instant complaint alleging maladministration on the ground that decision of the RCIT is arbitrary, unreasonable, unjust, biased, contrary to law, rules and regulations because no reasons are recorded at all for being dissatisfied with the explanation offered by the complainant in response to the show-cause notice issued by him.
6. The RCIT, responding to the notice under section 10(4) of the Ordinance XXXV of 2000 raised following preliminary objections to the jurisdiction of this Office over the complaint:--
(i) "Matter relates to assessm ent; hence falls outside jurisdiction of Federal Tax Ombudsman in light of provisions of section 9(2)(b) of Establishment of Office of Federal Tax Ombudsman.
(ii) No prejudice has so far been caused to assessee.
(iii) Remedy in shape of appeal/revision against assessment is available to complaint.
(iv) No maladministration has been caused in this case".
7. Representatives of the parties have been heard on the preliminary objections raised by the RCIT and after due consideration it is found that neither the process employed by the RCIT under para. 9 (a)(ii) of C.B.R. Circular No,4 of 2001 nor his decision to select the case for audit is a matter relating to assessm ent of income nor any remedy in the shape of appeal/revision against his decision to select the case is available to the complainant. Without prejudice to the above, the guidelines issued by the C.B.R., dated 26-3-2002 do not provide G.P. As a basis for selection of case for total audit.
8. Further, the view canvassed by the RCIT that no prejudice has so far been caused to the complainant is also misconvened. It is a privilege already earned by the complainant where his return of income qualifies for acceptance under Self-Assessment Scheme. Denial of such privilege without valid reason would be a prejudice caused to the complainant.
9. The contention of the RCIT that no maladministration is committed arriving at the decision to select the case for audit is subject matter of investigation that will be dealt with hereinafter. Three of the four preliminary objections supra raised by the RCIT are, therefore, over ruled and the fourth objection would be considered at the appropriate stage.
10. It has been further submitted that the case of the assessee is selected for total Audit on genuine grounds. Procedure prescribed in this behalf has been duly followed. The matter has been thoroughly discussed with the tax advisor of assessee and his viewpoint has been judiciously considered; hence case has been selected for total audit for valid reasons.
11. The authorized representative of complainant, beside reiterating the submissions already made before the RCIT has further submitted that returns had been filed (under protest) from the assessm ent year, 1994-95 to 1997-98. Normally gross profit @ 15% is applied in this line of business.
The assessee had declared gross profit @ 15% in all the income and computation charts out of which P&L account expenses were deducted and net incomes were declared in all the returns as under:-- 1994-95 Rs.36,000 1995-96 Rs.46,000 1996-97 Rs.46,000 1997-98 Rs.46,000 The sales if worked back on the basis of gross profit declared in each year @ 15% would be computed as under:-- 1994-95 Rs.2,354,500 1995-96 Rs.2,700,400 1996-97 Rs.2,696,680 1997-98 Rs.3,040,167 A notice under section 62 was later received in March, 1999 wherein beside other quarries the DCIT had shown his intention to estimate sales considering the quantum, extent as well as location of business at the main Darbar Road, Lahore as under:--- 1994-95 Rs.3,000,000 1995-96 Rs.3,750,000 1996-97 Rs.4,200,000 1997-98 Rs.4,500,000 He indicated his intention to adopt G.P. @ 15% only.
The complainant submits that he offered to be assessed at following net incomes on agreed basis:-- 1994-95 Rs.132,825 1995-96 Rs.173,785 1996-97 Rs.199,586 1997-98 Rs.215,562 Agreement was made with the approval of the IAC, Range-II, Zone-C, Lahore vide his endorsement on order sheet entry, dated 22-3-1999.
Returns for assessm ent years 1998-99 to 2001-2002 have been filed with computations of incomes as under:-- Assessment YearSale DeclaredG.P.
DeclaredG.P. Rate DeclaredIncome DeclaredTax Paid 1998-99 4,277,703 651,922 15.24% 145,090 8,260 1999-2000 5,880,393 896,172 15.24% 216,000 24,450 2000-2001 6,015,098 916,701 15.24% 292,633 29,585 2001-2002 8,552,030 1,303,329 15.24% 325,415 36,391
12. Now, it has been submitted on behalf of the complainant that the reasons recorded by the learned RCIT do not conform to any of the guidelines for selection of cases, circulated by the Central Board of Revenue (C.B.R.) vide Circular Letter No,7(7) S. Asstt/2001, dated 26 March, 2002, which are as under:---
(i) Evidence, information or reason to believe that true particulars of income have been suppressed and it is a revenue potential case.
(ii) Such selection may be based upon factors including:--
(a) Evident decline in income.
(b) Any addition to the assets that is not, covered by income declared. (Tax profiles of Survey and Registration may be consulted to identify such cases).
(c) Disparity in expenses on utilities vis-a-vis income declared.
13. The submissions made on behalf of the two sides are considered. It is found that despite improvement in turnover and history of the case is respect of G.P. Rate as a normal indicator the net income of the assessee has not increased even in proportion to the increase in turnover even if the cost saving in terms of economies of scale is ignored. Thus proportionately there is evident decline in income which is one of the specified factors in the guidelines circulated by C.B.R. For selection of E cases for audit. It is pertinent to record here that the term "evident decline in income" as used in the guidelines cannot be construed as decline per se because if it was so the return would not qualify under self-assessment scheme. The term, therefore, is to be interpreted to mean a decline in proportion to turnover.
14. The selection of return for audit, therefore, is justified. No, maladministration is found in the ultimate decision as such the investigation is closed.