FINDINGS /ORDERS ' The complainant, Muhammad Asghar derives income from manufacturing and sale of cricket bats under the name and style of Messrs Asghar Bat Maker, Sialkot. He is an existing income tax assessee on National Tax No,19-21-0406232-9 of Circle-21, Sialkot. He is aggrieved by the order dated 31-1-2003 passed by the Regional Commissioner of Income Tax and Wealth Tax, Northern Region, Islamabad whereby his return of income for the assessment year 2002-2003 has been selected for audit under para 9(a)(ii) of C.B.R.'s Circular No,7/2002. The complainant filed return of income for the assessm ent year 2002-2003 within the prescribed time declaring income of Rs,4,49,735 paying tax higher by 20% than the tax paid for the immediately preceding year.
2. It is alleged that in response to the show-cause notice issued by the RCIT, the complainant's authorized representative submitted a detailed reply stating therein that the case did not fall under the ambit of para 9 as none of the parameters laid down by the C.B.R. Is applicable in this case, but ignoring his submission the RCIT has selected the case for audit. It is further alleged that in the show-cause notice dated 27-12-2002 the only reason attributed to the selection of the return for total audit is that the declared G.P. Rate at 21.8% is low when compared with a parallel case on NTN No, 19-21-046355 wherein G.P. Rate has been applied at 25%. The complainant has also alleged that the facts and circumstances of the parallel case cited in the show-cause notice were not confronted to him.
3. It is stated that G.P. Rate of 20% is being declared and applied in the case of the complainant for the last many years and the superior Courts have held in a number of cases that history of the case is best guide and evidence for making the assessment. It is also stated that in an identical case of Messrs Asif Bat Maker, Sialkot G.P. Rate of 20% has been applied while completing the assessm ent under section 62/Total Audit and the photocopy of the assessment order has been furnished. It is contended that there was absolutely no justification for selection of complainant's return when G.P. Rate declared was 21.8% i,e, 1.8% higher than the G.P. Rate applied in the aforesaid case. It is also stated that the complainant is doing business on a very small scale and falls under the definition of cottage industry of Sialkot. It is reiterated that the return has been selected for audit in utter disregard of the guidelines provided in C.B.R. Circular No:7(7)/S.Asstt/2002 dated 17- 12-2002 and this amounts to maladministration. The complainant has prayed for issuance of directions to the concerned officer to accept the return under the self-assessment scheme.
4. Parawise comments have also been filed by the respondents stating therein that the case has been selected for total audit strictly in accordance with parameters laid down in C.B.R.'s Circular No,7/2002 dated 15-6-2002 and after providing reasonable opportunity of being heard to the assessee. It is further stated that under Board's direction a case could be selected for audit if the RCIT had any reason (including those specified in the Board's Circular No, 7(7)/S.Asstt/2002 dated 17-12-2002) to believe that the true particulars of income have been suppressed. The parameters laid down by the C.B.R. In this regard are not exhaustive but inclusive. The decisions of the Honourable High Court of Peshawar and Lahore High Court have been cited in support of the aforesaid observation. The superior Courts have held that the word "includes" denotes that the definition is inclusive and not exhaustive.
5. It is further stated that in the case reported as 1973 PTD 19 the Lahore High Court has held that the word "including" is used for enlarging the scope and for bringing in the species which would otherwise not be covered. The respondents have further stated that in the case of the complainant the declared gross profit rate was lesser than the gross profit rate declared in certain other parallel cases and the national tax numbers and names of a few parallel cases have been cited in this behalf.
6. The respondents have particularly relied on the judgment of the Lahore High Court reported as 1992 PTD 1285 delivered in the case of Messrs Dawn Sports, Sialkot whose return had been selected for audit for the assessm ent year 1990-1991 on the ground that "other in the same line of business had declared gross profit at much higher rate as compared to the petitioner". The Honourable Court after scrutiny of the facts held "that the suspicion entertained as to gross understatement of income is based not only on definite information but is well based and it is now for the petitioner assessee to produce evidence to show that their accounts reflected the true trade position". The respondents have further stated that the reputation of the complainant can be judged from his own statement during the proceedings relating to the assessment year 1992-93 that the bat manufactured by him was used by the superstar Ramiz Raja. It is asserted that selection of the case for audit is quite legal and justified.
7. The departmental representative has reiterated the arguments/ pleas stated in the parawise comments. The authorized representative of the complainant has argued that in the show-cause notice issued by the RCIT only one parallel case has been cited where G.P. Rate of 25% has been applied whereas there are good number of similar cases where G.P. Rate of 15% has been applied by the Department. He has furnished photocopy of the assessment order of the identical case of Messrs Inayatullah Bat Maker, Church Road, Sialkot, where assessment for the years 1979-80 to 1980-81 have been completed under section 62 of the repealed Income Tax Ordinance, 1979 by applying G. P. Rate of 15%. In this very case G. P. Rate of 25% was applied in the assessment year 1978-79 which was reduced to 15% by the Appellate Assistant Commissioner with the following observation:-- "I have also come across a number of cases of sports goods makers in which a rate of 15% is being applied. In the appellant's case decided by me on 14-9-1980 pertaining to the assessment years 1972-73 to 1977-78 I-had already directed that a rate of 15% should be applied in the case of the appellant as well. It would, therefore, be only just that a rate of 15% is applied in the case of appellant also for the assessm ent year 1978-79".
' An application of G. P. Rate of 15% was also confirmed by the Income Tax Appellate Tribunal in the aforesaid case vide order dated 27-10-1981. The photocopy of the order has been furnished.
8. The authorized representative of the complainant has also argued that the respondent's reliance on the reported case of Messrs Dawn Sports decided by the Lahore High Court is absolutely misplaced. The facts of that case are absolutely different from the complainant's case Messrs Dawn Sports have been making export sales where the margin of profit is much higher as compared to the local sales. The complainant's total sales have been made to local parties.
Furthermore the G.P. Rate declared by Messrs Dawn Sports was ridiculously low when compared with the G.P. Rate declared in similar cases. The gross profit rate on CIF was about 12.65% and on FOB worked out to 9.22%. In a similar case of Messrs Atlas Sports the declared gross profit rate on CIF was at 29.09% and on FOB basis at 24.09%. In another identical case of Messrs Shah the declared gross profit rate on CIF basis was 29.2% and on FOB it worked out to 25.7%. The authorized representative has pleaded that in the case of his client there was not much difference between the G.P. Rate declared by him and the G.P. Rate declared in cases cited by the respondents.
9. The arguments of the complainant's authorized representative carry weight as he has successfully differentiated the cases relied upon by the respondents from the case of the complainant.
10. It is pertinent to point out that in the parawise comments the respondents have laid stress on the word "including" as used in C.B.R.'s Circular No,7(7)/S.Asstt/2002 dated 17-12-2002 and have tried to explain that the RCIT could select a case for audit for reasons other than those specified in the aforesaid circular. A case could be selected for audit on the basis of any other evidence, information or reason to believe that the income had been suppressed. The respondents have taken pains in explaining the word "including" and have cited judgments of the superior Courts to establish their point of view. The facts of the case obtaining on record, however, show that the aforesaid observations and explanations do not appear to be relevant in this case. The respondents neither followed the parameters/guidelines provided by the C.B.R. In the aforesaid circular dated 17-12-2002 nor had any other authentic information or evidence to establish that the complainant had suppressed true particulars of his income.
11. The facts stated above establish that the complainant's return was selected for audit arbitrarily ignoring the parameters laid down by the C.B.R. Or placing any other reliable evidence on record in this regard. The maladministration is, therefore, established and it is recommended as under:--
(i) The Regional Commissioner of Income tax, Northern Region, Islamabad, be asked to withdraw his order bearing No, NTN 1921-0406232-9 dated 31-1-2003 and direct the concerned Assessing Officer to accept the complainant's return for the year 2002-03 under the Self-Assessment Scheme within 30 days of the receipt of this order.
(ii) Compliance is reported within a week thereafter.
Order accordingly. aforesaid or by reason of some collusion, any duty or charge has not been levied or has been short levied, or has been short or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within five years of the relevant date, requiring him to show cause why he should not pay the amount specified in the notice.
(3) Where by reason of any inadvertence, error or misconstruction, any duty or charge has not been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within three years of the relevant date requiring him to show cause why he should not pay the amount specified in the notice".
6. The periods of limitation stipulated in subsection (2) and subsection (3) were three years (action of subsection (2) and six months A for action under subsection (3)), prior to the Finance Ordinance, 2000 (XXI of 2000). Thus when the Bills of Entry were filed and assessment made the period of limitation was shorter. A case of misdeclaration can be made against an importer if the document/Bill of Entry was false 'or on account of "some collusion" the duties had been short levied.
In the instant case admittedly the goods and PCT Heading of those goods were correctly mentioned and there was no misdeclaration on that count. The appellant claimed to be assessed under S.R.O. 490(1)195 and the case of the respondent Custom Department is that the appellant could not get benefit of the said S.R.O. Thus it was clearly a case of "error or misconstruction" within the meaning of subsection (3) of section 32 of the Customs Act. There is no allegation of collusion with the Customs staff either: That being so a notice beyond the then period of limitation prescribed could not have been issued to the appellant. This is in line with law laid down by the august Supreme Court in 1992 SCM R 1898 wherein at page 1901 it was held as under:-- "Due consideration was given as to whether the respondents should not pay the short levied duty and whether the State should suffer in public finance. But the cardinal principle of law is that all are equal before law, whether citizen or State. Secondly if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts. Thirdly while construing a financial statute, its terms are strictly top be followed. Keeping in view these principles, for short levied duties on account of "inadvertence, error or misconstruction", section 32(3) of the Customs Act, 1969 provides that for recovery notice shall be served 'within six months'. If that is not done, like a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable".
' The afore-referred judgment was reiterated in 2001 SCMR 38.
For what has been discussed above both the impugned orders cannot be sustained in law.
Resultantly, these appeals are allowed and orders, dated 1-12-1997 passed by the Collector and dated 12-1-1999 passed by the Tribunal are set aside with no order as to costs.