FINDINGS /DECISION ' Maladministration is alleged in the instant complaint on the part of A-CIT Circle 01 Zone-A Lahore for arbitrarily (i) completing assessm ent at excessive income, (ii) issuance of repeated notices and
(iii) retention of accounts book for two years and on the part of CIT Zone-A, Lahore for not taking action on the issuance of wrong notice under section 62 of the repealed Ordinance to the Complainant for the assessm ent year, 2000-2001.
2. The Complainant is an AOP earning its income from retail sale of cloth. For the assessment year under consideration the Complainant filed its Income Tax Return declaring income at Rs,80,983.
The Income Tax Return filed by the Complainant did not qualify under Self-Assessment Scheme because income, declared was less than last assessed income. Notices under section 61 of the repealed Ordinance were issued on 31st March, 29th October, 3rd and 19th November, 2002 and 2nd April, 2003 repeatedly by the Taxation Officer Circle 01 Lahore. The account books retained on 7-4-2001 and kept' for two years. Ultimately notice under section 62 of the repealed Ordinance was issued on 26-6-2003 apparently without examination of account books because the Taxation Officer had demanded production of books in the notice without realizing that books were already in his custody. He estimated income at Rs,675,096 without considering facts of the case. The estimated income was alleged to be highly excessive, unjust, oppressive and in complete eparture from the past history of the case amounting to aladministration; hence the Complaint.
3. In reply the R-CIT Eastern Region Lahore has raised a preliminary objection that the complaint relates to assessm ent of income for which remedy of appeal/revision is available to the Complainant; hence complaint does not fall in the jurisdiction of Federal Tax Ombudsman.
Regarding merits of the complaint, the R-CIT has submitted that allegation of repeated issuance of notices under section 61 is not correct because the Taxation Officer who completed the assessm ent issued notice under section 61 only once and after that he issued notice under section 62 before completing the assessm ent. According to respondent, the shop of the Complainant is situated in Anarkali Bazar Lahore, which is an attractive place for this line of. Business. Purchases and sales of the Complainant remained unverifiable. Considering the capital employed in the business amounting to Rs,1,150,136, the Taxation Officer thought that sales declared by the Complainant at Rs,1,991,698 were low. The contention of the Complainant that the CIT failed to take any action on wrong notice issued to the Complainant under section 62 is not correct. In fact the CIT issued directions to the Taxation Officer that assessment should be completed as per law and facts after allowing reasonable opportunity of being heard to the Complainant. The R-CIT has stated that there has been no departure from the history of the assessee. According to RCIT the assessee had contended that the latest assessment history of assessment year, 2001-2002 should be followed. The books of account were rejected for the assessment year 2001-2002 but the assessee neither went into appeal before the CIT(Appeals) nor filed complaint before the FTO.
4. Mr. Ahmad Shuja Khan, Advocate attended for the Complainant. He reiterated the facts considered supra besides pleading that neither the Taxation Officer, nor the Commissioner considered the reply to the notice under section 62 because a copy was forwarded to the Commissioner of Income Tax but he did not take any action. The AR pleaded that estimates of sales as well as income for the year under consideration were, unjust excessive and arbitrary. The repeated issuance of notices under section 61 and retention of the account books for two years constituted a serious maladministration. The Commissioner of Income Tax did not take any action on the copy of reply to notice under section 62 furnished to him, which also amounted to maladministration. He further submitted that the RCIT in his comments on the complaint was not justified in citing the assessm ent for A.Y. 2001-2002 as past history for the A.Y. 2000-2001 because the complainant never pleaded for it.
5. Mr. Muhammad Majid, A-CIT attended for the Respondent. He submitted that repeated notices under section 61 were issued because of the frequent transfer of officers from the Circle and account books remained with the Taxation Officer for the same reason. The repeated notices were not issued intentionally. The account books were examined by the Taxation Officer and purchases and sales were found unverifiable. Sales were estimated five times of the capital employed in the business at Rs,1,150,134 which is a usual practice in this line of business. The DR further submitted that in the earlier years also substantial additions were made to declared income.
6. The complaint as well as the Respondent's reply have been examined and arguments of the two sides have been considered. In the assessment year, 1997-98 income of Rs,127,108 was declared and it was estimated by the Taxation Officer at Rs,709,386. However, it was ultimately reduced by the ITAT to Rs,132,558. In the assessment year' 1998-99 income was declared at Rs,204,867 and it was accepted under Self-Assessm ent Scheme. In the assessment year, 1999-2000 income declared under Self-Assessm ent Scheme was Rs,205,000. The past history of assessment under section 62 in 1997-98 is of rejection of accounts but does not support the excessive estimates of sale and income in the instant year. Besides the fact that assessment year 2001-2002 is not relevant because it does not pertain to the past in reference to A.Y. 2000-2001, the RCIT has not mentioned the figures of estimated sales and assessed income because sales were estimated at Rs,3,300,000 and income was assessed at Rs,130,351. It is evident that estimate of income at Rs,672,096 as against declared income of Rs,80,983 is a departure from the established practice of assessm ent in the instant case without valid reasons. Estimating sales at five times of business capital is neither an established practice in the instant case nor it is generally applied. Estimates of sales are generally based on the factors of capital employed in Stock of goods sold, the nature of goods sold and the accessibility of A the outlet to the customers. Since the Taxation Officer has overlooked the amount of capital employed in fixed assets the estimate of sales is unjust and arbitrary.
7. The matter alleged in the instant complaint relates to departure from the established practice and procedure of assessm ent for which no valid reasons have been recorded by the respondent either in the assessm ent order or in his comments on the complaint. The decision is thus arbitrary, perverse, unjust and oppressive. The allegation that respondent's decision is tainted with maladministration as defined under clause (i) of subsection (3) of section 2 of FTO Ordinance XXXV of 2000 is proved.
8. The decision of respondent relates to matters beyond the pale of plain assessment of income covered by the restricted bar placed on the jurisdiction of FTO under section 9(2)(b) of FTO Ordinance XXXV of 2000. This view is upheld by Honourable President of Pakistan in his decision, dated 8-11-2003 on C.B.R.'s Representation C. No, 4(823) TO-I/2002, dated 27-11-2002 filed against the decision in Complaint No,823-L of 2002; hence preliminary objection to the jurisdiction over the instant complaint overruled.
9. It is now recommended.
(1) That Commissioner of Income Tax invokes his jurisdiction under section 122A of the Income Tax Ordinance, 2001 keeping the foregoing findings of investigation in view and makes such revision to the order passed by the Taxation Officer as the Commissioner deems fit.
(2) Compliance report be submitted within 45 days of the receipt of these recommendations by the Revenue. Division.