DECISION /FINDINGS 'Maladministration is alleged in the instant complaint on the part of the Taxation Officer of Circle 04, Companies-V, Karachi for deliberately misconstruing the decision of Income Tax Appellate Tribunal in I.T.A. No, 515/KB/SB of 2001 (A.Y. 2000-2001), dated 4-5-2002 to deny setting off the loss of income from business assessed for the year against the income from interest assessable as income from other sources under section 30 of the repealed Ordinance.
2. Further maladministration is alleged for deliberately denying credit for Rs,52,777 recovered under section 92 of. The repealed Ordinance on account of impugned tax liability as well as for Rs, 17,186 paid in response to a previous impugned demand notice under section 85 and arbitrarily demanding further payment of tax amounting to Rs,160,195.
3. Maladministration is alleged on account of tampering of the record of assessment proceedings also in the following manner:--
(i) That the complainant filed an application for certified copies of order sheets, on 10th July, 2003, Copies were provided on 14th July, 2003 after three visits to the office of the respondent.
(ii) That the order sheet for the Assessment year, 2000-2001 is showing a notice under section 61 issued on 3rd March, 2003 for compliance on 10th March, 2003 but neither the complainant nor A.R.
Received the notice.
(iii) The respondent has made entry on the order sheet for the assessment year, 2001-2002 on 10th March, 2003 that "the A.R. Of the assessee attended, filed details/letter. However, entry on the order sheet for A.Y. 2000-2001 is that no compliance is made for the assessment year, 2000-2001. It is alleged that the letter and notice were issued for the assessment year, 2001-2002 only, the complainant therefore, complied with accordingly. As the respondent had not issued notice for 2000-2001 therefore, compliance was not required. It is pointed out that the entry does not bear signature of the A.R.
(iv) That the respondent also made an entry behind complainant's back on 10th Mach, 2003 in the order sheet for A.Y. 2001-2002 that "letter issued as per draft for compliance by 5-4-2003". It is alleged that the A.R. Of the complainant inspected all the income-tax files on 26th July, 2003 but did not find any copy of the letter on the files for compliance by 5-4-2003. The A.R. Has filed a copy of his report during the hearing on inspection of files, which was submitted the same day to the Commissioner of Income-tax.
(v) That the complainant had received the notice under section 61, dated 22nd March, 2003 but there was no entry on the order sheet about this notice.
(vi) The respondent conducted hearing on 14th April, 2003 but there was no entry on the order sheet about the hearing.
4. Briefly the facts are that the Complainant is a Private Limited Company registered vide Registration No, K-07762 of 1999-2000, dated 30-11-1999 duly approved and recommended by the University Grant Commission vide Letter No, 15-9/UGC/SEC/2000/193, dated 27-6-2000 to run an institute of computer science the income whereof is exempt from tax under clause (86B) of Part I of the Second Schedule to the Income Ordinance, 1979 (hereinafter called the Repealed Ordinance).
' The Complainant had filed the first return of income for AY. 2000-2001 under section 55 of the repealed Ordinance declaring loss of Rs,3,353,464. Audited accounts and computation sheets were attached. The respondent finalised the order under section 62 in respect of business and profession at nil after granting the exemption under clause (86B) ibid and taxed the interest income. The complainant filed an appeal before the Commissioner of Income Tax (Appeals) on the following main grounds:-- "(a) Order should have been finalised on Loss/Income instead of NIL. That Loss/Income should be exempted under clause 86-B of the Second Schedule.
(b) Interest income should be exempted from tax".
5. The Commissioner of Income Tax (Appeals) set aside the order for de novo proceedings. The complainant filed second appeal before the Income Tax Appellate Tribunal. While deciding the appeal the Tribunal confirmed the decision of the Commissioner of Income Tax (Appeals) on the issue (a) but plea (b) was rejected. The respondent issued notice under section 61 of the repealed Ordinance on 22nd March, 2003 for compliance on 14th April, 2003. The complainant filed reply of the notice vide letter, dated 8th April, 2003 which was received by the respondent. The complainant did not receive order upto 24th June, 2003. The A.R. Of the complainant, therefore, sent reminder, dated 24th June, 2003 to the respondent No, 3 regarding reassessment proceedings. A copy of the letter was also submitted with the respondents Nos. 1 and 2. The complainant received the order on 3rd July, 2003 through DAK which was passed vide DC. Nos. 8/141, dated 25th June, 2003.
6. Loss of income under section 22 of the repealed Ordinance was assessed amounting to Rs,2,964,072 and interest income amounting to Rs,226,395 was assessed under section 30 of the repealed Ordinance. However the respondent did not allow set off of assessed loss under section 22 for the same year against the income assessed under section 30 with following observation:-- "As interest income is taxable under section 30 of the Income Tax Ordinance, 1979, there is no provision in law to adjust the income under the head of other resources against any other expenditure.
' 2000 PTD 363; 1999 PTD (Trib.) 708 and 1998 PTD 3179."
7. Complainant has prayed for recommendation:-- "(I) To set off interest income against determined loss.
(II) To delete the additional tax under section 88 as the_ return of income was filed at loss as per audited account and computation of income.
(III) To allow credit of tax recovered under section 92 and under section 85.
(IV) To award the cost of the complaint under rule 22 of the Establishment of the office of the Federal Tax Ombudsman Ordinance, 2000.
(V) Grant any other relief and releaves that your lordship may deem fit and proper in the facts and circumstances of the case."
8. Responding to the notice under section 10(4) of Ordinance XXXV of 2000 parawise comments on the complaint have been received from the respondents. Facts stated in the complaint from Paras.
1 to 7 are not denied. Comments of Paras. 8 to 11 of the complaint are immaterial to the substantive allegations. Para. 12 of the respondent's comments which was supposed to be a comment on the main allegation that loss assessed under section 22 has not been set off against' interest income from "Other Sources" assessed under section 30 is completely off the mark.
9. Firstly the ignorance of Taxation Officer about the provisions of sections 34 and 15 of the repealed Ordinance, proves maladministration on account of incompetence of the respondent to discharge his duties. The respondent has observed in his order, dated 26-6-2002 that there was no provision in law to adjust the income assessed under the head "Other Sources" against any other expenditure. He did not appreciate that section 34 provides for setting off the loss assessed for the year under any of the heads of income'envisaged under section 15 against income, profits and gains assessed for the same year under any other of those heads. It is pertinent to make the observation that loss of income occurs when amount of expenses/cost of sales plus overheads exceed the amount of receipts/sales. Definition of maladministration under section 2(3)(ii) of Ordinance XXXV of 2000 covers the incompetence of respondent in discharge of his duties.
10. A perusal of the parawise comments _filed by the respondents demonstrates that due attention was not paid in preparing it. The allegations made in para. 12 of the complaint have not been replied nor denied. Likewie, it is stated in para. 13 of the comments singed by the CIT that "paras. 9 and 10 take care of assessee's objection". Complainant has alleged in para. 13 of the complaint that the Taxation Officer did not allow' credits for taxes collected under sections 92 and 85 of the repealed Ordinance but paras. 9 and 10 of respondent's comments do not mention a word about the aforesaid allegation. Therefore, the said allegations not having been denied stand admitted.
The respondent has submitted evasive reply and side tracked the issues.
11. Coming to the allegations in para. 3(i) supra the respondent does not deny calling A.R. Of the complainant for 3 consecutive days for issuing copies of order sheets. The unexplained delay supports the allegation that the respondent was trying to avoid issuing copies of order sheets to cover up to the incorrect entries made therein. Regarding allegation in para 3 (ii) supra respondent has produced a copy of notice under section 61 for 2000-2001, dated 3-3-2003 alongwith a post office receipt of registry, dated 5-3-2003 but the fact that attendance of the A.R. In the proceedings for 2001-2002 on 10th March is duly signed by him on the order sheet while the entry of alleged proceedings on the same date in respect of 2000-2001 does not bear his signature clearly suggests that Registry receipt pertains to the posting of notice f-:,r 2001-2002 only.
12. There is merit, respondent's submission that the decision to issue notice is the function of the Assessing Officer and the AR/assessee has nothing to do with any direction to issue,the notice. It is correct that assessee's responsibility starts when he receives the notice. However, complainant is not wrong in stating that no letter was issued for compliance for 5-4-2003 because the Taxation Officer in fact issued a notice under section 61 on 22-3-2003 for compliance on 14-4-2003. Had he actually issued a letter for compliance on 5-4-2003, the Taxation Officer would have waited for the attendance/compliance of the assessee on 5th April, 2003. Another evidence of the alleged manipulation of record produced by the AR is the copy of letter, dated 5-4-2003 now provided by the respondent which shows its receipt by "Mr. Ahsan" while Mr. Ahsan Raza Khan had resigned from complainant's company on 25-1-2003.
13. Maladministration alleged in the complaint on various counts considered supra is proved. The comment of the respondent in the last para of the written response to the notice under section 10(4) of Ordinance XXXV of 2000 that the complaint primarily pertains to assessment proceedings and no instance of maladministration is found is proved misconceived.
14. Maladministration has been definel, inter alia, under clauses (ii) and (iv) of subsection (3) of section 2 of the Ordinance XXXV of 2000 to include:-- "(ii) Neglect, inattention, delay, incompetence, inefficiency and ineptitude, in the administration or discharge of duties and responsibilities;
(iv) wilful errors ,in the determination of refunds, rebates or duty drawbacks."
' Instances of maladministration found in the course of investigation of the complaint have been considered and duly recorded in the findings supra. Matters relating to assessment proceedings which are tainted with tracts of maladministration envisaged under inclusive definition of "maladministration" given in Ordinance XXXV of 2000 fall within the jurisdiction of the Federal Tax Ombudsman.
15. It is pertinent to observe here that the bar on FTO's jurisdiction envisaged in clause (b) of section 9 of Ordinance XXXV of 2000 relates only to a decision on the matters enumerated therein because remedies of appeal, review or revision are available only in respect of the decisions and not against. Or in respect of a process being employed, a recommendation being made, an act of omission or commission. The process employed by the respondent in making decision suffers from maladministration, inasmuch as the record has been manipulated and misstatement has been made regarding issuance and service of notice, which proves mala fides.
16. It is recommended:--
(a) That the Commissioner/officer who signs the parawise comments must exercise due care and avoid submitting evasive replies.
(b) The Commissioner to revise the order, dated 26-6-2003 by invoking jurisdiction under section 122A of the Income Tax Ordinance, 2001 to set off the loss assessed under section 22 to the extent it can be set off against the income assessed under section 30 as adjustable under section 34 of the Repealed Ordinance.
(c) That the Commissioner ensures that Officers working under him improve their competence and vigilance and refrain from making entries in the record that impair their own credibility as responsible officers and damage the image of the Government.
(d) That Compliance be reported within 30 days.