DECISION/FINDINGS Of these two complaints filed by an AOP, one is in respect of assessment year 1995-96 to 1998-99 and the other for 1999-2000, where by resort to section 66A and section 65 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) for revising the assessments is alleged to be mala fide smacking of "maladministration."
2. The facts leading to the complaint are that an AOP Was in the past running a restaurant in Gulberg area since 1993, specialising in Pizza. The business premises, alongwith furniture and fixture was later leased out to some other party who took up the name and business leaving the complainant to enjoy 'income from leasing out of business premises alongwith furniture and fixture'. The income was assessed in the three years under consideration as under:-- Assessment year Income Declared Income Assessed Section and Date 1995-96 Rs.103,373 Rs.103,373 62(1) on 13-6-1997 1996-97 Rs.124,180 Rs.124,180 SAS 1998-99 Rs.141,360 Rs.152,060 62 on 22-4-1999 For the assessm ent year 1998-99 the Assessing Officer disallowed the claims for: (a) depreciation,
(b) legal expenses, (c) repairs, and (d) deductions under section 50(7E). On appeal the CIT(A) vide order, dated 2-3-2001 directed to allow Depreciation and to give Tax Credit for deduction under section 50(7E), but maintained the disallowance of Legal Expenses. Subsequently, proceedings under section 66-A were initiated for all the three years contending that Legal Expenses and Repair Allowances were wrongly allowed as deduction thus causing error in the assessment resulting in "prejudice to the interest of Revenue". Rejecting the explanation filed in this behalf, the IAC vide consolidated order, dated 29-4-2001 cancelled all the three assessments and directed the Assessing Officer to make re-assessment "as per facts of the case". The Assessing Officer then took up the proceedings under section 62 and finalised the assessment vide consolidated order, dated 30-6-2002 determining income as under:-- Assessment year Income Declared On Final Assessment Re-assessment on 30-6-2002 1995-96 Rs.103,373 Rs.103,373 Rs.896,432 section 62/66A 1996-97 Rs.124,180 Rs.124,180 Rs.928,440 section 62/66A 1998-99 Rs.141,360 Rs.152,060 Rs.968,860 section 62/66a For the assessm ent year 1999-2000, for the reason that Return did not qualify for USAS because of short payment of taxes, proceedings were taken up by issuing statutory notices and income was finally determined on 30-6-2002 at Rs,968,860 against the declared income of Rs,128,700. The dispensation as above was a result of total disallowanceof Legal Expenses and estimation of Receipts as under:- Description 1995-96 1996-97 1998-99 1999-2000 Lease income of business premises (adopted)Rs.840,000 Rs.864,000 Rs.900,000 Rs.900,000 Rent of Furniture and Fixture (adopted) Rs.60,0000 Rs.70,000 Rs.75,000 Rs.75,000 Total Rs.900,000 Rs.934,000 Rs.975,000 Rs.975,000
3. In para-wise comments, dated 22-1-2003, R-CIT, Lahore after denying 'maladministration" has justified resort to section 66-A and has supported the assessment having been framed after extending reasonable opportunity of hearing to the complainant. Moreover, according to him, the business premises is situated in the busiest place of the city and "declared lease money can be rejected and estimated on the basis of prevalent ALV of the properties in the area."
4. The learned counsel for the complainant characterised this treatment as highly arbitrary and unjust because the lease agreement was summarily disbelieved and estimates of rent made on whimsical grounds. Moreover, the claim for expenses was brushed aside despite having met the approval of CIT(A) vide order, dated 2-3-2001 (ibid). It also was asserted that assessment was framed without issuance of specific notice under section 62 of the Income Tax Ordinance, 1979 (hereinafter called the repealed Ordinance) and ALV was disturbed despite categorical assurance by the IAC in his section 66A order that clause (2) of Lease Agreement relating to quantum of rent- "...Is not the controversial matter as the discrepancy is not related with the quantum of rent but the allowance of 1/5th for repairs which have been allowed illegally against the lease money".
As respects the year 1999-2000, it was alleged that though Return was filed under SAS, proceedings for assessm ent were taken up by issuing notice under section 61 without issuing Show-Cause notice or short document notice hence the arbitrariness.
5. The representative of the Revenue supported the stand by the R-CIT in para-wise comments. He further pointed out that the Return of income was on Form IT-11 which is prescribed for those who desire assessm ent under the normal law outside the SAS. Consequently subsection (4) of section 59 of the repealed Ordinance was not applicable. For the year 1999-2000 R-CIT's parawise comments convey that the Return did not qualify for acceptance under section 59(4) for the reason that "tax was not paid according to the rates prescribed for its qualification under USAS".
6. The investigation, in the light of rival arguments and scrutiny of record reveals that the assessm ent, from the very beginning, replete with innumerable deficiencies such as:--
(i) Assessing Officer at no stage realised that the business had ceased and its assets (i,e, premises, furniture and fixture) were let out for which income fell under clause (d) of subsection (2) of section 30 as "Income from Other Sources" for letting out of building alongwith furniture.
(ii) In the assessm ent order, dated 22-4-1999 Assessing Officer offered a confused dispensation which is neither under section 19/20 (Income from Property) nor under section 30/31 (Income from Other Sources). The act of estimating Rent and allowing deduction for Depreciation re relatable to section 30/31 whereas, allowance for Repair at 1/5th is an item in section 20(1)(a).
(iii) The CIT(A) also seems to have overlooked that income should have been placed either under section 19 or section 30 and deduction allowed under section 20 or section 31 whichever applicable.
(iv) The IAC's reference to section 20(1)(g) in the context of Legal Expenses is indicative that he placed the income under section 19 but a contradiction emerges because the Show-Cause Notice and subsequent order under section 66A, assailed the mandatory Repair Allowance at 1/5th of ALV.
(v) The above deficiencies have flowed into the re-assessment framed on 20-6-2002 under section 62/66A of the repealed Ordinance, thuscontaminating it as well.
The above lacunae in the process of assessment, appeal, revision and reassessment under sections 62,129,66-A and under section 62/66A respectively, leave no room for doubt that such acts of omission and commission Were committed which were contrary to law, arbitrary or unreasonablev exposing 'neglect, inattention, inaptitude or inefficiencywhich all fall under the category of "maladministration" as defined in clause (3) of section 2 of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. It is, therefore, recommended that:--
(i) It should be decided under which section of the repealed Ordinance the income is to be computed and assessm ent framed adhering to that section alone.
(ii) Assessm ents framed on 30-6-2002 for all the four years be substituted by an amended assessm ents by resort to section 122 of the Ordinance "to ensure that the taxpayer is liable to the correct amount of tax for the tax year.", in accordance with law, as at (i) above.
(iii) All Tax Functionaries who contributed to the deficiencies, as pointed out above, be apprised of the correct legal position so as to be careful in future.
8. Compliance be reported within 30 days of the receipt of this order.