FINDINGS/DECISION This is a complaint relating to a statedly erroneous order passed under section 156 of the repealed Income Tax Ordinance, 1979 for the assessment year 2001-2002 and also against the non- acceptance of the complainant's return for the year 2002-2003 under the Self-Assessment Scheme. The main points in the complaint are as follows:--
(i) The complainant's income for the year 2001-2002 was assessed at Rs,100,000 against estimated sales of Rs,700,000 (and GP @ 15% amounting to Rs,105,000).
(ii) While working out addition on the basis of assessed gross profit the Assessing Officer deducted the wrong amount of so-called gross profit amounting Rs,52,500 from the estimated gross profit instead of the actual declared GP of Rs,97,500.
(iii) (iii) An application for rectification under section 156 was, therefore, filed with the Assessing Officer but instead of making the required rectification he passed an order under section 156 in which the sales were enhanced to Rs,1,000,000 to arrive at the earlier assessed income of Rs,100,000 which is totally invalid.
(iv) The complainant's return for the assessment year 2002-2003 filed at income of Rs,73,200 also qualified for self-assessm ent scheme if the correct income assessed for the year 2001-2002 was considered but since the income of Rs,100,000 has been adopted on the basis of an erroneous order under section 156 the said return has been wrongly excluded from the self-assessment scheme.
It has been prayed that the orders of the Assessing Officer for the two years be vacated.
2. In the respondent's reply the rectification order under section 156 passed by the Assessing Officer for the year 2001-2002 has just been reproduced without any comments and it has been stated that on the basis of the income and tax assessed for the year 2001-2002 the return for the year 2002-2003 has been rightly excluded from the self-assessment scheme.
3. The matter has been examined during the hearing and it is seen that for the assessment year 2001-2002 the complainant declared income of Rs,45,000 on the following basis--- Sales Rs.650,000 Gross profit @ 15%Rs.97,500 Expenses Rs.52,500 Net Income Rs.45,000 While framing the assessm ent the Assessing Officer assessed the complainant's income at Rs,100,000 in the following manner-- Gross sales estimated Rs.700,000 Gross profit @ 15% Rs.105,000 Less GP declared Rs.52,500 Balance income Rs.52,500 Add net income declaredRs.45,000 Income for addition Rs.97,500 Add backs out of P&L AccountRs.2,500 Net income Rs.100,000
4. In his application under section 156 filed on 12-9-2002 the complainant pointed out that in computing the complainant's income the declared gross profit of Rs,97,500 should have been deducted from the assessed gross profit (Rs,105,000) instead of the amount of Rs,52,500 actually deducted. It was thus requested that the mistake be rectified.
5. In his rectification order, dated 1-1-2003 the Taxation Officer, Circle 02, Sargodha observed as follows:-- "The perusal of assessm ent record reveals that the order was passed for Rs,100,000 and the assessm ent form IT-30A was also prepared for complainant's income of Rs,100,000. The demand notice was also issued for the balance amount of tax calculated at Rs,100,000. It appears that both the figures i,e, gross sales, GP and GP declared has inadvertently been taken as under--- Sales Rs.700,000 GP Rs.105,000 Less GP declared Rs.52,500 Balance Income Rs.52,500 The same might be as under:-- Sales estimated Rs.100,000 GP @ 15% Rs.150,000 Less GP declared Rs.97,500 Balance income Rs.52,500 In my opinion the income has rightly been assessed at Rs,100,000 which is apparent from record.
In view of above, rectification application filed by the assessee is hereby rejected."
6. A bare perusal of the above portion of the order under section 156 shows that it is based on a complete lack of understanding of the scope of section 156. Obviously the Assessing Officer could not enhance the estimate of sales in the rectification order as he had to operate within the framework of the original assessm ent order. In this order the sales had been estimated at Rs,700,000 and after working out the gross profit 15% amounting to Rs,105,000 the incorrect figure of GP amounting to Rs_52,500 was deducted to arrive at the trading account addition instead of deducting the actual declared gross profit of Rs,97,500. The only thing required to be done in the rectification order was to recompute the trading account addition to the complainant's income after deducting Rs,97,500 from the assessed GP of Rs,105,000 and it was not for the Assessing Officer to replace any estimate of sales for the already assessed sales. The rectification order as passed is thus the result of obvious maladministration.
7. Similarly the complainant is right in pointing out that his return for the assessment year 2002- 2003 qualified under the self-assessme nt scheme on the basis the actual assessed income for the year 2001-2002 (as in the complainant's rectification application) and it had, therefore, been wrongly excluded from the Self-Assessment Scheme.
8. In the light of the above it is recommendedthat:--
(i) The rectification order for the assessment year 2001-2002, dated 1-1-2003 be again rectified in the light of the observations in para. 6 above.
(ii) A letter of warning be issued to the Assessing Officer who passed the order under section 156 telling him to refrain from such illegal action in future.
(iii) The complainant's return for the year 2002-2003 be considered as qualifying for self- assessm ent scheme as far as the comparison with the 'last tax payable is concerned. The return my thus be accepted under the self-assessment scheme if it meets the other requirements of the scheme.
(iv) Compliance report with reference to recommendations at (i), (ii) and (iii) above be furnished within 30 days.