MUHAMMAD TARIQ VS The SECRETARY, REVENUE DIVISION, ISLAMABAD, 2016 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2104 (2016)

Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)---

----Ss. 2(3)(ii) & 10---Income Tax Ordinance (XLIX of 2001), Ss. 120, 122(5)(9) & 122-C---Refund claim---Complainant, who had been regularly filing returns of income had filed return of income for the relevant year annually within due date---Department initiated proceedings under S.122-C of Income Tax Ordinance, 2001 and completed provisional assessment without proper service of notice on the ground that return was manually filed---Refund was claimed by the taxpayer through an application---Taxpayer/complainant, visited the department time and again and finally sent reminder, but refund was not processed---Ombudsman observed that if the department had the intention to verify the correctness of income and tax computation, or make some inquiry with regard to the processing of refund; it should have been completed within 30 days---Refund could not be withheld on the basis of anticipated liabilities, or prospective proceedings---Department could not withhold refund, unless some substantiated flaw was proved in the claim about its genuineness and accuracy---department's neglect, inattention and ineptitude in the discharge of duties for processing of refund, was tantamount to "maladministration" in terms of S.2(3)(ii) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Ombudsman recommended that, Federal Board of Revenue should direct the Commissioner to dispose of refund/compensation claim by providing opportunity of hearing to the complainant, in a transparent manner within 21 days; report of compliance within 7 days thereafter.

2009 SCMR 973 ref.

Haji Ahmad, Advisor, Dealing Officer and Muhammad Daud Khan, Advisor.

Riaz Ahmad Raja, ITP, Authorized Representative.

Nadeem Ahmad, DCIR, Departmental Representative.

F1NDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.--This complaint was filed under section 10(1) of the FTO Ordinance, 2000 (FTO Ordinance) against non-payment of refund of Rs.1.057 million with compensation for tax year 2011.

2.The Complainant derives income from medical practice and agriculture and has been regularly filing returns of income since 23.07.2003. Return for tax year 2011 was manually filed within the due date on 28.11.2011. Later, the Deptt. received information about the purchase of a plot at Buch Executive Villas for a consideration of Rs.3.940 million during the period relevant to tax year 2011. Based on the said information, the Deptt initiated proceedings under Section 122C of the Income Tax Ordinance, 2001 (the Ordinance) and completed provisional assessment on 17.06.2013 without proper service of notices and also considering that the return was manually filed on 28.11.2011. According to the complainant, unlawful tax demand of Rs.0.985 million was created and a sum of Rs.1.057 million was recovered through attachment of bank accounts by invoking the provisions of Section 140 of the Ordinance. The recovery exceeded the amount of tax created in the case. The provisional assessment was contested before the Commissioner IR on the ground that it amounted to double assessment as deemed assessment was already in the field since the filing of return on 28.11.2011.

3.Further, plot was purchased in installments and only a sum of Rs.1.659 million was paid to the seller during the year, but the entire purchase price of Rs.3.940 million was treated as unexplained and assessed to tax. The Commissioner looked into the matter and observed that in the presence of deemed assessment order treated to have been issued under Section 120(1)(b) of the Ordinance, there was no need to proceed under Section 122C of the Ordinance. The action taken under Section 122C of the Ordinance was, therefore, declared void ab initio vide order No.MN/RT0/2015-16/1033 dated 10.08.2015. Consequently, the provisional assessment stood vacated and tax recovered through attachment of bank accounts became refundable. The refund was claimed by e-filing of return of income and refund application dated 14-09-2015 There-after, the Complainant visited the Deptt time and again and finally sent reminder dated 04-02-2016, but refund, was not processed.

4.The complaint was sent to the Secretary, Revenue Division, Islamabad in terms of Section 10(4) of the FTO Ordinance. In response, the FBR, vide letter C.No.4(252)TO-I/2016 dated 04.04.2016 forwarded comments of the Commissioner bearing No.CIR:MN/RT0/2015-16/8775 dated 30-03-2016. The Deptt contended that the complainant failed to respond to the notices, so the provisional assessment was made ex-parte. The demand notice and assessment order were served upon Mr. Pervaiz Ahmad, the Dispenser of the Complainant, but return, wealth statement and wealth reconciliation statement were not filed within 45 days of the service as per proviso to sub Section (2) of section 122C of the Ordinance. Hence the provisional assessment attained finality. Further claimed that the Deptt had rightly recovered tax through attachment of bank accounts.

5.The Deptt, however, admitted that the return was manually filed on 28-11-2011 in Multan instead of the relevant jurisdiction in Muzaffargarh without any refund claimed therein. However, the refund was claimed in the return filed on 14-09-2015.

6.According to the Deptt, merely filing of return cannot be taken deemed order for issuance of refund. The Commissioner IR has to make conscious application of mind and decide the claim after checking its veracity/calculation. The perception of the Complainant that the Deptt was bound to accept the claim on basis of calculation as per assessment order deemed to have been issued by the Commissioner on the date the return was filed, is not acceptable. This perception is contrary to the law and the prescribed procedure. Further submitted that the compensation would be due after three months on which date the refund becomes due as held by the Lahore High Court, Multan Bench in Reference No. 48/2011 in the case of Commissioner Inland Revenue v. Chicago Metal Works. In view of this position no compensation was due in the case.

7.The DR defended the treatment meted out by the Deptt. According to him, no maladministration was involved in the case. He, however, informed that proceedings for amendment of assessment under Section 122(5) read with Section 122(9) have also been initiated in the case. The refund due, if any, would be processed in the due course of time.

8.On the contrary, the AR contended that tax was recovered from the banks by the Deptt, therefore, no further verification of the same was required and as the competent authority has vacated the provisional assessment, there is no justification to withhold refund lawful claimed in return e-filed on 14-09-2015.

9.Both parties heard and, record perused. The contention of the AR appears to be convincing. The treatment meted out on four counts is palpably wrong as the provisional assessment was made without proper service of notices, without affording opportunity of hearing to the Complainant and ignoring the return filed on 28.11.2011. That is why the provisional assessment has been declared void ab-initio by the Commissioner himself vide his office order No.CIR/MN/RTO/2015- 2016/1033, dated 10.08.2015. So the tax recovered through banks became refundable.

10.In case the Deptt had the intention to verify the correctness of income and tax computation or make some inquiry with regard to the processing of refund, it should have been completed within 30 days so that refund could be issued in three months to avoid compensation as per procedure prescribed in circular No.5/2003 dated 30-06-2003.

11.As regards the proceedings initiated for amendment of assessment under Section 122(5) read with Section 122(9) of Ordinance, the deemed assessment has not been amended and no further tax has been raised as yet. It is trite law as settled by the superior judiciary that refund cannot be withheld on the basis of anticipated liability or prospective proceedings. Moreover, the Supreme Court in a case cited as "2009 SCMR 973" held that the Deptt cannot withhold refund unless some substantiated flaw is proved in the claim about its genuineness and accuracy.

Findings:

8.(sic) The Deptt's neglect, inattention, inefficiency and ineptitude in the discharge of duties for processing of refund is tantamount to maladministration in terms of section 2(3)(ii) of FTO Ordinance, 2000.

Recommendations:

10. (sic) FBR to--

(i)direct the Commissioner to dispose of refund/compensation claim by providing opportunity of hearing to the Complainant in a transparent manner, within 21 days; and

(ii)report compliance within 07 days thereafter.

HBT/73/FTOOrder accordingly.