WAHEED SHAHZAD BUTT VS Dr. MUHAMMAD AKRAM KHAN, C.I.R., R.T.O., GUJRANWALA, 2016 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 247 (2015)

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

----Ss. 9(1) & 2(3)(vii)---Income Tax Ordinance (XLIX of 2001), S.227---Maladministration---Avoidance of disciplinary action against an officer or official whose order of assessment or valuation was held by a competent appellate authority to be vindictive, capricious, biased or patently illegal---Jurisdiction, functions and powers of the Federal Tax Ombudsman---Scope---Own Motion complaint pertaining to gross professional incompetence, inefficiency and mala fide of three Department functionaries---Contention of department was, inter alia, that the Federal Tax Ombudsman lacked jurisdiction in the matter as there was no aggrieved person as there was no complainant in the present case and that actions were taken in good faith and therefore Department enjoyed immunity under S. 227 of the Income Tax Ordinance, 2001---Validity---Objections to the Federal Tax Ombudsman's jurisdiction were misconceived as although the complainant was not personally aggrieved, he had pointed out some grave issues which had direct bearing on professional competence and integrity of Department officials charged with assessment of income of taxpayers and thus had a direct nexus with revenue mobilization by the Department for the State exchequer---Cognizance of such maladministration was required to be taken under Ss. 9(1) & 2(3)(viii) of Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000---Federal Tax Ombudsman observed that issue, in the present case, was not concerned with quantum of income assessed but was concerned with professional competence and integrity of those charged with assessment and supervisory duties and any disability noted in such critical areas would tantamount to maladministration which fell within Federal Tax Ombudsman's jurisdiction---Section 2(3)(vii) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 provided disciplinary action against an officer whose order of assessment was held by a competent appellate authority to be vindictive, capricious, biased or patently illegal---Federal Tax Ombudsman further observed that not every assessment overturned in appeal entailed action against assessing officer for incompetence and inefficiency and such action was called for only in cases where there was patent illegality and mala fide; which were typically assessments that had gone before more than one appellate tier and clear findings had been recorded against assessing officer(s) in the two appellate fora---Federal Tax Ombudsman, inter alia, recommended the Department to ensure that concerned officers attended and successfully completed a course of compulsory training in Income Tax Law and Accounts and retention in service and payment of additional allowance to such officers be made contingent to appropriate certification of professional competence by the training institution, and appropriate observations are recorded in PERs of such officers and supervisory officers and senior officers in field formations exercise regular supervisory oversight of work done by the subordinate assessing officers and take prompt cognizance of all arbitrary actions---Complaint was disposed of, accordingly.

1993 SCMR 633 ref.

Muhammad Munir Qureshi, Advisor Dealing Officer.

Waheed Shahzad Butt, Authorized Representative.

Liaquat Ali Ch., Umer Mehmood Kasuri, Muhammad Nadeem, IRAO, Asim Sana Naik, Staff Officer to CCIR and M. Faheem Sajjad Dhariwal, ACIR Departmental Representative.

OWN MOTION

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.---This is an Own Motion Complaint taken up for investigation under section 9(1) read with Section 2(3)(vii) of the Establishment of Federal Tax Ombudsman Ordinance, 2000 (FTO Ordinance) to take cognizance of the matter brought to our notice by a taxpayer citizen of Pakistan, admittedly not personally aggrieved, pertaining to gross professional incompetence, inefficiency and mala fide of three FBR functionaries cited in the titled complaint.

2. The relevant facts in this case are that Inland Revenue Audit (IRAO) (Muhammad Nadeem) finalized an amended income tax assessment for Tax Year 2010 in the case of a private limited company under sections 122(1)/122(5) of the Income Tax Ordinance, 2001 (the Ordinance) in which, inter alia, he made additions under Sections 111(1)(a) and 111(1)(b) of the Ordinance, amounting to Rs.1,974,051/- and Rs.81,684,612/- respectively, aggregating to Rs.83,658,663/- and included the same in the total amended income determined by him which resulted in an additional tax demand, over and above the one declared by the taxpayer, at Rs.20,401,293/-. The aggrieved taxpayer contested the treatment so accorded before the Commissioner IR (Appeals) [CIR(A)] who deleted both additions made under section 111 of the Ordinance. The Deptt then contested part of the addition deleted by the first appellate authority under section 111(1)(a) of the Ordinance (Rs.307,238/- out of total addition of Rs.1,974,051/- deleted by the CIR(A)), before the Appellate Tribunal Inland Revenue (ATIR). The ATIR vide order No.154/LB/2014, dated 16.04.2014 (110 TAX 41 = 2015 PTD 906) upheld in toto the treatment as accorded by the CIR(A) under section 111(1)(a) of the Ordinance and also under section 111(1)(b) of the Ordinance. The Deptt then filed a Reference under section 133(1) of the Ordinance before the Lahore High Court. This reference was rejected by the Hon'ble Court vide Judgment dated 16.12.2014 in PTR No. 214/2014.

3. Mr. Waheed Shahzad Butt, Advocate, the Complainant, contends that as a consequence of the above cited High Court Judgment, the factual as well as legal determination by the CIR(A) regarding additions made under section 111(1)(a)(b) of the Ordinance have attained finality and the Deptt having made no further attempt to contest the same has accepted the adjudication as made by the first appellate authority. That being so, it is contended that the Deptt was bound to take strict notice of the observations as recorded by the CIR(Appeals) as well as by the ATIR and take action against the three FBR officials for their gross professional incompetence, negligence, inefficiency and, in the case of the IRAO, also his alleged mala fide in deliberately applying provisions of law and principles of accountancy in a whimsical manner, with ulterior motive. In the case of the Commissioner and the Chief Commissioner incompetence was allegedly evident from the fact that they had failed to exercise effective supervisory oversight of the work done by the sub-ordinate IRS official [IRAO], and had given him a free hand to act arbitrarily when taking up an assessment for amendment. In the case of the IRAO the mala fide allegedly emerged from the fact that he deliberately and maliciously burdened the affected taxpayer with a substantial tax liability with a view to cause financial harm and business loss to the taxpayer.

4. When confronted in terms of the provisions of section 10(4) of the FTO Ordinance, the Deptt filed a reply to deny the allegations leveled. The respondents contended that the FTO does not have jurisdiction to take up the matter for investigation on the ground that: (a) there was no aggrieved person here; (b) they (i.e. the respondents) enjoyed immunity under section 227 of the Ordinance for actions taken in good faith during the course of discharge of their official duties; (c) the matter involved determination / assessment of income and attracted the provisions of section 9(2)(b) of the FTO Ordinance.

5. The Complainant, Mr. Butt, averred that adverse observations of the CIR (A) and ATIR in their appellate orders are cognizable under Section 2(3)(vii) of the FTO Ordinance 2000. He also referred to a Judgment of the Hon'ble Supreme Court of Pakistan reported as 1993 SCMR 633 in which the adverse observations recorded by the High Court against the inapt and inept actions of the public functionaries charged with judicial / quasi judicial functions were endorsed and their suitability as judicial / quasi judicial authorities put to question. He pleaded that in the present case as well it was evident that the cited FBR functionaries, by their actions in the case of the affected taxpayer, had shown that they were not competent enough to carry out work involving assessment of income.

6. Both sides heard and available record examined.

7. The objections raised by the respondents have been examined and their challenge to the FTO's jurisdiction is found to be misconceived. Although the Complainant is not personally aggrieved, he has pointed out some grave issues which had a direct bearing on the professional competence, performance, efficiency and integrity of FBR officials charged with assessment of income of taxpayers and thus had a direct nexus with revenue mobilization by FBR for the State exchequer. Therefore, cognizance of such maladministration is required to be taken under Section 9(1) of the FTO Ordinance read with Federal Ombudsmen Institutional Reforms Act, 2013. Section 2(3)(vii) of the FTO Ordinance also requires to take cognizance against FBR's officials whose conduct has been found by any appellate authority to be capricious, vindictive, biased or patently illegal.

8. Section 9(2)(b) of the FTO Ordinance is not involved in the instant case as assessment per se is not the issue here. The issue involved is not concerned with the quantum of income assessed. But it is concerned about the professional competence and integrity of those charged with assessment and supervisory duties. Any disability noted in these critical areas would tantamount to maladministration which falls well within the FTO's jurisdiction.

9. With regard to immunity claimed to be available to FBR functionaries, here too the respondents are misconceived. When the assessing officer throws caution to the winds and acts arbitrarily, capriciously and whimsically when framing an order of assessment and when the supervisory officers close their eyes to the assessing officer's many acts of omission and commission during assessment, such officials cannot justifiably say that their actions are in good faith.

10. During the investigation it transpired that the FBR had issued instructions vide Circular No. 16 of 1994 dated 26.07.1994 (1994 PTCL 907] to take cognizance and initiate Disciplinary Proceedings when at least five assessments made by an assessing officer were rejected in appeal. It was pointed out that in the present case only one assessment was involved. However, Section 2(3)(vii) of FTO Ordinance provides disciplinary action against an officer whose order of assessment is held by a competent appellate authority to be vindictive, capricious, biased or patently illegal. The following observations recorded by CIR (Appeals) in appellate order dated 28.10.2013 and the ATIR in ITA No.154/LB/2014, dated 16.04.2014 [110 TAX 41 = 2015 PTD 906], in particular serve to display the objectionable conduct and professional incompetence of the assessing officer:--

"Taxpayer is not to be put under fear that he has to remember scenario of each and every entry at the end of a year. Such like attitude of Tax department to show the muscle neither serves the public exchequer nor the economy of the country.

"Strange enough that without considering the clearly worded order issued by the Hon'ble High Court a huge amount of Rs.81,684,612/- has been taxed as deemed income solely by misapplying the provisions of the Ordinance which is patently illegal."

"IRAO miserably failed to identify the nature of investment by misconstruing the law and has proceeded to add the said amount into taxable income under section 111(1)(b)", it is a transgression which cannot be approved. This bent of mind at the part of IRAO reflects poor appreciation of law and facts."

..."IRAO does not know the basic accounting principles" "it appears that IRAO has his own accounting principles and interpretation of fiscal laws like the Ordinance. Additions under section 111 made by the IRAO are not only vindictive, capricious, biased but also patently illegal and nullity in the eyes of law."

It is necessary to clarify here that not every assessment overturned in appeal entails action against the assessing officer for incompetence and inefficiency. Rather, such action is called for only in cases of patent illegality and mala fide. Typically, these are assessments that have gone before more than one appellate tier and clear findings have been recorded against the assessing officer in the two appellate fora.

11. It is also to be pointed out that supervisory officers in the Deptt (Addl CIR, CIR and CCIR) also bear a heavy responsibility for exercising effective oversight over the work done by the assessing officers. They are required to inspect their work on a regular basis and comment on their work so as to guide them and also deter them from acting rashly or irresponsibly in a manner that is contrary to law. The promotion and posting of the assessing officers depend on the evaluation of their performance by the supervisory officers. In the present case there is no evidence on record to show that the adverse comments of the CIR(A) and ATIR ever attracted their attention. Also, the fact that the Dept'l Reference failed before the High Court appears to have had no effect on them. These are grave lapses on the part of the supervisory officers as well and suggest a pattern of behavior in which supervisory neglect has become the norm to the obvious detriment of quality of assessment work and revenue generation.

Findings:

12. The assessing and supervisory officers' lapses, referred to supra, tantamount to maladministration as defined in section 2(3) of the FTO Ordinance.

Recommendations:

13. FBR to ensure that-

(i) the IRAO attends and successfully completes a course of compulsory training in Income Tax Law and Accounts at DOT(IR). His retention in service and payment of Additional Allowance to be made contingent to appropriate certification of professional competence by the training institution;

(ii) appropriate observations are recorded in the PERs of the IRAO and his supervisory officers, i.e. the CIR and the CCIR;

(iii) senior officers in field formations exercise regular supervisory oversight of work done by the subordinate assessing officers and take prompt cognizance of all whimsical and arbitrary actions; and

(iv) report compliance for No.(i), within 45 days and for Nos.(ii) & (iii) within 30 days.

KMZ/103/FTOOrder accordingly.