BISMILLAH CNG FILLING STATION, KOT ADDU ROAD, LAYYAH VS SECRETARY REVENUE DIVISION, ISLAMABAD, 2016 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 2681 (2016)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 120, 171 & 235---Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss. 2(3) & 10---Non-payment of refund amount---Complaint had been filed under S.10(1) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 against non-payment of refund of tax withheld under S.235 of Income Tax Ordinance, 2001---Complainant provided evidence in support of refund application, but neither any deficiency/discrepancy was brought to the notice of the complainant, nor verification completed in accordance with procedure---Resultantly the claim of the complainant remained unsettled---Departmental representative submitted that verification was under process and the refund due would be issued as soon as the same was complete---Representative, could not justify as to why the deficiencies, if any were not communicated to the complainant, immediately after the filing of returns/refund application by the complainant---Ombudsman observed that tax verification process should be completed expeditiously, so that refund was issued within prescribed time to avoid payment of compensation---Department had not followed the procedure laid down by Federal Board of Revenue---Department could not withhold refund, unless some substantial flaw was proved in the claim of the complainant about its genuineness or accuracy---No substantial flaw having been identified by the department, withholding of refund due, as per law, without cogent reason was unjust---Delay also created complainant's right to claim compensation under S.171 of the Income Tax Ordinance, 2001---Department's neglect, inattention/inefficiency and inordinate delay in processing of refund, was tantamount to 'maladministration' in terms of S.2(3)(ii) of Establishment of Office of Federal Tax Ombudsman Ordinance, 2000---Federal Board of Revenue was recommended by Ombudsman to direct the Commissioner to ensure completion of verification process at the earliest and dispose of refund/ compensation within 30 days; and report compliance within 7 days thereafter.

Commissioner IR v. Chicago Metal Works Tax Reference No.48 of 2011; 2015 PTD 6191; Complaint No. 350/2007 vide Order No.55/2007-LAW(FTO) dated 31-7-2008 and 2009 SCMR 973 ref.

Haji Ahmad, Advisor and Muhammad Daud Khan, Advisor for Dealing Officers.

Riaz Ahmad Raja, ITP, Authorized Representative.

Nadeem Ahmad, DCIR, Departmental Representative.

FINDINGS/RECOMMENDATIONS

ABDUR RAUF CHAUDHRY, FEDERAL TAX OMBUDSMAN.---This complaint has been filed under section 10(1) of the F.T.O. Ordinance, 2000, against non-payment of refund of Rs.0.173 million along with compensation for the tax year 2015.

2.According to the Complainant, return of income and refund application were e-filed on 29.08.2015 claiming refund of the tax withheld under section 235 (electricity bills) of the Income Tax Ordinance, 2001 (the Ordinance). The return assumed the status of deemed assessment order issued by the Commissioner IR on the day of filing as per section 120(1)(a) of the Ordinance. Evidence in support of e-filing of return/refund application was provided on 31.08.2015, but neither any deficiency/discrepancy was brought to the notice of the Complainant nor the verification completed in accordance with the procedure provided in Circular No.05 of 2003 dated 30.06.2003 Resultantly the claim has remained unsettled.

3.The complaint was sent to the Secretary, Revenue Division, Islamabad in terms of section 10(4) of the F.T.O. Ordinance. In response, FBR vide letter C.No.4(0008)TO-1/2016 dated 14.06.2016 forwarded comments of the Commissioner dated 08.06.2016. The Deptt. has contended that refund could not be issued as the Complainant failed to fulfill the legal and procedural requirements of filing refund application in the prescribed format in terms of Rule 73(2E) of the Income Tax Rules, 2002 read with Part VI of the First Schedule to the Rules. The Deptt. had the authority to call for and scrutinize the record in connection with the processing of claim and if the same was not provided, the settlement would remain pending. The refund would become due on completion of process of verification and fulfillment of the requirement of e-filing of claim.

4.The Deptt also referred to the judgment of Lahore High Court, Multan Bench in Tax Reference No.48 of 2011 titled Commissioner IR v. Chicago Metal Works wherein it was held that "deemed order is taken to have been made of 'tax due' and not of 'refund due'. Receivable refund is mentioned in one of the columns in the Form of Return. Since no sanctity to order under section 120 is attached to declaration of receivable refund under this column, therefore, it cannot be said to be a 'refund order made' or 'refund due'." As regards the compensation, the court held that refund does not become due merely on its claim in the return or on filing of application for refund, if Commissioner believes for reasons that it is not admissible as claimed. Hence question of payment of compensation does not arise.

5.The DR reiterated the written, comments. According to him, no maladministration was involved in the case. Further, submitted that verification is under process and the refund due would be issued as soon as the same was complete. However, he could not justify as to why the deficiencies if any were not communicated to the Complainant immediately after the filing of returns/refund applications.

6.On the contrary, the AR contended that all the requirements, for issuance of the refund were fulfilled and so there was no justification for non-issuance of refund.

7.Both parties heard and record perused. The Honorable Lahore High Court in a later judgment cited as 2015 PTD 6191, has overturned the earlier judgment referred to by the Deptt. The Deptt. cannot be absolved of its responsibility to pass order within the time prescribed in law, unless the Commissioner had sufficient reasons for not deciding the application. The President of Pakistan in an identical Complaint No.350/2007 vide order No.55/2007-LAW(FTO) dated 31.07.2008 held that the omission to decide the complainant's application within the prescribed time without sufficient cause by itself was, on the part of the Commissioner, an act of maladministration.

8.The process of verification and disposal of refund in SAS cases has been clarified by the FBR in Paragraph 7 of Circular No. 05/2003 dated 30-06-2003. According to the procedure prescribed therein, refund application in such cases is to be entered in the prescribed refund register, examined immediately to verify the correctness of income and the tax computation, and simultaneously the process of verification has to be initiated and completed within 30 days of the receipt of application. FBR also clarified that refund rejection order shall not be passed merely for want of tax verification when the evidence of tax deducted/collected has been provided by the taxpayer. In such cases, order shall be passed within the stipulated period. The tax verification process shall, however, be completed expeditiously so that refund is issued within prescribed time to avoid payment of compensation. The Deptt. did not follow the procedure laid down by the FBR. Further, the Supreme Court in a case cited as 2009 SCMR 973 held that the Deptt. cannot withhold refund unless some substantial flaw is proved in the claim about its genuineness or accuracy. As no substantial flaw could be identified by the Deptt., the withholding of refund due, as per law, without cogent masons was unjust. This delay also created Complainant's right to claim compensation under section 171 of the Ordinance.

Findings:

9.The Deptt's neglect, inattention/inefficiency and inordinate delay in processing of refund is tantamount to maladministration in terms of section 2(3)(ii) of F.T.O. Ordinance, 2000.

Recommendations:

10.FBR to -

(i)direct the Commissioner IR to ensure completion of verification process at the earliest and dispose of refund/ compensation within 30 days; and

(ii)report compliance within 07 days thereafter.

HBT/89/FTOOrder accordingly.