PROPOSALS FOR FEDERAL BUDGET 2004-2005

PROPOSALS FOR FEDERAL BUDGET 2004 2005 <!--[if gte mso 10]> PROPOSALS FOR FEDERAL BUDGET 2004‑2005 By Hafiz Muhammad Idrees, President, Rawalpindi Islamabad, Tax Par Association INCOME TAX 1. Depreciation‑‑Section 22(10). The words "written down value" used in subsection 10 of section 22 is a mistake which may please be corrected by substituting word "Restricted Sales proceed". 2. Capital gain‑‑Section 37. Seventy five percent of gain on disposal of capital assets is taxable if those capital assets are held for more than one year. We suggest that 75 % gain should be reduced to 60 T to promote investment in the country. 3. Profit on debt‑‑Section 39. Under the provisions of repealed Income Tax Ordnance, 1979 profit on debts were either exempt as per clauses of second schedule or subject to final discharge of income‑tax liability at the rate of 10%. Under the provision of Income Tax Ordinance, 2001 exemption has been withdrawn and profit on debts has been brought to charge of income‑tax under normal law and rates. This change has created immense hardship for Pensioners, Widows and Families of Persons living abroad and also adversely affected saving habit of the Nation, which resulted in withdrawal of deposit from National Saving Centre and Banks. We suggest that profit on debt subject to withholding income‑tax under section 151 at rate 10% should be treated as final discharge of income tax liability of such income. 4. Deposit for issuance of shares (Share deposit money) ‑-- Section 39(3). Deposit for issuance of shares if received otherwise by a crossed cheque shall be treated as income under subsection 3 of section 39 of the Income Tax Ordinance, 2001. This amendment was introduced by Finance Act, 2003 to nullify the effect of Judgments of High Courts as well as that of Supreme Court. This change is also in' contradiction with section 86 of the Companies Ordinance, 1984 which requires share deposit money to be received in cash. We suggest that Deposit for Issuance of share may please be omitted from section 39(3) of the Income Tax Ordinance, 2001. 5. Amended assessment ‑‑ Section 122. Commissioners have delegated all powers (related to assessment work) vested in them by the Income Tax Ordinance, 2001 including the power of amendment of assessment under section 122. We have seen that power has been used by the Taxation Officers viciously to achieve their own vested interest by harassing taxpayers. We suggest powers to amend assessment under section 122 should only be used by the Commissioners and should not be ‑delegated to Officer in the lower hierarchy. 6. Selection criteria. In past we have seen that criteria for selection of cases for total audit being ambiguous and not clear further the selection based on such criteria being not transparent leaving doubt at the back of the mind of person so selected has been challenged before High Courts and also before Federal Tax Ombudsman and in most of cases such selection could not stand to test of litigation. We suggest that criteria for ‑election of cases for the purposes of audit should have been unambiguous, clear and cases should transparently be selected leaving behind no doubts. 7. Section 127‑‑ Right of appeal. As per provision of section 127 of the Income Tax Ordinance, 2001 certain condition/restriction has been imposed on vested right of appeal which is against the norms of natural justice and Shariah. Learned High Court Lahore in a case 'reported as 2004 PTD 122 has held that "precondition for appeal which by all means, constitute abridgement of right of appeal and its exercise by the person in whom it is vested, cannot at all be said to be reasonable. Same condition has also been held against injunction of Islam as laid down in Holly Qur'an and Sunnah. Therefore, we suggest condition for filing appeal as envisaged in section 127 of the Income Tax Ordinance, 2001 should be omitted. 8. Advance Income Tax ‑‑ Section 147. Mechansim of payment of advance income‑tax in instalments is based on assessed turnover (in the case of AOP and Companies), assessed income (in the case of individual) and assessed tax (for both) on the basis of latest tax year or assessment year commonly known as the base year. But to determine the base year no cut off date is provided in the statute which creates difficulties. We suggest that cut off date should be provided in the statute or otherwise e.g. 30th of September so that the taxpayer can plan sources and schedule to pay advance tax in instalments. Provision of estimate of income is inbuilt in 'the Formula given in subsection 4 of section 147 of the Income Tax Ordinance, 2001 being turnover based for the AOP and Companies, whereas no provision is in the statute for filing of estimate of income for individual deriving income from business or profession. We suggest that suitable amendment be made to section 147 to introduce the concept of estimate of income in the case of individual as well. Income chargeable under the head Salary, Property, Dividend, Capital Gains and Presumptive Income are excluded from definition of income charged to tax for the purposes of determining advance tax liability under section 147, of the Income Tax Ordinance, 2001. Rationale for excluding such incomes is subject to withholding, separate block and final discharge etc. We suggest that on the basis of same rationale income from profit on debts should also be excluded from definition of income charged to tax for the purposes of determining advance tax liability under section 147 of the Income Tax Ordinance, 2001. 9. Import of Plant and Machinery ‑‑ Section 148. Import of Plant and machinery for own use by an Industrial Undertaking is out of the ambit of final discharge of tax liability i.e. Presumptive Tax Regime as per subsection 7 of section 148 of the Income Tax Ordinance, 2001. The word "Industrial Undertaking" has not been defined anywhere in the Income Tax Ordinance, 2001. We suggest that the word "Industrial Undertaking" should be defined to avoid unnecessary intricacies of legal interpretation. 10. Statements -- Section 165. Format of quarterly salary statement required under section 165 read with rule 51A has not been prescribed. We suggest that same may please be prescribed. We further suggest that explanation should be added to section 165 explaining that no penal action shall be taken on non filing of Nil statements. 11. Audit -- Section 177 At present as per provision of section 177 of the Income Tax Ordinance, 2001, Commissioner can select a person for the purposes of Audit of the Person's income-tax affairs (words underlined for emphasis) which means that the Audit of Person can be conducted irrespective of tax years i.e. even for completed tax years. We suggest that audit of Person so selected should restricted to only that tax year for which the income-tax return of a Person is selected for audit. 12. Orders under section 205 -- Additional tax. At present order passed under section 205 for levying additional tax is not appealable being section 205 has not been cross referred in section 127. We suggest that section 127 should be amended suitably to cover section 205. 13. Rate card -- First Schedule -- Part-I We suggest that threshold limit of Rupees 80,000 (eighty thousand) should be increased to Rupees 100,000 (hundred thousand) keeping in view the inflationary trend prevailing in the country. 14. Rate of withholding tax in' case of certain suppliers, Distributors engaged in the business of Pharmaceutical, Consumer goods etc. work on the gross margin of 4% to 6% only. Income tax has been withheld on the gross amount of supplies (inclusive of sales tax) at the rate of 3.5% as per rate provided in Paragraph 1(b) of Division III of Part II of First Schedule of Income Tax Ordinance, 2001 which creates hardship to them. We suggest that lower rate of deduction of 1% or 1.5% should be introduced for distributors working on a lower margin as stated above as provided in the case of person engaged in business of supplies of Rice. Cotton, Cotton Seed and Edible Oil as per Paragraph 1(a) of Division III of Part II of First Schedule of Income Tax Ordinance, 2001. 15. Tax rebate on education expenses. Tax rebate on education expenses has been withdrawn through Income Tax Ordinance, 2001. We suggest that tax rebate on education expenses should be restored to promote literacy Tate in the country. 16. Incentive for tax payers. To promote tax culture and to encourage genuine taxpayer, status of privileged citizen of Pakistan should assign to a person who pays income tax more than 150 thousands rupees per annum. 17. Capital Value Tax. Capital Value Tax (CVT) was levied through section 7 of the Finance Act, 1989 and has been amended for many times since then. At present CVT is leviable on Car and Air Ticket. Such levy of CVT was adjustable against the wealth tax liability for the year in which it is paid and two succeeding years. Since the Wealth Tax Act has been abolished we suggest that CVT should also be abolished or alternatively exemption should be granted to a person borne on National Tax Number Register of Income Tax Department. LETTER FROM SHABBIR FAKHRUDDIN & COMPANY, MULTAN TO THE MEMBER TAX POLICY AND REFORMS, CENTRAL BOARD OF REVENUE Ref: 2/Budget 2004-05/04 6th May, 2004. The Member Tax Policy & Reforms, Central Board of Revenue, Islamabad. SUBJECT: BUDGET PROPOSAL'S FOR THE YEAR 2004-2005 Dear Sir, Under the able guidance and dynamic leadership of President Pervaiz Musharraf, and his competent Finance Minister, we have taken a number of drastic and daring steps to ensure financial viability. These massive strides have already started paying dividends and would, hopefully, continue doing so in the future. I am pleased to submit Income Tax budged proposals (Income-tax), for the Year 2004-2005 in the following paragraphs. INCOME TAX: 1. "Staff Practice. The employee of the tax department are involved in tax practice and have full access to the record. In order to avoid the loss of Revenue, caused by the staff in the tax practice, it is proposed that strict action be taken against tax employees involved in the tax practice. 2. Reduction in Income‑tax Rates for Individuals/AOP's The lesser the rate of taxation, the higher shall be the number of taxpayers, and accrual revenue, and vice versa. In Pakistan, the present rate of Income Tax is far too high, which is in dire need of reducing in order to enhance the number of taxpayers, and augment revenue. It is, therefore, proposed that the exemption limit should be increased to Rs.120,000 and this should apply to individuals and Association of Persons. The maximum rate should not exceed to 25 %. Revised rates of Income Tax Slabs are proposed as under:‑‑ TAXABLE INCOME RATE OF INCOME TAX Up to Rs.120,000 Nil. Rs.120,001 to Rs.220,000 7.5% Rs.220,001 to Rs.420,000 12.5 % Rs.421,001 to Rs.620,000 17.5% Rs.620,001 and above. 25.0%. 3. Mandatory Payment for filing of appeal under section 127. Condition for mandatory payment of 15 percent of the disputed tax amount prior to filing of appeal is against the very right of seeking justice. The requirement for payment of 15 percent of disputed tax demand for filing of first appeal be removed. 4. Filing of Wealth Statement‑section 116(2). Section 116(2) of the new Ordinance requires that every resident taxpayer filing a return of income shall furnish a wealth statement along with such return. Under the repealed Ordinance, such statement was required to be filed only if the income declared was Rs.200,000 or more. It is, therefore, suggested that the filing of wealth statement may be made mandatory only in cases where the income exceeds Rs.200,000 as was prescribed in the repealed Ordinance, 1979. 5. Burden of Proof‑section 136. In the Income Tax Ordinance, 2001, burden of proof has been shifted to taxpayer, whereas the onus must 15e on the person who imposes taxes and makes a claim of any kind of default or discrepancy. This is against all the norms of justice, equity and fair play. There are many cases in which it is held by superior Courts that the burden of proof is with assessing authorities instead of tax payers. Amendment should be made to make this provision more logical and justifiable. 6. Penalty‑section 182. The scope of penalty under this clause is proposed to be enlarged by including within its ambit, statements required to be submitted by taxpayers, deriving income under presumptive tax regime, as well as wealth statement. Prior to the amendment, no penalty was prescribed for non‑filing of such documents. The amendment would act as a deterrent against non‑compliance, with furnishing of requisite documents within the prescribed time frame, and is too harsh: Therefore, it is proposed that it should be converted into simple token penalty. 7. Search & Seizure‑section 175(2) Section 175(2) regarding power to enter and search premises have been amended by the Finance Act, 2003. Whereby the scope of power of valuers or experts have been enhanced to perform any task assigned to them by the Commissioner. Before amendment, such powers were restricted to inspection of accounts and documents by the valuer to evaluate an asset for the purpose of this Ordinance. These unfettered powers would subject taxpayers to undue harassment and humiliation. The proposed amendment is in gross contravention of the acclaimed policy of the successive Governments to reduce discretionary powers of C.B.R. officials. 8. Revision of Assessment Order‑section 122. Under section 122, the conditionalties contained in sections 65 and 66‑A was ignored altogether. However, during the last year, an amendment has been made by substituting section 5 by the Finance Act, 2003 and insertion of sections 5A and SB in the said section. Various other amendments have also been made in section 122 but, still, there is room for improvement. To protect the taxpayers against the high handedness and maladministration of the authority, It is suggested that the re‑opening of the case should be made only by the RCIT after giving proper opportunity to the assessee of being heard by issuing specific show‑cause notice in this regard. It is against the tenets of justice that the same Commissioner of Income Tax, who has completed the assessment, re‑opens the case on the basis of the same material/evidence which is already available on record and is deemed to have been considered at the time of original assessment. 9. Allowability of Expenses it Tax not Deducted ‑ section 21(c). Withholding tax is an advance tax adjustable against the final tax liability of the recipient. The Revenue suffers no loss in case withholding tax is not deducted from the specific transaction. Therefore, treating legitimate business expenditure as inadmissible merely for the non deduction of tax by the payee is not in accordance with the spirit of natural justice. It is suggested that amend or delete by providing that a valid expense is allowed if tax is paid by the recipient in the hands of payer, if mistakenly tax not deducted. 10. Depreciation Allowance. Prior to the promulgation of Income Tax Ordinance, 2001, the companies were allowed initial, normal and extra shift depreciation allowance irrespective of the date of addition of new assets or working days. Now, under the Income Tax Ordinance, 2001, it was curtailed to days of addition, as a result seasonal industries were suffering for decrease in both type of allowance resulting in extra burden on them. It is, therefore, proposed that the old system may be revived. 11. General. (a) It is suggested that no sector of the society be exempted from maintaining record. (b) It is suggested that law should be made one year before its implementation and not be changed: (c) The appeals, particularly at ITAT level remain pending for years, delaying justice and causing inconvenience to the appellants at a later stage. It is suggested that there should be time limit to dispose of appeals so that the uncertainty caused by the pendency be removed. (d) It is suggested that Accountant Member of the Tribunal must have academic qualifications in Accountancy so that he understands accounts and, consequently, play his role properly. (e) It is strongly suggested that C.B.R. to organize seminars/ workshops to educate the taxpayers. (f) It is proposed that Commissioner should authorize to grant stay as provided in Repealed Income Tax Ordinance. (g) It is, suggested that refund voucher must be issued alongwith assessment order failing which strict disciplinary action should be taken against the responsible official. (h) To encourage the new taxpayers, it is suggested that sources of investment should not be enquired up to the introducing capital of Rs.500,000. (i) It is suggested that a fool proof system may be devised to take suitable punitive action against tax officials found guilty of repealed erroneous assessment. (j) The office if Federal Tax Ombudsman, which has been providing relief to the tax payers against the misuse of discretionary powers of the tax collecting officials, needs to be strengthened. There are decisions of the FOT not implemented by C.B.R. (k) Still many items are subject to double taxation, i.e. both GST and CED, and double taxation system should be done away with immediately. LETTER FROM MIR ARMED ALI, ADVOCATE, RAWALPINDI TO COMMISSIONER OF INCOME‑TAX, CORPORATE ZONE, FAISALABAD (Rectification application against declaration under tax 2000 in r/o Sheikh Muhammad Afzal‑NTN 31‑5‑0658918‑A/Year 1996‑97) (10th May, 2004) Commissioner of Income‑tax, Corporate Zone, Income‑tax Complex; Opposite Allied Hospital, Faisalabad. SUBJECT RECTIFICATION APPLICATION AGAINST DECLARA TION UNDER TAX 2000 IN R/O SHEIKH MUHAMMAD AFZAL‑NTN 31‑05‑0658918‑A/YEAR 1996‑97 Respectfully Sheweth, Please refer to above In this regard it is submitted as under:‑‑ (1) That my client, above named, is an assessee in Circle 05 of your Zone since last more than one decade. Returns and assessments are being filed and finalized regularly. Accordingly, assessment for year 1996‑97 is also completed under section 59A of Income Tax Ordinance, 1979. (2) That said assessee got transferred inherited H. No. 483‑D Peoples Colony Faisalabad in the record of Housing and Physical Planning Faisalabad on 8‑2‑1986. Value of, said property is declared at Rs.80,000 in Wealth Statement as provided under Income Tax Ordinance, 1979. (3) That during assessment proceedings for 1991‑92 Notice No. 148, dated 7‑10‑1992 was issued under section 72 of explanation of renovation expenses as declared at Rs.506,200 by the then Assessing Officer and was fully explained.. Thus, assessment was finalized under section 62 vide order, dated 14‑5‑1994. (4) That thereafter due to extreme downfall of Cotton Industry, my client suffered a huge loss which compelled him to dispose of said house at Rs.13,000,000 vide Sale Agreement executed on 9‑4‑1996. Entire sale proceeds made in cash and receipted duly witnessed. (5) That purchaser in order to save Stamp Duty, prepared forged Gift‑deed, got it notarized on 8‑4‑1996 i.e. prior to Sale Agreement and making payment. It is to be noted that the persons who witnessed Sales Agreement and Payment Receipt are different from persons witnessed said Gift‑deed. Secretary District Housing Committee Faisalabad transferred ownership on 21‑4‑1996. It is condition precedent for transfer in such cases that Doner and Donee shall submit affidavits. These affidavits were neither witnessed, nor signed by my client these were obtained during additional assessment proceedings. A suit is filed before Senior Civil Judge Faisalabad. (6) That Gift‑deed executed for immoveable properties are required to be registered with Sub‑Registrar (U), as provided under Transfer of Property Act 1882 and such Gift‑deeds are executed on Non‑Judicial Stamps Papers as provided under Stamp Act, 1899. In addition Gifts are made to family member or members and not to any alien or aliens. (7) That however learned Assessing Officer issued Show‑Cause Notice No.781, dated 29‑4‑2000, treating difference between cost and sale proceeds of House. No. 483‑D People Colony Faisalabad, worked out at (Rs.13,000,000 ‑‑ 586,200) = 12,413,000 shown in Wealth Statement as inaccurate particulars, to initiate proceedings under section 65 for assessment year 1996‑97. Thereafter statutory notice under section 65 of Income Tax Ordinance, 1979 was issued on 18‑5‑2000, with prior approval of IAC, as required. (8) That verbal and written explanation as well as legality of proceedings was brought to notice of learned Assessing Officer. It was also brought to notice of your predecessor Mr. Masood Jamshed. Being Zonal Head, supporting his subordinate, the learned Zonal Head assured that there might be misunderstanding in the matter, however, in order to resolve controversy, which may taken long time to settle under litigation, if my client deposits 10% of total Sale Proceeds against amount gifted to relative at Rs. 1,300,000 under section 59D of Income Tax Ordinance, 1979 read with Circular No.4 of 2000, directions will be issued to drop re‑opening proceedings and also to withdraw notices issued from time to time. My client, an old man and suffering from heart trouble, in good faith, reposing confidence upon Zonal Head and to avoid confrontation, deposited said amount, though he was neither under legal obligation nor required to deposit the same. Affidavit or any statement before any enquiry officer, if appointed, will be submitted or recorded as and when directed. (9) That it is essential to bring, on record that Tax Amnesty Scheme, made under section 59D of Income Tax Ordinance, 1979 vide Circular No.4 of 2000, dated 1‑3‑2000, applicable to undisclosed income or assets created out of such undisclosed income of any year or years ended on or before 30‑6‑1999. In addition in terms of Para. 9 of said Scheme, filing of declaration for any year or years shall not affect pending assessment or re assessment. In the instant case there was no undisclosed income in any income year prior to 30‑6‑1999 thus said Scheme is not applicable at any manner or under any statutory provision of Rules made thereunder. (10) That in good faith, reposing trust upon said Zonal Head, declaration filed and tax deposited under TAS at Rs.1,300,000 vide Challan, dated 29‑6‑2000 accordingly acceptance of Declaration was intimated under acknowledgment No.78, dated 7‑11‑2000. There was no definite information or any conceal ment of income available with. learned Assessing Officer as well as found in assessment record. The Officers trapped my client either for their own benefits without going into roots of the case or to save purchaser, an open secret. It is upon purchaser to explain investment in acquiring assets and not on, seller who already declared it. In spite of assurances neither proceedings nor notices were dropped and, withdrawn. (11) That through Notice, No. 2000‑2001/DCIT‑5/Fad/1222, dated 18‑5‑2001. It was intimated that Mr. Muhammad Zahid Akbar, Engineer son of Ghulam Nabi Akbar NIC No. 244‑85‑537336 is appointed as Valuer under Rule 207 of Income Tax Rules, 1982 by learned RCIT vide Order No. Admn/A‑19/7012, dated 17‑5‑2001 to determine fair market value of said house. (12) That Valuer submitted report, as directed, vide Report No. 1705, dated 6‑6‑2001 with Sketch Plan, elaborating physical condition, history, detail measurement, basis of cost determined. (13) That in consequence of Valuer Report, a Notice No.0530342, dated 15‑6‑2001 issued for making addition under First Proviso to section 13(1)(b) of Income Tax Ordinance, 1979. The intention for addition to be made is reproduced for your kind perusal; "Perusal of the assessment record in your case reveals that before the gift of the house on 8‑4‑1996 you have demolished your House No.483‑D, People Colony Faisalabad and has reconstructed the same relevant to the period from 1993 to 1995 but you have not disclosed the cost of demolishing and reconstruction in your Wealth Statement/Wealth Tax Return filed for the assessment year 1996‑97. Following evidence regarding demolishing of the house and reconstruction thereof are available on record which is being communicated to you for defence and submission of your explanation. 1. ............. 2. Income Tax Inspector's report, dated 18‑12‑1995. The relevant portion of the inquiry report is reproduced as under (attested copy of the same is being enclosed herewith)". (14) That comparison of Notice No.789, dated 29‑4‑2000 to initiate proceedings under section 65 Notice No.0530342, dated 15‑6‑2001 to make addition under First Proviso to section 13 (1)(b) of the Income Tax Ordinance, 1979, clearly leads to con clusion that either learned officer is living in utopia or having a manic approach to proceed in the matter. The former notice detected that; "From the above it indicated that you sold your House 483‑D Peoples Colony Faisalabad at Rs.1,24,13,800. But now it has been noticed that the sail house was gifted by you to Mrs. Asma Asif W/o Muhammad Asif R/o 259‑B Peoples Colony Faisalabad. This fact is supported vide Gift deed, dated 8‑4‑1996. Now on the basis of new fact of filing of inaccurate particulars/ concealment of income I intend to reopen your case under section 65 for additional assessment for which you are hereby show caused to explain your position by 6‑5‑2000" and the later reproduced in para. 13 above do not congruent with each other. In addition a new story is inducted regarding inquiry report of Inspector, dated 18‑12‑1995. Needless here to mention it was available during assessment proceedings of 1995‑96 but did not consider. However, it made very clear that renovation of said house was carried out during 1991‑92 and at the time of assessment it was considered and, no adverse inference was drawn as, mentioned in para. above. (15) That it is not ended here, the tyrant Assessing Officer, issued Notice No. 0658918, dated. 20‑6‑2001 in exercise of powers conferred under First Proviso to section 13(1), which was kept in abeyance since its insertion under Clause (7) in Part IV of Second Schedule to Income Tax Ordinance, 1979 by Finance Act, 1987. However, it made effective by Finance Ordinance, 2000. After said amendment, the language of said proviso if required to be applied, be applicable in the year of discovery only. (16) That in addition to above submissions, the learned Assessing Officer, ignoring basis for re‑opening on account of inaccurate particulars, as mentioned in Notice No.789, dated 29‑4‑2000 as well as Inspector's report, discussed above, somersaulted to finalize assessment under section 65/62 at Rs.7,129,639 vide order, dated assessment 30‑6‑2001 making addition on Valuer Report at Rs.6,855,639 under section 13(1)(b) of Income Tax Ordinance, 1979 after obtained permission for addition and‑not approval, as provided and also issued Notice under section 116 for default of furnishing inaccurate particulars. 17. That highhandedness of the learned officer is condemnable firstly, re‑opening proceedings under section 65 with approval of learned IAC vide Letter No. IAC‑11/99‑2000/1 and E‑II‑53/53, dated 18‑5‑2000 based upon inaccurate particulars but assessment under section 65/62 finalized on the basis of Valuer's Report, appointed after issuance of Show‑Cause Notice No.789, dated 29‑4‑2000. Secondly Notice No.0530342, dated 15‑6‑2001 was multi dimensional, as stated in para. 13 above. The third Notice No.0658918; dated 20‑6‑2001 is the funniest of all for the reasons it is purported to have been issued to make addition in terms of Clause (b) read with First Proviso to section 13(1) for assessment year 1996‑97. It is suggested that the said officer be‑ recommended for the highest civil award for Revenue collection. Appeals was filed before learned CIT(A), who vide Appellate Order No. 7, dated 1‑2‑2002 confirm action of the learned Assessing Officer but reduced business income of assessee. (18) That Legacy of Colonial. Past, issued Show‑Cause Notice No.787, dated 15‑5‑2002 for imposition of Penalty under section 111 of Income Tax Ordinance, 1979 and imposed 100 % penalty at Rs.2,657,461 vide order, dated 6‑6‑2002. (19) That appeals against Appellate Order of CIT(A) and Penalty Order were filed before Honourable Tribunal and CIT(A), respectively, as provided. The Honourable Tribunal vide ITA No. 1383(I.B)/2002, dated 20‑8‑2003 held that "entire addition made under the provisions of section 13 was illegal and is hereby deleted." (20) That addition made under section 13(1)(b) of Income Tax Ordinance, 1979 stood deleted by Honourable Tribunal vide ITA No. 1383(LB)/2002, dated 20‑3‑2003 as such the learned CIT(A) Zone‑I Faisalabad held that "since the addition made under section 13(1)(b) of Income Tax Ordinance, 1979 has been deleted by the learned ITAT Lahore vide I.T.A. No. 1383/LB of 2002, dated 20‑8‑2003. impugned penalty under section 111 is deleted being unjustified." (21) That it is crystal clear that there is no definite information available with the officer, proceedings initiated were ab initio illegal, without lawful authority, jurisdiction, misconceived, preposterous and based on mala fide which is proved from appellate orders, attached herewith. (22) That false assurance and depositing of amount at Rs.1,300,000 can safely be construed an act under duress and authoritative power. Now it made very clear that Tax Collectors never regarded law of the lard principle enunciated by superior judicial authorities and think themselves master empowered to do any thing whatever they deem fit at their sweet‑will whether legal or illegal it makes no difference for them. Since department did not file any Appeal or Reference before any superior judicial authorities or forums, it fortifies that entire proceedings were illegal and demand created as well as amount directed to be deposited under TAS was nothing but show of power to generate Revenue by hook or crook to be in good book of their superiors. As aforesaid amount deposited under duress and false assurance liable to be refunded. In addition under Article 77 of Constitution no taxation without Act of Parliament, therefore, rate of tax fixed under Rule 26G of Income Tax Rules, 1982 vide S.R.O. 98(I)/2000, dated 1‑3‑2000 is without lawful authority and have no binding force. It is essential to submit that your order, to issue of refund voucher at an earliest against amount deposited under duress as well as under Rule 26G of Income Tax Rules 1982, as aforesaid, will boost better relation between Tax Payer and Tax Collectors. Copies of this letter alongwith all enclosures are being endorsed to Honourable Chairman C.B.R. Islamabad as well as Director General Audit and Inspection for necessary action. It is brought to your knowledge that if nothing is heard from your end within a fortnight, my client reserves right to initiate appropriate action before any judicial authority. In addition it comes within mischief of maladministration under Federal Tax Ombudsman Ordinance, 2000. Thanking you and waiting for refund voucher before it become too late. LETTER FROM MUHAMMAD SHARIF & COMPANY SAHIWAL TO CENTRAL BOARD OF REVENUE (Maintaining the Sovereignty of Taxation in Pakistan) [16th May, 2004] Muhammad Abdullah Yousaf, Honourable Chairman, Central Board of Revenue, Islamabad. SUBJECT: MAINTAINING THE SOVEREIGNTY OF TAXATION IN PAKISTAN Respected Sir, In continuation to my suggestion submitted through representation dated 16‑3‑2004 it is submitted with anticipated apology that no action seemed have been so far. INCOME TAX. Your honour according section 120 of the Income Tax Ordinance, 2001 the taxable income for that tax year shall be an assessment as per the return. This further strengthened from Circular No.5 of 2003 titling Universal Self‑Assessment. But the Assessing Officers have not considering the same as directive contained Circular No.5 of 2003. The assesses are, therefore, facing hardship for applying exemption certificate under section 148(3). They are not considering the payment of tax equal to the amount of tax paid for the immediate year. It is, therefore, suggested that either the Assessing Officer be directed so to consider the payment made alongwith the return filed under section 114 of Income Tax Ordinance, 2001 as requisite tax or they be directed too issue assessment through I.T. 30 and Demand Notice. SALES TAX Your honour, Notification No.S.R.O. 500(I)/2003 was statedly issued on 7‑6‑2003 (Now published at page 1034 of 30th Edition of Sales Tax Act by Tariq Najib Chaudhry) but the same was not published in any renowned journal i.e. Taxation or PTD but without indication its authenticity the purpose was published (perhaps September issue) of tax forum. Now it seen that last date for payment etc. was fixed as 30‑9‑2003. On the other hand Income Tax Returns were also desired to be filed alongwith payment of tax up to 30‑9‑2003 (See section 18(3) of Income tax Ordinance). It is obvious that the assessees were unable to bear double burden of tax as (Income Tax and Sales Tax) simultaneously. Besides a very short time was allowed which deprived the middle class of assessees to avail such facility' of Sales Tax. Under these circumstances it is suggested that the matter may kindly be reviewed and last date for availing amnesty of S.R.O. 500(I)/2003 be, extended at least up to 30‑6‑2004. In the meantime the department be restrained from asking the audit etc. It is reiterated that personal interview be allowed so that the matter be discussed with open mind without fear. Thanking you in anticipation ------- Section 177 & abuse of powers by C.B.R. AUDIT SELECTION OR YEARN FOR REVENUE ? By Dr. Ikramul Haq, Advocate, Lahore The Central Board of Revenue (C.B.R.) has once again flagrantly violated the law by transgressing on the legal powers vested in the Commissioner of Income Tax under section 177 of the Income Tax Ordinance, 2001 [hereinafter "the Ordinance"], which being quasi judicial in nature, could not have been exercised on the directions of an. administrative authority. This section authorises the Commissioner of Income Tai alone to select a case for audit under certain circumstances and on fulfillment of certain conditions. However, this legal power has been exercised by the Commissioners all over Pakistan on the `instructions' (dictates) of C.B.R., which is unlawful and void ab initio. According to a report published in Business Recorder of 14th May, 2004, quoting Member Direct Taxes, the following parameters for selection of cases under section 177 of the Ordinance were employed: 1. In case of corporate returns (a) where GP rate has declined by 20 per cent or more as compared to higher GP rate declared in the past two assessment years; (b) cases of exempt units, filing returns for the first time (tax year 2003) after expiry of tax holiday/exemption; (c) cases where bad debts or provisions have been claimed at Rs.10 million or more and (d) cases claiming refund of Rs.20 million or more in Large Taxpayer Unit (LTU), Karachi and Rs.5 million or more in other regions for the tax year 2003. 2. In case of non‑corporate returns (a) cases claiming refund of Rs.100,000 or more for the tax year 2003; (b) and cases declaring income of Rs.150,000 and, above for the tax year 2003 where assessment in the last four years have been completed under the USAS. Member Direct Taxes said that since the Government has fulfilled its promise of parametric selection (sic) of cases for audit and the number of cases so selected did not exceed even 4 per cent of the total number of business returns, the C.B.R. still, as a matter of facilitation, provides an opportunity to the taxpayers, whose cases, in their opinion, have not been selected on the basis of these parameters to approach the Commissioners for deletion. He revealed that this year 547,613 business returns were filed by the corporate and non‑corporate taxpayers and only 24,020 cases have been selected for audit, which constitute only 4 per cent of the total number of business returns. This figure appears to be doubtful as business returns where tax refunds exceeding Rs. 100,000 are claimed cannot be as low as 25,000. All Pakistan Textile Mills Association (APTMA) has expressed its concern over the method adopted by C.B.R. in selecting cases for detailed audit. The association's standing committee on taxation field a meeting to discuss the tax year 2003 and voiced its concern over the manner in which cases for detailed audit had been selected. 'It was pointed out that the understanding given by the Finance Minister Shaukat Aziz in, his budget speech was that only those cases with definite information of evasion would be selected, for detailed audit. "But in case of APTMA members out of 180 textile mills, 83 units in Sindh and 169 cases out of 250 in Punjab had been selected for audit which came to about 50 per cent. It further pointed out that even in cases where statements filed under section 143(b) and cases assessed under normal law for the last many years had also been included in the list". These figures released by APTMA expose the claim of the C.B.R. that only 4% cases have been selected. Even if this claim is correct .it is clear that criterion for audit selection aims at targeting financial institutions, whose share in the total revenue collection is quite significant, and textile sector that contributes overwhelmingly to earn exports proceeds. This attitude of the C.B.R. is clearly anti‑business and revenue‑biased. It keeps on squeezing the good taxpayers and helping its "friends" to remain outside the tax net or enjoy presumptive taxes that they can pass on to the public at large or governmental bodies, which award them contracts. The APTMA members criticized that the C.B.R. did not maintain transparency in the selection of cases for total audit or even the method it had adopted for selecting these cases. They resented the method and termed it an anti‑investment move which shook up the confidence of the business community and textile industry in particular. They further said by adopting, such methods the C.B.R. was only damaging investment climate in the country and there was urgent need to check such acts which were contrary to the national interest. The Member Direct Taxes explained that one of the important aspects of the Universal Self‑Assessment Implementation Plan (USAIP) for the tax year 2003 was the selection of cases for audit on certain parameters. Recently, this obligation has been fulfilled by selecting corporate and non‑corporate cases for audit. However, certain quarters of business community created an impression that audit selection was. done Without considering any parameters and exceeded 20 per cent of the total returns in violation of the promise by the Finance Minister in his budget speech last year. The Member dispelled this impression created by these quarters. He explained that as per the Income Tax Ordinance 2001, the powers to evolve parameters for selection of cases for audit and thereafter making such selection on those parameters vests with the Commissioners of Income Tax (CITs). There was an apprehension at C.B.A.'s level that the tax year 2003 being first year of Universal Self‑Assessment Scheme (USAS), the Commissioners might not be clear in developing parameters and adopting the modes of selection for audit. Moreover, it would have created a heterogeneous situation by each CIT adopting his own parameters. To remove these apprehensions, the C.B.R, arranged a conference of Commissioners Islamabad in March to analyse and discuss the matter and evolve uniformity on selection process. It was in that conference that the Commissioners reached a consensus on the four parameters for selection of corporate and two for non‑corporate cases for audit. The revelations made by Member Direct Taxes about selection of cases under section 177 are in direct conflict with earlier claims that only risk‑based tax audit will be made. The categories mentioned above clearly show the age‑old practice of the C.B.R. to hunt for more and more Revenue, penalize those who claim refunds and target banks and financial institutions who are already subjected to excessive advance taxes on gross turnover basis. The mockery of the situation is that on the one hand the Ordinance demands advance tax under section 147 on gross turnover basis and when the same results into refund the case is conveniently selected‑ for audit in order to eliminate or reduce it. The selection process adopted by the C.B.R. has proved that USAS cannot work if the (mal) practice of assigning and achieving budget targets to Field Officers is not abolished. The moment budget estimate for a Circle is communicated to a Taxation Officer, he in instructed by his high‑up, including the C.B.R. stalwarts, that he is bound to collect that amount; somehow or other within the year and it is even suggested that he may collect it illegally, if he cannot collect it legally. The budget figure exercises too great an influence on the Tax Officer's disposals and (mal)treatment towards taxpayers. This reacts on the progress of work in two opposite ways: (a) it makes the Tax Officer rush his work towards the end of the year, or (b) it snakes him slacken off if he‑had already reached his budget figure. Except that he should give precedence to cases which are likely to yield more Revenue, the Tax Officer should not be obsessed by the budget figure. He has certain number of assessments to complete in a year and his merits will be judged by the way in which he completes those cases and not by the extent to which he has collected his budget estimate. He should; therefore, concentrate on completing his cases carefully and in good time; if he does so, the budget can take care of itself. The success of the new Ordinance, effective, from tax year 2003, largely depended on the successful implementation of USAS. The C.B.R., in its material posted on website, claimed and assured that no taxpayer will be selected for audit unless there is some "concrete" evidence of concealment against him. With a view to bring home the advantages' of USAS to the taxpayer, a massive campaign of taxpayer education was required before its implementation, which unfortunately was not undertaken by the C.B.R. The apex Revenue collection authority did not explain the various provisions: of the tax laws with particular emphasis on the details and advantages of the USAS. The new scheme basically reposes faith in taxpayers and expects them to disclose full particulars of their income and claim only proper deductions. This procedure aims at, reducing the volume of the department's work as otherwise the time of the authorities would be spent in scrutinizing each and every "return of income" irrespective of the income; similarly, a large number of taxpayers are saved the trouble of attending to their cases at the time of scrutiny. The tall claims of paradigm shift under the new Ordinance i.e. revolutionary step of USAS now, stands exposed. The tragic part is that powers available to the Commissioners under section 177 of the Ordinance have been blatantly abused. The intimation of selection of cases for audit by the Commissioners without assigning any reason. is against section 24A of General Clauses Act which reads as under: 24A. Exercise of power under enactments.‑‑‑(1) Where, by or, under any enactment, a power to make any order or give any direction is conferred on any, authority, office or person such power shall be exercised reasonably, fairly, justly and for the advancement of the purposes of the enactment. (2) The authority, office or person making any order or issuing any direction under the power conferred by or under any enactment shall, so far as necessary or ‑appropriate, give reasons for making the order or, as the case may be for issuing the direction and shall provide a copy of the order or, as the case may be, the direction' to the person affected prejudicially. As evident from above, the provisions of section 24A of General Clauses Act have not been kept in view while exercising powers available under section 177 of the Ordinance. In the following cases, the honourable apex Court has taken strong exception vis‑a‑vis arbitrary use of powers: (1) 1999 SCMR 467; (2) 1998 SCMR 2268; (3) 1997 SCMR 1804; (4) 1997 SCMR 641; (5) PLD 1991 SC 14; (6) PLD 1990 SC 1092; (7) 1986 SCMR 916 and (8) PLD 1956 SC 41. Reliance can also be placed on the following cases decided by Lahore and Karachi High Courts: 2002 PTD 2799; 1999 C L C 607; PLD 1995 Karachi 33; 1992 C L C 1158 It is a cardinal principle as elaborated by the honourable apex Court and High Courts in cases cited supra that where a statute confers any power to an authority he should exercise the same reasonably, fairly and justly. It is essential that exercise of such powers should entail some valid reasons and where the same is lacking, an affectee is entitled to demand the same, which the authority is bound to furnish [reference para. D, page 2277 of 1998 SCMR 2268]. The manner in which the cases have been selected for audit without assigning or specifying reasons as required under subsection (1) of section 177 of the Ordinance read with section 24A of General Clauses Act has rendered the entire exercise void ab initio. Provisions of section 177 read as under: 177. Audit.‑‑‑(1) The Commissioner may select any person for an audit of the person's income tax affairs having regard to ‑ (a) the person's history of compliance or non‑compliance with this Ordinance; (b) the amount of tax payable by the person; (c) the class of business conducted by the person; and (d) any other matter that the Commissioner considers relevant, (1A) After selection of a person for audit under subsection (1), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person. (1B) After completion of the audit under subsection (1A) or sub‑section (3), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or sub‑section (4) of section 122, as the case may be. (2) The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits,, particularly having regard to the factors in sub section (1). (3) The Central Board of Revenue may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961), to conduct an audit of the income tax affairs of any person and the scope of such audit shall be as determined by the Central Board of Revenue on a case by case basis. (4) Any person employed by a firm referred to in subsection (3) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of the conducting an audit under that subsection". The provisions of section 177(1) clearly require the Commissioner to specifically mention the reason(s) for which he intends to select a case for audit. Since this is going to be an adverse for the taxpayers, the Commissioner must give him an opportunity of being heard before selection of the case. In the present exercise of audit selection, conducted on the directions of C.B.R., the well‑established principle of audi aleram partem has been ignored. The Commissioners did not bother to mention reasons for selection of cases not to talk of giving an opportunity of being heard prior to selection. The taxpayers have been condemned unheard despite the following categorical judgments on this issue which are binding on the tax authorities under Article 189 and 201 of the Constitution: (1) PLD 1964 SC 410; (2) 1994 SCMR 2232; (3) 1999 PTD 1358; (4) (1979) 39 Tax 1 (H.C. Lah.); and (5) AIR 1920 Lah. 247. Section 177, conferring wide‑worded powers on the Commissioner, is open to excessive use and abuse of discretionary powers by the Commissioner. The general principle is that where wide‑worded powers are bestowed on an authority there remains always a need to structure discretion. The honourable Supreme Court of Pakistan in 1977 SCMR 1804 at page 1810 provided the following guidelines: "The seven instruments that are most useful in the structuring of discretionary powers are open plans, open policy statements, open rules, open findings, open reasons, open precedents and fair formal procedure." If the C.B.R. wants to make its audit policy transparent, it needs to follow the above referred guidance by the apex Court. The present exercise undertaken by C.B.R. with the Zonal Commissioners in a closed‑door conference is violative of law. It offends the principle of open and transparent public policy. One hopes that the Commissioners will withdraw their letters of selection for cases immediately which are violative of law and fresh audit selection will be conducted, if required, after regularizing the discretionary powers available to the Commissioners in the light of principles enunciated by the apex Court in this regard. LETTER FROM ABDUL TAHIR ANSARI, COUNSEL FOR ASSESSEE TO THE COMMISSIONER OF INCOME‑TAX, SUKKUR (Selection of cases for Audit‑Intimation regarding) To The Commissioner of Income‑tax, Sukkar Zone, Suhkur. SUBJECT: SELECTION OF CASES FOR AUDIT‑INTIMATION REGARDING. Sir, With reference to parametric selection of cases for audit pertaining to Tax Year 2003, circulated vide Press release dated 13‑5‑2004, wherein following two conditions have been set for Non Corporate cases. 1. Returns where the claim of refund is Rs.100,000 or more and 2. Returns having filed with income at Rs.150,000 or more if the returns for past 4 years were processed under Self‑Assessment Scheme. I would like to draw your kind attention towards the fact that said selection is not in consonance with provision of Income Tax Ordinance, 2001 on following grounds: As per section 177 of the Income Tax Ordinance, 2001 only 4 eventualities have been provided under Income Tax Ordinance, 2001 for selection of cases by audit, mentioned hereinbelow: (a) the person's history of compliance or non‑compliance with this Ordinance; (b) the amount of tax payable by the person; (c) the class of business conducted the person; and (d) any other matter that the Commissioner considers relevant. Any other criteria other than above stated conditions implies to blatant violation of section 177 of Income Tax Ordinance, 2001. The selection made under two parametric conditions is in violation of clause (c) of section 177(1) which envisaged that only specific class of business conducted by the person could be selected for audit. On the contrary, the parametric selection under two heads reflects the classes of business conducted by taxpayer on basis of refund claimed and income declared instead of single clause (c) of section 177 of the Income Tax Ordinance, 2001. Moreover, in the light of Ch. II of Income tax Manual, page No.16 under the head selection by C.I.T. under section 177(1)(d). The conditional ties have been defined on page No. 16 under which the C.I.T. can select cases for audit only on specific conditions enumerated under section 177(1)(d). It is also noteworthy that cases having refund of Rs.100,000 or more have also been selected for audit. In this regard it is stated that those cases have also been selected in which refunds have already been issued. It is pertinent to mention here that under section 170(3) of Income Tax Ordinance, 2001, refunds could only be issued where C. I. T. is satisfied after exhausting three eventualities stated under section 177(3). According to Oxford Dictionary satisfaction means: "Payment of debt, fulfillment of obligation". . As per Osborn's Law Dictionary satisfaction means: "the extinguishments of an obligation imply by performance i.e. the payment of debt. A judgment may be satisfied by payment or execution. The equitable doctrine of satisfaction relates to the doing of an act is substation for the performance of an obligation. " Any refund once issued after the satisfaction of C.I.T. cannot be made subject‑matter of scrutiny without having any material evidence or issuance of show‑cause notice. Further more, the said selection is in violation of 2.2. (Assessment versus Audit) conditions as defined in Income Tax Manual Part V. Regarding the selection of cases declaring income of Rs.150,000 or above, it is stated that it is against the law of natural justice that all those tax abiding people who had filed their returns continuously under Self‑Assessment Scheme in last four years had been deliberately penalized for fulfilling their legal obligations in past. Such a discrimi natory attitude of authorities is against the avowed principle of justice. Hope that aforementioned submission would be considered sympathetically for facilitation of taxpayer.