2005 PLP 1022 (PTD)

S.85

Demand notice

Copies of IT-30S showed demand

No demand notices were issued

Federal Tax Ombudsman recommended that demand notices invariably be issued, so that taxpayers do not remain in dark about the demand/refund due. Muhammad Asif for the Complainant. Muzammil Hussain, DCIT for Respondent. DECISION/FINDINGS This complaint of maladministration is directed against the Revenue for delay in payment of refund amounting to Rs.11,872 for Assessment years 1995-96 to 2002-2003 due for payment to the complainant on account of excess deduction of tax during the years in question. The complainant filed application, dated 28-8-2002 for payment of refund, followed by a reminder, dated 31-12-2003, which was neither responded to by the department nor was any refund voucher issued. It is pleaded that the respondents may be directed to issue the refund voucher for the requisite amount.

2. In reply, the respondents have submitted that the complainant, deriving income from Laundry Shop, had filed returns for Assessment years 1995-96 to 2002-2003 claiming refunds of various amounts. Assessments were completed under section 59(1) of the Income Tax Ordinance, 1979 (now repealed) for all the assessment years at no demand . The complainant had filed rectification applications on 28-8-2002, 31-12-2003 and 8-5-2004 for allowing credit of deductions of tax under section 50(7E) of the repealed Ordinance and for issuance of refund vouchers for the aforesaid years. The applications were not made on the prescribed form and in the manner as prescribed under section 170(2) of the Income Tax Ordinance, 2001. The complainant s case was rectified under section 221 of the Ordinance creating refunds aggregating Rs.11,872 vide order, dated 29-5-2004. Since a tax demand of Rs.1475 for Assessment years 1984-85, 1991-92, 1992-93 and 1994-95 was also outstanding against the complainant, the same was adjusted and balance refund of Rs.10,397 was issued to the complainant vide voucher No.22, book No.12834, dated 25-6-2004. It is pleaded that the complaint may be rejected.

3. During the hearing, the AR reiterated the arguments as advanced in the written complaint. He denied receipt of refund voucher said to have been issued by the department vide para. 5 of its comments and placed to that effect an affidavit, dated 12-7-2004 on record adding that the respondents should not only release the refund voucher but also pay compensation of causing undue delay in the payment of refunds under section 102 of the repealed Ordinance. He also denied receipt of any demand notices for Assessment years 1984-85, 1991-92, 1992-93 and 1994-95 asserting that nothing was outstanding against the complainant.

4. Admitting excess deductions under section 50(7E) of the repealed Ordinance during the years in question the DR stated that rectification was made under section 221 of the Income Tax Ordinance, 2001 on 29-5-2004 creating a refund for an aggregate amount of Rs.10,

397. The difference between the amount of refund claimed at Rs.11,872 and the amount of refund so created i.e. Rs.1475 was due to tax adjustment against outstanding demands during some of the years. The complainant first applied for refund on 28-8-2002. The Income Tax Ordinance, 2001 came into effect from 1st July, 2002, according to which the complainant was to file refund application in the prescribed form under section 170(2) ibid which he did not. The refunds became due under section 170 of the Income Tax Ordinance, 2001 only three months after the date of refund order. He stated that complainant s case was rectified creating refunds for the Assessment years in question on 29-5-2004 and the refund voucher was issued on 25-6-2004. The refund was, therefore, paid within three months of the rectification order, hence there was no delay in issuance of refund voucher. The AR argued that refunds became due when assessments were completed or when the returns filed under the Self-Assessment Scheme were accepted. He also added that his client was entitled not only to payment of refund but also to compensation under section 102 of the repealed Ordinance. The DR, however, contested payment of compensation under the aforesaid section on the ground that section 102 of the repealed Ordinance had not been saved under section 239 of the Income Tax Ordinance, 2001. As to the so-called outstanding demands the AR stated that except for a demand of Rs.75 for Assessing year 1984-85, (which was paid on 31-2-1985) no other demand notice was ever served on or received by the complainant. The DR was asked to submit demand notices for Assessment years 1984-85, 1991-92, 1992-93 and 1994-95 which were served on the complainant and also to furnish copy of refund voucher No.22, dated 25-6-2003 said to be issued by the department. While the DR submitted copies of IT-30 showing demands for the years, 1991-92 (R.500), 1993-94 (Rs.500), 1994-95 (Rs.200) and 1984-85 (Rs.75) aggregating Rs.1275 he could not produce any demand notice served on the complainant. As for voucher No.22, dated 25-6-2004 which was claimed by the respondents to have been issued vide para. 5 of their comments instead of producing a copy thereof it was explained that the voucher in question was cancelled and could not be issued because of insertion of wrong particulars of the name of the assessee in the counterfoil of the voucher and because soon after its cancellation the book was sent for by the IAC for inspection. On its return, a fresh voucher No.29 for Rs.10,397 was re-issued on 13-7-2004 and got received from the complainant on the same day i.e. the day of hearing.

6. The arguments of the parties and the record of the case have been considered and examined. Admittedly, the assessments for the subject Assessment years were completed under section 59(1) of the repealed Ordinance with no demand . The complainant filed rectification-cum-refund applications, dated 28-8-2002, 31-12-2003 and 8-5-2004 seeking credit for excess deductions and for giving refunds which were neither responded to nor was any refund voucher issued. As a matter of fact the record shows that while for some years assessments were completed showing refunds in the case of other assessment years the returns were accepted under SAS. No demands were created yet the refunds due to the complainant were not given. The acceptance of returns in which the complainant had claimed refunds under SAS meant that the refunds had become due and voucher for refund due should have been issued. Therefore, the failure to issue refund voucher for the amounts as and when the refunds became due for payment and causing delay in payment thereof are acts which qualify as maladministration within the meaning of section 2(3) of the Establishment of the Office of the Federal Tax Ombudsman Ordinance, 2000. It is also observed that refund voucher No. 22, book No.12834, dated 25-6-2004, which was claimed to have been issued vide para. 5 of respondents comments, was never issued. The respondents tried to explain away the lapse on the grounds narrated above but what the department needs to realize is that initial statement in parawise comments that the voucher had been issued ought to have been checked and verified before making it. In any case it was confirmed a day after the hearing both the DR and the AR, who appeared for submission of copies of some documents, that another voucher No.29 was issued on 13-7-2004 and received by the complainant on the same day. Insofar as the outstanding demands for Assessment years 1984-85, 1991-92, 1992-93 and 1994-95 are concerned, the respondents adjusted an amount of Rs.1475 but when asked to produce copies of demand notices the DR could not do so. In fact the DR confirmed that demand notices under section 85 of the repealed Ordinance were not available in the file except for the year, 1984-85 for an amount of Rs.75, which was paid. However, the DR produced copies of IT-30S (on record) showing demand for 1984-85 (Rs.75,1991-92 (Rs.500), 1993-94 (Rs.500) and 1994-95 (Rs.200). As no formal demand notices were issued and served on the complainant for the years in question the complainant was not aware of his liability. However, the amounts were adjusted by the department at Rs.1475 whereas adjustment as per the details given by the DR himself should have been of the order of Rs.1200 (an amount of Rs.75 for Assessment year 1984-85 having been already paid). The department, therefore, still owes a refund of Rs.275 to the complainant. As for compensation for delay in payment of refunds due it is observed that while no such compensation was claimed in the written complaint, the AR during the hearing and as per the complainant s affidavit placed on record on the day of the hearing pressed for the same. The respondents arguments that no compensation was due because the complainant had not applied for refund on proper form as prescribed under section 170 of the Income Tax Ordinance, 2001 and because the refund voucher, dated 25-6-2004 was issued (which was never issued as discussed above) only a month after the rectification orders, dated 29-5-2004 are wholly flawed inasmuch as the respondents did not even bother to respond to the complainant s applications for rectification and payment of refund admittedly filed on 28-8-2002 nor did they advise him to submit application on proper form and unjustly held back the amounts of refund that became due to him after completion of assessments. The refunds became due on the dates on which the assessments were completed and if the department failed to issue the refund voucher along with the assessment orders or in response to refund application, dated 28-8-2002 it has itself to blame for that lapse. Even otherwise the right to receive refund and compensation accrued in respect of a number of assessment years prior to the promulgation of the Income Tax Ordinance, 2001. The refunds were due to be paid within three months of the dates on which these became due but were arbitrarily held back. This is a case of obvious maladministration . Accordingly, it is recommended that the C.B.R. direct the competent taxation authority to:-- (i) Refund to the complainant the balance amount of Rs.275. (ii) Allow compensation to the complainant on account of delay in payment of refunds from the dates on which the refunds became due at the prescribed rate in accordance with the provisions of law. (iii) Issue invariably Demand Notices and IT-30S so that taxpayers do not remain in dark about the demand/refund due. (iv) Ensure that parawise comments contain truthful narration of facts to facilitate correct appreciation of the issues. (v) Compliance be reported within 30 days. M.I./312/FTO Order accordingly.