2003 PLP 2159 (PTD)

Ch. Jaafar Nawaz, D-CIT for Respondent. The complaint alleges "maladminsitration" in the selection of their Return for the assessment year 2002-2003 for Total Audit by resort to para 9(a) of the SAS.

2. The facts, briefly stated, are that the Complainant-AOP is manufacturer and wholesaler of cloth. Admittedly no books of accounts were maintained. The complainant has a history of acceptance of Returns under SAS. For the year under consideration, in a statement prepared on estimate basis, sales of manufactured items were declared at Rs.1.9 (M) against Rs.1.84 (M) of the preceding year; GP was worked out at 22.8% as against 25 % last year. Wholesales of cloth were for the first time declared at Rs.13,277,703 yielding GP at 4.49%. Total Income. was thus declared at Rs.360,

456. The Return was not picked up by the computer in random ballot. A show-cause notice, dated 27-12-2002 was served by the R-CIT extending opportunity of hearing as the Return was intended to be 'set apart' for Total Audit by resort to para 9(a) of C.B.R. Circular No.7 of 2002. In response it was explained that income was declared at 20% higher than last year, slight fall in GP rate was attributable to business fluctuations and more importantly, the set apart was not in accordance with the guidelines prescribed by the C.B.R. This did not impress the R-CIT who finally selected the case for Total Audit on 31-1-2003 specifying that detailed scrutiny was required "to ascertain magnitude of business, and the income arising therefrom which is otherwise reflected in your Return". This is the cause of grievance now.

3. The respondent has forwarded para-wise comments by R-CIT, Northern Region; Islamabad which, as usual, question the competence of the complaint for admission as per the provisions of section 9(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance. It is further explained that (i) there was no plausible reason for fall in GP, (ii) a new activity of wholesale dealing of cloth was conducted having quantum of over Rs.13.0 (M) on which the declared GP @ 4.49% was lower than the one normally obtaining in this line, and (iii) the net profit at a mere 2.3% reflected heavy fall compared to the preceding year's 16.3%. It concludes by submitting that element of understatement could not be satisfactorily explained by the complainant, hence the set apart was strictly in accordance with the law and procedure.

4. The learned counsel for the complainant, Pirzada Syed Saeed (Advocate) pleaded that C.B.R. policy guidelines, dated 17-12-2002 authorized selection on factors like evident decline in income, disparity in expenses on utilities, acquisition of new assets or incurring a liability of Rs.50,000, undisclosed investment and disparity with reference to profile prepared by Survey and Registration Team. None of these, according to the learned counsel, were present in the complainant's case. Thus the spirit of guidelines, particularly the emphasis: "this time must be ensured that the selection is based on material evidence on fair and just treatment is accorded to all taxpayers", was disregarded with impunity. It was pleaded that this discrimination and mala fide is cognizable by the FTO.

5. Ch. Jaffar Nawaz (D-CIT) appearing for the Revenue submitted that the parameters prescribed by the C.B.R. vested the R-CIT\with the authority to set apart cases if he had "reason to believe" that declared income was on the lower side. In the complainant's case 25% GP rate was the history, hence the fall to 22.5 % reduced the quantum of GP and consequently the declared income of which cognizance was rightly taken by the R-CIT. Moreover, a new line of business of Wholesale dealings in cloth was commenced for which sufficient investment was needed as admittedly sales amounted to more than Rs.13.0 (M). The total turnover thus came to over Rs.15.0 (M) compared to mere Rs.1.8 (M) of the preceding year and, therefore, investment was to be probed moreso when obviously expenses were inflated so as to bring down the income to a mere 20% higher than in the preceding year.

6. A scrutiny of record and arguments by the two rival representatives brings out that although the factors specifically, spelled out in the policy guidelines were not obtaining .in the complainant's case yet the adventure in 'wholesale dealings of cloth was of substantial quantum which enhanced the turnover manifolds-still the declared income showed only a marginal improvement over last year which was sufficient ground for a reasonable belief that this was a 'revenue potential case'. On this visualization there appears no discrimination or "maladministration" which could be taken note of under clause (3) of subsection (2) of the Establishment of the Office of Federal Tax Ombudsman Ordinance. The complaint is consequently filed and the case is CLOSED. C.M.A./819/FTO???????????????????????????????????????????????????????????????????????????????? Order accordingly.