2003 PLP 2413 (PTD)

1995‑96 1996‑97 1997‑98 1998‑99 1999‑2000 Members capital 3,460,140 5,920,140 8,055,380 10159380 11793380 Loans/Advances 6,969,227 2,925,000 7,961,284 7000000 2047805 Assets Building 243,750 219,375 647437 582694 524425 Machinery 351,000 440,800 352640 682112 613901 L/C Transit 3,973,658 1,130,794 252811 230312 Advance/Deposits 681,963 1,050,000 4742793 7725900 8533768 Cash/Bank 78,746 345,510 591,496 612,(sic)23 61,562 Profit & Loss A/C Salaries(Admn) 980800 920400 925020 620200 925020 Salaries (Sales) 745800 725000 715000 650000 715000 Commission 7744814 3601692 3301137 1068224 3301137 Advertisement 1110800 2959657 1546025 116895 1546025 Entertainment 503750 520620 300115 116116 300115 Packing/Forwarding 2370280 4370300 2880174 1021363 2880174 Repairs/Maintenance 980860 864999 750800 373593 750800 Travel/Conveyance: Administration 1936260 1796210 1371010 506395 1371010 Sales 875156 1090500 850500 725116 850500 Miscellaneous 360500 518500 300100 128600 300100 (b) The year‑wise figures of imports, tax paid under section 50(5) and the refunds finally allowed in rupees, as noted by the Director from assessment record, were as under:‑‑ Narration 1995‑96 1996‑97 1997‑98 1998‑99 1999‑2000 Imports 6386033 81178167 88736546 56844199 27524499 Tax paid U/S 50(5) 448758 4762767 4262591 2894377 1584330 Income declared Original 39500 398000 2400000 2500000 1000000 Revised 100140 3060000 Not filed Not filed Not filed Assessed 290640 6028900 6424317 5638240 2540469 Date of order 27‑6‑1996 8‑8‑1997 30‑6‑2000 4‑10‑2000 11‑7‑2001 Refund 386352 2421385 1764111 1601203 731198 (c) The most significant feature of the statements of account supra, noted by the Director, was that both the wages claimed as well as the declared cost of machinery were too low to support assessees claim that he was a manufacturer/industrial importer. It was a very valid observation because no plant worth three to six hundred thousand rupees with wages around four hundred fifty thousand rupees could be automatic enough to convert steel sheet coils and plastic moulding compound (granules) worth Rs.75,000 million a year on an average into parts/components of washing machines or fans. (d) Another indicator of the dubious character of the statements of account supra noted by the Director was the average claim of around Rs.750,000 on account of repairs & maintenance against building and machinery with total written down value being around the same amount. Other manufacturing expenses too were claimed only @ Rs.1,400,000 on an average. (e) The Director pertinently noted that absence of evidence about the mode of service of notices under section 144 for verification of sales, the identical replies received in identical envelopes within a span of three days in confirmation of transactions from most of the declared customers none of whom disclosed his NTN rendered the whole process unreliable. He further noted that neither the Assessing Officer insisted on the requirement nor issued any intimation slips about the transactions to circles in whose jurisdictions the addresses of such customers were falling. The fact that the Inspecting Additional Commissioners) deliberately chose to overlook and insisted not to take cognizance even when pointed out supported the apprehension of connivance with ulterior motives. The Director noted many other serious lapses that, in the particular circumstances of the case, supported the charge of prompting the assessee in posing as a manufacturer to escape assessment on deemed income under section 80‑C as commercial importer as well as of aiding and abetting in creation and payment of unlawful refunds.

28. Second special report of the Director Inspection was captioned:‑‑ "Special inspection report Messrs Concerto Engineering Co. Gujranwala NTN: 16‑20‑3908688 (old) 16‑10‑0321960 (New) assessment year 1995‑96 to 1999‑2000"

29. It too was a comprehensive report covering almost all the facts which, inter alia, included following significant findings and observations:‑‑ (a) That a statement under section 143‑B bearing date of filing as 30‑6‑1995 was found on record for assessment year 1995‑96 declaring imports amounting to Rs.4,505,950 and tax payment under section 50(5) amounting to Rs.90.119. NTN column bears the words "New case". Besides, a return of income under section 55 for the same assessment year was also found on record bearing the date of filing as 30‑9‑1996 bearing initials of the Assessing Officer. The Director did not find any assessment order on record. He, however, found a wealth statement as on 30‑6‑1995 in the miscellaneous file cover for assessment year 1996‑1997 showing:‑‑ Business Capital Rs.48,000 Jewellry Rs.8,50,000 Shares of A‑1 Industry, Gadoon Rs.4,50,000 Cash Rs.1,95,000 Liabilities Rs.Nil, Net wealth Rs.2,263,000 (b) The year‑wise figures of imports, tax paid under section 50(5) and the refunds finally allowed in rupees, as noted by the Director from assessment record, were as under:‑‑ Narration 1995‑96 1996‑97 1997‑98 1998‑99 1999‑2000 4,505,950 57,904,832 70,126,388 38,973,464 42,797,970 90,119 3,639,946 (sic) (sic) (sic) 2,498,285 2,460,000 1,250,000 1,800,000 4,466,612 5,645,868 3,148,212 4,077,848 1,975,691 973,007 1,220,833 1,062,692 (c) The Director's conclusions in the instant case were identical to his conclusions in sub‑Paras c, d and e of para 26 supra in the case of Accord International. The basis of his conclusions was absolute absence of any evidence upto assessment year 1997‑98 of installation of any plant or machinery and nominal investment declared thereon in the balance‑sheet as on 30th Dune 1998. It was too insufficient to justify, the claim of conversion of the imported material into parts and components of washing machines or electric fans. Even the existence of following machinery and building reported by the ITI of the CIT in the report of his enquiry, conducted on 24‑8‑2002 was inadequate to justify the claim of the assessee that he was an industrial importer:‑‑ (i) Injection Moulding machine (04) (ii) Lathe Machine 02 (iii) Hydraulic Press 02 (iv) Drill Machine 01 (v) Polishing Machine 02 (vi) Cutter Machine 01 i. Office ii. Rooms(6) iii. Veranda iv. Hall. v. Retiring rooms (d) Another common feature noted by the Director that he found significant in the context of the issue as to whether the assessees were commercial or industrial importers was that although huge additions were made to the declared income in each year by the Assessing Officer vide his orders but neither of the two assessees filed appeal against any such order.

30. The Director, therefore, concluded that in both the cases the importers managed to deprive the State of its due revenue. The examination of case records, according to the Director, revealed "gross negligence, inefficiency, extreme carelessness and malpractices by the Assessing Authority" compelling him to say "that the assessees could not have succeeded in their mission without considerable cooperation and involvement of Assessing/Supervising Officers concerned. The unlawful and illegal assessments were made only to issue maximum refund and to receive suitable share from loss sustained sic (caused) to the exchequer." The Director finally concluded, I do not think there could be any other purpose for doing what has been done by the Assessing Authority."

31. It transpired on further investigation that even those reports were not given any objective consideration rather the IAC concerned took it as an affront and wrote in his letter No. 1742 dated 1‑6‑2002 addressed to the Director I & A that precisely the issues, as identified by him in his letter No.118 dated 2‑5‑2002, for all the years were the same, which could be broadly categorised as under:‑

(a) The assessments were not to be framed under section 62 but to be finalised under section 80‑C. Reason given by the Directorate was the that assessees had a history of filing statements under section 143‑B for the assessment year 1995‑96. (b) The assessee had not exercised the option available to manufacturers under C.B.R. Circular No.26 of 1991 as provided under Clause (9) Para‑IV of the Second Schedule to the Income Tax Ordinance, 1979 (the repealed Ordinance). (c) Return for the assessment years 1996‑97 and 1999‑2000 were revised by the assessee and accepted by the Department without any question. (d) It had been reported that the assessee was not a manufacturer but a commercial importer but no effort was made to ascertain this fact. Allegedly, it was evident from the fact that the assessee had not employed sufficient machinery for any manufacturing. (e) The assessments were framed for the purpose of issuance of refunds to the assessee for ulterior motives. (f) Action on letter No. 457 dated 18‑2‑1998 for re‑opening of the case under section 65 for the assessment year 1996‑97 warranted priority because that was going to be time‑barred on 30‑6‑2002.

32. The reasons offered by the IAC for his disagreement with contents of Directorate's Inspection Note have been examined and be considered in the subsequent paras. keeping in view the foregoing facts and circumstances found on investigation:‑‑ (a) The IAC has contended that there was no bar on the assessee to file statement under section 143‑B in one year and a return under section 55 in the subsequent year; hence case was correctly processed under section

62. The contention reflects, under the foregoing facts and circumstances of the cases, that the IAC is either totally naive and incompetent or he too is aiding and abetting in the pilferage of revenue. He has either totally missed the point or has deliberately side tracked the point that the Directorate of Audit & Inspection has been questioning the assumption that the assessees are manufacturers and the fact that initially statement under section 143‑B was filed has been cited as one of the factors supporting the view. (b) The view canvassed by of the IAC that the option to file statement under section 143‑B is available only to commercial importers and that a wrong done in one year could not be made the basis to unto a correct action in the subsequent years is simple rhetoric employed to avoid the issue. It requires conclusive evidence that the Assessing Officer conducted proper enquiries in relevant years directly from concerned sources and placed valid proof on record that the assessees have been manufacturers in all the assessment years under consideration. (c) The IAC has noted that the most important part of the inspection report was the observation that the assessee was not a manufacturer as it did not possess enough machinery to utilise the entire imports in the manufacturing process if any and that electric consumption was also nominal; besides, to cover up, the assessee had, claimed expenses under the head Generator/Fuel. He has observed that the following pieces of evidence available on record in support of the claim of assessees that manufacturers have been overlooked by the inspection Authorities. (i) expenses on EOBI and Employees Social Security supported by relevant vouchers, (ii) evidence of consumption of electricity, (iii) following certificates obtained from the Customs and Central Excise and Sales Tax Department and placed on the file in support of manufacturing capability of the assessee while framing the assessment for the assessment year 1999‑2000. Consumption Certificate Statement of imported raw material Final certificate: To certify the survey of the unit by the staff of Central Excise and Sales Tax and to verify the assessee as an importer and manufacturer of electric fans parts and washing machines parts. Form‑L: A licence to engage in business in connection with excisable goods and allowing the assessee to conduct the business of manufacturing and dealing in plastic goods and electric fans and parts of washing machines. It is found that firstly IAC has conveniently ignored the fact that the relevant assessment years start from 1995‑96; secondly that whatever evidence is available on record is submitted by the assessees and, admittedly, never, verified from the concerned authorities meaning thereby that the possibility of concoction of evidence cannot be ruled specially when the collusion of Assessing and Supervising Officers is alleged and thirdly the purpose of inspection and audit is not only to retrieve the loss of revenue but to enforce accountability upon the errant or delinquent functionaries which renders the issue of time bar to initiate action against the assessee party irrelevant. (d) The IAC has also tried to take refuge behind equally superficial and bogus examination of the cases by the Additional Director, Inspection and Audit (DT) Gujranwala in September, 2001 as well as by the Inquiry Wing of C.B.R. already considered supra. (e) Ultimately the IAC has observed that the remarks given regarding Assessing Authorities and the Supervisory Officers are not only premature but also derogatory. According to the IAC it cannot be inferred that all departments and all Income Tax Authorities are in league with the mala fide of the assessees. The remarks of the of the IAC that the observations of the Director Inspection were derogatory to say the least, are insolent. The defiant attitude of the Field Officers genuinely led the Director Inspection to believe that there was chain or collusion among the Field Officers; hence no prematurity in the adverse remarks of Director Inspection. (f) The report of the present IAC that proposal for re‑opening of the assessment for the assessment year 1996‑97 was considered by the IAC Range‑I, Gujranwala at that time and did not find the proposal worthy of approval vide his letter No.516, dated 26‑2‑1998, available on record further supports the observations of the‑Director Inspection about the role of concerned officers in the matter.

33. The alleged maladminsitration is established. It is recommended that:‑‑ (i) Jurisdiction over both the cases be assigned to Mt. Sarfraz Ahmed, Taxation Officer (BS‑19); (ii) Sarfraz Ahmed, Taxation Officer to conduct, personally with the assistance of his subordinates, the verification of all the evidence already placed on record from year to year since assessment years 1995‑96 inter alia; (a) the existence of customers shown as per details of sales filed, if any, with their NTN and the business they were engaged in, if any, in the relevant year; (b) authenticity of copies of electricity and other bills submitted by assessees; (c) authenticity of copies of certificates submitted by the two assessees from various departments; (d) verification or registration under Sales Tax Act as well as the declared sales from records of Sales Tax Department. (iii) Compliance be reported alongwith findings within 30 days from the receipt of the decision.

34. Further recommendations if any warranted by the compliance report shall be made on receipt of report. C.M.A./829/FJO Order accordingly.