2007 PLP 2051 (PTD)

8. Regarding the process initiated under section 122(5A) it is alleged that subsection (5A) of section 122 was inserted vide Finance Act, 2003 and came into force w.e.f. 1-7-2003. No notice under this subsection can be issued in respect of any assessment order framed on or before 30th June, 2003. Reliance is placed on a decision by Lahore High Court reported in 2001 PTD 1525 as under

"Section 66-A of the Income Tax Ordinance, 1979 is not procedural in nature, and therefore, it, could not have retrospective effect to touch the completed assessments before its introduction on the statute book. The interpretation made by the C.B.R. through the Circular No.1(48)/11-1-1979, dated 17-2-1981 appears to be more in consonance with law".

9. The complainant's counsel avers that assessment order cannot be considered erroneous on the grounds of deficiencies with reference to Self-Assessment Scheme. There is no prejudice to revenue. Even if (for argument's sake only) it be presumed that the income declared and return filed has been wrongly accepted, it does not by itself prove that it has caused prejudice to the revenue particularly when the agreement of sales for Rs.7,000,000 is found to be invalid. It cannot be presumed that assessment under normal law would produce more revenue. Notice under section 122(5A) cannot be issued on the basis of such presumption. Reliance is placed on the case reported in (2001 PTD (Trib.) 2902 wherein it is held-- "The Learned DR has taken the plea that normal assessment would result in a higher income being assessed. This is amore presumption, which cannot be allowed to empower the learned IAC to interfere under section 66A. The prejudice has to be clearly spelled out as a normal assessment does not automatically means a higher assessment".

10. The findings of investigation supra prove that proceedings were initiated under section 122(5A) on 10-3-2004 for assessment year 2001-2002., The assessment for the said year, in which assessment, in any case, was made on 5-12-2002 after subsection (5A) was added to section 122 through S.R.O. 663(I)2002 dated September 14, 2002 providing

"(5A) where a person does not produce accounts and records, or details of expenditure, assets and liabilities or any other information required for the purposes of audit under section 177, or does not file wealth statement under section 116, the Commissioner may, based on any available information and to the best of Commissioner's judgment, make an amended assessment."

11. However, the S.R.O. ibid was rescinded by S.R.O. 608(I) of 2003 dated June 24, 2003 and no notice under section 122(5A) could be 'issued on 10-3-2004 invoking the already rescinded provisions. The substituted subsection (5A) in section 122 is effective from July 1, 2003; C hence inapplicable to a matter decided and closed prior to enactment of Finance Act, 2003. The finding of investigation is based on the principle settled by the binding decision of Lahore High Court in the case: Messrs Monnoo Industries Limited v, The Commissioner of Income Tax, Central Zone, Lahore (reported as 2001 PTD 1525) in which C.B.R. Circular No. 1(48)11-1-1979 dated 17-2-1981 conveying following clarification has been cited with approval. "Certain queries have been made from the Board raising the following, questions

(i) whether the proceedings under section 34A of the repealed Act pending on 1st July, 1979 have lapsed on repealed of the said act; (ii) whether it is possible to revise assessments completed after the promulgation of Income Tax Ordinance, 1979 but before the insertion of section 66A in 1980. The undersigned is directed to say that the principle applicable in such cases is given in section 6 of the General Clause Act, according to which the repeal does not affect the proceedings already commenced unless the repealing Act otherwise intends. The repeal does not revive anything not in force or existing at the time the repeal takes effect. Hence the proceedings which were pending under the repealed Act may continue under that Act, However, if 'proceedings under section 34A had not been initiated when the old Act was repealed Act (Sic). Similarly section 66A does not have retrospective application. The assessments finalised before 1st. July, 1980 cannot be reopened under section 66A of the Income Tax Ordinance, 1979."

12. The alleged maladministration, on account of initiating a process which is contrary to the principle of law enunciated in the binding decision of Lahore High Court ibid, is proved, The respondent has no jurisdiction under section 122 of the Ordinance on 10-3-2004 to issue a notice under section 122(9) to amend the assessment order that was either deemed to have been passed on 30-6-2002 or in any case on 5-12-2002. The process falls under the inclusive definition of maladministration provided under section 2(3)(i)(a) of FTO Ordinance. No mala fide is required to be proved for a finding of maladministration as considered at length in the decisions on complaints bearing numbers 1472-L of 2003, 368 of 2004 and 329-K of 2004. It has been observed in the decisions ibid in this regard-- "The meaning of the word maladministration given in Chambers 21st Century Dictionary Revised Edition, at Page 829 published 1999, Reprinted 2000 are

maladminister >verb to manage (e.g. public affairs) badly, dishonestly or incompetently, maladministration noun Further, the meaning of the term "maladministration" as given in Black's Law Dictionary, 7th Edition at Page 967 published

1999, 6th Reprint

2003 are maladministration. Poor management or regulation, esp. in an official capacity

Also termed misadministration. Thus in most general terms bad of poor management or regulation of public affairs is maladministration. Bad or poor management/regulation of public affairs will remain bad notwithstanding that it is bona fide and for valid reason because goals of good management or regulation of public affairs cannot be achieved without eradication of such reasons/causes. This is the pronounced objective in the Preamble of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 reproduced hereunder: "Whereas it is expedient to provide for the appointment of the Federal Tax Ombudsman to diagnose, investigate, redress and rectify any injustice done to a person through maladministration by functionaries administering tax laws:" (Emphasis provided) Coining to the traits specifically included in the definition of "mal administration" provided in the ITO Ordinance, sub-clause (a) of clause (i) of subsection (3) of section 2 ibid includes in the definition of maladministration a decision, process, recommendation, act of omission or commission, which. (i) is contrary to law, rules or regulations or is a departure` from established practice or procedure, unless if is bona fide and for valid reasons. In order to comprehend the rider; "unless it is bona fide and for valid reasons, "supra literally, a reference to the dictionary meanings of the term bona ride may be beneficial. Chamber 21st Century Dictionary - Revised Edition at page 155 offers the meanings of the word as under: bona fide > adj. genuine or sincere; done or carried out in good faith a bona fide offer. > adverb genuinely or sincerely; in good faith. 16c ad adverb: Latin. Meanings of the word in Black's Law Dictionary, 7th Edition, at Page 168, Published 1999, 6th Reprint are as under-- bona fide- adj. (Latin "in good faith"] 1.Made in good faith; without fraud or deceit.

2. Sincere; genuine. See GOOD FAITH.--bona fide, adv. The foregoing meanings of the term "bona fide "show that a decision, process, recommendation, act of omission or commission which is contrary to law, rules or regulations or a departure from established practice or procedure may be claimed to be done in good faith (bona fide), the concept of malice ill law notwithstanding. However, attributing any "valid reason" to a decision, process, recommendation, act of omission or commission which is "contrary to law" (the law as settled by the binding decisions of judicial forums) is inconceivable. Departure from established practice or procedure is the only act for which valid reasons may be offered. Thus the rider supra governs only the second part of sub-clause (a) of clause (i) of subsection (3) of section 2 ibid i.e. the phrase, "act of omission and commission which is a departure from established practice or procedure" because it may be both bona fide as well as for valid reasons." Further, the use of conjunction "and" in the rider supra requires the tax employee to prove that an act of omission or commission which is a departure from established practice or procedure on his part was bosh bona fide as well as for valid reasons. Failure to discharge the onus on any one of the two comets or both shall not absolve him of maladministration because the use of the word "unless" with the rider suggests that it is for the respondent to prove bona fide and valid reasons. It is also significant that the rider "unless it is bona fide and for valid reasons "governing the second part of sub-clause (a) of clause (i) supra, is an exception to the common dictionary meanings of the word "maladministration". The exception seems to have been made to suggest that the Federal Tax Ombudsman does not recommend any adverse action against a tax employee who is able to prove that departure from established practice or procedure on his part was bona fide and for valid reason.

13. It is recommended

(a) That the Member Income Tax, Central Board of Revenue ensures that the principle of law enunciated in the binding decision of Lahore High Court ibid in which C.B.R. Circular supra has been cited with approval is conveyed through another Circular to all field officers so as to save both the time and effort of the officers and unnecessary harassment to the assessees. (b) That proceedings initiated in the case of instant complainant are dropped. (c) The compliance is reported within 30 days. C.M.A./313/FTO Order accordingly.