2005 PLP 1431 (PTD)

4. Mr. Suhail Muttee Babri (ITP) appearing for the Complainant contended that all verifications as required were carried out when preparing IT-30 giving effect to the order by the CIT (A). Subsequently on 23-4-2002 assurance was given that refund would be issued. Therefore, calling for (a) challans of payments, and (b) Bill of Entries in original, as per letter, dated 14-6-2004 and notice, dated 14-7-2004 is an endeavour for delaying refund which falls in the definition of "maladministration" as per section 2(3) of the Establishment of Office of Federal Tax Ombudsman Ordinance, 2000 (hereinafter called the FTO Ordinance). The learned counsel emphasized that although approval of the Commissioner for withholding refund, as required by section 103 of the repealed Ordinance was obtained, no specific order was passed by the Assessing Officer himself with the result that the refund is being withheld illegally. The counsel further asserted that C.B.R. has clarified vide Circular No.4 of 1979, dated 23-9-1979 that refund should be withheld only in those cases where there is an apprehension that the taxpayer would divest himself of the assets and will disappear thus causing loss to Revenue. According to the AR, no such possibility exited as the Chief Executive (Mr. Imran Dawood) was assessed to Wealth Tax at Rs.8.2(M) out of which Rs.3.6 (M) represented Immovable Assets. For the assertion that for commercial importers tax deductions under section 50(5) is the full and final discharge of liability hence deduction made under section 50(4) on supplies made out of the imported goods is refundable, reliance was placed on Appellate Tribunal's decision reported as 1999 PTD (Trib.) 1143. The Lahore High Court's decisions reported as 1995 PTD 749 and 1989 PTD 876 were referred to draw support for the view that after signing the IT-30 and issuing Demand Notice intimating the amount of refund, the Assessing Officer ceased to have any authority for retaining the refund unless a specific order under section 103 of the repealed Ordinance is passed. The AR summed up by submitting that verification should have been carried out before preparing the IT-30s on 30-8-2001 under section

132. That stage having passed, not only the refund as created on record, has to be paid but also the compensation for delayed refund as per section 102 of the repealed Ordinance. The learned counsel conceded that if any infraction of law is discovered now (or later) action is always possible to amend the assessment by resort to section 122 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) on the basis of 'definite information'.

5. Dr. Samra Ashraf (D-CIT) appearing for the Revenue submitted that it was wrong to allege that no order under section 103 to withhold the refund was passed. She brought on record letter, dated 9-10-2001 whereby the Assessing Officer informed the Complainant about approval by the Commissioner for withholding the refund. The DR made out the case that CBR Circular No.5 of 2002, dated 11-4-2002 enunciated that the withholding agents may not deduct tax under section 50(4) and may not insist for exemption certificate if the supplies made by a 'commercial importer' were "without value addition" and "out of import made on his own account". The DR emphasized; the very fact that the withholding agents did make the deductions under section 50(4) lead to a strong presumption that the Complainant/Importer-cum-supplier could not establish before the 'payer' (withholding agent) that the supplies were "out of import made in his own account" and "no value addition" was involved. This, according to the DR, was the reason for the Department to attempt fresh verifications so as to be doubly sure that the conditions prescribed for exemption as per Clause (9B) of Part-IV of Second Schedule to the repealed Ordinance were fully satisfied.

6. The arguments by the two sides have been heard and case record examined. The investigation reveals that the dispute hinges on the issue that the Department has not issued refund even after dismissal by the Appellate Tribunal of Department's appeal against CIT(A) order, dated 28-6-2001 although a Reference Application also has been turned down. The assertion that the refund is being withheld because a Reference to the Lahore High Court under subsection (2) of section 136 of the repealed Ordinance has been filed is belied by the enquiry which the Department embarked to ascertain whether conditions for exemption as per Clause (9B) of Part-IV of the Second Schedule of the repealed Ordinance had been adhered. This exercise is too late in the day because- (a) The CIT(A) vide order, dated 28-6-2001 has categorically held that the appellant (Complainant) is a "commercial importer" and tax deduction under section 50(5) constitutes full and final liabilities. (b) The Appellate Tribunal's decision reported as 1999 PTD (Trib) 1143 has ruled that full and final tax liability having been discharged through deductions under subsection (5) of section 50, tax deduction on 'supplies out of import goods' is refundable. This exactly is the plea of complaint. (c) The Lahore High Court's decisions reported as 1989-PTD-876 and 1995 PTD-749 are to the effect that after signing of IT-30 and issuance of Demand Notice intimating refund, the Assessing Officer ceases to have any authority of retaining the refund especially when no order under section 103 is passed. In the Complainant's case the IT-30s to give effect to CIT(A) orders were prepared on 20-8-2001 creating refund aggregating at Rs.4,505,662 and the order under section 103 to retain the refund has lost applicability because it was passed on 9-10-2001 at a time when the Department's appeal before the Appellate Tribunal was pending. That appeal was rejected on 8-1-2002 and the Question of law proposed through Reference Application was refused on 24-4-2002. Thus there is (i) neither any stay by the Lahore High Court, (ii) nor any order under section 103 withholding the refund, now because, (iii) the Reference Application was rejected on 24-4-2002 at a date subsequent to the original section 103 permission of 9-10-2001. (d) The Department could tender no evidence to establish that the Commissioner gave permission to withhold refund (which in any case has become redundant now because of subsequent developments) after considering the parameters prescribed in C.B.R. Circular No.4 of 1979 referred by the learned AR. On the other hand, the AR has filed documents showing that the Managing Director is in possession of substantial assets which cannot be divested so as to escape the tax liability. In support, copies of Wealth Tax assessments for the years 1998-99 to 2000-2001 were filed showing that out of Total Wealth of over Rs.8.0 (M), the immovable assets aggregate at Rs.3.6 (M). Even if it be accepted for arguments sake that the Department has genuine concern which the commercial imports made by the Complainant were supplied without value addition and out of those imported in their own name, the enquiries conducted in this regard would form "definite information" to initiate concealment proceedings and to recover/retrieve whatever refund is wrongly claimed. In that situation the Complainant would be liable to penal action as well. For the present:-- * The refund as created, has already been intimated to the Complainant, * There is no order authorizing withholding to refund nor any stay by the High Court where Reference has been filed under section 136(2), * The order of the Appellate Tribunal rules the field being 'final' hence binding on the Department as per the clear provisions of subsection (9) of section 135 of the repealed Ordinance which has been incorporated in subsection (10) of section 132 of the Income Tax Ordinance, 2001. It has to be remembered that the Department is under legal obligation to allow additional payment for delayed refund which, up to 30-6-2004 carried a considerably high rate of 15%. Therefore, it would be prudent to save the Exchequer of this extra burden by issuing the refund quickly. It is, consequently, Recommended that C.B.R. direct:-- (i) The concerned tax functionaries to issue refund aggregating at Rs.4,505,662 under section 10 together with additional payment of refund under section 171 of Income Tax Ordinance,2001. (ii) The dealing Taxation Officer be reminded of C.B.R. Circulars and appellate decisions emphasizing that verification of all payments or validity of all claims as respects deductions or payments of tax, has to be carried out before signing the IT-30 and its intimation to the concerned taxpayer. (iii) The field officers be apprized that delay in issuance of refunds involves additional burden on the Exchequer by way of compensation due to delay hence the need for urgent handling of these matters.

7. Compliance report be submitted within 30 days of the receipt of this Order. C.M.A./334/FTO Order accordingly.