2003 PLP 361 (PTD)

9. Further, the view canvassed by the RCIT that no prejudice has so far been caused to the complainant is also misconceived. It is a privilege already earned by the complainant where his return of income qualifies for acceptance under Self‑Assessment Scheme. Denial of such privilege without valid reason would be prejudice caused to the complainant.

10. The contention of the RCIT and the Legal Adviser of the Department that no maladministration is committed in arriving at the, decision to select the case for audit is subject‑matter of investigation that will be dealt with hereinafter. Three of the four preliminary objections supra raised by the RCIT are, therefore, overruled and the fourth objection would be considered at the appropriate stage.

11. It has been further submitted by the RCIT that the case of the assessee is selected for total Audit on genuine grounds. Procedure prescribed in this behalf has been duly followed. The matter has been thoroughly discussed with the tax advisor of assessee and his view point has been judiciously considered; hence case has been selected for total audit for valid reasons.

12. The authorized representative of complainant, besides reiterating the submissions already made before the RCIT has further submitted that in show‑cause notice the learned Regional Commissioner of Income‑tax confronted the complainant with non‑deduction of tax under section 50(1) and non‑filed of statement under section 139 of the Income Tax Ordinance, 1979. After considering the reply satisfactory on this point the learned Regional Commissioner of Income‑tax jumped over to sections 24(ff) and 24(fff) in his decision to select the return for audit and advanced a fresh reason that there was suppression of receipts as compared to expenses claimed and verifiability thereof. The fresh reason offered in the order of the Regional Commissioner of Income‑tax was not confronted to the assessee. Besides these provisions were not applicable under clauses (34) and (35) of Part‑IV of Second Schedule of the Income Tax Ordinance, 1979. Further, if the Assessing Officer subsequently found any illegality in this regard, he could take action under sections 52, 52A and 108 of the Income‑tax Ordinance, 1979 against the assessee as well as the employees according to the list filed in reply of show‑cause notice instead of selecting the return for total audit.

13. With regard to "decline in income" it was submitted that the comparison for this purpose cannot be made with the preceding years as the guidelines say that "such selection may be based on factors including an evident decline in income, any addition to the assets which is not covered by the income declared" which clearly speaks about `any addition' relevant to the assessment year 2001‑2002 and not any other years. Even otherwise, there is no decline in income as evident from the declared incomes for the last 6 years as under:‑‑‑ Assessment Year Declared Income 1995‑1996 Rs. 86,000 1996‑1997 Rs.94,000 1997‑1998 Rs.102,730 1998‑1999 Rs.151,850 1999‑2000 Rs.153,000 2000‑2001 Rs.204,240 2001‑2002 Rs.227,250 The assessed income for the assessment year 1997‑98 by the Department cannot be adopted as the basis for comparison to determine the factor of decline in income. Further, to compare the declared income for the assessment year 2001‑2002 with the assessed income for the assessment year 1997‑1998, ignoring the immediately preceding three years i.e. 1998‑99, 1999‑2000 and 2000‑2001, is unjustified.

14. The next factor in the opinion of the Regional Commissioner of Income Tax was that the expenses in P&L account were exaggerated to reduce income. It is submitted by the authorized representative that the expenses for this year amounting to Rs.928,800 cannot be said to be exaggerated while the expenses for the assessment year 2000‑2001 amounting to Rs.6,995,760 were found by the Department quite reasonable.

15. Regarding Regional Commissioner's observation that immovable properties were acquired in the names of family members who apparently did not have any other source of income, it is submitted that the liability of any family member cannot be shifted to the shoulder of the assessee; instead the department should issue notice to the person who acquired such properties, if any. Besides, no evidence is provided by the department in this regard.

16. It has been further submitted on behalf of the complainant‑ that the reasons recorded by the learned RCIT do not conform to any of the guidelines for selection of cases, circulated by the Central Board of Revenue (C.B.R.) vide Circular Letter No 7(7)S.Assett/2001, dated 26th March, 2002, which are as under:‑‑‑ (i) Evidence, information or reason to believe that true particulars of income have been suppressed and it is a revenue potential case. (ii) Such selection may be based upon factors including: (a) Evident decline in income. (b) Any addition to the assets that is not covered by income declared. (Tax profiles of Survey and Registration may be consulted to identify such cases). (c) Disparity in expenses on utilities vis‑a‑vis income declared.

17. The counsel of the complainant has submitted that there is neither any evidence of decline in income, nor there is any evidence that addition to assets during the year is not covered by the known sources of the complainant nor there is any evidence or information that true particulars of income have been suppressed. All the reasons that the complainant was confronted with by the RCIT through his notice and on the basis of which he believed that the potential of revenue could be more than what was declared, have been 'fully explained, according to the learned counsel. He submits that sufficient cause has been duly shown that the reasons were invalid and unfounded. Attention is invited to the decision of the RCIT reproduced supra where no reasons have been recorded by the RCIT for his dissatisfaction with the causes shown why the return does not warrant selection for audit.

18. Finally it is submitted on behalf of the complainant that on the foregoing facts there was no valid reason for the RCIT to believe that true particulars of income had been suppressed or that the revenue potential of the case in assessment year 2001‑2002 was more than what had been already declared.

19. Submissions made on behalf of each side have been considered. It is found that the complainant has explained the issues that it was' confronted with by the RCIT through his notice and sufficient cause has been shown on its behalf as to why not to compare income declared in the instant year with income assessed in 1997‑

98. There is substance in the plea that it will stretch the guidelines beyond the reasonable limits. In case the Assessing Officer had any evidence of suppression of receipts on the basis of assessment made for assessment year 1997‑98 it would be C equally applicable to the intervening assessment years as well.

20. Selection of return of income filed by the complainant for audit, therefore, is arbitrary. The alleged maladministration is established.

21. It is recommended that: (i) The C.B.R. direct exclusion of return from the list of cases selected under Para. 9(a)(ii) for audit and for its acceptance under Self‑Assessment Scheme. (ii) Compliance to be reported within thirty days of this order. C.M.A./578/FTO Order accordingly.