2004 PLP 1164 (PTD)

2. The complainant is an AOP earning its income from rice husking and sale of rice. The complainant filed its Income Tax Return tinder Self Assessment Scheme declaring net income at Rs.124,

606. Its case was not selected for Total Audit through computer ballot. However, subsequently a show-cause notice, dated 24-1-2003 was received from R-CIT Eastern Region Lahore indicating his intention to select this case for Total Audit on the ground that net profit rate declared by the complainant was low as compared to last year and also as compared to other parallel cases. The complainant furnished explanation on 7-2-2003 but the case was selected for Total Audit by the R-CIT vide his letter, dated 28-3-2003. This is cause of grievance.

3. In reply the respondent raised preliminary objection to jurisdiction that as the order setting apart is appealable alongwith assessment order the case falls outside the jurisdiction of Federal Tax Ombudsman. Allegations of maladministration have been denied. The R-CIT has submitted that in this case net profit rate was less than net profit rate declared for the earlier year. Last year the complainant declared net profit rate of 1.7 % but this year net profit rate has decreased to 1.38%. The R-CIT has submitted that net profit rate is also low as compared other parallel cases existing at NTN No.21-20-0450686 and NTN No.21-21-0451558 where net profit rate was declared at 3.27% and 3.92 % respectively. In the instant case net profit rate declared at 1.38%, disclosed an evident decline to income. The R-CIT has stated that selection of the case for Total Audit was according to the parameters laid down by the-C.B.R. by their letter, dated 17-12-2002 for selection of cases for Total Audit.

4. Mr. Nadeem Ahmad, ITP, for the complainant has explained that a comparison of the results declared for this year with the last year indicated that there was improvement in income and sales. The complainant has declared sales of Rs.9,000,568 and income at Rs.124,606 as compared to sales declared at Rs.622,282 and income at Rs.106,200 for last year. However, there was slight variation in net profit rate to the extent of 0.32%, which is normal variation in the business. The AR of the complainant has pleaded that percentage of net profit rate is criterion for second stage when assessment is completed in a case but this criterion cannot be made basis of selection of a case for Total Audit. Secondly a normal variation in net profit rate cannot also be made basis of selection of a case for Total Audit. The AR of the complainant has also pointed out the comparison made by the R-CIT with parallel case is not proper because case at N.T.N. 21-21-0451558 is not a parallel case because the complainant purchases paddy and gets it husked from others before sale of rice whereas in parallel case only purchase and sale of rice is done. He has submitted that selection of the case for Total Audit on the basis of net profit rate is not covered by the parameters laid down by the C.B.R. for selection of cases for Total Audit because there was no evident decline in income, no evidence, information or reason to believe that the income has been suppressed. There was no disparity in expenses on utilities, no acquisition of new assets or incurring of liability of.Rs.50,000 or more from non-institutional sources. At the time of hearing the AR of the Complainant has also contended that no opportunity of being heard was provided to the complainant before selection of this case for Total Audit.

5. Mr. Muzamal Hussain Butt D-CIT defended the selection of this case for Total Audit. He reiterated what has been stated that in the reply. As far as opportunity of being heard is concerned it has been submitted by the DR that if R-CIT had not given an opportunity of being heard to the complainant .it could have made a specific request to the R-CIT for the same. But this was not done by the complainant hence this objection is not valid.

6. The complaint and respondent's reply have been examined carefully and arguments of the two sides have been considered. The R-CIT has raised preliminary objection regarding jurisdiction as discussed in para. 2 supra. The issue of jurisdiction has been examined in detail in C. No. 1250 of 2001 decided on 27-12-2001 also reported and 2002 PTD 1918 and Complaint No. 1438 of 2002 wherein similar contention raised by the Revenue was rejected. Following these decisions the objection raised by the Revenue is overruled.

7. The learned counsel for the complainant has contended that no hearing was afforded to the complainant before order was passed for selection of the case for total audit. In reply it has been pleaded that the complainant was provided opportunity of being heard before final selection of the case in compliance to which it had also filed a reply. This is a very ambiguous reply. In this regard reference is made to the notice issued by the Regional Commissioner, which in the end stated as follows: "In order to provide an opportunity of being heard, you are requested to tender objections by 7-2-2003 to the proposed setting apart of your case for Audit under the above referred provisions of the Scheme".

8. On this basis the department has taken the plea that the hearing was afforded by asking the complainant to file an objection, which was complied. The concept of affording hearing is not that reply to the objection is to be filed but a personal hearing is given so that the party may present its case before the concerned authority. Reference may be made to the letter of C.B.R. dated 17-12-2002 where it had directed that "R-CIT must confront the assessee provide them due opportunity of being heard and must indicate the basis of their proposed selection in the notices to be communicated to them". Due opportunity of being heard does not mean as has been spelt out by the learned R-CIT. The department thus admits that no hearing was afforded and only opportunity to file objection was granted which was complied. The most important point is that the principles of natural justice should be complied with. For any inquiry or investigation the direction of the C: B.R. was clear as it in clear terms has directed to provide .due opportunity of being heard. This requirement was not satisfied and the Regional Commissioner circumvented this provision by issuing an ambiguous notice. This notice was not in accordance with the direction of the C.B.R, because only reply to the notice was sought and therefore it was necessary to fix a date or hearing. It is not necessary for the party to ask for a hearing.. It must be afforded in the normal course and specially when C.B.R. has issued a clear direction in this regard. The principle of natural justice and the directive. of the C.B.R: have, thus been violated. Violation of principle of natural justice renders the decision, action and proceeding taken in pursuance of such decision void, illegal and contrary to law. On this ground alone the selection cannot stand the legal scrutiny and is contrary to law which amounts to maladministration.

9. It is therefore, recommended: (i) C.B.R./R-CIT to withdraw order for selection of case for Total Audit, dated 28-3-2003 and accept the return for assessment year 2002-2003 under the Self-Assessment Scheme. (ii) Compliance report be submitted within 30 days of the receipt of these recommendations by the Revenue Division. C.M.A./985/FTO Order accordingly.