Self-assessment

2022 PTD 1574 ISLAMABAD Judicial Precedent

Ss.177, 206, 213 & 214-CSales Tax Act (VII of 1990), S.25Federal Excise Act (VII of 2005), S.46Constitution of Pakistan, Art.199Constitutional petitionAuditPre-condition for selectionSelf-assessmentDirection by Federal Board of RevenueEffect

Petitioners / taxpayers assailed notices issued for purposes of audit under S.177(1) of Income Tax Ordinance, 2001, S.25 of Sales Tax Act, 1990 and S.46 of Federal Excise Act, 2005

Validity

FBR could exercise its audit powers on objective basis under S.214-C of Income Tax Ordinance, 2001, in the manner prescribed, but could not force hand of Commissioners to exercise their subjective powers under S.177(1) of Income Tax Ordinance, 2001 to trigger audit of taxpayers effectively selected by FBR

Notices to some petitioners / taxpayers who were oil marketing companies were issued by Commissioner under S.177(1) Income Tax Ordinance, 2001 in view of circular issued by FBR

Exercise of authority by Commissioner in such manner was based on extraneous consideration not contemplated by S.177(1) of Income Tax Ordinance, 2001

Fact that Commissioner, in compliance with direction of FBR, selected certain petitioners / taxpayers for audit and then documented reasons for purposes of S.177(1) of Income Tax Ordinance, 2001, had established that such taxpayers were not selected after independent application of mind by Commissioner for reasons that could be deemed reasonable for purposes of S.177(1) of Income Tax Ordinance, 2001

Audit selection notices issued under S.177(1) of Income Tax Ordinance, 2001, in compliance with circulars issued by FBR under S.206 of Income Tax Ordinance, 2001 were based on extraneous considerations

Such exercise of discretion controlled and directed by FBR suffered from legal infirmity

FBR was vested with no authority under S.206 read with Ss. 213 & 214 of Income Tax Ordinance, 2001 or any provision of Sales Tax Act, 1990 or Federal Excise Act, 2005 to issue directive or circular to Commissioners directing them to undertake sectoral audits or otherwise bind them in terms of how they were to exercise their discretionary authority under S.177(1) of Income Tax Ordinance, 2001 or S.25(1) of Sales Tax Act, 1990 or S.46 of Federal Excise Act, 2005

Any such directive was devoid of justification and a nullity

Audit selection notice issued by Commissioner under S.177(1) of Income Tax Ordinance, 2001 to Oil Marketing Company on the basis of sectoral audit directive issued by FBR was tantamount to a notice issued for extraneous reasons and was liable to be set-aside

Audit proceedings initiated on the basis of a directive issued by FBR having been declared to be void would also be devoid of lawful authority and would cease

Such proceedings did not inhibit Commissioner from independently exercising his/her authority under S.177 of Income Tax Ordinance, 2001 on the basis of reasons that satisfied requirements of S.177 of Income Tax Ordinance, 2001

Constitutional petition was disposed of accordingly.

2016 PTD 511 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 66A, 59 & 55Self-assessmentAssessment on basis of returnPowers of Inspecting Additional Commissioner to revise Deputy Commissioner's order

Exercise of powers under S. 66A of the Income Tax Ordinance, 1979 in absence of order in writing under S.59 of the Income Tax Ordinance, 1979

Factual and legal position of exercise of powers under S. 66A of the Income Tax Ordinance, 1979 before insertion of proviso to S. 59(4) of the Income Tax Ordinance, 1979

Order passed against taxpayer under S. 66A of the Income Tax Ordinance, 1979 was set aside by Appellate Tribunal on the ground that Assessing Officer was required to pass an order in writing under S.59(1) of the Income Tax Ordinance, 1969, and since no such order was passed in the present case, provisions of S. 66A of the Income Tax Ordinance, 1979 could not have been invoked

Contention of Department was, inter alia, that S. 66A of the Income Tax Ordinance, 1979 could be invoked in terms of proviso to S. 59(4) of the Income Tax Ordinance, 1979

Validity

Section 59 of the Income Tax Ordinance, 1979 showed that procedure was given therein for dealing with a return qualified in terms of Self Assessment after being filed under S. 55 of the Income Tax Ordinance, 1979 and Deputy Commissioner was required to assess the income and determine payable tax through an order in writing under S. 59(1) of the Income Tax Ordinance, 1979; however he was restrained from passing such an order after time specified in S. 59(4) of the Income Tax Ordinance, 1979

Necessary effect of not passing order in writing was that payable tax worked out as per declaration in the return stood accepted under the scheme, however, vide amendment in the year 1995, a proviso was added to S. 59(4) of the Income Tax Ordinance, 1979 whereby under an order under S. 59(1) of the Income Tax Ordinance, 1979 was deemed to have been passed

"Order by Deputy Commissioner" as stated in S. 66A of the Income Tax Ordinance, 1979 was a precondition for invoking provisions of S. 66A of the Income Tax Ordinance, 1979

High Court observed that an order passed by operation of law (fiction), could also be subjected to powers under S.66A of the Income Tax Ordinance, 1979; however, fact that such insertion of proviso to S. 59(4) of the Income Tax Ordinance, 1979 was made on 02.7.1995 could not be ignored, and factual and legal position till such insertion of proviso was that in absence of an assessment order in writing, provisions of S. 66A, could not be invoked

Present case related to period prior to insertion of said proviso to S. 59(4) of the Income Tax Ordinance, 1979; therefore S.66A could not have been invoked in the case

Impugned order therefore could not be interfered with

Appeal was dismissed, accordingly.

2009 PTD 1772 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

Ss.59 (1) & 13(1)(aa)C.B.R. Circular No.7 dated 24-3-2003, para.9(a)(ii)Self-AssessmentSelection of case of total auditAddition

Assessee contended that case was selected for three reasons out of which the Assessing Officer had drawn adverse inference only to the extent of claim of foreign remittances and on other two issues, the Assessing Officer being satisfied with the submission of the assessee had accepted the assessee's stance

Declared version of the assessee had wrongly been put to the test of verification and profit and loss expenses were curtailed, as this was not the basis of recommendation for audit

Case of the assessee should have been accepted under Self-Assessment Scheme as the basis of selection of case for audit i.e. addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 had been deleted by the First Appellate Authority

Validity

Assessing Officer had accepted the declared business receipts of the assessee and drawn inference only to the extent of addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 on account of foreign remittance

Assessing Officer had also made routine Profit & Loss Addition on estimate basis which was not the very purpose of selection of case for audit through para.9(a)(ii) of the C.B.R. Circular No.7 of 2002

Since very basis of selection of case for audit was that of addition made under S.13(1)(aa) of the Income Tax Ordinance, 1979 which was deleted in appeal, there was no justification left with the department to process the case under normal law for routine addition on account of Profit & Loss expenses

No justification existed for processing the case under normal law by merely curtailment of profit and loss expenses on estimate basis which was not the basis for selection of the case in terms of para.9(a)(ii) of the C.B.R. Circular No.7 of 2002 dated 23-3-2003

Appellate Tribunal directed that the case of the assessee for assess­ment years 2002-2003, be accepted under Self-Assessment Scheme.

2009 PTD 1382 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S. 59(1)C.B.R. Circular No. 7 of 2002, dated 15-6-2002, Para.9(A)(ii)Self-assessmentSelection of case for total auditLimitation

No appeal was filed by the department against the order of High Court declaring the selection of the case of the assessee being improper and at naught, the case of the assessee could not be selected for total audit even if the Supreme Court of Pakistan in other cases had reversed the order of High Court regarding appeals of 83 assessees wherein the assessee was not the party in proceedings

Supreme Court of Pakistan specifically mentioned that "pending decision of appeals arising out of that instant petitions, Income Tax Department shall be free to examine the returns of assessee/respondents whose cases had been selected for total audit but no recovery, if any, of the Income Tax shall be made from them till the final decision of the appeals"

Observation of the Supreme Court of Pakistan clearly showed that even regarding the 83 appeals filed by the department against various assessees the Supreme Court of Pakistan realizing the limitation provided under the law had directed to examine the returns of the assessees whose cases had been selected for total audit and only the recovery of the tax had been stayed till the decision of the appeals

Assessment in the case made by the Taxation Officer was barred by time which had been upheld by the First Appellate Authority without any justification

Order of First Appellate Authority was vacated and the assessment order passed by the Taxation Officer was cancelled by the Appellate Tribunal.

2008 PTD 1825 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss. 59(1), 56 & 63Income Tax Ordinance (XLIX of 2001), S.122-AEstablishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)Self-assessmentDouble assessment

Ex parte assessment was made in addition to the assessment which had already been deemed to be finalized under Self-Assessment Scheme

Validity

Department admitted that return filed under Self-Assessment Scheme was in time which was deemed to have been accepted as such but at the time of making ex parte assessment evidence regarding filing of return was not available

Commissioner of Income Tax had been advised to cancel the order under S.122-A of the Income Tax Ordinance, 2001

Since grievance was being redressed by the Department, investigation was closed and file was consigned to record by the Federal Tax Ombudsman.

2008 PTD 1036 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss. 59 & 61Self-Assessment Scheme years 2002-2003, paras. 7 & 9(ii)Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 11Self-assessment

Issuance of notice under S.61 of Income Tax Ordinance, 1979 seeking un prescribed information after non-selection of complainant's return for total by audit by random balloting

Validity

Only those returns had been put to balloting, which fully qualified for Self-Assessment Scheme having fulfilled prescribed requirements

Factum of complainant's return having been fed into computer clearly indicated that same had no deficiency of short document

No reason was shown as to why return had been sent for ballot, if same did not qualify for Self-Assessment Scheme. as para. 7 thereof, and further when same did not qualify for Self-Assessment Scheme under para. 7 thereof, then why show-cause notice was issued under para. 9(ii) thereof

Department, in order to cover up such lapses, attempted to revert to paras. 7(ii) & 7(iv) of Self-Assessment Scheme, which would tantamount to maladministration

Federal Tax Ombudsman recommended to Revenue to drop assessment proceedings and accept complainant's return filed under Self-Assessment Scheme for year 2002-2003.

2008 PTD 986 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

S.50 & 59(1)C.B.R. Circular No.2 of 1998, dated 16-2-1998Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)Deduction of tax at sourceSelf-assessment

Income declared was accepted under Self-Assessment Scheme but credit for deductions under S.50 of the Income Tax Ordinance, 1979 was allowed to the extent of tax payable on the declared income and credit for total deduction claimed was not allowed

Department contended that assessment was completed on the basis of photocopy of return without making any enquiries with reference to filing the original return in time

Credit was restricted to the extent of tax liability only as not a single original challan was enclosed with the return

Claim regarding deductions under S.50(4) of the Income Tax Ordinance, 1979 was adjustable and not covered under presumptive tax regime, needed careful examination

Validity

Date of filing of return was yet to be ascertained as the same had neither been shown on acknowledgment slip nor mentioned in the complaint

Department did not offer any plausible explanation for allowing credit for deduction only to the extent of tax liability as against the total deduction

Applications addressed to Assessing Officer and Regional Commissioner of Income Tax remained unresponded without any justification

Complainant/assessee should not be allowed to suffer for the negligence, carelessness and inefficiency of the department officials

Facts established neglect, inattention, delay, incompetence, inefficiency and inaptitude in the discharge of duties and responsibilities by the concerned officers

Federal Tax Ombudsman recommended that the Central Board of Revenue to direct the concerned officer to decide the claims of the complainant regarding allowance of deductions under S.50 of the Income Tax Ordinance, 1979, determination and issuance of resultant refund within 30 days of the receipt of this order and the responsibility of passing the order under S.59(1) without proper verification etc. be fixed and disciplinary action be initiated and finalized against the delinquent officer within 60 days.

2008 PTD 805 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss. 59, 62 & 63Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), Ss.9 & 11Self-assessmentSelection of case for total audit

Refusal of Taxation Officer to accept revised return filed by assessee in terms of agreement made by Regional Commissioner of Income Tax and Tax Bar Association

Validity

Such agreement had no legal force as assessment was a matter between taxpayer and Taxation Officer

Taxpayers had not authorized representative of Tax Bar Association to enter into such agreement

Regional Commissioner of Income tax was not Assessing Authority, thus, had no legal authority to enter into such agreement

Assessment was to be completed according to provisions of Ss.59, 62 or 63 of Income Tax Ordinance, 1979 and not on basis of a blanket agreement covering all taxpayers

C.B.R. had cancelled such agreement

Assessee had failed to prove any maladministration on the part of Taxation Officer

Federal Tax Ombudsman closed proceedings in such case.

2007 PTD 2281 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

Ss.59(1), 62 & 13Income Tax Ordinance (XLIX of 2001), S.122C.B.R. Circular No.7 of 2002 dated 15-6-2002, para. (IV)C.B.R. Circular No.8 of 2003 dated 26-8-2003Self-assessment

Exclusion of case from the purview of Self-Assessment Scheme in violation of the basic terms and conditions of Self-Assessment Scheme as mentioned in para.8 of the C.B.R. Circular No.7 of 2002 dated 15-6-2002

Addition in respect of purchase of property

Validity

Property was purchased in the year 1995 which could not be taxed in the year 2002-2003

Further said property belonged to wife of assesses, who was existing assesses and declared the same in hex wealth tax return

Such could not be termed as concealed income and taxed in the hands of assessee

. Department before excluding the case from Self-Assessment Scheme had not taken steps as required under para. 8 of C.B.R. Circular No.7 of 2002 dated 15-6-2002

Exclusion of assessee's case from Self-Assessment Scheme was not justified

Orders of the officers below were vacated by the Appellate Tribunal and directed for acceptance of return filed by the assessee under Self- Assessment Scheme.