Self-Assessment Scheme

Whether writing a letter to the Income Tax Officer (letter-in-question) by taxpayer while making certain corrections in the columns of the Income Tax Form would ipso facto amount to filing a revised return as envisaged under S. 57 of the Ordinance 1979?

Held, that under the prevalent scheme of law at relevant time as stipulated as per the Income Tax Ordinance, 1979 ('the Ordinance, 1979'), the applicant / taxpayer was required to file a return of total income under S. 55 of the Ordinance, 1979, whereas, S.59 of the Ordinance, 1979 deals with Self-Assessment Scheme as may be notified by CBR from time to time

Section 59 of the Ordinance, 1979 further provides that a return of total income furnished under S.55 does not include a return of a total income furnished under said S. 57 of the Ordinance, 1979 which provides a revised return of total income

Perusal of the provision of S. 57 of the Ordinance, 1979 reflects that if a person having furnished a return, discovers any omission or wrong statement therein, he may, without prejudice to any liability incurred by him under any provision of the Ordinance, 1979 or the repealed Act, may furnish a return, at any time before the assessment is made

Assessing Officer while passing his order under S. 61 of the Ordinance, 1979 came to the conclusion that the applicant had filed a revised return which was done after the extended date of filing of return; hence it was not qualified under the Self-Assessment Scheme and was not immune from total audit as well

Though if there is any return which falls within the ambit of S.57 of the Ordinance, 1979, (a revised return or a return which had not been filed in accordance with the Ordinance) it may not qualify under the Self-Assessment Scheme as excluded under S. 59, read with CBR Circular No. 9/1987

In the present case, the applicant / taxpayer had not filed any revised return of its total income which could disqualify its claim under the Self-Assessment Scheme

Applicant had never altered the total amount of income or the tax so payable, and it was only by way of a letter that the applicant approached the Income Tax Officer by stating that the mistake, if at all, was in respect of placing the correct figures in relevant columns

It had no effect on the liability of tax; nor any income was revised upwards or downwards

Income in both the situations was shown as higher by 20% from the income so assessed in the immediate past assessment year; hence, qualified under the Self-Assessment Scheme

Letter-in-question could not be treated as a revision of income or a revised return, without having any direct impact on the total income of the applicant as there was no material on record to treat the said letter or information furnished to the Income Tax Officer, as being a complete revised return falling within the ambit of S. 57 of the Income Tax Ordinance, 1979

Admittedly, the figures shown in the original return as well as in the purported revised return were substantially the same, whereas, the revision was only to the extent of form and not any substance as correctly held by the Commissioner (Appeals)

If there was failure on the part of an assessee to submit documents within a prescribed period of time for availing a Self Assessment Scheme, either due to circumstances beyond his control or for sufficient grounds, this by itself could not be made basis to deprive him of the benefit of the said scheme

In essence, the scheme being initiated for benefit of a taxpayer as well as seeking collection of higher taxes with a minimum increase of 20% of income in favour of the Department, has to be construed liberally and not strictly, or in the manner as had been done in the present case

Thus, proposed questions were answered in negative i.e. in favor of the applicant / taxpayer and against the department

High Court set-aside the order of the Tribunal and the order of the Commissioner (Appeals) stood restored

Reference application, filed by taxpayer, was allowed accordingly.

Taxpayer/ company itself claimed refund adjustment against tax liability instead of paying amount of admitted liability for the relevant year under self-assessment scheme

Officer Inland Revenue ('OIR') passed amended assessment order holding said amount recoverable from the taxpayer declaring the self-adjustment of refund illegal having been done by the taxpayer without determination of overpaid tax by the Commissioner

Taxpayer/company filed appeal before the Appellate Tribunal Inland Revenue ('the Tribunal') as the amended assessment order was confirmed by the Commissioner (Appeals)

Validity

Appellant (taxpayer/company) admittedly did not file any refund application under S. 170 for determination of his claim by the Commissioner under S. 170 of the Income Tax Ordinance, 2001 ('the Ordinance, 2001') while said provisions stipulated that a taxpayer who had paid tax in excess of the amount might apply to the Commissioner for refund of excess amount paid

According to the R.71 of Income Tax Rules, 2002 ('the Rules, 2002') such application would be made in the pro forma specified in Part VI of First Schedule of the Rules, 2002

Thus, the whole mechanism given in the S.170 of the Ordinance, 2001 had not provided /allowed self-adjustment of refund by the taxpayers on their own against their tax liabilities

Without determination / approval, no refund could be adjusted by the taxpayers on their own

Declared version of the refund could only be varied through an amendment under S. 122 of the Ordinance, 2001 while disposing of refund application

Appellant (taxpayer/company) had illegally adjusted the claimed refund against its tax liability without properly filing application for refund and without any determination by the Commissioner, hence OIR had rightly noted the tax return as erroneous and prejudicial to the interest of revenue as admitted tax liability against declared income remained unpaid

Appellate Tribunal Inland Revenue maintained the impugned order passed by the Commissioner (Appeals) who had committed no illegality in confirming the amended assessment order

Appeal filed by the taxpayer/company was dismissed, in circumstances.

Assessees assailed show cause notices issued to them for conducting of their audit against the returns filed under Self-Assessment Scheme

Single Judge of High Court dismissed the petition filed by assessees

Validity

Powers of Commissioner under S. 177 of Income Tax Ordinance, 2001, were not subservient to the powers of Federal Board of Revenue, under S. 214-C of Income Tax Ordinance, 2001

Powers under both the provisions were exclusive and independent of each other

Scope of power of Commissioner under S. 177 of Income Tax Ordinance, 2001, were circumscribed by the checks and limitations which had been imposed by legislature

Power to select a person under S. 177 of Income Tax Ordinance, 2001, exclusively vested in Commissioner and the same had to be exercised within the scope determined therein

Power of Commissioner to call for record and conduct audit under S.177 of Income Tax Ordinance, 2001, did not require any pre-selection process by the Board

Division Bench of High Court, in intra court appeal, declined to declare provisions of S. 177 of Income Tax Ordinance, 2001, to be in violation of Art. 10-A, 25 or 18 of the Constitution

Notices in questions either did not disclose reasons based on criterion determined by Commissioner or no reason had been mentioned

High Court directed the Commissioner to afford an opportunity of hearing to each assessee and thereafter pass speaking order and judgment passed by Single Judge of High Court was set aside

Intra Court Appeal were allowed accordingly. Chenone Stores Limited through Executive Director (Finance Accounts) v. Federal Board of Revenue through Chairman and 2 others 2012 PTD 1815 and Northern Bottling Company Limited v. Federation of Pakistan 2013 PTD 1552 dissented from.

In any self-assessment scheme, audit is the most effective and efficient tool to verify accuracy of declarations made in returns, treated as assessment order

Audit is the only process for the purposes of determining that correct income has been declared and levied tax has been paid.

Complaint was to the effect that the return filed under Self Assessment Scheme was wrongly excluded from Self-Assessment Scheme

Validity

Complainant had produced attested copies of documents which showed that the short documents notice did not contain diary number-Order sheet entry was made in the order sheet relating to previous assessment year, which was inserted afterwards

Interpolation of entries in the Order Sheet were found which established that no short document notice was issued at all

Audited account was found available in the assessment record

Allegations of the department were not substantiated

Return filed had fulfilled the condition of tax paid being higher by 10% or more

Action of the Assessing Officer excluding the complainant's return from the Self-Assessment Scheme was arbitrary', unjust, biased and oppressive which fell under the category of maladministration

Competent authority was ordered to withdraw the action taken by Taxation Officer for excluding the complainant's case from the ambit of Self-Assessment Scheme and accept the complainant's Return.

Case was set apart by the Regional Commissioner of Income Tax for total audit on the ground that expenses claimed under various heads of accounts had not been properly prorated in accordance with the ratio of local processing and exports to find out the right figure of total taxable income and that sale of scrap/empties under the head of other income had been added to export income, whereas the same should have been included in local income

Validity

Separate accounts had been maintained for export business and for local processing

Relevant expenses under different heads relating to each segment were charged to relevant account i.e. exports or local sales

Accounts were certified by the practising chartered accountants and the financial statement reflected both the segments [export or local] separately

Since there was no overlapping or mixing up of expenses of export and local business and expenses pertaining to each account were being charged separately the principle of prorating the expenses towards export and local business would not apply

Local sales of goods as well as waste material, not constituting mere than 20% of such production, may also be treated as export sales if the assessee opts to pay tax one such sales at the rate applicable to export sales under S.80CC of the Income Tax Ordinance, 1979

Local sales formed 3.8% of total production for export sales

Sale of scrap/waste was rightly shown in the export sales

Workers a Welfare Fund was also rightly charged to normal business income which was offered for taxation

Law did not envisage charging of Workers Welfare Fund on presumptive income

Selection of case for total audit was arbitrary, baseless, contrary to law and based on irrelevant grounds

Federal Tax Ombudsman recommended that the Complainant's case be excluded from the list total audit cases and return for the assessment year 2002-2003 be accepted under Self-Assessment Scheme.

Method suggested for saving Revenue from such endless exercises and assessees from unjust harassment.

Selection of a case for total audit for the reasons other than those specified in the C.B.R. Circular No.7(7)/S.Asst/2002 dated 17-12-2002

Validity

Department had taken pains in explaining the word "including" used in C.B.R. Circular No.7(7)/S.Asst/2002 dated 17-12-2002 and had cited judgments of superior Courts to establish, their point of view

Facts of the case showed that such observations and explanations were not relevant.

Setting apart of case on the ground that gross profit rate was low as compared to identical cases and turnover was not adequate from four outlets

Validity

Regional Commissioners of Income Tax were to determine whether the returns represented "revenue potential" and were further expected to be in possession of "evidence, information or reason to believe" that particulars of income had been suppressed-.

None of the criterion was followed when return was set apart

Selection was to be based on material evidence and not on frivolous grounds

Maladministration was glaring as guidelines prescribed by the Central Board of Revenue were not faithfully adhered to

Federal Tax Ombudsman recommended that order for setting apart passed by the Regional Commissioner of Income Tax be withdrawn and the return of the complainant for the assessment year 2002-2003 be accepted under Self-Assessment Scheme.

Object and rationale behind the Self-Assessment Scheme.

Assessee under such Schemes purchases concession as such Schemes are available to those, who pay more tax than one paid in previous year

Retrieval of such concession on far­fetched technicalities or vague allegations of concealment was unjustified

When retrieval is legally justified, then Revenue ought to exercise restraint, so that assessee may not lose trust in such Schemes

Statutory detailed scrutiny should be resorted to sparingly in order to restore confidence of assessee in Revenue and credibility of system.

Return of total income accompanying with Wealth Tax Return finalised under Self-Assessment Scheme was reopened on account of under-valuation of plot shown in Wealth Tax Return

Appellate Authority set aside such order, which judgment was upheld by Tribunal

Validity

Filing of - Wealth Tax Return alongwith Income Tax Return was a condition precedent

Assessing Officer was obliged to scrutinize Wealth Tax Return and after detecting any concealment to exclude return of income from purview of Self-Assessment Scheme

Since return had not been excluded from purview of Self-Assessment Scheme, inference would be that Assessing Officer, after examining Wealth Tax Return already available on record, had not found initially any case of concealment of income

Tribunal had rightly decided issue and rejected the reference application

High Court dismissed direct reference application in limine.

Selection of case for total audit through computer random ballot by allotment of National Tax Number with prefix `Z' without intimating such National Tax Number to assessee

Validity

Without prejudice to the grounds, of complainant/ assessee's appeal no maladministration was found in selection of complainant/ as se ssee's return for audit

Investigation was closed by the Federal Tax Ombudsman.

Contention was that setting apart of case by the Regional Commissioner of Income Tax was the matter related to assessment

Validity

Neither the process employed by the Regional Commissioner of Income Tax under para. 9(a)(ii) of C.B:R. Circular No.4 of 2001 nor his decision to select the case for audit was a matter relating to assessment of income nor remedy in the shape of appeal/revision against his decision to select the case was available to the complainant/assessee.

Held, objection could be filed within 90 days from the date of decision in Complaint No.582 of 2001, which was made on 16-8-2001 and therefore, objection filed before 16-8-2001 will not be hit by the rule of 90 days

Objection was filed on 1-1-2001, which had not been decided as yet

Federal Tax Ombudsman recommended the Commissioner to decide the objection and thereafter the assessment proceedings be completed.

Such was a typical example of harsh, unjust, unreasonable and perverse assessment framed in complete disregard of the rule to the effect that even when proceeding ex parte the assessment should be based on "best judgment" and should not be vindictive or punitive

Act of omission, like undue haste and unimaginative assessment without caring to carry out legal obligations, amounted to "maladministration" under S.3(2) of the Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000) and where "maladministration" crept in, the Federal Tax Ombudsman had the jurisdiction to investigate and S.9(2)(d) of the Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), did not stand in the way

Federal Tax Ombudsman recommended the concerned Commissioner of Income Tax to amend the assessment framed under S.63, dated 20-6-2002 by resort to S.122 of the Income Tax Ordinance, 2001 so as to make alternations, as he considered necessary, to ensure that "the taxpayer was liable for the correct amount of tax for the tax year to which the assessment order related and the concerned Inspecting Additional Commissioner be counselled to refrain from framing assessments with undue haste which may render the assessment unreasonable or arbitrary.

Regional Commissioner of Income Tax was found factually correct to the extent that no mala fide NTN specific or name specific feature was found in the programme

Allotment of NTN with prefix `Z'to return's of AOP, RF/URF due to mistake in matching NIC numbers of member/partner with NTN of AOP/RF/URF was found unwarranted and the proposition that the returns of complainant/assessees would not have been picked in ballot had their NTN not been changed validly raises the question of benefit of doubt

Where two interpretations/eventualities were possible the one beneficial to the assessee should be adopted

Selection of returns for audit in complainant/assessee's cases, fell under the definition of `maladministration'

Federal Tax Ombudsman recommended that the Central Board of Revenue'directs exclusion of return from the list of cases selected under para. 9(a)(i) of the Self-Assessment Scheme for audit and for its acceptance under Self-Assessment Scheme

­Discrepancies found in allocation of NTN through computer programme overlooking such discrepancies in designing the ballot software by PRAL and failure of concerned tax employees to check such programmes and monitor the operations fall in the category of maladministration warranting remedial action

Federal Tax Ombudsman further .recommended (i) that'Central Board of Revenue to put nationwide networking of their computerized operations on top priority; (ii) that officers well-versed with laws, rules, regulations and procedures be designated for briefing the software designers/ programmers and for evaluating the software designed by them (iii) that resource persons/agencies, where a project is to be out sourced, to be selected with, utmost care and thereafter their performance be diligently monitored by competent tax employees.

Return was set apart by invoking Para. 9(a)(ii) of Central Board of Revenue's Circular No.4 of 2001, dated 18-6-2001 on the ground that sales declared were not commensurate with the sales agreed/assessed as per profile of Survey for Documentation- of Economy

Assessee contended that Army led Survey Team got the survey form signed under duress on sales which were highly unjustified and unfair

Sales declared were commensurate with the capital

Validity

Reasons confronted with by the Department to believe that complainant/assessee's case had more Revenue potential than already declared in the return of income were not valid

None of the criteria set forth by the Central Board of Revenue in the guidelines issued for selection of cases had been identified to be applicable to the case of complainant/assessee-Selection of return for audit thus was arbitrary and alleged "maladministration" was proved

­Federal Tax Ombudsman recommended that Central Board of Revenue direct exclusion of return from the list of cases selected under Para. 9(a)(ii) for audit and fox its'acceptance under Self-Assessment Scheme.

­Setting apart of case for total audit on the ground that net profit of 6% of sales was very low in view of the line of business of the assessee

­Validity

Pre-conditions for total audit include suppression of income; evidence of Revenue potential of the case; clear evidence of decline in income; creation of new assets not covered by the declared income and disparity in expenses on utilities

None of the conditions/factors were found in the complainant's return of income, there was thus no valid reason or justification for selection of the case for total audit

Such infirmity had rendered the decision arbitrary, unreasonable and illegal

­Confronting with supposed deficiencies not covered by the ratio of guidelines would clearly tantamount to ".maladministration" and where "maladministration" was identifiable the matter fell in the jurisdiction of Federal Tax Ombudsman

Even if the allegation of `mala fides was discounted, the complainant/assessee's return deserved to be accepted under Self-Assessment Scheme especially when none of the criteria laid down for'selection of cases for audit was identifiable

Federal Tax Ombudsman recommended that return be accepted under Self­ Assessment Scheme.

Selecting case of assessee for total audit on a wage and general ground that the returned income of the assessee was less than the one returned by other persons engaged in the similar business

Validity

Such consideration was not the requirement for selection of cases for audit

Suspicion about under statement of income in the present case was neither based upon definite information not there was any material to support the same

Question so framed was answered in the negative.

Appellate Tribunal against the findings of the authorities had concluded that the assessee was entitled-to the concession to Self-Assessment Scheme

Validity

Issue did not involve or raise a substantial legal controversy between the Revenue Authorities and the assessee

Every question of law need not be referred to High Court and only a question having some substance was required to be so referred

Question as framed was neither of law nor had raised a substantial legal controversy between the parties High Court refused to entertain the question

Reference was dismissed in limine.

Immunity clause in any fiscal statute or a similar concession in the rules framed thereunder, is an expression of helplessness on the part of the Revenue to tap the pilferage

Once the helplessness is so declared in the form of an immunity clause under an Act or a rule then in all fairness the Revenue must accept the reality

Revenue should allow the benefit/concession wherever sought to be availed by a subject, on fulfillment of due requirements

Will be a very bad expression of frustration if the Revenue declaring a concession should attempt to circumvent the immunity clause in order to catch a fish which it had failed to lay its hands upon and which was lored on the bate of promise to concede part of the Revenue it had swallowed and digested.

Questions which primarily revolved around the eligibility of an assessee to avail Self-Assessment Scheme in a particular year were declined by the High Court.

No assessment was made for the assessment year 1989-90 as the proceedings were filed and the income last assessed was only in respect of assessment year 1988-89 in which year income assessed was Rs. 79,000 while the assessee declared its income Rs. 48,000 for the assessment year 1990-91 which was less than the income assessed for the assessment year 1988-89, as such the case of the assessee did not qualify for acceptance under Self-Assessment Scheme

Order passed by the Assessing Officer was declared to be in accordance with the Self-Assessment Scheme by the High Court.

Assessment under S.59A of the Income Tax Ordinance, 1979 after expiry of time limit provided under S.59(4) of the Income Tax Ordinance, 1979

Validity

No justification existed for the Assessing Officer to have passed order under S.59A of the Income Tax. Ordinance, 1979 when time limit provided under S.59(4) of the Income Tax Ordinance, 1979 for acceptance of return under Self-Assessment Scheme had lapsed.

No doubt the Assessing Officer had been given power by S.55(3) -to allow extension to an assessee who was unable to file his return of income within the date specified under S.55(2) on his request, but the date extended under S.55(3) would not be called due date for the purpose of filing return of income under the ambit of Self-Assessment Scheme.

Assessee's case was excluded from BroadBased Self-Assessment Scheme on the ground that assessee's case for the assessment year 1996-97 was accepted under S.59-A and not under S.59(1) of the Income Tax Ordinance, 1979 and immunity for the assessment year 1997-98 was available only to those cases covered under S.59(1) and not to cases accepted under S.59-A of the Income Tax Ordinance, 1979

Validity

Requirement for qualification under the Scheme was that the tax paid on the basis of income declared for the assessment year 1997-98 was not less than the, tax payable for assessment year 1996-97

Assessee's return being covered within the relevant provision the question that the same was not finalized under Self-Assessment Scheme 1996-97 and was otherwise accepted under S.59 of Income Tax Ordinance, -1979 became irrelevant

No reason existed to select the case of assessee for normal assessment and the finding of the Tribunal was clear in all respects

Reference was refused to be sent to the High Court by the Tribunal.

Eligibility of an individual in a particular year to avail immunity from detailed scrutiny could not be said to be a question having substance

Principles.

When Self-Assessment Scheme was introduced, it contained the provisions relating to the presumptive income to be included for purpose of comparison of income whereas Self-Assessment Scheme for the assessment year 1997-98 did not carry any such provision, excluding presumptive income, as such there was no bar to consider presumptive income for the purpose of comparison

When no presumptive provision was given in the original Self-Assessment Scheme, any subsequent clarification of the Central Board of Revenue might not be taken into consideration being extraneous

Clarification or interpretation issued by the Central Board of Revenue being expressly contrary to the Self-Assessment Scheme could not override the Scheme itself.

Purpose.

Purpose.

Expressions "information", "definite information" and "material evidence" occurring in C.B.R. Circular No.22 of 1991, para. 4(ii) mean that information must be substantial which may lead to discovery

Such information, therefore, should not be based on mere guess, gossip or rumour but it should be based on material evidence against the assessee

Income-tax Officer should form an honest belief upon material which should reasonably support such belief and action keeping case apart for detailed scrutiny cannot be based on mere suspicion

Use of word "gross" in para.4(ii) of the Circular indicates that it is not in case of every understatement in regard to income that empowers the Income-tax Officer to take action against assessee under the said paragraph, but only when gross understatement a

Framing of the assessment within the time prescribed under S. 59(4) of the Ordinance being necessarily of jurisdictional aspect, same could not be condoned by making a reference to the provisions contained in S. 155 of the Ordinance

Blanket protection under S.155 could not cure a jurisdictional defect which occurred in the case after time prescribed under S. 59(4).

Mere wrong mode of accounting or technical mistake in computing total income would not amount to concealment of income so as to take the case out of the ambit of Self-assessment within meaning of para. 8 of Circular No. 9 of 1987.

Assessee, had not maintained any accounts and got his assessment of the various years finalized on that basis under Selfassessment Scheme

Where the assessee was not maintaining any accounts, it was doubtful if he could claim contingent liability adjustable against the amount of profit in the absence of maintaining mercantile system of accounts.

Self-Assessment-Qualifications-Detailed scrutiny-Requirements for claiming immunity from-Failure to supply particulars with return or in compliance with notice from I. T. O.-Effect-Assessee not fulfilling requirements of para 2 of Self-Assessment Scheme regarding furnishing particulars/documents within one month from date of service of notice from I.-T. O. - Case of assessee can be selected for detailed scrutiny-Even when particulars have been supplied, his case can be selected for detailed scrutiny by Regional Commissioner of Income-tax- Assessee not filing documents alongwith return as required under para. 2 of Scheme, immunity under para 6, held, not available to such assessee.

I.T.O. resorting to assessment under S.23(3) of Income-tax Act without pointing out that provisions of said scheme were not complied with by assessee

Recourse to assessment under S.23(3) by I.T.O., held, was not justified and Income-tax Officer directed to accept return of income filed by assessee.

Rejection of return-Estimates of sales and profits rates made by Income-tax officer-Held, Income-tax Officer proceeded on assumption that assessee had filed a normal return and not a return under self-assessment scheme-Self-assessment scheme covered even those cases where assessee had not maintained proper books of account-Factum that in books of account, assess" had disclosed a profit of Rs. 3,917 whereas in return filed under self-assessment assessee disclosed profit of Rs. 16,000 in itself could not have been sufficient reason for rejecting return under self-assessment scheme-Assessee's

Arts. 199 & 185(3)-Leave to-appeal-Petition filed two years after passing of impugned order-Barred by prescribed time-Petitioner merely a lessee of land in dispute, having acquired no rights in land, and as such devoid of locus standi to file writ petition-No serious question of law raised-High Court, held, justified in dismissing writ petition.

[Locus standi].

S. 23(1)(3) and Income-tax Rules, r. 46-Self-assessment-Income-tax Officer enhancing declared income without issuing notice to assessee to correct mistake and notwithstanding First Proviso to r. 46 not arising in case-Assessment made by Income-tax Officer, held, not sustainable and returned version of assessee accepted.

Self-assessment Scheme-Requirement of "definite information" stipulated in S. 65(2)-Held, does not apply to cases selected for detailed scrutiny by Central Board of Revenue.