ISLAMABAD (February 03 2003) : Federal Tax Ombudsman Saleem Akhtar has taken serious note of tax officials' tactics to block payment of refunds on one pretext or the other.
Wah Nobel, Rawalpindi, had complained that income tax assessments for 1999-2000 and 2000-01 have been made at unjustifiable high incomes, in violation of past history, to block payment of refunds, which constituted maladministration on the part of the department.
After considering the complainant's contention and the department's reply, the FTO observed that the complaint was found to be correct, as the assessing officer made huge additions without any basis.
The complainant's contention regarding maladministration has been found to be quite valid as out of total of Rs 12,529,934 and Rs 996,238, added by the assessing officer to the complainant's income u/s 24(c) of the Income Tax Ordinance, 1979 in the assessment years 1999-2000 and 2000-01, there was no basis whatsoever for the additions amounting to Rs 11,281,308 and Rs 8,759,968 for alleged failure to deduct tax u/s 50 on discount allowed to customers.
In connection with this addition u/s 24 (c), the assessment order for the year 1999-2000 reads: “The assessee has declared in the return for the charge year under consideration discount allowed to customers at Rs 11,281,308 and commission to the clients at Rs 1,248,626/-.
The total discount + commission amount stands at Rs 12,529,934.
The assessee company was specifically asked to provide the detail of deduction of tax u/s 50(4).
In response they have furnished the details of the same.
However, proof of payment of tax deducted has not been provided by the assessee company.
As such in the absence of any documentary evidence of deduction of tax at source, the claim of discount as well as commission is disallowed subject to rectification u/s 156 on verification of same.
As such total addition of Rs 12,529,934/- shall be made u/s25 of the Income Tax Ordinance, 1979.”
The FTO's order reads: The relevant portion of the assessment order for the year 2000-01 is identical as far as the language is concerned and even the erroneous reference to section 25(c) instead is the same.
However, the figures for the year 2000-2001 are Rs 8,756,968 and Rs 1,239,270 in respect of discount to customers and commission to clients respectively and the total addition u/s 24(c) for this year is Rs 9,996,238.
In the respondent's reply, it is contended that no maladministration is involved in the case.
However, the assessing officer is obviously wrong in his assumption that any tax is deductible u/s 50(4A) (apparently wrongly referred to as section 50(4) in the assessment orders) of the Income Tax Ordinance, 1979 on discount allowed to customers.
This section requires the deduction of tax at source on payments which are made on account of “brokerage or commission” by the specified paying entities.
Trade discount allowed to customers is, however, neither brokerage nor commission.
In fact, it is not a payment at all because it amounts to only a reduction in listed sale price as an inducement or similar consideration.
There was thus no payment to the customers on which tax could have been deducted under sub-section (4A) or any other sub-section of section 50 of the Income Tax Ordinance, 1970.
It was also seen that in fact in the relevant order sheet entry, the complainant was asked to furnish proof of tax deduction only with regard to commission and there was no mention of any requirement of tax deduction on discount in the said entry.
The disallowance made u/s 24(c) of the Income Tax Ordinance, 1979 for non deduction of tax from trade discount amounting to Rs 11,281,308 and Rs 8,756,965 in the assessment years 1999-2000 and 2000-01 is thus totally invalid and amounts to “maladministration”.
The Tax Ombudsman observed the impugned order is contrary to law and there seems to be an element of mala fide and wilful intention to pass an illegal order intended to block the claim for refund.
It has been observed in many cases that where there is huge claim of refund, the department passes such orders, which may block the grant of refund.
In certain cases, the department resorts to filing appeal and application to clothe legality to an illegal action intended to block the refund.
Such treatment by the assessing officer exposes his inefficiency in discharge of official duties.
The department has pleaded that inefficiency can not be attributed, if it is so, then the impugned order was passed wilfully in complete violation of provision of law with mala fide intention to block the payment of refund. In both the situations maladministration is established.
Under the circumstances it is recommended that:
(i) The assessment for the year 1999-2000 and 2000-2001 be amended/rectified under section 122/221 of the Income Tax Ordinance, 2001 to delete the disallowance of Rs 11,281,308 and Rs 8,756,968 from the assessed income for the two years.
(ii) Compliance be reported within 30 days.