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Nowshera.Complainant

Versus


Secretary,

Revenue Division,

Islamabad. …Respondent

Dealing Officer …Mirza Muhammad Wasim, Adviser



FINDINGS/DECISION

Mr. Munir Hussain Awan, Advocate for the complainant.

Mr. Shah Khan, DCIT, Legal I, Companies Zone, Peshawar for the respondent.

This is a complaint relating to action u/s 122(5A) of the Income Tax Ordinance, 2001 initiated by the Additional Commissioner of Income Tax for the assessment year 2002-2003 in the complainant’s case. The main points in the complaint are as follows –



  1. The complainant is a private limited company and in its tax return for the assessment year 2002-2003 it showed the following sales/receipts

    Sales of atta

    533460 kg

    Rs.4,896,670

    Sales of bran

    21900 kg

    Rs. 91,554

    Sales of refraction

    24200 kg

    Rs. 43,762

    Wheat grinded charges

    1870000 kg

    Rs. 925,550

    Total

    2449560 kg

    Rs.5,957,536

  2. During the assessment proceedings the complainant made proper compliance of statutory notices.

  3. Vide letter dated 27-3-2003 the complainant also furnished copies of agreements in respect of 18,700 bags of wheat ground for other parties.

  4. The assessing officer framed the assessment for the year 2002-2003 and after enhancing the receipts in atta and bran accounts determined the trading results as under –

    Sales of atta

    533460 kg

    Rs.5,067,870

    Sales of bran

    21900 kg

    Rs. 98,550

    Sales of refraction

    24200 kg

    Rs. 43,762

    Wheat grinded charges

    1870000 kg

    Rs. 925,550

    Total

    2449560 kg

    Rs.6,135,732

  5. The complainant filed an appeal before the Commissioner of Income Tax (Appeals) who vide his order dated 1-10-2003 allowed relief to the complainant (mainly deleting the addition of Rs.171,200 made to the atta account by making an estimate of sale price per kg).

  6. The department then filed a second appeal before the Income Tax Appellate Tribunal which vide its decision dated 11-3-2004 maintained the order of the CIT (Appeals).

  7. During the appeal proceedings the department did not raise any point alleging misrepresentation of facts by the complainant and the appeal process stood completed on 11-3-2004 after the decision of the ITAT.

  8. The complainant was, however, served with a notice u/s 122(5A) dated 29-9-2005 by the Additional Commissioner of Income Tax, Range-II, Companies Zone, Peshawar regarding the assessment for the year 2002-2003.

  9. The complainant also received further notices dated 16-8-2005, 24-9-2005 and 6-10-2005 and proper compliance was made in response to all the notices.

  10. It was also submitted by the complainant vide its letter dated 16-6-2005 that the proceedings initiated u/s 122(5A) for the assessment year 2002-2003 were not valid in the light of a decision of the Sind High Court.

  11. Vide his letter dated 16-8-2005 the Additional Commissioner has confirmed the decision of the Sind High Court but has intimated that it has been challenged by the department before the Supreme Court.

  12. The complainant vide its letter dated 26-8-2005 pointed out to the Additional Commissioner that unless it was modified by the Supreme Court the order of the Sind High Court held the field and that at least proceedings u/s 122(5A) be deferred till the decision of the Supreme Court.

  13. In spite of the above submissions further notices for completion of proceedings u/s 122(5A) have been served on the complainant which is quite illegal and unjustified and may result in illegal tax liability in the complainant’s case.

It has been prayed that the department be directed to stop the illegal proceedings u/s 122(5A) unless and until the order of the Sind High Court is modified by the Supreme Court.

2. The respondent’s reply consists of the comments of the Regional Commissioner of Income Tax, Northern Region, Islamabad forwarded by the Revenue Division with its own observations. The RCIT’s reply contains the preliminary objection that since the matter is sub judice before the Supreme Court of Pakistan the case falls outside the jurisdiction of the Federal Tax Ombudsman in the light of section 9(2)(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000. On facts the RCIT’s reply contains the following main points -



  1. It is correct that in reply to the notice u/s 122(5A) the complainant contended that the proceedings were not legal as according to the Sind High Court judgment section 122(5A) of the Income Tax Ordinance, 2001 did not have retrospective application and also that the assessment made for the year 2002-20003 was not erroneous and prejudicial to the interest of revenue. The complainant did not, however, reply to the specific points on the basis of which the assessment was considered by the Additional Commissioner to be erroneous and prejudicial to the interest of revenue.

  2. It is correct that the matter was decided against the department by the Sind High Court but the department has filed a CPLA before the Supreme Court and the matter is thus sub judice.

  3. The complainant has itself admitted that the matter has not attained finality. While, on the other hand, proceedings u/s 122(5A have to be completed within the time specified in law.

It has been stated that since there is no bar on the proceedings u/s 122(5A the complaint may not be entertained. The comments of the RCIT have been forwarded by the Revenue Division with the following additional comments –

“The contents of the complaint vis-a-vis other relevant documents on record have been perused. These do not involve either any mala fide intention or misconduct on the part of the Tax Authority. It is a simple matter of interpretation.”

3. The representatives of the two sides have attended and have been heard. The learned Advocate for the complainant reiterated that since the assessment order u/s 62 of the repealed Income Tax Ordinance was passed on 27-3-2003 viz before the insertion of section (5A) in section 122 of the Income Tax Ordinance, 2001 with effect from 1-7-2003, action under the said newly inserted sub-section could not be taken as held by the Sind High Court in its judgment dated 2-3-2004 in CP No. D 643 to D 646 of 2004. It was further stated that, in any case, the matter did not fall within the scope of section 122(5A) as the IAC could not have a valid reason to believe that the assessment was erroneous in so far as it was prejudicial to the interest of revenue. It was also pointed out that prior to the issuance of the notice u/s 122(5A) on 29-4-2005 the departmental appeal had already been decided by the Income Tax Appellate Tribunal and since the assessment had attained finality and had merged within the order of the ITAT, it could not be amended u/s 122(5A).

4. The representative of the respondent reiterated on his part that an appeal had already been filed by the department before the Supreme Court against the Sind High Court judgment referred to by the complainant. It was also contended that the proceedings u/s 122(5A) were quite valid and that in any case the proceedings had not yet been finalized and also that the complainant could, if necessary file an appeal after the finalization of the proceedings. It was further contended that action u/s 122(5A) could be validly taken even after the order of the Tribunal as the points raised in the notice u/s 122(5A) had not come up for consideration before the ITAT. It was also pointed out that the proceedings u/s 122 (5A) could not be held in abeyance indefinitely because of the time limitation contained in law. It was thus stated that the complainant had no valid cause of grievance and that the complaint may, therefore, be rejected.

5. The contentions of the two sides have been considered. The respondent’s contention that the matter falls within the ambit of section 9(2)(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000 is not acceptable because no matter was sub judice in the complainant’s own case at the time of the filing of the complaint. It is also not a matter of mere interpretation of law because the action u/s 122(5A) of the Income Tax Ordinance, 2001 initiated by the Inspecting Additional Commissioner has been found to be quite illegal on several grounds discussed below and it amounts to “maladministration” as defined in section 2(3)(1)(i)(a) of the Income Tax Ordinance, 2001. The matter thus falls within the jurisdiction of this Office. Detailed reasons for considering the action of the Inspecting Additional Commissioner to be illegal are contained in the paras to follow.

6. Retrospective applicability of sub section (5A) of section 122 of the Income Tax Ordinance, 2001 inserted through the Finance Act, 2003. The respondent claims to have filed an appeal against the Sind High Court decision dated 2-3-2004 in constitutional petitions No.D 643 to D 646 of 2004 dated 2-3-2004 in which it was held that sub section (5A) inserted in section 122 of the Income Tax Ordinance, 2001 w.e.f. 1-7-2003 could not be applied to assessments completed before that date. The fact, however, is that the legal principle involved in the Sind High Court judgment viz the lack of retrospectivity in the case of similar provisions of section 34A of the repealed Income Tax Act, 1922 and 66A of the repealed Income Tax Ordinance, 1979 has been accepted by the respondent itself over a long period of time. Thus section 66A (which was similar in nature to section 34A of the repealed Income Tax Act, 1922 and also to the new section 122(5A) of the Income Tax Ordinance, 2001) was inserted in the repealed Income Tax Ordinance, 1979 through the Finance Ordinance, 1980 w.e.f. 1-7-1980 while the Income Tax Ordinance, 1979 itself came into force w.e.f. 1-7-1979. In High Court decisions in the context of the said section 66A it was held that the section was not retrospective and since it was inserted w.e.f. 1-7-1980 it could not be applied to assessments finalized before its insertion. This legal position was confirmed by the CBR in its own circular dated 17-2-1981 clearly stating that

“section 66A does not have retrospective application. The assessments finalized before 1st July, 1980 cannot be reopened u/s 66A of the Income Tax Ordinance, 1979”.

The position with respect to section 122(5A) of the Income Tax Ordinance, 2001 is identical. Here the Income Tax Ordinance, 2001 came into force with effect from 1st July, 2002 and it did not contain any provision similar to section 66A of the repealed 1979 Ordinance. It was only through the Finance Act, 2003 that sub section (5A) was inserted in section 122 which read as under –

“(5A) Subject to sub section (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.”

The above provisions were similar in nature to those of section 66A of the repealed Income Tax Ordinance, 1979 but from 1st July, 2002 to 30th June, 2003 no comparable provisions were in existence on the statute. The principle contained in the earlier High Court decisions in the context of section 66A of the repealed Ordinance was thus fully applicable to section 122 (5A) of the Income Tax Ordinance, 2001. The earlier decisions of the High Court in the context of section 66A were never challenged by the department before the Supreme Court and were in fact confirmed by the CBR itself e.g. in the circular referred to above. Now, of course, the department claims to have filed a CPLA before the Supreme Court against the judgment(s) of the Sind High Court. These judgments of the High Court have, however, obviously not been held in abeyance. In fact in the light of section 124A of the Income Tax Ordinance, 2001 the Commissioner may follow the High Court decisions even in those cases in which CPLA has been filed and may take necessary action, if any, within one year after the Supreme Court judgment in those cases. In any case, the principle regarding lack of retrospectivity is well established and is incorporated in High Court decisions and several findings of this Office. The retrospective application of section 122(5A) is thus found to be contrary to law and to constitute “maladministration” as defined in section 2(3)(i)(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

7. Validity of the action in the context of the scope of sub section (5A) of section 122. The facts in this regard are that the complainant had declared a loss of Rs.250,004 for the assessment year 2002-2003 against the sales/receipts summarized in para 1(i) above. Vide his order u/s 62 of the repealed Ordinance dated 27-3-2003 the assessing officer made an addition of Rs.171,200 to the complainant’s wheat account and also made certain other additions to assess income at Rs.47,418. The complainant filed an appeal against the assessment and the CIT (Appeals) vide his order dated 1-10-2003 deleted the addition to wheat account and also allowed some relief in the add backs out of P&L account. The department then filed a second appeal before the Income Appellate Tribunal which was, however, rejected vide the decision dated 11-3-2004. A year later, however, the Additional Commissioner of Income Tax, Range-II, Companies Zone, Peshawar issued a notice u/s 122(5A) dated 29-4-2005 to the complainant the main portion of which read as under -

“The results shown as per your accounts are as under -

Purchase from open market Rs.550,000

Electricity consumed 137,450 units

Electricity units consumed 24.99 units

for grinding of 100 KG wheat

This shows consumption of 24.99 units per 100 KG crushing which is extremely high as normally as an accepted principle 5 to 6 units per 100 KG are allowed in this nature of business.

As per units consumed at the rate of 5 unit per 100 KG the wheat grinded will come to 2,749,000 if taken at 6 units per 100 kg then 2,290,833 while declared grinding is 550,000 the concealed grinding will come to 2,199,000 KG if taken at 5 units and if taken at 6 will come to 1,740,833.

Since the assessing officer has ignored this very important aspect of the case which make assessments framed u/s 62 dated 27-3-2003 for assessment year 2002-2003 erroneous in so far it is prejudicial to the interest of revenue which attract the provision of section 122(5A) of the Income Tax Ordinance, 2001. Therefore, I intend to amend your assessments already finalized u/s 122(5A) of the Income Tax Ordinance, 2001 to retrieve the loss of revenue”.

8. In response to the IAC’s letter dated 29-4-2005 the complainant sent a reply dated 6-5-2005, relevant portion of which was as under -

“That the appellant has declared total sales at Rs.5,957,536 which has also been confirmed by the assessing officer as per contents of assessment order itself.

That said proceeds of sales have been derived from sales of following quantities :-

Atta 533460 kgs Rs.4,896,670

Bran 21900 kgs Rs. 91,554

Refraction 24200 kgs Rs. 43,762

Wheat grinded charges 1870000 kgs Rs. 925,550

Total: 2449560 kgs Rs.5,957,536

That the schedule of sales was submitted to the assessing officer vide appellant letter dated March 22, 2003.

That the appellant has also submitted the details of electric consumption vide appellant letter dated March 27, 2003 and as per said letter the total consumption of electric units comes to 137450 units which have also been confirmed as per your office letter dated April 29, 2005.

That the appellant has grinded 2449560 kgs of wheat which is also in conformity with your office letter under reference.

As such the appellant has not concealed any grinded wheat as alleged in your office letter. All the documents as advised from time to time by the assessing officer have been submitted and after taking into account all the submissions the assessment u/s 62 was framed.

It is hoped that now the matter will be clear at your end and the letter under reference dated April 29, 2005 will be vacated.”

9. The Additional Commissioner vide his letter dated 24-5-2005, however, then took up a different ground for the proposed action u/s 122(5A) and wrote as under -

“Regarding your plea of grinding 1870,000 kg for other parties, the assessment record has been examined which reveals that in the assessment order for Assessment year 2002-2003 on page 2 of the following findings have been given by the assessing officer:-

“The assessee has also grinded 18700 bags of wheat for private parties. Copies of NICs along with agreement deeds were furnished and POF. The grinding charges declared at Rs.925,550 which in absence of any other evidence to the contrary is accepted u/s 65/156”.

In this regard the agreement deeds POF reveals that agreement was made with Mr. Niaz Ahmad S/o Thaker NIC No.286-21-28000, resident of Baroaki, Darman, Gujranwala and Irshadullah Khan S/o Maseetay Khan NIC No.289-92-266612 resident of Soyoki, P.O. Dhani, Tehsil Hafizabad, Gujranwala. The acceptance of these grinding arrangements by the assessing officer without any probe into the matter and subject to section 65/156 is erroneous and prejudicial to the interest of revenue. Keeping in view the above position in order to process your case further and look into the genuineness of the grinding arrangements you are requested to produce Mr. Niaz Ahmad S/o Thaker, NIC No.286-21-28000, resident of Baroaki, Darman, Gujranwala and Irshadullah Khan S/o Maseetay Khan, NIC No.289-92-266612, resident of Soyoki, P.O. Ddhani, Tehsil Hafizabad, Gujranwala for cross examination by 02-06-2005.

Please ensure that the needful is done on the due date otherwise inference will be drawn that the grinding of 18700 bags of 100 kg was your own grinding and accordingly your assessment for Assessment year 2002-2003 will be amended u/s 122(5A) of the Income Tax Ordinance, 2001.”

10. Vide its reply dated 31-5-2005 the complainant pointed out that in the Additional Commissioner letter dated 24-5-2005 another issue had been raised and sought confirmation that the complainant’s explanation regarding the units of electricity consumption had been accepted. Subsequently the complainant sent the following letter -

“That the appellant company has gone through the contents of your said letters and would like to state that the proceedings initiated u/s 122(5A) are not applicable to the appellant as the proceedings for the year of the appellant were completed as on March 27, 2003. The appellant went into appeal with CIT (A) and the appellant’s appeal for the year has also been decided by the CIT(A) vide appellate order dated October 1st, 2003.

Further to this, the appellant company is also enclosing herewith a copy of decision of Sind High Court dated March 2nd, 2004 which relates to subject matter. As per decision of Sind High Court, the proceedings u/s 122(5A) of ITO 2001 cannot be initiated.”

11. On receipt of the complainant’s letter the Additional Commissioner vide letter dated 24-5-2005 wrote to the complainant as follows -

“Reply/arguments submitted by you vide para 1 of your above quoted letter has been found unsatisfactory as proceedings for assessment year 2002-2003 u/s 122(5A) of the Income Tax Ordinance, 2001 were initiated on the issue which was ignored by the assessing officer at the time of original assessment finalized u/s 62 which make the original assessment erroneous in so far it is prejudicial to the interest of revenue. Accordingly the discrepancies were communicated to you vide this office Notice u/s 122(5A) quoted above.

Further to the above, the decision of Honourable Sind High Court referred by you has been challenged by the Department by filing CPLA in Supreme Court of Pakistan.

Since the matter is sub judice, therefore, you are requested to submit your written reply as requested vide this office Notice u/s 122(5A) bearing No.1327 dated 24-5-2005 by 29-8-2005 positively. You are further requested to provide CASH FLOW STATEMENT for the period relevant to the year under consideration on the due date.

Please ensure that the needful is done on the due date otherwise inference will be drawn that the grinding of 18,700 bags of 100 kg was your own grinding and accordingly your assessment for Assessment year 2002-2003 will be amended u/s 122(5A) of the Income Tax Ordinance, 2001”.

12. It is evident from the above that the first notice u/s 122 (5A) was issued on the assumption that the quantity of wheat subjected to grinding was not commensurate with the number of units of electricity consumed. Obviously while adopting this view the IAC took into consideration only the grinding of wheat undertaken by the complainant on its own account and ignored the grinding statedly undertaken for other parties. When this was brought to the notice of the IAC by the complainant the IAC took up a different ground viz that the assessing officer had not properly probed the genuineness of parties for whom the wheat was ground. In fact the grinding agreements and copies of Identity Cards of the parties were on record and were duly mentioned in the assessment order itself but these were ignored by the IAC when the first notice was issued. When this was pointed out by the complainant, the IAC directed that the parties be produced before him for cross examination and other information such as “cash flow statement” be also provided. It was conveyed to the complainant that if the parties were not produced the entire grinding would be considered to have been done on the complainant’s own account. Now it is evident from the words “erroneous in so far it is prejudicial to the interest of revenue” used in section 122(5A) that there should be an element of error apart from the assumed prejudice to revenue in the assessment order. In this context the Azad Jammu & Kashmir High Court in its well known judgment in United Builders (1984 PTD 137) while quashing action under section 34A of the repealed Income Tax Act, 1922 observed as follows -

“In order to exercise the powers under this section, it was incumbent upon the Inspecting Assistant Commissioner to determine that an order sought to be interfered, was erroneous and prejudicial to the interests of the revenue. The word “erroneous” is defined in the Oxford Dictionary, means: mistaken, incorrect; in the legal sense, an order was considered erroneous if it deviated from the law. This suggested that it was a condition precedent to declare the impugned order erroneous by reference to definite violation or deviation from law.”

The Azad Jammu & Kashmir High Court also noted that where the IAC was not in possession of definite facts to negate the assessment order there could be no valid action u/s 34A of the repealed Income Tax Act, 1922. In this context the High Court observed as under –

“The powers conferred under section 34A indicated that such powers were exercisable only on the proof and satisfaction that the order of the Income Tax Officer was unlawful as such erroneous, so as to be prejudicial to the interest of the revenues. Unless such a condition was not fulfilled, powers under the section could not be invoked. In the present case, the close study of the notice under section 34A reflects that the Inspecting Assistant Commissioner was not in possession of sound facts leading to the inference that the assessment made by the Income Tax Officer was in any manner erroneous.”

The Honourable High Court further observed that the mere fact that an IAC disagreed with the result of an assessment was not a valid reason for invoking section 34A. The relevant portion of the judgment was as under –

“It is well accepted that provisions of section 34A were not available on the ground of mere disagreement in assessment. Such powers can be invoked only when an order of Income Tax Officer is found deviating from law. Thus, only that Inspecting Assistant Commissioner was not in agreement with the result of assessment made by the Income Tax Officer was not a genuine reason for resort to section 34A. The other aspect of the case is that power conferred on Inspecting Assistant Commissioner under section 34A is just in the nature of supervisory power. In exercise of supervisory authority, Inspecting Assistant Commissioner was not expected to indulge in deep inquiry by assuming the role of Income Tax Officer.”

13. Now in the instant case it has already been noted that the original notice u/s 122(5A) was issued on totally wrong assumptions and ignoring relevant material on record. These assumptions could obviously not be a valid reason for considering the assessment for the year 2002-2003 to be erroneous in so far as it was prejudicial to the interest of revenue. When the erroneous assumption was pointed out by the complainant the IAC took upon himself the role of an assessing officer and commenced assessment proceedings by requiring the complainant to produce the parties for whom he had ground the wheat. Obviously even at this point of time the IAC had no definite reason to believe that the parties were fake and again he had no genuine reason to consider the assessment to be erroneous in so far as it was prejudicial to the interest of revenue. Thus on mere suspicion the IAC has stepped into the shoes of the assessing officer and has attempted to commence fresh assessment proceedings in the case. The IAC’s observation that if the parties were not produced for cross examination by the complainant, the entire grinding would be considered to have been done on its own account is again quite illogical. It is to be noted that this is the case of a limited company in which final accounts, duly audited by chartered accountants, were filed with the return. Grinding of wheat for other parties is a common activity among flour mills and even the failure to produce the parties could in no way justify the discarding of the audited accounts and jumping to the conclusion that all the wheat was ground on the complainant’s own account. In the light of the above, the action initiated by the Inspecting Additional Commissioner is found to fall outside the scope of section 122(5A) of the Income Tax Ordinance, 2001. For this reason too it is thus found to fall within the definition of “maladministration” contained in section 2(3)(i)(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

14. Merger with the order of the Income Tax Appellate Tribunal. As already noted above, the notice u/s 122(5A) was issued almost a year after the department’s appeal before the Tribunal had been rejected. The contention of the learned Advocate for the complainant was that the assessment order for the year 2002-2003 had merged with the order of the Tribunal and could, therefore, not be amended u/s 122(5A). The representative of the respondent was of the view that since the matter of the genuineness of the grinding receipts was not before the ITAT it was not considered by it and action u/s 122(5A) could, therefore, be validly taken in the case. It is evident, however, that the issue was not involved in the appeals before the CIT (Appeals) and the ITAT but the question of quantum of sales representing own grinding was involved and the sales as reduced by the CIT (Appeals) stood duly confirmed. The Inspecting Additional Commissioner now wants to enhance the sales of wheat ground on own account on the basis of a fresh probe. This is obviously against the accepted principle of “merger”. It would, in this context, be useful to refer to the judgment of the Supreme Court of Pakistan in the case of Glaxo Laboratories Limited reported as (1992) PTD 932. In this case too the question of validity of action u/s 66A of the repealed Income Tax Ordinance, 1979 after a decision of the Tribunal came up for consideration and the Supreme Court held the notice u/s 66A to be without jurisdiction and of no legal effect. While coming to this conclusion the Supreme Court inter alia observed as under -

“6. Section 66A authorizes IAC to examine and initiate action if the order passed by the ITO is erroneous in so far as it is prejudicial to the revenue. The IAC did not have the jurisdiction or power to initiate same action in respect of the orders passed by the appellate authorities or the Tribunal. However, as observed above such power has now been vested in IAC from the year 1991. The controversy is whether after the appellate authority has passed the order of the ITO merge in it and IAC cannot reopen it under section 66A in Corpus Juris Secundum, Volume 57, at page 1067 words “Merge” and “Merger” have been defined as follows :-

“The verb “to merge” has been defined as meaning to sink or disappear in something else, to be lost to view or absorbed into something else, to become absorbed or extinguished to be combined or be swallowed up.

“Merger” is defined generally as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased, and absorption or swallowing up so as to involved a loss of identity and individuality.”

It is well-settled principle that on appeal the original order merges in the appellate order. The Commissioner of Income Tax V. Farrokh Chemical Industries, 1992 SCMR 523 it was observed that “the order of the ITO upon appeal merged in the order of the Income Tax Appellate Tribunal”. Here the assessment order made by ITO was reopened under section 65 and a revised assessment was framed which has been set aside by the Tribunal. Thus, the order of the ITO has merged in the order of the Tribunal which holds the field.

The Supreme Court also took note of sub section (1A) which was inserted in section 66A in the year 1991 and which read as under –

(1A) The provisions of sub section (1) shall in like manner, apply,--

(a) Where an appeal has been filed under sections 129, 134 and 137 or a reference has been made under section 136, against an order passed by the ITO; and

(b) Where an appeal or reference referred to in clause (a) has been decided in respect of any point or issue which was not the subject matter of such appeal or reference.

(c) No order under sub section (1) shall be made after the expiry of four years from the date of order sought to be revised.”

In the context of the new sub section (1A) of section 66A the Supreme Court observed as follows –

“The fact that in 1991 sub section (1A) was added authorizing IAC to initiate action under section 66A even if appellate and revisional order has been passed, supports the contention that such a power did not exist earlier. The question whether it is applicable to the present case is kept open and we refrain from expression any opinion at this stage. We, therefore, allow the appeal and set aside the impugned judgment and consequently notice issued under section 66A of the Income Tax Ordinance is declared as without jurisdiction and of no legal effect.”

Now section 122(5A) of the Income Tax Ordinance, 2001 again does not contain any provisions similar to those contained in sub section (1A) of section 66A of the repealed Ordinance inserted in 1991 and obviously the Inspecting Additional Commissioner no longer has the powers indicated in the sub section. In the light of the Supreme Court judgment, the scope of section 122(5A) can again not be extended to cases where an assessment order has merged with the order of an appellate authority. On this basis too the action u/s 66A in the instant case is found to constitute “maladministration” as defined in section 2(3)(i)(a) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000.

15. In the light of the above, it is recommended that -



  1. The action u/s 122(5A) of the Income Tax Ordinance, 2001 initiated by the Inspecting Additional Commissioner for the assessment year 2002-2003 be dropped.

  2. Compliance be reported within 45 days.

(Justice (R) Munir A. Sheikh)

Federal Tax Ombudsman

Dated: -2006

BEFORE THE FEDERAL TAX OMBUDSMAN

REGIONAL OFFICE

KARACHI

COMPLAINT NO.1387/2005

M/s. KIIA Pharmaceuticals (Pvt) Limited,

17- Maqbool Cooperative Housing Society,

Block-7/8, Karachi.

Through M/s. S.M.Rehan & Company,

Suit # 414, 4th Floor, Progressive Plaza,

Beaumont Road, Civil Line Quarters, Karachi. …Complainant

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