The complainant derived income as carriage contractor and is an existing assessee of Income Tax, Sukkur Zone on National Tax Number 25-01-0912771. He has challenged the legality of show cause notices issued u/s 122(9) of the Income Tax Ordinance 2001 by the Additional Commissioner of Income Tax Audit Division Sukkur relating to the tax years 2003, 2004 and 2005. The facts of the case are briefly stated as under:-
2. The returns of income for the tax years 2003 to 2005 were filed showing income of Rs.712,000, 870,000 & 1,240,346 respectively. The assessments were deemed to have been completed as provided u/s 120 of the Income Tax Ordinance 2001 which resulted in claim of refunds of Rs.3,838,709, 4,522,939 and 6,058,553 respectively for the aforesaid tax years. The refunds were accordingly issued by the taxation officer concerned. It is stated that during the course of regular inspection, the Additional Director Inspection and Audit Sukkur observed that the tax deduction claimed by the complainant in the returns were against the payments for services provided by the complainant which fell under the presumptive tax regime u/s 169 and constituted full and final discharge of tax liability and refunds were wrongly issued. The Additional Commissioner Audit Division Sukkur examined the records of the case and noted that the complainant had filed statements u/s 115(4) of the Income Tax Ordinance 2001. Subsequently the complainant also filed returns of income u/s 114 of the Income Tax Ordinance 2001 under Normal Law from the same source of transport business for which statements u/s 115(4) had already been filed.
3. The Additional Commissioner initiated proceedings u/s 122(5A) of the aforesaid Ordinance and issued show cause notice u/s 122(9) for the tax years 2003 to 2005. It is alleged by the complainant that the show cause notices dated 15.06.2006 for compliance on 21.06.2006 were not received by him and he requested his A.R. to collect the notices from the Income Tax officer. The time allowed for compliance was too short and against the directions of the Central Board of Revenue issued through Circular No.13 of 1951 dated 28.05.1951. It is contended that the Additional Commissioner Audit Sukkur allowed only three days time for submission of reply which constituted maladministration as defined in F.T.O. Ordinance 2000. It is also alleged that as per law, the additional commissioner was required to issue notices u/s 122(9) alongwith rule 62 of the Income Tax Rules 2002 for all the three years. It is pleaded by the complainant that the taxation officer submitted the draft refund orders u/s 170(4) of the Income Tax Ordinance 2001 to the Commissioner of Income Tax through Additional Commissioner for the three years under consideration. The C.I.T. Sukkur approved refund orders and the taxation officer issued refund vouchers, countersigned by the Additional Commissioner Sukkur. All the legal requirements and formalities were completed by the department and the refunds were issued after verification of three officers including the senior most officer i.e. C.I.T. of the Zone. It is alleged that the Additional Commissioner of Income Tax being junior officer to the Commissioner of the Zone issued notices stating therein that the refund orders passed by the taxation officer with the approval of the C.I.T. and counter signed by the Additional Commissioner were erroneous and prejudicial to the interest of revenue and he therefore intended to amend the assessments. The said act of the Additional Commissioner fell within the ambit of Clause (a) of sub-section (3) of Section (2) of the F.T.O. Ordinance 2000.
4. It is further pleaded that the Commissioner of Income Tax Sukkur Zone had delegated powers of assessment u/s 120, 121 and 122 to the taxation officers of grade 16,17 and 18 and the powers of section 122(5A) were delegated to the Additional Commissioner. The Commissioner of Income Sukkur did not delegate the powers u/s 170(4) in the case where refund due to the taxpayer was more than Rs.100,000/- It is also, pleaded that as per jurisdiction order of CIT Sukur Zone the power of section 122(5A) of the Income Tax Ordinance was delegated to the Additional Commissioner in cases where assessment orders were passed by the taxation officers of grade 16, 17 and 18. He did not delegate the powers of section 122(5A) of the Income Tax Ordinance 2001 in cases where approval was granted by the Commissioner of Income Tax and the order was counter signed by the Additional Commissioner.
5. It is contended that the Additional Commissioner Audit Sukkur issued notices u/s 122(5A) on the basis of inspection notes forwarded by the Additional Director Audit and Inspection Sukkur. He was not supposed to issue the said notices on the directions of the other officers. The power u/s 122(5A) of the Income Tax Ordinance 2001 could be exercised by the Additional Commissioner by applying his own mind. The complainant has placed reliance on the decision of C.I.T. (Appeals) Zone-VI, Karachi on the issue of transportation services. It is also alleged that the additional commissioner failed to follow the Circular No.1 of 2005 dated 5.7.2005 on the issue of withholding tax u/s 153(1) (b) and 153(1)(c). The complainant has prayed for issuance of directions to the Additional Commissioner of Income Tax Audit Division Sukkur to withdraw the show cause notices dated 15.06.2006 and for initiation of disciplinary proceedings against him.
6. The respondents have forwarded the parawise comments of Regional Commissioner of Income Tax, Southern Region, Karachi. He has contended therein that the show cause notices u/s 122(9) were issued to the tax payer in accordance with law and after the Additional Commissioner of Income Tax had applied conscious and judicious application of his mind to the facts of the case. The objection regarding jurisdiction has been raised in terms of section 9(2)(b) of the F.T.O. Ordinance 2000. It is reported that the proceedings were initiated u/s 122(5A) of the Income Tax Ordinance 2001 on the basis of clarification issued by the C.B.R. vide letter No.5(1) M/(FATE) dated 29th December 2005. It is further reported that on the basis of Inspection Note of Audit and the clarification of the C.B.R. show cause notices under delegated powers of C.I.T. Sukkur were issued to the complainant u/s 122(9) of the Income Tax Rules 2002 on 15.06.2006 for submission of reply by 21.06.2006. the Authorized Representative of the complainant applied for adjournment which was acceded to and the time was extended up to 28.06.2006. It is pleaded that the show cause notices u/s 122(9) were issued in conformity to rule 62 of the Income Tax Rules 2002. The allegation of violation of law in this regard is absolutely unfounded. It is reiterated that the Additional Commissioner audit Division initiated proceedings u/s 122(5A) by issuing statutory notices u/s 122(9) under the delegated authority of CIT Sukkur. The Additional Commissioner acted as Commissioner of Income Tax and therefore the action was absolutely legal for all purposes of Income Tax Ordinance. It was also in accordance with law that the Additional Commissioner under the delegated authority could amend the deemed assessment order made u/s 120/122(3). There were sufficient reasons for amending the assessments in the case of the complainant as tax deducted against provision of transport services was full and final discharge of tax liability and was not refundable as claimed by the complainant in his returns as clarified by the C.B.R. in letter dated 29.12.2005. It is further stated that the order u/s 120/122(3) on the basis of return was deemed to have been issued by the Commissioner and he was authorized u/s 122(5A) to amend or further amend the assessment order if he considered that the assessment order was erroneous in so far it was prejudicial to the interest of revenue. The assessments made in this case u/s 120/122(3) were erroneous in so far as these were prejudicial to the interest of revenue as the tax deduction was full and final discharge of tax liability u/s 169. The action did not therefore fall within the definition of maladministration as provided in FTO Ordinance 2000. It is pleaded that the proceedings initiated u/s 122(5A) were not relevant to the refund but were for amendment of assessments which were erroneous and prejudicial to the interest of revenue for the aforesaid reasons. It is contended that the Additional Commissioner audit had considered all the aspects of the case and was satisfied that the assessments u/s 120/122(3) on the basis of returns were erroneous in so far as prejudicial to interest of revenue. It is reiterated that the matter was subjudice as no decision was taken so far and therefore the provisions of section (9) (2) of the F.T.O. Ordinance 2000 were applicable in this case.
7. The case has been discussed with the representatives of both the parties and the records produced by the D.R. have also been examined. The complainant’s A.R. has furnished written arguments during the course of hearing of the case. He has reiterated therein the objections/allegations made in the complaint.
8. The perusal of records shows that the show cause notices for the tax years 2003 to 2005 were originally issued on 30.05.2006 for compliance by 14.06.2006. Since the complainant did not submit reply by the stipulated date, reminders were issued on 15.06.2006 for compliance by 21.06.2006. The Authorized Representative of the complainant submitted adjournment application and the time was extended by the taxation officer up to 28.06.2006. On receipt of A.R’s letter on 28.06.2006 the complainant was allowed more time for compliance by 12.07.2006. It is therefore established that adequate time has been allowed to the complainant for submission of reply to the show cause notices issued by the Additional Commissioner of Income Tax and therefore the allegation in this behalf is not well founded. The additional Commissioner of Income Tax Audit Division Sukkur initiated proceedings u/s 122(5A) of the Income Tax Ordinance 2001 for the tax years 2003 to 2005 on the basis of report/observation of Additional Director Inspection and Audit Circle and the clarification issued by the C.B.R. vide letter dated 29.12.2005. The Departmental Representative has provided a copy of the said letter of the C.B.R. which is reproduced as under:-
“2. Transportation of goods etc. are broadly divided into two categories i.e. carried through transport owned by a person or transport hired by a person. Where the transport is owned by the person it is classified as rendering of transport services and where it is carried through transport hired it is classified as providing of transport services.
Providing of transport services fall sunder section 153(1)(c) and the tax deducted at source is the final tax liability.
However from tax year 2006 this distinction has been removed and both rendering and providing of transport services now fall under section 153(1)(b)
5. Upto tax year 2005, tax collected at source under section 234 is the final tax for taxpayers rendering transport services and accordingly the tax deducted under section 153 (1)(b) is refundable.”
It may be pointed out here that it was imperative on the part of the Additional Commissioner to follow the clarification/directions of the C.B.R. as provided u/s 214 of the Income Tax Ordinance 2001. The show cause notices issued by him do not suffer from any legal infirmity as alleged by the complainant. The complainant’s contentions that since the refunds for the year under consideration were issued by the taxation officer after obtaining approval of the C.I.T., the Additional Commissioner had no legal authority to initiate the proceedings u/s 122(5A) of the Income Tax Ordinance 2001 for the said years, is also not valid. The proceedings u/s 122(5A) were initiated not on the issue of refund but for amending the assessments which were found to be erroneous and prejudicial to the interest of revenue. The issue involved was as to whether the tax deductions in the case of the complainant fell under the presumptive tax regime u/s 169 of the said Ordinance and constituted full and final discharge of tax liability or not.
9. The contention of the A.R. that the Additional Commissioner of Income Tax being junior to the Commissioner of the Zone had no authority to proceeds u/s 122(5A) of the Income Tax Ordinance 2001 as the assessments and the refund orders were approved by the Commissioner is also incorrect and misconceived. The additional Commissioner of Income Tax Audit Division Sukkur initiated proceedings u/s 122(5A) of the Income Tax Ordinance 2001 under the powers delegated to him u/s 210 of the said Ordinance by the Commissioner. He in fact exercised the power of Commissioner after the same was delegated to him under the aforesaid section. This issue does not suffer from any ambiguity as the matter has been clarified by Section 211 of the said Ordinance which is reproduced as under:-
“211 (1) where, by virtue of an order under section 210, a taxation officer exercises a power or performs a function of the Commissioner, such power or function shall be treated as having been exercised or performed by the Commissioner.”
10. It is established by the facts stated above that show cause notices issued to the complainant for initiating proceedings u/s 122(5A) of the Income Tax Ordinance 2001 were in accordance with law. No maladministration is established and therefore no intervention is called for at this stage. The file is closed with these remarks.