The queer behaviour of a tax assessee, and equally queer handling of the case by the taxation officers, came to light in a recent complaint heard by the Federal Tax Ombudsman, Justice Saleem Akhtar.
The complainant Tekg Gemini, Rawalpindi, a property developer, in his returns for three assessment years 2000-2003, declared nil income. Later on, the returns were revised declaring losses of Rs 3.6 million for 2000-01, of Rs 3.6 million in 2001-2002 and of Rs 2.5 million for 2002-03.
Subsequently, as the case was processed after some months, the Taxation Officer proposed to levy a tax of Rs 10 million for the three years, which was opposed by the assessee.
However, under a verbal agreement, the assessee agreed to pay Rs 4 million as tax and to amend the returns accordingly.
Verbal agreement, which is contrary to law, envisaged that the assessee would show gross booking receipts of Rs 45 million, Rs 50 million and Rs 55 million for the three years; apply a gross profit rate of Rs 10 percent; declare profit and loss expenses of Rs one million for each year; and the agreement would be effective if the assessee pays Rs 4 million as tax.
The assessee declared the returns as agreed upon verbally and paid the agreed tax of Rs 4 million as per demand notices, which were validated by the Taxation Officer.
But he complained to the Federal Tax Ombudsman when he received a consolidated assessment order passed by the Additional Income Tax Commissioner, Islamabad, whereby the complainant was assessed at income of Rs 5.7 million, Rs 7.2 million and Rs 7.1 million for the three years, respectively, making a tax demand of Rs 7 million.
The complainant submitted that the taxation officer violated the verbal agreement by revising the returns and applied GP rate of 15 percent instead of the agreed rate of 10 percent.
Thus, the complainant, who had originally declared a cumulative loss of Rs one million, went to the FTO praying that the taxation officer be asked to fulfil the verbal agreement on his part as the complainant has done on his part.
"It is prayed that the agreement be ordered to be performed by the taxation officer or the assessments be ordered to be framed on the basis of original returns and appropriate action be taken against the taxation officer for shaking the trust of the taxpayer and of the legal advisor reposed in him".
In response to FTO's notice, the departmental representative admitted of the verbal agreement on the tax amount but the returns were not revised accordingly despite repeated verbal requests of the additional commissioner.
This reflected the complainant's intention to challenge the assessments in appeals. The department further claimed that the GP rate was 15 percent as applicable in parallel cases.
During hearing before the FTO, the departmental representative stated that no written agreement existed and thus the complainant could not substantiate his viewpoint.
According to circular No 17, dated Dec 20, 1990, an agreement was required to be written and signed by ITO, IAC, CIT, and the assessee where income involved exceeded Rs 0.2 million.
The FTO's order takes notice of the various issues like revision of returns, objection of the taxation officer for non-declaration of the receipts and income accordingly and the issue of GP rate of 15 percent instead of ten percent.
The Order states that the department has failed to explain why after issuing challans of certain amounts assessment was made creating a further demand.
"The entire proceeding by the assessing officer lacks bona fide and amounts to fraud on the statute as well as on the complainant and the assessment was made in violation of the alleged agreement by picking up gross receipts from the latest revised returns while the expenses claimed in the return filed much earlier were considered."
Further the FTO found that the assessing officer acted in violation of CBR's circular and created a bad situation. The complainant was first fraudulently trapped by the assessing officer to immediately enhance his tax collection and then deceived.
The action of the assessing officer is arbitrary, unjust, oppressive and lacks bona fide.
The FTO urged the commissioner to re-consider the facts and circumstances of the case by invoking jurisdiction u/s 122A and pass necessary order in accordance with the agreement made by the Additional Commissioner/ Taxation officer with the complainant.
Further the FTO directed that the assessing officer be subjected to counselling and kept under observation for six months.