The Federal Tax Ombudsman (FTO), Dr Muhammad Shoaib Suddle on Tuesday categorically conveyed to the Federal Board of Revenue that there is no provision in the Income Tax Ordinance 2001, which empowers the income tax department to unreasonably withhold refund.
The FTO has given these remarks while deciding a case of refund withheld by the tax department for the last many years. The FTO further clarified that in the presence of documentary evidence including tax payment challans, deduction certificates and other relevant documents like electricity bills, utilities bills, bank certificates, etc, claimed refund cannot be withheld.
The FTO has detected a major case of maladministration by the income tax officials and directed the Federal Board of Revenue (FBR) to issue income tax refund along with compensation to a manufacturer-cum-supplier and service provider, who was denied refund claims for Tax Years 2004 to 2008.
In a complaint filed by Hamid Ashraf Proprietor HA consultant Lahore, the FTO has recommended the FBR to direct the Chief Commissioner to issue refund/ compensation due, as per law, within 21 days; and report compliance within seven days thereafter. According to the findings of the FTO office, the delay and arbitrariness apparent in issuance of refund, and non implementation of Commissioner's (Appeals) order dated February 15, 2011, tantamount to maladministration under Section 2(3) of the FTO Ordinance.After hearing both sides, FTO observed that it is clear that there is no provision in the Ordinance that empowers the dept to unreasonably withhold refund.
Under Section 170, the satisfaction of the departmental authority examining the refund claim is necessary to the extent that documentary evidence having a direct bearing on refund claim is in order. Such documentary evidence includes tax payment challans, deduction certificates and other relevant documentation like electricity bills, utility bills, bank certificates, etc. If these documents are found to be in order, then the claimed refund cannot be withheld.
As regards other matters having a possible bearing on the quantum of income assessed, like variations in GP rate, sale rate, apparent discrepancies in sales and capital shown on different documents, etc, these are to be disposed of separately through an order other than an order under Section 170(4). However, before starting these other, separate, assessment proceedings, the dept is bound under the law to first settle the refund claim.
Details of the case revealed that the complaint is against non-issuance of refund. The complainant, a manufacturer cum supplier and service provide, claimed refund amounting to Rs 22,534,196/- Rs 48,099,416/-, Rs 81,055,491/- Rs 31,424,558/- for Tax Years 2004 to 2008 on 18.3.2010 (revised), 30.9.2005, 30.9.2006, 29.9.2007, 16.11.2008 respectively. The refund arose on account of excess deduction of income tax at source.
The complainant states that the dept on 23.9.2010 rejected the Complainant's refund claims in their entirely on the ground that as he was engaged in the "execution of contracts", the tax deducted at source constituted full and final discharge of his tax liability under the law.
The complainant contested the departmental action and filed appeals before the Commissioner (Appeals) Zone-III, Lahore. The Commissioner (Appeals) heard and decided the appeals on 15.02.2011. According to the Complainant, the Commissioner (Appeals) cancelled the order dated 23.09.2010 passed under Section 170(4) of Income Tax Ordinance, 2001 (the Ordinance), holding that the reasons cited by the dept for rejecting the Complainant's refund claims were wholly misconceived, arbitrary, and not maintainable.
The dept accepted the Commissioner's (Appeal) decision, and did not file second appeal before the Appellate Tribunal. The dept also gave appeal effect, vide order dated 28.02.2011, to the order of the Commissioner (Appeals), citing resultant refund of Rs 274.116 million for Tax Years 2004 to 2008 as pending.
However, rather than issuing refund that the dept had itself determined in the appeal effect order, the dept, on 09.04.2011, without any justification, invoked the provisions of Section 122(5A) of the Ordinance. Equally unjustifiably, on 03.05.2011, the dept invoked provisions of Section 122(5) of the Ordinance, with a view to arbitrarily amend the deemed assessments, and thereby offset, in whole or in part, the refund claims for the cited years.
It is the complainant's contention that notwithstanding the oppressive resort to the provisions of Sections 122(5) and 122(5A), the dept was duty bound to first settle the refund claim that the dept had itself created, as per appeal effect, and then proceed with the amendments under Section 122(5) and 1 22(5A), if deemed necessary.
The complainant was of the view that discriminatory nature of the Departmental actions was evident from the fact that other taxpayers, placed similarly as the Complainant, were accorded different treatment. While they were placed in the normal tax regime, (NTR), he was singled out for oppressive treatment that was not permissible in law, and that clearly constituted maladministration under Section 2(3) of the FTO Ordinance. The Complainant cited a number of comparable cases of other manufacturer cum suppliers and service providers.
When confronted, the dept filed a reply, maintaining that the dept had gone in second appeal against the order of the Commissioner (Appeals), which was pending decision before the Appellate Tribunal. The dept contended that the Complainant's refund claim was wholly misconceived as he was correctly placed in the fixed tax regime (FIR). However, this contention was soon superseded by a second reply, claiming that no second appeal had been filed against the order of the Commissioner (Appeals) and the Departmental intimation to the FTO Office regarding filing of a second appeal before the Appellate Tribunal was an inadvertent mistake. The dept claimed that the Complainant's refund claims were pending in the dept and were being processed according to law.
The authorised representative (AR) of the unit submitted that it was his right under the law to revise Returns of Income for Tax Years 2004 and 2008 filed earlier, as there were valid grounds for their revision. He explained the Return of Tax Year 2004 was revised on 18.3.2010 to claim refund at Rs 22,534,196/- as against refund of Rs 18,685,191/- claimed in the original Return. This revision was made on the basis of certificate of withholding tax deduction under Rule-42. It was not correct for the dept to say that refund was not claimed in the original Return for Tax Year 2004. As regards Return for Tax Year 2008, its revision was made to claim adjustment of tax deducted at source on self-manufactured supplies only.
The department 'expected' to raise demand of tax against the complainant in the proceedings initiated under Sections 122(5) and 122(5A) of the Ordinance could not be legally made a basis to deny settlement of refund claims for Tax Year 2004 to 2008. Under the law, settlement of pending refund claims had priority, and once these claims were settled any other proceedings could continue, provided of course those were otherwise justified under the law, the FTO order added.