FEDERAL TAX OMBUDSMAN SECRETARIAT
ISLAMABAD
Complaint No.24/ISD/ST(08)/242/2012
Dated: 22.02.2012*
M/s MIA Corporation
Islamabad
… Complainant
Versus
Secretary
Revenue Division
Islamabad
… Respondent
Dealing Officer
:
Hafiz Ahsan Ahmed Khokhar, Advisor
Authorized Representative
:
Mr. Atif Mehmood, Advocate
Departmental Representative
:
Mr. Aamar Javed, DCIR, RTO, Islamabad
FINDINGS/RECOMMENDATIONS
The Complainant is aggrieved against the Commissioner IR,
RTO, Islamabad’s letter No.CIR(Zone-I)RTO/410 dated 17.10.2011,
informing him that his case had been selected for ‘Composite Audit’
for tax year 2010. He was further informed by the Assistant
Commissioner
Audit,
Zone-I,
RTO,
Islamabad,
vide
letter
No.CIR(Zone-I)RTO/2011/127 dated 19.10.2011, to produce the
relevant record relating to income tax, sales tax and federal excise.
2.
The complaint was sent for comments to Secretary, Revenue
Division, in terms of Section 10(4) of the FTO Ordinance 2000. In
response, the FBR forwarded parawise comments by Commissioner
IR, Zone-I, Islamabad, vide letter No.1(242)S(TO-II)/2012 dated
11.04.2012.
3.
During the hearing, the AR submitted that the mode of selection
of composite audit by the Commissioner IR, RTO, Islamabad, was
unjustified, illegal and in violation of the principles laid down by the
*
Date of registration in FTO Sectt:
2
C.No.24/ISD/ST(08)/242/2012
superior courts. There was no provision of composite audit in the
Income Tax Ordinance, 2001, Sales Tax Act, 1990, or Federal Excise
Act, 2005. He further submitted that the judgment of Hon’ble Sindh
High Court (2011 PTD 1558) had been followed by the Hon’ble
Federal
Tax
Ombudsman
while
deciding
the
complaint
No.572/Lhr/IT(449/1157/2011. The relevant extract is as follows:
“….It seems therefore that wherever a composite audit was
deemed appropriate, the legislative intent was clearly stated,
and the absence of any such provision in either the Income Tax
Ordinance, 2001 or the Sales Tax Act, 1990, indicates that no
such audit is permissible in relation to these two laws. For all of
the foregoing reasons, we are therefore of the view that the
‘composite audit’ in the present case was also without lawful
authority.”
4.
He further contended that even otherwise the RTO, Islamabad,
did not have the jurisdiction in the case to issue notice for conducting
the audit of sales tax and federal excise matters as the same lay with
the Large Taxpayers Unit (LTU), Islamabad. He finally prayed that the
impugned notice of selection for composite audit be vacated.
5.
The DR submitted that the Commissioner IR, RTO, Islamabad,
was competent under Section 177(1) of the Income Tax Ordinance,
2001, to select any case for audit falling in his jurisdiction including
the case of the Complainant. He further submitted that the notices for
audit were issued on merit and in line with the criteria laid down by
the FBR. He also submitted that the matter in hand was beyond the
scope and jurisdiction of Hon’ble FTO as per Section 9(2)(b) of the
FTO Ordinance 2000.
6.
The complaint has been examined in the light of submissions of
both the parties and the judgments relied upon.
C.No.24/ISD/ST(08)/242/2012
3
7.
There is no cavil with the proposition that the Commissioner IR
is competent under Section 177(1) of the Income Tax Ordinance,
2001, to issue notice for audit. However, while exercising this power,
he cannot invoke the said provision on other laws. Both Sales Tax
and Federal Excise laws have independent sections for audit
proceedings; their consequences are different and they cannot be
subjected to the provisions of Income Tax law. There is no provision
of ‘composite audit’ available in Income Tax, Sales Tax or Federal
Excise laws.
8.
The Hon’ble Federal Tax Ombudsman held in complaint
No.572/LHR/IT(449)/1157/2011 that the ‘composite audit’ being a
significant departure from established practice and procedure
regarding conduct of audit, and also being in violation of the High
Court
judgment
(2011
PTD
1558)
was
tantamount
to
maladministration as defined under Section 2(3) of the FTO
Ordinance.
9.
As regards Departmental objection in terms of bar laid down in
Section 9(2)(b) of the FTO Ordinance 2000, the matter has been
examined and the objection found to be misconceived. Assessment
of income per se is not the moot point in the complaint. Rather, the
method adopted to determine the Complainant’s income for purposes
of levy of income tax and sales tax simultaneously through conduct of
a ‘composite audit’ is what is complained against. The ‘composite
audit’ method exposes the Complainant to double jeopardy. The
Departmental objection in this regard is rejected, being without merit.
10.
The contention of the Complainant that the Commissioner IR,
RTO, Islamabad, did not have the jurisdiction to issue the notice of
audit for Sales Tax and Federal Excise was conceded by the DR,
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C.No.24/ISD/ST(08)/242/2012
stating that for audit proceedings of Sales Tax and Federal Excise,
the LTU, Islamabad, had the jurisdiction.
Findings:
11.
The action of Commissioner IR, RTO, Islamabad, to issue
notice for ‘composite audit’ covering Sales Tax and Federal Excise
matters simultaneously with the Complainant’s Income Tax affairs
being without jurisdiction, and also being in violation of the SHC
judgment, is tantamount to maladministration as defined under
Section 2(3) of the FTO Ordinance, 2000.
Recommendations:
12.
FBR to(i)
withdraw notices issued for conduct of ‘composite audit’ in
the Complainant’s case within 15 days; and
(ii)
report compliance within 05 days thereafter.
(Dr. Muhammad Shoaib Suddle)
Federal Tax Ombudsman
Dated: 31-05-2012
MR