The Federal Tax Ombudsman (FTO) has taken notice of the harsh treatment of the Federal Board of Revenue (FBR) to an old lady (senior citizen) by issuing multiple notices and ex-parte orders against her over the past several years.
An old lady, who is a compliant taxpayer before Tax Ombudsman, was burdened with multiple audit notices for the tax year 2016. She was engaged in the textile manufacturing business when the final show cause notice for compliance was issued. The complainant applied for an extension which was rejected and an ex-parte order was passed asking for Rs. 2.7 million.
However, all the relevant details of purchases and expenses were not only filed but also duly examined by the officer but the ex-parte order was passed without considering the details available on record. The complainant, being aggrieved, took up the matter with the FTO.
In response to the notice, the Chief Commissioner of Inland Revenue (IR) contended that the case of the complainant was selected under Section 214C of the Income Tax Ordinance, 2001. Subsequently, the Assistant Commissioner IR issued notice to produce records for the audit but the taxpayer did not fulfill her statutory duty.
However, to provide another opportunity to the taxpayer, a show cause notice was issued. As the taxpayer failed to make any compliance, the order was passed under Section 121(1) based on failure to provide an explanation.
According to the findings of the FTO, the issue was the non-assessment of income and determination of tax liability. The complaint was filed against the unfair treatment meted out to the complainant by passing harsh ex-parte order when the complainant was regularly making compliance to departmental notices issued for multiple years from time to time.
FTO observed that the complainant’s case was selected for audit in 2018 and the order was passed on 28th June 2022, i.e. about the same time when the case was getting time barred (on 30th June 2022).
It was a very unfortunate departmental practice to sleep over the audit cases till the last minute and summarily dispose them of when they are getting time-barred. This result not only in prolonged agony for taxpayers but also did not result in any meaningful audit as these cases were disposed of mostly either ex-parte or without examining any details and documents.
Court Order in the Said Matter
The Lahore High Court has already directed in another case to finalize the audit cases before 30th June of the year of selection which was later relaxed to 31st December in ICAs 1263/2017. Subsequently, the Supreme Court of Pakistan (SCP) in CPLA No 2370-L filed by the department, Para 22 said,
“We are also convinced that a general timeframe is necessary to be put in place to ensure that the tool of audit is not abused or misused to pester, torment or harass the taxpayer on account of reasons not attributable to him. We, therefore find that the timeframe mentioned in the policy guidelines namely completion of the audit within the same financial year in which a taxpayer is selected for audit is fair and reasonable. It must as far as possible be adhered to.”
The order further stated, “If delays are inevitable, beyond the control of the department and do not occur on account of any act or omission on the part of the taxation officers and happen on account of litigation and grant of stay orders, the Audit Officer may seek an extension of time from the FBR for completion of the audit after recording reasons in writing for seeking such extension explaining reasons for his inability to complete the audit within the stipulated time. The Board may in consideration of such reasons grant a reasonable extension to enable the completion of the audit.
Moreover, the SCP order emphasized, “The extension granted so should be supported by due application of mind and appropriate reasoning on the part of the FBR. It should not be granted casually, repeatedly and as a matter of routine. Adherence to guidelines and time frames would enhance the confidence of the taxpayers in the system and at the same time act as a check on lethargy and inefficiency on the part of the departmental functionaries.”
The FTO’s finding further stated, “It was unfortunate that neither the field formations are following the judgment of the SCP nor the guidelines issued by FBR. The instant complaint is a classic example of abuse, misuse and hardship pointed out by the SCP.” The passing of harsh, arbitrary ex-parte order without considering the details provided by the aged compliant taxpayer is tantamount to maladministration, it added.
The Tax ombudsman recommended the FBR to direct the Commissioner-IR Audit-II to revisit the order under Section 122A of the Income Tax Ordinance 2001 and pass a fresh order after affording a proper opportunity of hearing strictly under the law and to report compliance within 45 days.