The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to investigate all cases across the country where coercive measures including attachment of bank accounts were done through the issuance of tax recovery notices during the pendency of appeals.
This is a landmark order of the FTO where the FTO has categorically declared that initiation of coercive measures through the issuance of notices under section 138(1) of the Income Tax Ordinance during the pendency of appeal against the laid down procedure is tantamount to maladministration in terms of Section 2(3)(ii) of the FTO Ordinance.
The FTO has further instructed the FBR will direct the Member-IR (Operations) to examine such cases across the country and to see whether provisions of section 138 of the Ordinance and instructions conveyed through the circular of 2020 and re-enforced vide circular of 2021 are being complied with and take remedial action wherever required, FTO order added.
The taxpayer informed that such type of practice is prevailing in various regional tax offices (RTOs) and prayed to issue directions to FBR to ensure uniformity and to clarify whether issuance of notice u/s 138(1) of the Ordinance constitutes the initiation of coercive measures or not, the authorized representative added.
Briefly, the complainant filed an appeal before the Commissioner Inland Revenue (CIR) (Appeals-II) Islamabad against the order passed u/s 122(4) of the Ordinance dated June 28, 2023, creating a demand of Rs. 76.479 million.
During the pendency of the appeal, notice u/s 138(1) of the Income Tax Ordinance was issued for recovery of tax. The Complainant requested the assessing officer to withdraw the notice issued u/s 138(1) of the Ordinance on account of instructions of the Board regarding the non-taking of coercive measures during the pendency of the appeal.
On the other hand, the tax department refused to withdraw the same and according to them issuance of notice u/s 138(1) of the Ordinance during the pendency of an appeal does not constitute coercive measures but in fact, it is a reminder for voluntarily depositing of tax liability, hence this complaint.
In response, FBR admitted that during the pendency of the appeal before the CIR(Appeals) no coercive measures can be taken for recovery of tax.
The department said that the instructions of FBR have been complied with and reiterated that issuance of notice u/s 138(1) of the Ordinance does not constitute initiation of coercive measures. On the other hand, AR stated that issuance of notice u/s 138(1) of the Ordinance means initiation of coercive measures.
The AR stated that although the Chief Commissioner Inland Revenue, Regional Tax Office Islamabad has constituted the committee in pursuance of provisions of Section 138(4) of the Ordinance and FBR’s instructions conveyed through Circular C.No. 7(20)S(IR-Operations)2020 dated 12-10-2021 and reinforced vide Circular No. 7(20)S(IR-Operations) /2021/209984R dated 05-10-2022 but the procedure laid down has not been followed as notice u/s 138(1) of the Ordinance has been issued without obtaining approval of the above-said committee.
The FTO office said that it is clear that issuance of notice 138(1) of the Ordinance amounts to initiation of coercive measures and sub-section (4) of Section 138 of the Ordinance reinforces this point of view wherein it is stated that for regulating the procedure of recovery u/s 138 of the Ordinance FBR may make rules and in pursuance of these provisions FBR has issued directions vide Circular C.No. 7(20)S(IR-Operations)2020 and reinforced vide Circular No 7(20)S(IR-Operations) /2021/209984R dated 05-10-2022.
