The complainant had submitted that he had filed the return for tax year 2000 u/s 114 of the Ordinance on 7.10.2000. Assessment of the return is deemed to have been finalised under section 120 (1). On the basis of his return, he was entitled to a refund of Rs 233,168. He had also attached a refund application with the return. Under section 170 (4), the department was under legal obligation to issue the refund order within 45 days of the receipt of refund application and refund voucher is bound to be issued within next three months failing which the taxpayer is entitled to compensation under law.
The complainant further submitted that despite several requests, verbal as well as written, the department had not issued the refund voucher.
In its written response to the FTO's notice, the department contended that the refund voucher was not sent because the complainant's case fell within the parameters determined for selection for audit u/s 177 as the refund claimed exceeded Rs 100,000. Refund would be issued if found due after the audit.
During hearing before the FTO, the two sides repeated their arguments. However, the Ombudsman in his order noted that he had dealt the same issue in an earlier case dated July 17, 2004 in which the withholding of refund under similar circumstances had not been found to be valid.
The order noted that the under sub-section 1 of section 120 of the Income Tax Ordinance 2001, assessment is defined as under:
Assessment: where a tax payer has furnished a complete return of income (other than revised return under sub-section 6 of Section 114), for a tax year ending on or after the first day of July 2002, the Commissioner shall be taken to have made an assessment of taxable income for that tax year and the tax due thereon, equal to those respective amounts specified in the return and the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.
Thus the FTO's order noted that the respondent ie the department too accepted that the assessment of the complainant stood complied u/s 120.
The argument that the resultant refund cannot be paid at present because audit is to be conducted under section 177 is not tenable in the light of the provisions of the said section, the first three relevant sub-sections of which read as under:
177. Audit- (1) The Commissioner may select any person for an audit of the person's income tax affairs having regard to-
(a) the person's history of compliance or non-compliance with this Ordinance;
(b) the amount of tax payable by the person;
(c) the class of business conducted by the person; and
(d) any other matter that the Commissioner considers relevant.
(1A) After selection of a person for audit under sub-section (1), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person.
(1B) After completion of the audit under sub-section (1A) or sub-section (3), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under sub-section (1) or sub-section (4) of section 122, as the case may be."
It is evident that an audit can be undertaken by the Commissioner on the basis of any matter which he considers relevant but it is also evident that the audit u/s 177 is in the nature of a preliminary enquiry to determine whether an amended assessment is to be made u/s 122 in which connection, of course, the requirements of that section would have to be met independently including an opportunity to the taxpayer under its sub-section (9). The mere selection of a case for audit u/s 177 can, however, in no way mean that the assessment u/s 120 has been modified or the refund on the basis of assessment is no longer payable. It is also to be noted that the Income Tax Ordinance, 2001 does not envisage the withholding of a refund on the basis of any subsequent proceedings.
Furthermore, at present the Commissioner can have no reason to believe that the income declared by the complainant is not the true income merely because the complainant has claimed a refund of over Rs 100,000.
In the light of the above, there is, in principle, no reason whatsoever for withholding the refund claimed by the complainant through an application u/s 170 and the failure to issue the refund is an act of mal-administration as defined in section 2(3)(v) of Ordinance XXXV of 2000. If, however, any verification of the payments / deductions claimed by the complainant is still pending the verification may be carried out expeditiously before the issuance of refund.
In view of the above it is recommended that:-
(i) The refund for the tax year 2003 as claimed by the complainant be issued to it and if verification of tax payments / deductions is required, it be carried out expeditiously.
(ii) Compliance be reported within 30 days.