The Federal Tax Ombudsman (FTO) has held officials of the Regional Tax Office (RTO) Hyderabad accountable for maladministration in a withholding tax case involving a rice mill based in Matiari. The FTO directed the Federal Board of Revenue (FBR) to conduct fresh proceedings after providing the taxpayer with a proper opportunity for a hearing.
Background of the Case
According to an order issued by Federal Tax Ombudsman Zafar Hijazi, the complaint was filed by M/s Manglani Rice & Dali Mills. The dispute concerned an order passed under Section 161(1) of the Income Tax Ordinance, 2001, which created a tax demand of approximately Rs7.3 million for the tax year 2019.
Persistent Failure by Tax Authorities
The Ombudsman observed that the matter had come before the FTO for the third time, indicating a persistent failure by tax authorities to comply with earlier directions. Previous FTO findings had already pointed out procedural shortcomings and instructed the department to revisit the assessment after ensuring due process and a fair hearing for the taxpayer.
Arguments of the Complainant
During proceedings, the complainant argued that a significant portion of the purchases consisted of paddy procured directly from growers, which did not attract withholding tax under the relevant provisions. It was also contended that the assessing officer imposed tax on various expenditure heads without identifying the recipients of payments or establishing the basis for applying a withholding tax rate of 7.75 percent.
FTO Observations
The FTO noted that despite earlier acknowledgements by departmental representatives regarding defects in the assessment, the assessing officer repeatedly passed similar orders. The Ombudsman further observed that no material evidence had been placed on record to justify taxing all payments or treating all recipients as non-filers without verification.
Declaring the actions of the tax officer as “arbitrary”, “unreasonable” and “unjust”, the FTO ruled that the case fell within the definition of maladministration under the Federal Tax Ombudsman Ordinance.
Recommendations and Directions
The Ombudsman has recommended that the Commissioner Inland Revenue, WHT Zone, RTO Hyderabad, revisit the impugned order after granting the taxpayer a proper hearing. The FTO further directed that the case be assigned to a different officer if fresh proceedings are considered necessary and ordered the FBR to submit a compliance report within 45 days.
The FTO has also asked its Registrar Headquarters to examine the repeated instances of maladministration in the matter and submit findings for further action.
