Federal Tax Ombudsman (FTO) has recommended tax authorities to launch probe under Anti-Benami law against Summit Bank while disposing of a case lodged by a top official of Omni Group.
In a complaint filed by Khawaja Mohammad Salman Younis, Chief Operating Officer (COO) of Omni Group against Inland Revenue office of the Federal Board of Revenue (FBR) for creating huge tax liability without providing proper opportunity.
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The FTO in his order dated March 08, 2023, although provided relief by directing tax authorities to provide opportunity of hearing to the complainant. But at the same time, the FBR recommended the FBR to direct Chief Commissioner LTO Islamabad and Direct General Anti-Benami Initiative to probe on the issue for tax evasion related to Summit Bank.
Brief fact of the case, the Complainant, a private limited company, took lease of the property plot no. G-2 Block-2, Clifton Karachi measuring 3832 square yards from KDA on October 19, 2002 and sold the said property to M/s Summit Bank Ltd at a price of Rs950,000,000/- as per sale agreement dated June 28, 2013.
The complainant recorded the disposal of property in his audited account as ‘Advance against Sales’ at Rs950,000,000 as on June 30, 2013 and further declared capital gain of Rs. 890,169,978/- as exempt in income tax return for tax year 2014 due to the fact that the holding period of the said property was more than five years as per computation given below:
Sale Price: Rs. 950,000,000/-
Less Cost: Rs. 59,830,022/-
Capital Gain Rs. 890,169,978/-
The Additional Commissioner-IR amended deemed order under Section 122(5A) of the Ordnance on April 06, 2016 and declared capital gain of Rs890,169,978/- as taxable.
The Commissioner Appeals vide order No. 13 dated June 16, 2016 upheld the order of the Assessing Officer to the extent of gain of Rs 890,169,978/- against which appeal before the Appellate Tribunal-IR, is pending.
However, the sale deed of this property was executed on 31.12.2015 i.e. after more than two and half years at sale consideration of Rs1,939,500,000.
The Deptt selected the case of the complainant for Tax Year 2016 for total audit under Section 177 of the Ordinance and confronted the complainant for receipt of Rs.1,939,500,000 exceeding the amount declared in Tax year 2014 and added the whole amount of Rs.1,939,500,00 under Section 111 of the Ordinance as unexplained asset creating total Tax liability of Rs. 620,640,000.
As per complaint, the same immoveable property was taxed twice, once in Tax Year 2014 under Section 122(5A) and then again in Tax Year 2016 under Section 122(1) of the ordinance; hence this complaint.
Advocate on behalf of Summit Bank submitted detailed reply on certain queries vide letter dated January 07, 2023 admitting that the mixed use residential /commercial 34 stories building was constructed by using its own funds of Summit Bank without any partnership. The bank purchased the ongoing project namely ‘Bakht Tower’ which was at that time was an open and vacant plot.
The FTO observed that evidently, the complainant acquired lease of the property plot no. G-2 Block-2, Clifton Karachi measuring 3832 square yards from KDA on October 19, 2002.
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Subsequently, as per sale agreement dated June 28, 2013, the complainant sold this property to M/s Summit Bank Ltd at a price of Rs.950.000 million. The audited accounts of the Complainant reflect this transaction as ‘Advance against sales’ in balance sheet as on 30. 06.2013 whereas the audited account of M/s Summit Bank (the purchaser) also reflects this transaction at Rs.956.000 million through note 12.11 under the Head ‘Capital work-in progress’ as on 31.12.2013.
“Thus, the complainant very rightly declared capital gain of Rs.890, 169,978 as exempt in view of Section 37(IA) read with Division VIII, Part 1 of First Schedule of Income Tax Ordinance as holding period of immoveable property was more than five years.”
During investigation, the FTO further observed that Sindh Building Authority (SBCA) issued approval to the complainant on May 07, 2013 for construction of multi-storied building.
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SBCA issued approval of completion plan / occupancy certificate in respect of this building on July 02, 2018 to Summit Bank allowing the bank to book FLATS @ Rs.18000 to Rs.30000 per sq ft, PENTHOUSES @ Rs.35000 per sq ft and OFFICES @ Rs.18000 to Rs.27000 per sq ft. However, SBCA also issued revised sale & advertisement NOC for constructions.
Summit Bank on August 18, 2017 with date of completion as August 31, 2022 increasing the rate of booking SHOPs /RETAIL
“It is very interesting to observe that the revised rate of booking was allowed on 18.08.2017 much before original rate on July 02, 2018,” the FTO observed.
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The above discussions reflect that Summit Bank having registered office at Plot No. 9-C, F-6 Markaz, Supermarket Islamabad, is engaged in sale of flats, offices, penthouses in violation of section 9 of The Banking Companies Ordinance 1962 which prohibits trading by banking companies.
“Therefore, FBR may like to probe this matter in depth related to booking of flats, offices and Penthouses, profit arising thereon, declaration in relevant returns and taxation thereof. Benami Zone Karachi has already dealt a host of similar cases, involving the same bank and directors of complainant company therefore the instant case needs review with special reference to Benami Transactions (Prohibition) Act, 2017.”
