FBR LAHORE REPORT MAY 31st, 2013

DEPUTY COMMISSIONER INLAND REVENUE-AUDIT 01, ZONE II, REGIONAL TAX OFFICE, LAHORE. Tele No. 042-99214091 Name of the tax payer: National Tax Number CNIC No. Tax Year: Mr. Najam Aziz Sethi 0453890-7 3502-30172081 2009-10

Dated:- May 31, 2013

Amendment Order Under Section. 122(5) of the Income Tax Ordinance, 2001. No. 07 AMENDED ORDER UNDER SECTION 122(5) 1. The Taxpayer Mr. Najam Aziz Sethi is an individual and derives salary as Director and editor-in- chief Media Times Pvt Limited (The Friday Times). Managing Director Vanguard Books Pvt Limited,.

The Tax Payer (TP) also holds shares in the companies, i.e., M/S Beyond Borders M/s Media Times, Falling in the jurisdiction of Unit 01, Zone II. The complaint was lodged by the Transparency International against the TP. The essence of the complaint is that Mr. Sethi has not disclosed its total assets, including an apartment worth US$1.2M with the tax authorities. Similar stories were also found on the Web and electronic media mainly focusing on the under-declaration of assets in tax year 2010 and 2011 by Mr. Sethi. 2. This department started working on the complaint and found definite information in the form of authentic documents issued by the New York department of Finance. As facts of the case called for amendment of assessment so a notice under section 122(9)/122(5) of the Income Tax Ordinance, 2001 was issued vide this office No.03 dated July 31, 2012, which is reproduced as below:Please refer to the above subject. Whereas, I consider it necessary that the assessment order, deemed to have been finalized under section 120 of the Income Tax Ordinance, 2001 for the tax year 2009 needs alteration to make additions to the declared income by amendment under section 122(5) read with

section 122(9) of the Income Tax Ordinance, 2001. The amendment is required for imposition of the correct amount of tax for the tax year 2009 as in my opinion income tax return declaring income at Rs. 3,654,000/-, relating to the income and tax, filed under the relevant provision of this Ordinance, have resulted in suppression of income to the following reasons:This office is in possession of definite information that you had purchased an apartment having gross area 978 Sq. Ft @ $ 1,233.77 per Sq. Ft in Manhattan, USA for a consideration of Pak Rupees at Rs. 98,943,332/- ($ 1,206,626 x Rs. 82) during the period relevant to tax year 2009. Last market sale information was downloaded from the internet; this transaction was made on 25.7.2008 / 4.8.2008. Whereas, the perusal of wealth statement for the tax year 2009 revealed that you have not disclosed the investment of Rs. 98,943,332/-, which was made for acquisition of said apartment. The perusal of reconciliation statement appended with the wealth statement as on 30.06.2009 also depicts your total assets to the tune of Rs. 7,054,372/- as on 30.06.2008 (tax year 2008). It is beyond any shadow of doubt that you had insufficient funds at the material time to make the huge investment amounting to Rs. 98,943,332/-, which clearly indicates that you made this investment out of un-explained source of income which tantamount to concealment of asset within the ambit of section 111(1)(b) of the Income Tax Ordinance, 2001. Keeping in view of the above narrated facts, the undersigned intends to amend the deemed assessment for the tax year 2009 in term of section 122(5) of the Income Tax Ordinance, 2001 in the following manners:- Addition under section 111(1)(b) on account of un-explained investment as discussed above. Rs.98,943,332/- Add income declared under NTR Rs. 3,654,000/- Total income proposed to be amended Rs.102,597,332/- Tax @ 20% Rs. 20,519,466/- If you have any objection to the above treatment, you are required to attend the office of the undersigned on or before 5-8.2012 along with written reply duly substantiated with supporting documentary evidence. 3. In response to the reminders issued dated April 01, 2013 and April 11, 2013, the tax payer, through its Authorized Representative, Rizvi & Company filed adjournment request for fifteen days. On April 19, 2013 the reply was submitted with following submissions: a. The said property is owned by Mr. Najam Sethi, Mrs. Syeda Maimanat Mohsin and Mr. Ali Aziz Sethi. b. The purchase of the said property is duly mentioned in the Income Tax Return of Syeda Maimanat Mohsin for the Tax Year 2009. 4. The reply was also accompanied by copy of an earlier reply. The TP maintained that the said reply was, in fact, submitted on February 22, 2013. There is no such letter in the record of this office. In that reply, it was claimed that the property was purchased by Mrs. Maimanat Mohsin, whereas, the title was in the name of three family members, namely, Mr. Najam Sethi, Mrs. Syeda Maimanat Mohsin and Mr.

Ali Aziz Sethi. It was also contended in the same reply that the said purchase had been duly recorded in the wealth statement of Mrs. Maimanat Mohsin. 5. There is clear contradiction in both replies. In the earlier reply dated February 22, 2013 it was claimed that the title is merely in the name of three family members and the sole owner is Mrs. Mohsin. It was also stated in the same reply that, the fact of purchase of the said Flat has properly been declared in the return of Syeda Maimnat Mohsin (NTN:2377635-8) for the Tax year 2009. However, it was maintained in the later reply, dated April 19, 2013 that apartment is owned by three family members. TP was asked to clarify the position vis-a-vis this anomaly in the letter issued on April 21, 2013. Request was also made to the TP in the letter for the submission of documents in support of his contention. TP filed his reply on April 24, 2013. No effort was made to clarify the matter in the said reply, however, in the latest reply dated May 20, 2013, it has been maintained in para 5 of the reply, that: property is jointly owned by Najam Sethi, Syeda Maimanat Mohsin and Ali Sethi (son) who has given his power of Attorney to his parents. The same is reflected in the income tax returns of our client. During the hearing on May 20, 2013, on the objection that no document has been provided by the TP in support of his contention that the property is jointly owned by the three members, AR promised to provide the documents within a day or two vide order sheet entry # 9. He provided another reply on May 22, 2013 stating once again that property was purchased by three persons and names of only Mr. and Mrs. Sethi appeared on the registry. He also stated that Mr. Ali Sethi has been authorized by his parents as Special Power of Attorney of the same property. Strangely, in the reply dated May 20 it was stated that the power of attorney is given by the son to his parents. It is pertinent to mention that the original notice was issued on account of undisclosed investment out of unexplained sources of income. In the reply dated May 22, 2013 it was once again reiterated by the AR that: The investment in the above property was made by the above 3 persons as reflected in their income and wealth statements submitted to you. AR also repeated his earlier stance, while submitting the reply, that the property has duly been reflected in the wealth statement Mrs. Sethi. 6. In the letter of this office dated April 21, 2013 in response to the ARs letter dated April 19, 2013 it was also stated with respect to TPs claim of ownership of apartment by Mrs. Maimnat Mohsin: Moreover, the notice was issued in July, 2012, whereas, the wealth statement for tax year 2009 of Mrs. Maimanat Mohsin was revised in February 2013. In the original wealth statements for Tax Year 2009 of Mrs. Maimanat Mohsin and Mr. Sethi no such apartment was mentioned. The wealth statement revision seems to be an afterthought and there is no room for revision on a specific issue which had already been confronted to you in a notice. It has also been observed that even as per revised wealth statement of Mrs. Maimanat Mohsin for tax year 2009, sufficient resources were not available for the purchase of the said apartment,

which was worth Rs.98M as confronted to you in the earlier notice of this office. The total income of Mrs. Maimanat Mohsin was merely Rs.3.6M and Rs.1.5M in tax year 2009 and 2008 respectively. The department reserves its right to initiate proceedings separately in the case of Mrs. Maimanat Mohsin with reference to revised wealth statement. 7. AR in his reply dated April 24, 2013 agitated the reference made to Mrs. Sethi and maintained that: law does not empower the department to take up the proceedings against any taxpayer without having definite information in possession against the assesse and lawful jurisdiction. Furthermore, the proceedings taken up against one taxpayer does not mean to debar the whole family of the taxpayer to proceed under the law. 8. TP failed to submit any documents in support of his contention despite repeated requests vide letter no 480 dated April 21, 2013 and letter 540 dated May 15, 2013. He only submitted a power of attorney on May 22, 2013 given by the parents to the son giving him the: broad powers to handle your property during your lifetime, which may include powers to mortgage, sell or otherwise dispose of any real or personal property. No concrete documents stating all three of the family members are the owners of the property was provided. AR was also confronted the definite information available with the office, regarding ownership of the apartment by Mr. Najam Sethi. He did not object the authenticity of the documents 9. Major points agitated by the Tax Payer in his replies are: a. Apartment is owned by the Mrs. Maimnat Mohsin and title is merely in the name of family members. The purchase has duly been disclosed in the annual return of the Mrs. Sethi. However in the latest reply conflicting stance was taken and it was maintained that apartment is jointly owned. This has been discussed at length in the foregoing paras. b. The observation in the reply of this office dated April 21, 2013 was uncalled for and law does not empower the department to take up proceedings without definite information and lawful jurisdiction. c. The AR also agitated in his replies dated April 24 and May 20, 2013 that the proceedings are malafide, being initiated because of external pressure. Findings 10. It is pointed out that notice u/s 122(5) is issued on the basis of examination of taxpayers particulars of income as contained in the prescribed return submitted for Income tax as well as information contained in the wealth statement for the tax period 2009. The definite discrepancy in non-declaration of property in the wealth statement called for the necessity of amendment of assessment. It has been held by the Honorable Supreme Court that Commissioner is empowered to amend an assessment order, treated as issued under section 120, under sub-section (5) of section 122 on the basis of definite information by making such alterations or

additions as the commissioner considers necessary (2009 PTD 1392 C para 37). Further calling for record/documents with reference to disparities pointed out is permissible as per para 2 of the prescribed notice u/s 122 as per part-II of the First Schedule to the Income Tax Rules, 2002. a. The documents and definite information available with the office are in the form of property / ownership papers. As per these documents an apartment 25E, 100 Riverside Boulevard, Manhattan is in the name of Mr. Najam Aziz Sethi and Mrs. Syeda Maimanat Mohsin. The Recorded/Filed date of the document is August 04, 2008 and Preparation Date mentioned on the document is July 31, 2008. Therefore, the registration of the apartment appears to be in tax year 2009 according to this document. The document has been issued by the City Registrar, New York Department of Finance. Other documents include a Notice of property Value issued by NYC, Finance dated January 15, 2012 and Property Tax Bill Quarterly Statement dated June 08, 2012. b. In the light of this document and submission made by the TP, the earlier stance of the tax payer that the property is owned by Mrs. Maimanat Mohsin is not supported by the documents. At the same time the latest submissions made by the tax payer are partially supported by the available documents and definite information available with this office, and the same is accepted to the extent of supported material. That is, the apartment situated at 25E, 100 Riverside Boulevard, Manhattan is jointly owned by two family members, namely, Mr. Sethi and Mrs. Sethi. c. TP also maintained in his replies dated February 22, where he said that property is owned by Mrs. Sethi; and April 19, 2013, where he claimed that property is jointly owned, that purchase was duly shown in the wealth statement of Mrs. Maimanat Mohsin. I have accepted the latest stance of TP partially that it is jointly owned by Mr. and Mrs. Sethi. Perusal of the documents and record available with this office shows that the property under discussion has been disclosed by the Mrs. Sethi in her revised wealth statement (Revised on February 06, 2013), however, no such property has been declared in the wealth statement of Mr. Sethi, who is also an owner of the same property, which has also been accepted by the AR of the Tax Payer. The value of property at Rs.73M is also questionable. However this office is in possession of definite information from US Title Records property detail report that value of the said apartment was $1,206,625, the same was confronted to the TP in original notice at the Rs./$ rate of 82/1 as on the purchase date. d. The argument extended by the AR during hearing on May 23, 2013, that non-declaration of apartment in the wealth statement of Mr. Sethi is not prejudicial to the interest of revenue as the same had duly been declared in the wealth statement of Mrs. Sethi is rejected on the basis of following grounds:

i. The value of apartment declared in the wealth statement of Mrs. Sethi is below the market price as discussed in the para 10(c ) ii. The apartment was declared in the wealth statement of Mrs. Sethi in the revised wealth statement in February, 2013. It was not declared in the original wealth statement which was revised only after the issuance of notice u/s 122(5) to Mr. Sethi. iii. Moreover, even after the declaration of property by Mrs. Sethi, albeit after the issuance of notice u/s 122(5) to Mr. Sethi, the wealth statement of Mr. Sethi is still silent about the sources available to him for the investment in the purchase of the apartment. It has been conceded by the AR in his reply dated May 22, 2013 and quoted in para 5 above, that the investment in the property was also made by Mr. Sethi. But no reasonable explanation regarding availability of resources in the wealth statement of the TP for tax year 2009, commensurate with the investment made by Mr. Sethi in the purchase of the apartment has been provided. Furthermore, it was explicitly stated in the reply date May 22, 2013, that: The investment in the above property was made by the above 3 persons as reflected in their income and wealth statements submitted to you. However, the said investment is not reflected in the wealth statement of Mr. Sethi. e. The annual income and wealth of Mr. Sethi in 2008 and 2009 has been summarized in the following table: Year: Taxable Income: Net Assets: Cash and Bank Balances: Year: Taxable Income: Net Assets: Cash And Bank Balance: 2008 1,500,000 43,549,372 7,054,372 2009 3,654,000 51,806,652 15,056,652

It appears that from tax year 2008 to 2009 the increase in income is around 2M, against his increase, accretion in wealth is around 8M, if half of the share of the apartment, i.e., around 49M, which has not been declared, is also included, the total worth of assets will be around 60M, which is much higher than the available/declared sources of income. Furthermore, the property in question has not been declared in the wealth statement of 2009. The purchase and ownership (! share) of apartment out of concealed sources and its non-declaration by Mr. Sethi is established in the light of above mentioned facts and according to the confession made by the AR,

that the apartment is also owned by Mr. Sethi. Moreover, despite this admission of ownership, no proof of declaration or, for that matter, any plausible reason for non-declaration of the apartment in the wealth statement of Mr. Sethi has been provided. f. As far as the ARs position regarding initiation of proceedings without definite information is concerned, the detailed definite information has been discussed above and there is no need to dilate upon this subject. Moreover, it is sufficient to say regarding ARs objection of lawful jurisdiction that this office has lawful jurisdiction on Mr. Sethi, being director (and shareholder) of the Media Times, which falls in the jurisdiction of this office. g. TP also agitated that the initiation of proceedings was due to some external pressure. It is suffice to say that proceedings were initiated when the ample evidence was already circulating in the media. This office was able to get hold of some of the authentic documents which constituted the definite information and legally this office was empowered to initiate proceedings under section 122(5) of the Ordinance. 11. On the basis of above facts, the investment out of concealed sources of income by Mr. Sethi in an apartment situated at Manhattan, New York in tax year 2009 is established and his income is amended as under:- a) Taxable Income declared: Rs. 3,654,000 b) Total un-explained / concealed investment in the purchase of an apartment as discussed above. Rs.98,943,332 c) Addition of 1/2 of the un-explained / concealed investment in the purchase of an apartment u/s 111(1)(b) as discussed in para 10 (b) 10(d)(iii) and 10(e) above. Rs.49,471,666 d) Total income (a+c) Rs.53,125,666 Tax @ 20% Rs.10,625,133 Tax Already paid as per return Rs.1,201,802 Tax Verified Nil Tax Payable Rs.10,625,133 Issue Demand Notice u/s 137 of the Income Tax Ordinance, 2001. Also issue notice u/s 182 for imposition of penalty for concealment of investment/ownership of valuable article through concealed sources of income. This order consists of seven pages and each page bears my signatures and seal. (USMAN ASGHAR) Deputy Commissioner Inland Revenue Notes not for tax payer 1. Similar document for an apartment 5M, 240West, 98th, Street, Manhattan was also found on the web, but the apartment is in the name of his son Mr. Ali Aziz Sethi, and Mr. Najam Aziz Sethi is only his agent, as declared in the document. Proceedings to be initiated in his case too.

2. Tax Payer stated that property is owned jointly by the family. As per documents property at Manhattan, NY, 25E is jointly owned by Mr. and Mrs. Sethi. Notice u/s 122(5) to Mrs. Maimanat Mohsin is also to be issued. 3. Detailed scrutiny of other family members which also includes M/S. Mira Sethi should be taken up to examine the increase in wealth vis--vis their declared income. (USMAN ASGHAR) Deputy Commissioner Inland Revenue