Income Tax Ordinance (XXXIX of 1979)--

----S. 59---C.B.R. Circular No.22 of 1991, dated 21-7-1991, para.4(ii)---Self Assessment Scheme 1991-92, para. 4(ii)---Selection of assessee's case for detailed scrutiny in accordance with C.B.R. Circular No.22 of 1991---Material upon which action under para. 4(ii) of the Circular has been taken has to be disclosed to assessee---Failure to disclose said material to the assessee would render such action completely arbitrary and discriminatory.

Pakistan Educational Society v. The Government of Pakistan 1993 PTD 804 applied.

Muhammad Athar Saeed for Petitioner.

Shaik Haider for Respondents.

Date of hearing: 9th August, 1993.

JUDGMENT

MAMOON KAZI, J: --The petitioners are aggrieved as they have received a notice from the respondent No.2, dated 15-12-1992 informing them that their case had been selected for detailed scrutiny for assessment year 1991-92 under paragraph 4(ii) of Circular No.22 of 1991, dated 21-7-1991 issued by the Central Board of Revenue under Self-Assessment Scheme of 1991-1992.

The main contention raised on behalf of the petitioners is that, as is plainly evident from paragraph 4(ii) cases for detailed scrutiny, can be selected when gross understatement of income is suspected upon definite information, based on material evidence. However, no such material has been disclosed by the respondent No.2 to the petitioners. Consequently, the impugned action is arbitrary and invalid. Reliance has been placed in this regard upon a judgment of a Division Bench of this Court in Pakistan Educational Society v. The Government of Pakistan 1993 PTD -804. In this case also such action had been impugned and it was held that it was imperative for the said respondent to disclose material upon which action was based under paragraph 4(ii) of Circular No.22. The relevant observations which appear at page 816 of the report are as under:

Consequently, the validity of the exercise of power by the concerned Income Tax Officer or the fact that such action has been taken by him in good faith; would always be open to question unless the material upon which such action has been taken is disclosed to the assessee. Failure to disclose such material to the assessee would render such action completely arbitrary and discriminatory because conclusions would be drawn by the respondent Income Tax Officer or the Regional Commissioner of Income-tax, himself without being supported by any evidence. The contention that enquiry is to be conducted by the Income Tax Officer cannot by itself clothe such action with validity. Even in the counter-affidavits filed on behalf of the respondents, although, it has been stated that action has been taken only in such cases where definite information had been received in regard to the accuracy of the returns respectively filed by the petitioners in each case, but again, it is only a general assertion not supported by any material. It would, therefore, be dangerous to proceed on mere assertion where, as pointed out earlier, conclusions have been drawn by the respondents themselves and are not supported by any evidence which can be contested by the petitioners in the Court. The respondents have, therefore, failed to discharge the burden which was heavily placed on them to show that the action against the petitioners had been taken purely within the conditions laid down by the said circular or that the same was not taken on account of any extraneous considerations. Such an action, in our judgment, is therefore arbitrary and discriminatory, and any illegal, irrational or arbitrary action or decision whether in the nature of legislative, administrative or quasi-judicial exercise of power is liable to be quashed as such. It was held by the Indian Supreme Court in the case of E.P Royappa v. State of Tamil Nadu AIR 1974 SC 555: "equality and arbitrariness are sworn enemies; one belongs to the rule of law in a republic while the other, to the whim and caprice of an absolute monarch". Consequently, unless a line of demarcation can be drawn, it would be hard to judge the action of the functionaries empowered under the said circular. The mere assertion of the department that action was taken against the petitioners on the basis of material evidence without actually referring to the same as just pointed out, can hardly clothe such action with validity."

3. The contention of Mr. Shaik Haider learned counsel for the respondent, however, is that, there was glaring evidence in regard to concealment of income by the petitioners in the present case. Reference has been made by the learned counsel to paragraph 7 of the counter-affidavit wherein, no doubt, such an assertion has been made. We would, however, like to point out without going into the merits of the contention raised by Mr. Shaik Haider that, the rule laid down by the Division Bench in the reported case is not subject to any exception as pointed out by Mr. Shaik Haider. The mere fact that there was definite material available with the respondent No.2 by itself is not sufficient to permit dispensation with the requirements laid down by the Division Bench. The observations reproduced above hardly leave any doubt in this regard. Since admittedly such material has not been disclosed to the petitioners it is clearly obvious that; action has not been taken in the present case by the respondents strictly in Accordance with the rule laid down in the judgment of the Division Bench.

4. In the result, we accept this petition and quash the said notice. The respondents would however, be at liberty to take action against the petitioners if there is any evidence of understatement of income but action, if any, must be taken strictly in accordance with the rule laid down in the said judgment. There' will be no order as to costs.

M.B.A./M-1893/KOrder accordingly.