Messrs TRADING CORPORATION OF PAKISTAN (PVT.) LTD. through General Manager VS COMMISSIONER OF INCOME TAX COMPANIES ZONE-III, KARACHI
2006 P T D 1362
[Karachi High Court]
Before Muhammad Mujeebullah Siddiqui and Sajjad Ali Shah, JJ
Messrs TRADING CORPORATION OF PAKISTAN (PVT.) LTD. through General Manager (Finance and Accounts), Karachi
Versus
COMMISSIONER OF INCOME TAX COMPANIES ZONE-III, KARACHI
Constitutional Petition No.187 of 2005, decided on 16/11/2005.
(a) Income Tax Ordinance (XLIX of 2001)---
----S. 177(1) (prior to its substitution by Finance Act (II of 2004)---General Clauses Act (X of 1897), S. 24-A---Selection of case for total audit---Essentials---Commissioner of Income Tax while passing such order would have to assign specific reason having regard to the factors specified in S.177(1) of Income Tax Ordinance, 2001---Reasons for selection of case would be given by Commissioner himself and should be contained in the order itself---Subsequent assignment of reason by any other officer would not satisfy requirement of law---Principles.
(b) General Clauses Act (X of 1897)---
----S. 24-A---Order devoid of reasons---Validity---Such order would be arbitrary, for which there was no room in the realm of rule of law and good governance.
(c) Practice and procedure---
----Things should be done, as they are required to be done in law or not at all.
Haider Raza Naqvi for Petitioner.
Muhammad Altaf Mun for Respondent.
Date of hearing: 16th November, 2005.
JUDGMENT
MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---After hearing the learned advocates for the parties on 16-11-2005, this petition was allowed by a short order in the following terms:--
"(1) The impugned order passed by the Respondent under section 177 of the Income Tax Ordinance, 2001 dated 29-4-2004 is violative of the conditions contained in section 177 of the Income Tax Ordinance, 2001.
(2) The impugned order in respect of the petitioner passed under section 177 of the Income Tax Ordinance, 2001 is hereby quashed.
(3) The respondent is directed to drop all proceedings against the petitioner in pursuance of order passed under section 177 of the Income Tax Ordinance, 2001 for tax year, 2003.
The above directions are confined to the petitioner only and it shall not be applicable to any other person who has not assailed that order.
The respondent shall be at liberty to pass any fresh order in accordance with the conditions contained in section 177 of the Income Tax Ordinance if still permissible under the law."
These are the detailed reasons in support thereof.
The relevant facts are that the petitioner is a Private Limited Company. The current income tax jurisdiction in respect of petitioner is with Circle A-02, Companies Zone-III, Karachi. The Commissioner of Income Tax Companies Zone-III, has the jurisdiction to select cases for audit under section 177 of the Income Tax Ordinance, 2001. The petitioner filed income tax return for the tax year, 2003 within due date. The petitioner received notice, dated 30-4-2004 intimating that his case was identified for audit under section 177 of the Income Tax Ordinance, 2001, for the tax year, 2003. The intimation letter issued by Special Assistant to the Commissioner of Income Tax Companies Zone-III, Karachi reads as follows:--
"I am directed to inform you that by virtue of powers conferred upon Commissioner of Income Tax under section 177 of the Income Tax Ordinance, 2001, your case has been identified for Audit for the tax year, 2003."
The petitioner vide letter, dated May 13th 2004, asked the respondent-Commissioner to intimate the circumstances under which the return filed by the petitioner was selected for audit. Instead of intimating the reasons for selection of the income tax return filed by the petitioner for the tax year, 2003, the respondent-Commissioner addressed a letter, dated 9-6-2004 to the effect that in order to monitor the deduction of tax, three tax officials were directed to visit his office from 12-6-2004 onward with prior intimation.
Thereafter the petitioner received a letter, dated 16-10-2004 under section 176/177 of the Income Tax Ordinance, 2001, written by Taxation Officer/DCIT Circle A-02 seeking information and documents. It was stated in the said letter that the petitioner's return for the tax year 2003 was selected for audit by the Commissioner of Income Tax Companies Zone-III, Karachi vide his office order, dated 30-4-2004 under section 177 of the Income Tax Ordinance, 2001 for tax affairs of the petitioner. It was further stated in the letter that with reference to the petitioner letter, dated 13-5-2004 it was informed that the petitioners case was selected for drastic fall in G.P. rate i.e. by 88% from 51.57% (2002-2003) to 6.14% (Tax year, 2003) because the cases registering fall in the G.P up to 20% have been selected for audit. The petitioner was requested to furnish the logic, reasons/explanation for reduction in the declared G.P. by 88%. Certain other information and documents were also sought. The petitioner was further directed to furnish the prescribed books of accounts such as cash-book, ledger, journal, production register, stock register and other relevant vouchers.
The petitioner being aggrieved filed this petition contending that no show-cause notice was issued before identification of the petitioner's case for audit under section 177 of the Income Tax Ordinance, 2001 and that the requirement of section 177 of the Income Tax Ordinance, as it stood up to 30th of June, 2004, were not complied with. It is further alleged that the notice, dated 30-4-2004 and subsequent notice in pursuance thereof are illegal, invalid and of no legal effect. It is further contended that the impugned notice, dated 30-4-2004 is not in conformity with the provisions of section 24-A of the General Clauses Act, 1897 and therefore, is liable to be struck down.
The petitioner prayed that the impugned notice under section 177 be cancelled and all proceedings in pursuance thereof be .directed to be dropped.
The respondent filed parawise comments taking plea that the petition is misconceived as facts have been concealed. It was stated that the audit proceedings were completed after associating the petitioner who complied with the requirements of notices issued under section 177 of the Income Tax Ordinance, 2001. It was further stated that in consequence to proceedings under section 177 a show-cause notice was issued to the petitioner under section 122 of the Income Tax Ordinance, 2001, which was replied by the petitioner. It was further alleged that the petitioner having failed to submit the explanation of the legal quaries raised in the show-cause notice has approached this court by concealing the material facts. It was also alleged. that the petitioner has submitted to the jurisdiction of the tax authorities without any objection and now they cannot be allowed to abandon the forum provided by law. It is alleged that the petitioner's case has been selected in terms of the provisions contained in section 177 of the Income Tax Ordinance, 2001, which authorizes the Commissioner of Income Tax to make audit of any case. In the paraw-ise comments emphasis has been laid on the point that the respondent has been empowered under section 177 of the Income Tax Ordinance, 2001 to select any case for audit and therefore, the selection of the petitioner's case is in accordance with the law.
We have heard Mr. Haider Raza Naqvi, learned counsel for the petitioner and Mr. Muhammad Altaf Mun, learned counsel for the respondent.
Mr. Haider Raza Naqvi, learned counsel for the petitioner has submitted that no arbitrary power is available to the Commissioner of Income Tax for selecting case of any person for audit without assigning any reason. He has submitted that the Legislature has prescribed certain criteria, which has to be kept in view while selecting the case for an audit of the person's income tax affairs. He has referred to subsection (1) of section 177, as it stood prior to its substitution by Finance Act, 2004, which reads as follows:
"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."
He has heavily relied on section 24-A of the General Clauses Act, 1897, which reads as follows:-
"24A. Exercise of Power under enactment.---(1) where, by or under any enactment, a power to make any order on give any direction is conferred on any authority, office as person such power shall be exercised reasonably, fairly, justify and for the advancement of the purposes of the enactment.
(2) The authority, office or person making any order on issuing any direction under the powers conferred by or under any enactment shall, so far as necessary or appropriate, give reason for making the order on, as the case may be, for issuing . the direction and shall provide a copy of the Order and, as the case may be the observation to the person affected pre-judicially."
He submitted that by virtue of the provisions contained in section 24-A of the General Clauses Act, read with section 177 of the Income Tax Ordinance, 2001, the Commissioner was required to give reasons for making order under section 177 of the Income Tax Ordinance, 2001. He further contended that the reasons contained in the letter, dated 16-10-2004 issued by Taxation Officer/Deputy Commissioner of Income Tax, are of no consequence because, first, the reasons should be assigned by the competent authority making an order and secondly, it should preside the order or at least should be contained in the order itself. Subsequent assignment of reason and that too by an officer not competent in law to pass the order does not fulfill the requirement of law and consequently, the selection of the petitioner's income tax return for tax year, 2003, for audit is not sustainable in law and is liable to be struck down.
On the other hand, Mr. M. Altaf Mun, has supported the impugned order and subsequent proceedings in pursuance thereof. During the course of arguments he has produced an order, dated 29-4-2004 passed by the respondent which reads as follows:--
"In exercise of the powers conferred upon me under section 177 of the Income Tax Ordinance, 2001, following cases are hereby selected/identified for Audit for the tax year, 2003."
We have carefully considered the contentions raised by the learned Advocates for the parties and the material produced on record.
We find that the order passed by the respondent is, dated 29-4-2004, which has been produced during the course of arguments before us. A bare perusal of the order shows that it is slipshod, devoid of any reason and arbitrary.
In the provisions contained in section 177(1) of the Income Tax Ordinance, 2001, as it stood at the time of passing the impugned order, the Legislature has clearly provided that the Commissioner may select any person for audit of the person's income tax affairs having regard to the factors specified therein. When this provision is read with section 24-A of the General Clauses Act, no scintilla of doubt is left in our mind that an order under section 177 selecting a case for audit is required to be made within the parameters of the factors enumerated therein and the Commissioner while making the order is required to assign specific reason having regard to the factors prescribed in section 177 read with the provisions contained in section 24-A of the General Clauses Act, 1897. Any order devoid of reasons is an arbitrary order for which there is no room in the realm of rule of law and good governance. The powers vested in the Commissioner of Income Tax are not arbitrary and unbridled. It is controlled and circumscribed by the factors specified in section 177 itself.
We are further persuaded to agree with the contention of Mr. Haider Raza Naqvi, that the reasons for selection of any case for an audit are required to be given by the Commissioner of Income Tax, himself and should be contained in the order itself. Subsequent assignment of reasons by any other officer is not the fulfillment of requirement of law. The reason being that a person competent in law to perform an act is required to apply his own mind while passing the order and the reason should be reflected in the order itself. The application of mind by any other person subsequent to the passing of order would not satisfy the requirements of law. The salutary principle of law is that the things should be done as they are required to be done in law or not at all.
For the foregoing reasons, we are of the considered opinion that, the impugned order, dated 29-4-2004 passed by the respondent is violative of the provisions contained in section 177 of the Income Tax Ordinance, 2001 and is also violative of the provisions contained in section 24-A of the General Clauses Act, 1897.
'For the foregoing reasons, the petition is allowed in terms of the short order reproduced in earlier part of this judgment.
S.A.K./T-11/K??????????????????????????????????????????????????????????????????????????????????? Petition accepted.