Messrs MUSTAFA FOOD INDUSTRIES (PVT.) LTD. through Director VS TAXATION OFFICER OF INCOME TAX AUDIT-III, COMPANIES ZONE-I, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 426 (2005)

Income Tax Ordinance (XLIX of 2001)---

----Ss.114 (1), 120 (3) & 177 (1)---Constitution of Pakistan (1973), Art.199---Constitutional petition---Universal Self-Assessment Scheme---Selection of case for audit---Failure to give statutory notice ---Assessee filed his income tax returns under, S.114 (1) of Income Tax Ordinance, 2001, and without issuance of notice under S.120 (5) of Income Tax Ordinance, 2001, authorities selected his case for audit---Validity---Commissioner of Income Tax could proceed against any person but while doing so he had to mention the clause of S.177 (1) of Income Tax Ordinance, 2001, under which he proposed to proceed and at the same time, he had to give reasons for the action against assessee because his assessment order was to be reopened and declaration in return was to be scrutinized, which was an order adverse to the provisions of S.120 of Income Tax Ordinance, 2001---Notice issued by income tax authorities was declared to be illegal, void and passed/issued without lawful authority and of no legal effect and was set aside---Commissioner of Income Tax, could initiate proceedings afresh after meeting the legal requirements---Constitutional Petition was allowed accordingly.

Ch. Muhammad Hussain v. Commissioner of Income Tax 2005 PTD 152 fol.

Muhammad Naeem Shah for Petitioner.

Shahid Jamil Khan for Respondent.

Date of hearing: 14th November, 2005.

JUDGMENT

SYED HAMID ALI SHAH, J.---Two constitutional petitions, bearing No.W.P.17269 of 2005 titled Messrs Mustafa Food Industries (Pvt.) Ltd. v. Taxation Officer of Income-tax Audit-III, Companies Zone-I and others" and W.P. 17901 of 2005 titled "Messrs Crescent Software Products (Pvt.) Ltd. v. Federation of Pakistan and 4 others" have been filed by the assessees who filed their return under section 114(1). As common question of law is involved in both these petitions, therefore, these heard together and this judgment will dispose them of.

2. The petitioners have filed the Income Tax Returns under Universal Self-Assessment Scheme, read with section 114(1) of the Income Tax Ordinance, 2001. The writ petitioners' Tax Returns are assessment orders under the provisions of clause (b) of subsection (1) of section 120 of the Ordinance, 2001. Since no notice under section 120(3) of the Ordinance, 2001 was issued to the petitioners; therefore, the return submitted by petitioner attained the statistics of assessment order for all intent and purpose. Central Board of Revenue vide Circular No.5 of 2003 dated 30-6-2003 further clarified the above position.

3. The petitioners were issued letter by the respondent, conveying therein, the selection of their Income Tax Returns for audit. The petitioners have challenged through constitutional petitions before this Court, the order/notice of the Commissioner of Income Tax as to the selection of the petitioners' case for audit.

4. The learned counsel appearing on behalf of the petitioners have laid their emphasis on the decision of this Court in the case of Ch. Muhammad Hussain v. Commissioner of Income Tax 2005 PTD 152, wherein it was declared that Commissioner of Income-tax while invoking the provisions under section 177 of the Ordinance is required to mention the relevant clause, as well as the reason for selection of a case for audit, as return filed under section 114 of the Ordinance is treated as assessment order. The matter cannot be reopened for audit unless the notice of hearing is issued to the assessee, because proceeding adverse to his interest are commenced. It was further argued that decision referred above is binding on respondent and the respondents have wilfully neglected to follow the dictum laid down in the said judgment. It was argued further that the decision of Federal Tax Ombudsman, in this respect has also been ignored, while issuing the impugned notice/order.

5. Learned counsel appearing for the respondents have submitted that petition for leave to appeal against the case of Muhammad Hussain (supra) has been tiled and the matter is sub judice before the apex Court. They have failed to satisfy about the non-compliance of. guidelines, as laid down in the judgment of this Court (supra).

6. Heard learned counsel for parties and perused the record.

7. It was held in the case of Muhammad Hussain v. C.I.T. (supra) that:---

"This brings me to hold that Commissioner Income of Tax can proceed against any person but while so doing he has to mention under the clause of section 177(1) of the Ordinance, 2001, under which he proposed to proceed and at the same time, he has to give reasons for the action against the assessee because his assessment order is to be reopened and declaration in the return is to be scrutinized which is an order adverse to the provisions of section 120 of the Ordinance (ibid)".

It was further observed that

Law regarding notice to the concerned party is settled by this time and the superior judiciary of country is consistent on the question of giving notice to the concerned persons before proceedings against him, besides the applicability of principles of natural justice whereunder no one is to be condemned unheard. The Hon'ble Supreme Court of this country has very graciously mandated that provision of notice to. the person against whom you propose to proceed, has to be read in every statute irrespective of the fact that no such provision is incorporated therein".

8. The above referred judgment of Muhammad Hussain's case applies to the case of the petitioners before me and I following the dictum laid down, declare the impugned notices to be illegal, void and passed/issued without lawful authority and of no legal effect. The Commissioner of Income Tax, however, can initiate proceedings afresh after meeting the legal requirements.

9. The result, therefore, is that both the petitions succeed, which are accepted. The impugned notice under section 177(1) is declared being without lawful authority and are set aside. Parties to bear their own costs.

M.H./M-1416/L?????????????????????????????????????????????????????????????????????????????????? Petition allowed.