Messrs NESPAK (PVT.) LIMITED VS FEDERATION OF PAKISTAN through Secretary Law &Parliamentary Affairs and 2 others, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 2063 (2006)

Income Tax Ordinance (XLIX of 2001)---

----S.177---Constitution of Pakistan (1973), Art.199---Constitutional petition---Selection. of income tax return for audit---Notice for----Department informed assessee by issuing notice that income tax return of assessee had been selected for audit under S.177 of Income Tax Ordinance, 2001---Subsequently department issued notice to assessee requiring assessee to attend tax office with complete accounts---Validity---Essential requirement for exercise of power under S.177 of Income Tax Ordinance, 2001, was to disclose grounds/reasons for selection of income tax return for audit---Impugned notices issued to assessee contained detect of lack of disclosure of reasons for selection of its case for audit for the relevant year---Notices impugned, having failed to disclose any reason for conducting audit of assessee's return, same were declared to be illegal and void by High Court, in exercise of its constitutional jurisdiction.

Ch. Muhammad Hussain v. Commissioner of Income Tax, Sialkot (2004) 90 Tax 81 ref.

Waseem Chaudhry for Petitioner.

Sajjad Ali Jafri for Respondent.

Date of hearing: 19th April, 2006.

JUDGMENT

UMAR ATA BANDIAL, J.---This petition challenges notice dated 29-4-2004 issued by the respondent No.4 informing the petitioner that its income tax return for the tax year 2003 has been selected for audit under section 177 of the Income Tax, Ordinance, 2001 ("Ordinance"). Thereafter the respondent No. 5 by notice dated 24-11-2004 required the petitioner to attend his office with complete tax account and supporting details/documents for completion of audit of the petitioner's return for the tax year 2003. Parawise comments were filed by the respondents and thereafter by consent amended petition was filed on record.

2. The learned counsel for the petitioner has contended that the question arising for determination is whether audit by the respondents under section 177 of the Ordinance can be initiated without disclosure of grounds in the impugned notice. This question has been answered in the negative by detailed judgment of this Court given in the case of Ch. Muhammad Hussain v. Commissioner of Income Tax, Sialkot (2004) 90 Tax 81. Resultantly it is prayed that the impugned notice be declared illegal. The learned counsel for the respondents has tried to distinguish the, case on account of the revised return filed by the petitioner for the subject tax year. That distinction has been sought to be answered by the learned counsel for the petitioner on the basis of section 122(3) of the Income Tax Ordinance, 2001. In the mind of the Court the foregoing debate is not material to the controversy in hand. Quite simply, the conduct of a general audit ought to be justified by grounds. The question raised in present petition whether a single line order can without giving reasons validly select the tax return of an assessee for complete audit has been carefully considered in the aforesaid judgment which concludes as follows:---

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

3. The impugned notices in the present case also contain the same defect of lack of disclosure of reasons for selection of the petitioner's case for audit, for the tax year 2003 under section 177 of the Ordinance. Accordingly, in the light of law declared by this Court in relation to the essential requisites for the exercise of powers under section 177 of the Ordinance and the stereotyped contents of the impugned notice, it is held that the notices impugned in this petition rail to disclose any reason for conducting audit of the petitioner's return for the year 2003. Accordingly, upon grounds and reasons detailed in the afore-noted judgment given in the case of Ch. Muhammad Hussain v. Commissioner of Income Tax the impugned notices dated 29-4-2004 and 8-6-2006 are declared to be illegal and void. However, respondent department is at liberty to proceed with the general audit of the petitioner's return of income strictly in accordance with law by giving justification or grounds for the proposed audit. The writ petition is allowed without airy order as to costs.

H.B.T./N-62/LPetition allowed.