COMMISSIONER OF INCOME TAX, COMPANIES ZONE, ISLAMABAD VS DEWAN SALMAN FIBRE LIMITED, HATTAR, 2008 PTD-ISLAMABAD-HIGH-COURT 1988 (2008)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 120(3) & 122---Constitution of Pakistan (1973), Art. 199--Constitutional petition---Alternate remedy---Opportunity of showing cause---Mode---Petitioner company filed its income tax return under Self-Assessment Scheme but its case was selected for total audit---Plea raised by petitioner was that before selecting the case for total audit, no show-cause notice had been issued by authorities---Validity---There was no express provision in relevant law, about the mode of affording opportunity of showing cause against action proposed to be taken which varied from case to. case---Personal hearing was not required in each case---Notice informing petitioner of the fact of its case being selected and grounds therefore was given to the petitioner and petitioner gave application to exclude the case from audit---After considering grounds mentioned in application for excluding the case from audit, Commissioner rejected the application, as such the same was sufficient compliance of principles of natural justice---If income of petitioner was assessed after audit, order for assessment was appealable firstly to Appellate Commissioner and then to the Appellate Tribunal---Reference was also competent before High Court---In appeal against order of assessment, petitioner had a right to urge that its case was wrongly selected for audit---Petitioner, therefore, had an adequate remedy---In provisions of Art.199 of the Constitution, phrase used was "adequate remedy" and not "immediate remedy"---It might have been true that petitioner had no immediate remedy but he had an adequate remedy to challenge order before Appellate forums after order of assessment was made final---Constitutional petition was dismissed in circumstances.

Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur (2006) 94 Tax 317 (SC Pak). ref.

Hafiz Muhammad Idrees for Petitioner.

ORDER

MUHAMMAD MUNIR PERACHA, J---The petitioner is a Private Limited Company, which derives income from manufacturing, sales of vaccines and pharmaceuticals. The return for the tax year, 2007 was filed by the petitioner company under Universal Self-Assessment Scheme declaring total Income of Rs.69,24,474 from the business. Vide notice, dated 19-4-2008, Commissioner of Income Tax Audit-II, Large Tax Payer's Unit, Islamabad, informed the petitioner that it has been selected for audit. The grounds on the basis whereof, the petitioner Company was selected were mentioned in the notice. On 5-5-2008, an application was made on behalf of the petitioner-Company requesting that the case of the petitioner be excluded from the selection. On 7-5-2008, the Commissioner Income Tax Audit-II, Large Tax Payers, Islamabad replied the petitioner company that the case of the Company has been rightly selected in accordance with provisions of section 177 of Income Tax Ordinance, 2001. The petitioner invoked the Constitutional jurisdiction of this Court with the prayer that:--

"It is therefore, respectfully prayed that an appropriate writ may graciously be issued by declaring section 177 illegal, ultra vires against the Constitution of Pakistan, intimation latter for selection issued by the respondent No.1 be declared illegal and without any jurisdiction and proceedings initiated by respondent No.2 have no legal footing or grant any other relief which is fit to compensate the petitioner."

2. I have heard learned counsel for the petitioner and with his help, examine the different provisions of Income Tax Ordinance, 2001.

3. Learned counsel for the petitioner submits that under section 120 of the Ordinance, if a tax-payer has furnished a complete return of income, the Commissioner shall be taken to have made an assessment of taxable income for that tax year and the tax due thereon, equal to those respective amounts specified in the return. According to the learned counsel, since under clause (b) of section 120(1), the return furnished by the Tax Payer becomes the assessment order issued to the taxpayer by the Commissioner, the day the return is furnished, the Commissioner can amend the assessment order only under section 122 of the Ordinance and for the amendment of the assessment order, under subsection (5) of section 122, it is a condition precedent that the Commissioner must be satisfied on the basis of definite information that any income chargeable to tax has escaped assessment, or total income has been under assessed, or assessed too low a rate, or has been the subject of excessive relief or refund, or any amount under a head of income has been misclassified.

4. The second submission of the learned counsel is that before selecting the case of a taxpayer for audit, the taxpayer has to be given a show-cause notice. The learned counsel relies on the judgment of the Hon'ble Supreme Court of Pakistan, reported as (2006) 94 Tax 317 (S.C. Pak.) titled Commissioner of Income Tax and others v. Fatima Sharif Textile, Kasur and others". The third contention of the learned counsel is that the grounds mentioned in section 177(4) are vague.

5. Section 120 of the Income Tax Ordinance is reproduced:--

Section 120. Assessments (1) Where a Taxpayer has furnished a complete return of income (other than a revised return under subsection (6) of section 114) for a tax year ending on or after the 1st day of July, 2002:--

(a) The Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and '

(b) the return shall be taken for all the purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.

(1-A) Notwithstanding the provisions of subsection (1), the Commissioner may select a person for an audit of his income tax affairs under section 177 and all the provisions of that section shall apply accordingly.

(2) ----------------------------

(3) ----------------------------

(4) ----------------------------

(5) ----------------------------

(6) ----------------------------

In my view, subsection (1-A) of section 120 of the Ordinance is an exception to section 120(1). The return filed by a taxpayer shall be deemed to be an assessment order only if the case of the taxpayer has not been selected for an audit under section 177 of the Ordinance. In case a taxpayer has been selected for an audit, his return call not be deemed to be an assessment order because under subsection (1-A), the Commissioner has been given a power to select a person for an audit notwithstanding the provisions of subsection (1). Subsection 122 of the Ordinance empowers the Commissioner to amend the assessment. Section (1-A) was inserted in section 120 by Finance Act, 2005. By insertion of section 1-A, the legislature conferred a power in addition to the powers under section 122 already possessed by the Commissioner. No limitation has been provided in section 120 for invoking sub-section (1-A). Although, subsection (6) of section 120 is confined to notice under section 120(3), however, by analogy, it can be assumed that Commissioner may not select a person for an audit under subsection (1-A) after the end of the Financial year. The legislature may examine the necessity of enacting an express provision for the purpose.

6. So far as the requirements of a show-cause notice before the selection for audit is concerned, in the present case, the requirement is satisfied. A notice was given to the petitioner company on 19-4-2008 informing him the grounds on the basis whereof the case of the petitioner has been selected for audit. The petitioner applied for exclusion of his case from audit vide letter, dated 5-5-2008 and the learned Commissioner after taking into consideration the letter of the respondents, rejected the request of the petitioner company to exclude the petitioner's case from audit. There is no express provision of issuing notice before the selection of the case for audit and the arguments of the petitioner is based on principle of natural justice. If there is no express provision in relevant law, the mode of affording opportunity of showing cause against action proposed to be taken varies from case to case. Personal hearing is not required in each case. A notice informing the petitioner of the fact its case being selected and the grounds therefore was given to the petitioner. It gave an application to exclude the case from audit and after considering the ground mentioned in the application for excluding the case from audit, the Commissioner rejected the application. This is sufficient compliance of the principle of natural justice.

7. The arguments of learned counsel that the grounds mentioned in section 177(4) are vague looks very attractive on its face. However, when deeply analyzed, it did not impress me. The consideration mentioned in clauses (a), (b), (c) of subsections (4) of section 177 of Ordinance give a good idea of the honesty of the taxpayer and his willingness to pay tax. On the basis of the criteria mentioned in the above said clauses, the Commissioner can make up his mind to select a person for audit.

8. This petition is liable to be dismissed on another ground and that is that if income of the petitioner company is assessed after the audit, the order of assessment is appealable firstly to the Appellate Commissioner and then to the Tribunal. A reference is also competent before the High Court. In an appeal against the order of assessment, the petitioner will have a right to urge that its case was wrongly selected for audit. The petitioner therefore, has an adequate remedy. In Article 199 of the Constitution, the phrase used is "adequate remedy" and not "immediate remedy". It may be true that petitioner has no immediate remedy but he has an adequate remedy to challenge the order sought to be set aside through this writ petition before the Appellate forums after the order of assessment is made.

9. In view of what has been said above, this writ petition is dismissed in limine.

M.H./A-42/ISLPetition dismissed.