VS, 2010 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1289 (2009)

Income Tax Ordinance (XLIX of 2001)---

----S.177(4)(d)---Audit---Selection of case by the Commissioner of Income Tax under S.177(4)(d) of the Income Tax Ordinance, 2001 in the absence of criteria laid down by the Central Board of Revenue 'for selection of any person's income tax affairs for audit'---Validity---Order amended by the Taxation Officer for the tax year, 2007, under S.122(1)(5) of the Income Tax Ordinance, 2001 was without any lawful authority which was quashed as well as annulled by the Appellate Tribunal and order passed by the First Appellate Authority was vacated.

1992 PTD 1; 2000 PTD 2407 (Kar. H.C); 2004 PTD 330; 2006 PTD 2691; 1989 PTD 460; 1991 PTD (Trib.) 786; 1994 PTD (Trib.) 1034; 1997 PTD (Trib.) 73 and 2003 ITA No. 189/LB of 2007 ref.

2009 PTD 1507 rel.

Shoaib Ahmed Sheikh for Appellant.

Ashraf Ahmad Ali, D.R. for Respondent.

ORDER

This appeal for the tax year 2007 is directed at the instance of the taxpayer-appellant against the order passed by CIT(Appeals) Gujranwala dated 23-5-2009.

2. The impugned appellate order has been assailed on the following legal as well as factual grounds:--

1)That the orders passed by the lower authorities are bad in law, against the facts and contrary to the circumstances of the case.

2)That selection of the case for audit under subsection (4) has been made by the learned Commissioner without fulfilling the requirements of the provisions of section 177 of the Income Tax Ordinance, 2001 as, such, that is illegal, void ab initio. Thus, selection of the case has been made by the Taxation Officer without any lawful jurisdiction.

3)That selection of the case has been made without mentioning the relevant clause of subsection (4) of section 177 of the Income Tax Ordinance, 2001. Thus, selection of the case by the Taxation Officer for audit is without any lawful authority.

4)That as the reasons advanced by the Taxation Officer for selection of the case are not definite, being based to fish out evidence from the record of the appellant to burden the taxpayer with a huge illegal tax demand, which act is not maintainable in the eye of law.

5)That the Taxation Officer has fallen in grave error to amend the already completed assessment in terms of section 122(1) read with subsection 5 of the Income Tax Ordinance, 2001 in absence of any definite information and confirmation thereof by the First Appellate Authority was unwarranted on the facts and circumstances of the case.

6)That the provision of section 122(1) & (5) of the Income Tax Ordinance, 2001 have unlawfully been invoked particularly to the fact that the information, basing upon which the assessment order has been amended, was supplied/furnished/filed by the appellant by himself.

7)That the learned Appeal Commissioner has acted in flagrant violation of law in maintaining the order of the Taxation Officer whereby he had subjected the capital gain to tax.

8)That the learned Appeal Commissioner was not justified to uphold the Taxation Officer's order in totality after referring baseless, incorrect and factious fact.

9)That the orders of the two authorities below are not tenable in law because solitary transition of selling properly does not fall within the ambit of adventure in the nature of trade.

10)That conversion of "capital gain" declared by the appellant to that of Real Estate business was uncalled for and confirmation thereof by the First Appellate Authority was not proper.

11)That the case-law relied upon by the appellant in re: 1992 PTD 1 (S.C), 2000 PTD 2407 (Kar. H.C), 2004 PTD 330 (Kar. H.C), 2006 PTD 2691 (Lah. H.C) and that of the Tribunal's reported decisions cited as, 1989 PTD 460, 1991 PTD (Trib) 786, 1994 PTD (Trib) 1034, 1997 PTD (Trib) 73 and the one unreported judgment bearing, 2003 ITA No. 189/LB/2007 have not only been completely ignored but are not appreciated by the First Appellate Authority in its proper perspective which act was not tenable in the eye of law.

12)That the Appellant craves permission to amend, alter or adduce or furnish any evidence in support of the grounds raised-supra.

It is, therefore respectfully prayed that the impugned order dated 21-3-2009 may kindly be declared to have been passed without any lawful authority and as such be quashed/annulled and vacated that of the First Appellate Authority or any other relief as deemed proper may also be awarded.

3. Coming to the facts of the case, the taxpayer is an individual who besides enjoying salary income as a Director of City Embrioders (Pvt.) Ltd. Sialkot, also derives profit on debt. A complete return of income for tax year 2007 was furnished by the appellant declaring net income of Rs.448,000 within the due date. Under section 120(1)(b) of the Income Tax Ordinance, 2001, the return so filed was taken for all purposes to be the assessment order issued to the taxpayer by Commissioner on the date the return was furnished. Later on, the case was selected for audit in terms of section 177(4)(d) of the Income Tax Ordinance, 2001. Accordingly, a notice under section 176 of the Income Tax Ordinance, 2001 was issued intimating to the taxpayer that his case has been selected for audit of income tax affairs for tax year, 2007 under section 177(4)(d) of the Income Tax Ordinance, 2001 by the learned Commissioner of Income Tax. Certain documents and details were requisitioned in the said notice. A detailed reply thereof was furnished by the taxpayer but the reply tendered by him could not convince the Taxation Officer and he, therefore, amended the already completed assessment under section 122(1) read with subsection (5) of the Income Tax Ordinance, 2001 by adding the alleged concealed income towards the declared salary income.

4. Both the learned representatives appearing have been heard at a great length in this regard, perused the impugned orders as well as the case law tendered by the learned counsel for the taxpayer.

5. Although the orders passed by the two authorities below have vociferously assailed on the legal grounds enumerated supra, nevertheless, the appeal is disposed of only on one legal ground which pertains to selection of the taxpayer's case by the learned Commissioner of Income Tax under section 177(4)(d) of the Income Tax Ordinance, 2004. Main thrust of the learned counsel for the assessee in this regard was that selection of the case under section 177(4)(d) of the Income Tax Ordinance, 2001 has been made by the learned Commissioner of Income Tax without any lawful authority as he had no jurisdiction under the law to do so until and unless the criteria for selection of any person's income tax affairs for audit is laid down by the Central Board of Revenue at the first place. Also asserted that selection of the case for audit has been made by the learned Commissioner of Income Tax without mentioning the relevant clause of subsection (4) of section 177 of the Income Tax Ordinance, 2001 thus, non ticking thereof also renders the selection of the case to be without any legal authority. Further contended that the reasons advanced by the learned Commissioner of Income Tax for selection of the case for audit were not definite, being based to fish out evidence from the record of the appellant to burden the taxpayer with a huge illegal tax demand, which act is not sustainable in the eye of law. To support the contention of illegal selection of the case for audit, a latest judgment of the Hon'able High Court in re: Mohsin Raza v. The Chairman Federal Board of Revenue, Islamabad cited as 2009 PTD 1507 has been referred. In that judgment, the learned Judge on similar and identical set of facts has declared the selection of the case by the learned Commissioner of Income Tax to be without any lawful authority as well as jurisdiction and as such has no legal effect. While observing so, it is held in so many words as under:--

Page No 1534, Para 37

Another important issue which has arisen in these cases is regarding the authority of the Commissioner to select cases for audit in the absence of the criteria for selection of any person for an audit of his income tax affairs provided by subsection (1) of section 177 of the Income Tax Ordinance, 2001. This Court is of the opinion that Commissioner of Income Tax cannot select a case for audit under clause (d) of subsection (4) of section 177 of the Income Tax Ordinance, 2001 unless criteria provided has been duly laid down in terms of subsection (1) of section 177 by the Federal Board of Revenue because Commissioner can only select cases for audit in addition to selection of audit referred to in subsection (2) of section 177 but he cannot has arrived at this estimation after having considered the import of the words "in addition" appearing at the beginning of subsection (4) of section 177 of the Income Tax Ordinance, 2001.

Ultimately concluded by the learned Judge asunder:--

Page No 1535, Para 39

Having regard to the gist of the arguments advanced before this Court and keeping in view the crux of what has been stated above, all these writ petitions are accepted and the impugned orders passed by the Commissioner Income Tax (Audit) are hereby declared to have been issued without lawful authority and as such the same are of no legal effect. Consequently a direction is issued to respondent Federal Board of Revenue to lay down a criteria in compliance with the mandate of section 177 of the Income Tax Ordinance, 2001 whereafter de novo proceedings be initiated with regard to the income tax affairs of such persons who come within the purview of the said criteria while ensuring that persons similarly placed are treated alike in furtherance with Article 25 of the Constitution of Islamic Republic of Pakistan, 1973 and selection of cases for audit on the basis of whimsical pick and choose at random resulting discrimination ought to be avoided.

Petition allowed

6. Respectfully following the ratio decidendi in the cited case, we have no ambiguity in our mind but to hold that the order amended by the Taxation Officer of Income Tax Audit Unit-01, Regional Tax Office, Sialkot dated 21-3-2009, for the tax year 2007, under section 122(1)(5) of the Income Tax Ordinance, 2001 was without any lawful authority which is hereby quashed as well as annulled. Resultantly, the impugned appellate order passed by the learned Appeal Commissioner stands vacated.

7. Since, the present appeal has been disposed of solely on one ground, therefore, the other legal grounds raised supra need not be dilated upon hereunder.

C.M.A./46/Tax (Trib.)Appeal accepted.