CHAIRMAN, F.B.R. VS IDREES TRADERS, 2012 PTD-SUPREME-COURT 693 (2011)

(On appeal from the judgments dated 14-7-2009,17-7-2009,27-7-2009, 28-7-2009, 19-10-2006, 15-10-2009, 12-10-2009, 29-10-2009, 19-10-2009, 26-10-2009, 29-10-2009, 2-11-2009, 9-10-2009, 29-10-2009, 4-11-2009, 5-11-2009, 7-10-2009, 19-10-2009, 7-10-2009, 16-10-2009, 12-10-2009, 15-10-2009, 16-10-2009, 20-10-2009, 21-10-2009,

29-10-2009, 10-11-2009, 16-10-2009, 12-10-2009, 15-10-2009,

20-10-2009, 26-10-2009, 4-11-2009, 11-11-2009, 17-11-2009,

23-11-2009, 11-11-2009, 20-11-2009, 20-11-2009, 23-11-2009,

20-10-2009, 19-11-2009, 23-11-2009, 23-11-2009, 26-11-2009,

24-11-2009, 1-12-2009, 7-12-2009, 16-12-2009, 12-10-2009,

20-11-2009, 1-12-2009, 11-12-2009, 14-12-2009, 14-12-2009,

14-12-2009, 13-10-2009, 10-11-2009, 11-12-2009, 17-12-2009,

23-12-2009, 11-1-2010, 11-1-2010, 17-7-2009, 16-2-2010, 17-7-2009, 12-4-2010, 16-4-2010, 10-11-2009, 7-12-2009, 7-12-2009, 7-12-2009,

2-3-2010, 16-3-2010, 5752, 6143, 6769, 6783, 6384, 6385, 6386, 6387, 6389, 7499, 14849, 14850, 14940, 14942, 14943, 14946, 14947, 15044, 145044, 15046/09, 4673/08, 6127, 4398, 4810, 4811, 5073, 5192, 5216, 5537, 5583, 5825, 5946, 5947, 6004, 6030, 6333, 6037, 6038, 6127, 6129, 6157, 6175, 6241, 6334, 6521, 6666, 6667, 6694, 6771, 6779, 6780, 6781, 6931, 6816, 6948, 6953, 7101, 7398, 7423, 7425, 7443, 7505, 7550, 7551, 7664, 6128, 6290, 6390, 9270, 7093, 8454, 8892, 8893, 10090, 11097/2009, 10069/2006, 20218/2009, 19859/2009, 21295/2009, 20439, 20440, 20442/2009, 20986/2009, 21291/2009, 21510, 21508, 21509/2009, 19642/2009, 21308/2009, 21662/2009, 21791/2009, 19429/2009, 20441/2009, 19416, 19428/2009, 20339, 20340/2009, 19893/2009, 20208/2009, 20306, 20573/2009, 20670/2009; 21292/2009, 21971, 21972/2009, 20303/2009, 19886/2009, 20207, 20211/2009, 20571/2009, 20693, 20978/2009, 21700/2009, 22068/2009, 22467/2009, 22847/2009, 22067/2009, 22731/2009, 22732/2009, 22858/2009, 22859/2009, 20570/2009, 22601/2009, 22844/2009, 22845, 22846/2009, 23086/2009, 22923/2009, 23165, 23164/2009, 23402/2009, 24027/2009, 19820/2009, 22729/2009, 23166/2009, 23750/2009, 23830/2009, 23831/2009, 23875/2009, 29681/2009, 21993/2009, 23717/2009, 24160/2009, 24577/2009, 103/2010, 104, 153, 200/2010, 8896/2009, 2920/2010, 10322/2009, 7640/2010, 7640/2010, 22010/2009, 13534/2009, 21542/2009, 12100/2009, 14147/2009, 17064/2009, 17067/2009, 14399, 22245, 8535, 12478, 17063, 17068, 20446, 12475, 12130, 18334, 12125, 9148/2009, 21486/2010 and2505 of 2010).

Income Tax Ordinance (XLIX of 2001)---

----S. 177(4)---Constitution of Pakistan, Art. 199---Conduct of audit---Letters issued to appoint or authorize auditors---High Court by two orders, directed to issue letters for appointment of auditors---Validity---Supreme Court set aside the order of the High Court and observed that without availing departmental remedies, filing of constitutional petition was not appreciable; and if the letters had not been withdrawn, reasons should be assigned; and after providing opportunity to the taxpayers, it be clearly pointed out to them that their cases were not covered under the Policy; and they could apply afresh, if need be---If the department intended to proceed, then sufficient opportunity be given to the taxpayers to put up pleas so that no prejudice could cause to them in any manner---Said conclusion having been conceded to by all the counsel, appeals were disposed of accordingly.

Commission of Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd., 2009 PTD 1392 rel

Syed Arshad Hussain. Shah, Advocate Supreme Court, M.A. Zaidi, Advocate-on-Record (in C.As. Nos. 1306-1327 of 2009), Muhammad Ilyas Khan, Sr. Advocate Supreme Court, (in C.As. Nos.1427-1480/09, 1068-1088/10, 1097-1101, 1124, 1132-1135,

1141-1146/10, 1113-1118, 1126-1131/10, 1102-1104, 1106, 1107 of 2010), Sirajuddin Khalid, Advocate Supreme Court, Faiz-ur-Rehman, Advocate-on-Record (in C.As. 1426/09, 204/10, 1208-09/10, 1222/10, 1474 of 2009), Mian Yousaf Umar Advocate Supreme Court (in C.As. Nos.1108-1112/10, 1119-1123/10, 1136 1140/10, 1147-1148/10, 1069, 1090-1096 of 2010), for the Appellants

Faiz-ur-Rehman, Advocate Supreme Court, (in C.As. 1307/09, 1309-1316 of 2009), Asghar Kharal, Advocate Supreme Court (in C.As.Nos. 1428-1429/10, 1432/10, 1220 of 2010); Mian Ashiq Hussain, Advocate Supreme Court, Faiz-ur-Rehman, Advocate-on-Record (in C.As. Nos. 1430/09, 1480 of 2009), M.A. Zaidi, Advocate-on-Record, (in C.As. Nos. 1439-41/09, 1134 of 2010), Sirajuddin Khalid, Advocate Supreme Court, Faiz-ur-Rehman, Advocate-on-Record, (in C.As. Nos.1451, 1456, 1459, 1473 of 2009), Rana Muhammad Afzal, Advocate Supreme Court, (in C.A. No. 1460 of 2009), M. Ilyas Khan, Sr. Advocate Supreme Court, Raja Abdul Ghafoor, Advocate-on-Record (in C.As. Nos. 204, 1212-1213 of 2010), Iqbal Hashmi, Advocate Supreme Court, (in C.As. Nos. 1071-1074, 1084; 1105, 1124, 1132, 1139 of 2010), Sh. Khizar Hayat, Sr. Advocate Supreme Court, (in C.As. Nos. 1135 of 2010), Malik Shakeel-ur-Rehman, Advocate Supreme Court, Arshad Ali Chaudhry Advocate-on-Record, (in C.As.Nos. 1209, 1210, 1227 of 2010), Mukhtar Ahmad Chaudhry, Advocate Supreme Court, (in C.A. No.1097 of 2010), Amjad Hameed Ghori Advocate Supreme Court, (in C.A. No.1131 of 2010), for the Respondents

Date of hearing: 24th February, 2011.

JUDGMENT

IFTIKHAR MUHAMMAD CHAUDHRY, C.J.---In the listed appeals two judgments delivered by the High Court at Lahore have been challenged. First is the judgment dated 14th July, 2009 whereby Constitutional Petitions under Article 199 of the Constitution were filed by the respondents (tax payers) challenging the letters issued to them under section 177(4) of the Income Tax Ordinance, 2001 (hereinafter referred to as "the Ordinance") and the second is the judgment dated 22nd October, 2009 involving the same controversy i.e. challenging the letter issued to the department under section 177(4) of the Ordinance.

2.It would be appropriate to note that a specific objection was raised before the High Court with regard to non-maintainability of the writ petitions against the letters/notices. Learned Judge while delivering the judgment dated 14th July, 2009 declined to accept the contentions and while over-ruling the objections issued the writs, whereas another learned Judge of the same High Court while accepting the plea of the department about non-maintainability of the petitions, dismissed the writ petitions Relevant paras discussing question of maintainability of the petitions from both the judgments are reproduced herein below:--

Judgment dated 14-7-2009

(20)At this juncture this court may observe that it is well settled proposition of law that roving inquiries and fishing expeditions and that too in violation of the statutory provisions not only cause the subject of such inquiry to become an aggrieved person but such a course of action is also violative of due process of law thereby entitling the aggrieved not only to claim damages in a Court of civil jurisdiction but the same also entitles him to agitate his grievance through invocation of writ jurisdiction. The answer to question whether the impugned selection of cases for audit is within the four-corners of law or not, will determine the issue of maintainability of the writ petitions. All the aforesaid writ petitions call in question the impugned letters whereby their income tax affairs have been selected for audit on the ground that these impugned letters are violative of statutory provision viz section 177 of Income Tax Ordinance, 2001. The question involved in these writ petitions is purely a legal question falling within the ambit of Article 199 of the Constitution and as such the preliminary objection raised by Mr. Muhammad Ilyas Khan, as to the maintainability of these writ petitions is not very convincing. Reliance in this regard is placed on a judgment rendered by the Supreme Court of Pakistan in the case of "Assistant Collector of Customs v. Khyber Electric Lamps and others" reported as 2001 SCMR 838 wherein it was held by the august Supreme Court that writ petition was maintainable where a notice issued to the petitioner did not contain specific particulars relating to the provisions of law under which the same was issued.

Judgment dated 22-10-2009

30.It has also been noticed, that the objections raised on behalf of individual petitioners go to the very heart of the jurisdiction purported to have been exercised by the respondents with issuance of the impugned notices under section 177(4) of the Ordinance. The conditions and parameters set forth in sub clauses (a), (b), (c) and (d) of subsection (4) of section 177 of the Ordinance are the jurisdiction basis, the existence whereof is a sine qua non for selection of a person for audit. The existence of such jurisdictional basis must necessarily be determined before such power can be exercised. This determination can only be effected after hearing the petitioners and granting them opportunity to produce the material to displace the case of the respondents, which exercise can only be undertaken on an individual case to case basis. Thus though the respondents may very well issue notice purportedly under section 177(4) of the Ordinance but powers conferred thereby, and whether, such powers have in fact been exercised within the parameters prescribed by law can always be objecting to the jurisdiction and authority of the Commissioner to issue the same. Needless to add that any objections raised would require to be adjudicated upon through a speaking order. If the very jurisdiction to issue such notice is challenged then obviously as is settled law, the question of jurisdiction would require to be dealt with and decided first, before the Commissioner can proceed further in the matter commencing the intrusive process of audit."

3.There is yet another set of appeals wherein without issuing the notice to the revenue department the writ petitions filed by some of the respondents (tax payers) were accepted following the dictum laid down in the judgment dated 14th July, 2009, reproduced hereinabove.

4.Learned counsel for the appellant relying upon the judgment of this Court in the case of Commissioner of Income Tax v. Messrs Eli Lilly Pakistan (Pvt.) Ltd. 2009 PTD 1392 = (2009 SCMR 1279) stated that this Court has categorically pronounced that without availing departmental remedies filing of Constitutional Petitions is not appreciable. However, when Mr. Muhammad Ilyas Khan, learned Advocate Supreme Court was arguing his case, we inquired from the learned counsel for the respondents as to whether the letters issued under section 177(4) of the Ordinance were responded or without filing the replies they approached the High Court for redressal of their grievance. He stated that in some of the cases replies were filed and the department startedauditetc.He,however,pointedoutthatnoticesunder section 177(4) of the Ordinance in all the cases referred to hereinabove, stand withdrawn in pursuance of the policy decision contained in letter dated 14-1-2010, which is reproduced herein below:

"C. No. (78)ITP/2009/7321-RIslamabad, 1-14-2010

To

Mr. Zubair Motiwala

Advisor on Investment to

Chief Minister

Sindh

Subject: AUDIT PROCEEDINGS FOR TAX YEAR, 2008

Please refer to the proceedings of the meeting held by the Chairman FBR with the minutes of Income Tax Bar Association Karachi, on 9th January, 2010 at FBR Camp Office, Income, Tax House, Karachi,

(2)As already decided in the Third Chief Commissioner's Conference held on 19-12-2009 at 'P' Block Auditorium, Pakistan Secretariat and as conveyed through the minutes of this meeting dated 11th January, 2010, since random audit selection of cases for tax year 2008 has been held for audit of Corporate cases and cases of AOPs, the cases of audits on any other basis for tax year 2008 may be closed. However, the cases with proof or evidence of gross irregularities may be intimated to the Board for guidelines as to further necessary action.

(3)These instructions, may also be brought to the knowledge of all concerned."

When confronted with the contents of the above letter, Mr. Muhammad Ilyas Khan and other learned counsel appearing for the revenue department could not make categorical statement, however, learned counsel for the respondents stated at bar that in view of the above policy the letters have already been withdrawn and instant discussion is nothing but an academic exercise as the relief has already been given to the tax payers by the competent authority following the above policy.

5.After having heard the learned counsel and having gone through the relevant contents of the judgments under challenge as well ratio decidendi in the case of Eli Lilly Pakistan (ibid) and the policy letter noted above we proceed to decide the appeals as follows:--

(i)In all the appeals listed above both the judgments dated 14th July, 2009 and 22nd October, 2009 are set aside.

(ii)The department is directed to follow the policy in letter and spirit, which has been reproduced hereinabove and if the letters have not been withdrawn, reasons should be assigned and after providing opportunity to the respondents, it be clearly pointed out to them that their cases are not covered under thepolicy and they may apply afresh if need be.

(iii)If the department intends to proceed, then sufficient opportunity be given to the tax payers to put up the pleas so that no prejudice may cause to them in any manner.

The above conclusion has been conceded to all of the learned counsel, therefore, appeals are accordingly disposed of having the parties to bear their own costs.

H.B.T./C-4/SCOrder accordingly.