2025 PLP 502 (PTD)

SHAMS MEHMOOD MIRZA, J.

This order shall decide the present writ petition as well as connected Writ Petitions No.49337 of 2021 which deal with similar legal issues.

2. For the purposes of this order only the facts of the present case shall be stated.

3. The petitioner has called into question notices dated 27.05.2021 and 28.05.2021 through which it has been selected for audit for the tax years 2017, 2018, 2019 and 2020 in terms of section 177 of the Income Tax Ordinance, 2001 (the Ordinance).

4. In order to support the grounds agitated in this petition, it is submitted that a number of notices were issued to the petitioner under section 122(5A) read with section 122(9) of the Ordinance for the tax years 2017 to 2019 on which orders were passed, and the cases are now pending before the appellate forums. It is, however, conceded that such is not the case with respect to the tax year 2020. The petitioner also referred to circular dated 05.10.2009 issued by the Federal Board of Revenue holding that a case shall be selected which shall be selected for audit for the current year only. The Federal Board of Revenue, it is argued, is required to give reasons for selecting the petitioner for audit for multiple years. While making reference to paragraph No.20 of the judgment rendered in the case of Raza Motors Industries v. Federation of Pakistan and others 2022 PTD 19, it is contended that the action of the respondents in selecting the case of the petitioner for multiple years does not pass the rationality test laid down in the said judgment. A reference was also made to the judgment rendered by this Court in Writ Petition No.15880 of 2021 titled D.G. Khan Cement Company Limited v. Federal Board of Revenue and others by stating that the selection of the petitioner for audit was part of sectoral audit initiated under the directives issued by Federal Board of Revenue which action was declared to be without lawful authority and of no legal effect.

5. Learned counsel for the respondents by rebutting the contentions of the petitioner submitted that the scope of section 122(5A) is fairly limited and that any observations pursuant to the audit shall be adjudicated upon under section 122(5). It is argued that there is a difference between the two provisions and the mere fact that the petitioner's tax returns were selected for amendment in the assessment under section 122(5A) shall not preclude the selection of the petitioner for audit. In regard to the successive selection for audit, learned counsel referred to the case of Nestle Pakistan Limited and others v. Federal Board of Revenue 2017 PTD 686 to submit that a taxpayer can be selected for audit for multiple years. It is also contended that circular dated 05.10.2009 on which reliance was placed by the petitioner was issued much prior to the judgments (Raza Motors and Nestle Pakistan Limited) rendered by this Court. The allegation of the petitioner that its selection for audit was part of sectoral audit was also rebutted by the learned counsel for the respondents.

6. The primary argument of the petitioner that in the presence of proceedings for amendment of its assessment the parallel proceedings for tax audit cannot take place is negated by the comparative chart placed on record by the respondents. This chart reflects that the reasons set out in the notices (impugned herein) for selection of petitioner for audit have no nexus with the proceedings that were initiated for amendment in the assessments and orders passed thereon.

7. This Court in the case of Raza Motor traced the legislative evolution of section 177 to hold that it falls in the jurisdiction and authority of the Commissioner to select the case of a taxpayer and that the legislature has granted considerable flexibility and discretion to the Commissioner to call for the record and documents from the taxpayer without confining it by any specified criteria except requiring him to give reasons for summoning the record/documents. This Court furthermore observed that under section 177 the Commissioner is required to grant a further right of hearing at the culmination of audit to the taxpayer seeking its explanation on the issues surfaced during the audit and that even after the amendment of the assessment multiple rights of appeal/reference are available to the taxpayer. This Court also referenced the judgment rendered in the case of The Federal Board of Revenue and others v. Messrs Chenone Stores Limited and others 2018 PTD 208 in which it was held that the concept of audit requires pinpointing of non-compliant trends, defects in system, ambiguities in practice and law and that selection and conduct of audit is not necessarily detrimental to the interests of the taxpayer and that the taxpayer's duty to make correct declarations in the tax returns under the self-assessment regime must be balanced against the right of the Revenue to audit. The case of Commissioner of Inland Revenue Sialkot and others v. Messrs Allah Din Steel and Rolling Mills and others 2018 SCMR 1328 was also referred to in which it was held that "In case, he satisfies the authorities that the tax returns submitted by him are truthful, reliable and supported by the necessary documentation, it may not culminate in further proceedings or in an amendment in the returns and enhanced tax liability may not be the outcome. This is so because mere selection for audit by itself is not a complete process. This is the beginning of a process which may or may not culminate in revision of assessment, enhanced tax liability or other adverse legal consequences." Raza Motors also holds that "Even otherwise, the Commissioner is merely seeking the record/documents from the taxpayer by providing him reasons. These reasons are not justiciable, which at the pre-audit stage cannot be assailed before a Court of law in view of the law laid down in Kohinoor's case and Messrs Allah Din Steel and Rolling Mills case."

8. The petitioner's contention that its selection for audit must pass the rationality test laid down in the case of Raza Motor has no force in view of reproduction of the above excerpts of the said judgment.

9. It was also contended by the petitioner that there is no warrant under section 177 for selection of audit of a taxpayer for multiple years. The argument so put forward by the petitioner is also without any merit. The text of section 177 does not lay down any impediment on the authority of the Commissioner to select the case of a taxpayer for multiple years. All that the provisions in section 177 requires from the Commissioner is to record reasons in writing for calling for record/documents and that those reasons are to be communicated to the taxpayer. If these conditions are fulfilled, the Commissioner can select a taxpayer for multiple years. Circular dated 05.10.2009 issued by the Federal Board of Revenue on which reliance was placed by the petitioner is of no help to it. The argument made by the petitioner ignores the amendments made in section 177 through Finance Act, 2009 and Finance Act, 2010. Section 177(7) visualizes a situation where audit in a particular year has already taken place and audit for subsequent year would require furnishing of reasonable grounds. This provision is not applicable to selection of audit for multiple years. Be that as it may, as noted above, the Commissioner has furnished reasons for calling for record/documents for conducting audit in each of the notice which fulfills the conditions laid down in the proviso to section 177.

10. In regard to the allegation that the impugned notices were part of sectoral audit, suffice it to state that this was not part of the grounds taken by the petitioner in this writ petition. Notwithstanding the - absence of such ground, the notices impugned in this writ petition do not contain anything that would suggest that it was part of a sectoral audit drive authorized by the Federal Board of Revenue. It may be pointed out that in each of the notice reasons have been given for selecting the case of the petitioner for audit thereby satisfying the requirements of section 177.

11. For what has been stated above, this writ petition and the connected writ petition fail and are accordingly dismissed. MQ/H-12/L Petition dismissed.