2014 PLP (Trib (PTD)

CH. ANWAARUL HAQ (JUDICIAL MEMBER).

These are the cross appeals filed by the parties against the decision of learned Commissioner Inland Revenue (Appeals-III), Lahore passed vide his order dated 31-1-2011 for tax year 2008.

2. Brief facts of the case as transpired from the record are that the taxpayer being an individual is engaged in the business of manufacturing of and fabrication of parts used in sugar industry. The taxpayer filed return of income under Universal Self-Assessment Scheme. Later on the taxpayer was selected for audit under section 177(4) of the Income Tax Ordinance, 2001 by the Commissioner of Income Tax. The audit proceedings were initiated by the Taxation Officer and finally in consequence thereof the learned assessing officer by disallowing certain expenses passed an order under section 122(1)/(5) read with section 177 of the Income Tax Ordinance, 2001 vide dated 30-4-2009.

3. Being dissatisfied with the order passed under section 122(1)/(5) read with section 177 of the Income Tax Ordinance, 2001, the taxpayer filed an appeal before the learned CIR(A). The learned CIR(A) after considering the submissions of the appellant with respect to selection of case for audit under section 177 confirmed the order of the learned assessing officer. However, some relief was given to the appellant by the learned Commissioner (Appeals) in the profit and loss expenses.

4. Before us, the learned AR of the appellant at the very outset contented that selection of case by the Commissioner of Income Tax (Audit), RTO, Lahore is totally unlawful and unwarranted. It was argued that the Board had directed the Department through letter C.No.4(7S)ITP/2009 dated 9-1-2010 to close the audit proceedings initiated in respect of tax year 2008 but in the instant case the department had not complied with the directions. The contents of the Circular read as follows:-- "SUBJECT: AUDIT PROCEEDING FOR THE TAX 2008 Please refer to the proceedings of the meeting held by the Chairman F.B.R. with the minutes of Income Tax Bar Association, Karachi, on 9th January 2010 at F.B.R 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 11-1-2010, 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 audit 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 instruction may also be brought to the knowledge of all concerned."

5. The learned counsel for the taxpayer however, further argued that the Honourable Supreme Court of Pakistan in the case reported as 2012 SCMR 597 = 2012 PTD 693 has set aside the judgment dated 14th July, 2009 and 22nd October, 2009 and directed the department to follow the policy in letter and sprit circulated by the FBR reproduced above 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 the policy and they may apply afresh if need be and if the department intends to proceed, then sufficient opportunity be given to the taxpayers to put up their arguments so that no prejudice may cause to them in any manner. The learned AR also pointed out that in the aforesaid judgment of the Apex Court individual taxpayer were also parties in the said judgment. The learned AR also placed on record a letter dated 31-3-2010, passed by ACIR, Audit Unit-3, Audit Divison-III, RTO, Lahore, whereby the said Officer closed the case of an individual selected for audit under section 177 of the Ordinance, on the basis of aforesaid FBR's letter dated 14-2-2010.

6. On the other hand the learned DR contented that the taxpayer was selected for audit on a date preceding the date on which administrative instructions were received from the Board and therefore, Commissioner Audit RTO, Lahore was vested rightly with jurisdiction to select the case for audit under provisions of section 177(4) of the Income Tax Ordinance, 2001. DR further submitted that said policy letter of the Board is not applicable to cases of individual taxpayers selected by the Commissioner. The policy letter does not cover all cases and from this he tried to support his submission that decided cases have not been ordered to be amended by accepting their declared income.

7. We have heard the arguments of both the parties and have perused the available case record. Perusal of the record reveals that the case of the taxpayer was selected for audit by the learned CIR, Audit; RTO, Lahore under section 177(4) of the Income Tax Ordinance, 2001. The case was assigned to the Taxation Officer Audit-13, Audit Division-II, RTO, Lahore who finalized the case on 30-4-2009.

8. The Federal Board of Revenue through Circular No.4(7S)ITP/2009 dated 9-1-2010 directed the field formation that as conveyed through the minutes of meeting dated 11-1-2010, random audit selection of cases for tax year 2008 has been held for Audit of Corporate cases and cases of AOPs, the cases of audit 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.

9. Perusal of the above discussion would reveal that the instant case was selected for audit on 20-1-2009 and proceedings were finalized on 30-4-2009, much before that Board Circular dated 9-1-2010 through which instructions to the field formation were conveyed that cases of Corporate cases and cases of AOPs have been selected through random ballot for tax year 2008 for audit and therefore, the cases of audit on any other basis for tax year, 2008 may be closed.

10. Thus the Board instructions would apply to cases of audit selected on any basis other than random ballot for tax year 2008 in which proceedings were pending on the date instruction was received from Board. It is obvious that proceedings in such cases could be closed where proceedings were pending on the date, Board Circular was received but it was not the situation in the present case because the taxation officer had already finalized the proceedings on 30-4-2009 before Board instructions were communicated on 9-1-2010 and the submissions of the DR that policy letter of the board is not comprehensive as it does not cover all the returns filed by the taxpayers for tax year 2008. When these facts were confronted the AR of the appellant submitted that firstly it is settled law that an appeal is the continuation of assessment proceedings and the policy laid down by the Board is applicable to its case secondly he drew our intention to the following case-laws wherein it has been held by the superior Courts that "unless the law makes it prospective in clear and un-ambiguous terms, is always retrospective." (i) CIT v. Shahnawaz Ltd. 1993 SCMR 73 (ii) Army Welfare Sugar Mills Ltd. v. FOP. 1992 SCMR 1652 (iii) CIT v. Ellcot Spinning Mills Ltd. (2008) PTD 140(H.C) Regarding applicability of policy letter of the Board to all the returns filed by the taxpayers for tax year 2008 it is submitted by the AR that if contention of the DR is accepted the same will amount to discrimination which cannot be accepted. He further submitted that it has been directed by honourable Supreme Court to follow the policy guidelines in letter and sprit and exclusion of individual cases is not justified as the same tantamount to discrimination which the law does not permit to do so. The arguments advanced by the AR carry much weight and therefore, we are in line with arguments of the AR and accordingly hold that the individual taxpayers are also covered in the policy guidelines issued by the Board. Therefore, by following the dicta of the apex Court of the country delivered in the judgment reported as 2012 SCMR 597 = 2012 PTD 693, the matter is directed to be treated as closed with the following course of action as directed by the Honourable Supreme Court of Pakistan:- (i) Following the policy guidelines contained in FBR's letter C. No. 4(7s)ITP/2009 dated 9-1-2010, reproduced in judgment of the apex Court quoted supra, in letter and spirit, for assigning reason for not withdrawing the letter for audit, if no reason should be assigned and after providing opportunity to the appellant, it be clearly pointed out that his case is not covered under the policy and he may apply afresh if need be. (ii) If the Commissioner, Inland Revenue still intends to proceed, then sufficient opportunity be given to the appellant to put up the plea so that no prejudice may cause to him in any manner. (iii) The cases of audit on any basis for the tax year 2008 may be closed. However, the cases with proof or evidence of gross or irregularities may be intimated to the Board for guidelines to further necessary action. For the reasons stated above, the appeal of the appellant is accepted and orders of both the authorities are vacated. Accordingly, the appeal of the department has become infrucutuous and therefore dismissed. CMA/180/Tax(Trib.) Order accordingly.