Audit of taxpayer

2013 PTD 1274 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

S.214CSales Tax Act (VII of 1990), S. 72BFederal Excise Act (VIII of 2005) S. 42BLaw Reforms Ordinance (XII of 1972) S.3Intra-court appealAudit of taxpayerSelection for auditRisk parameters, interpretation of"Parametric balloting" and "random balloting", distinction and scope

Petitioner/taxpayer impugned notice for selection for audit issued under S. 214C of the Income Tax Ordinance, 2001 inter alia on the grounds that said selection was illegal as until "high risk" cases were identified through an open and transparent manner, no parametric balloting could be held and that in order to qualify as a "high risk case", all risk parameters must apply to a taxpayer, which was not the case of the petitioner

Validity

Statutory obligation of the Federal Board of Revenue (FBR) regarding selection of cases for audit under S. 214C of the Income Tax Ordinance, 2001, S. 72B of the Sales Tax, 1990 and S. 42B of the Federal Excise Act, 2005 was to conduct a ballot which may be 'random' or 'parametric'

Law clearly provided for selection of "persons" or "classes of persons" for audit and such selection of "persons" could conveniently be done through 'random balloting' while selection of 'classes of persons' could only be done through parametric balloting and it was axiomatic that in a parametric audit, the application of risk parameters to taxpayers would automatically segregate a group of taxpayers

Such parametric group of taxpayers was put through computer balloting (also parametric) and a limited number from amongst such taxpayers were selected for audit as per institutional capacity and requirement

Nature and character of the 'parametric group' would depend on the mode and manner of application of the risk parameters to the taxpayers and such architecture and design of risk analysis forming part of the audit strategy or policy, for a particular taxpayer, was the sole prerogative of the FBR

Courts may judicially review the audit policy announced by the FBR in order to satisfy itself regarding its fairness, openness and transparency besides ensuring that the audit policy has been fairly applied to the taxpayers across the board and the FBR had to show that the risk parameters have been duly framed by FBR and have been publically advertised for the sake of taxpayers' convenience along with the risk strategy adopted by the FBR

Perusal of risk parameters, applicable to the present case, showed that every parameter was independent and self-contained, and the contention that unless a basket of risk parameters was attracted to a case, the case did not qualify as a "high risk case", was erroneous

Number of facts determined risk, and therefore, even a single risk parameter could identify a "high risk case"

Expression "parameters are aimed at auditing high risk cases" used in the FBR Minutes, did not mean that application of all parameters would constitute high risk cases but meant that even a single risk parameter, from amongst the framed, could identify high risk cases

No illegality, therefore, existed in the selection of the petitioner for audit

Intra-court appeal was dismissed, in circumstances.

2013 PTD 398 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

S.214CSales Tax Act (VII of 1990), S. 72BFederal Excise Act (VIII of 2005) S. 42BConstitution of Pakistan, Art. 199Constitutional petitionAudit of taxpayerSelection for audit

Petitioners, in the present cases, impugned notices for selection of their audit under S. 214C of the Income Tax Ordinance, 2001, S. 72B of the Sales Tax Act, 1990 and S. 42B of the Federal Excise Act, 2005

High Court on basis of consensus of the parties, set aside impugned notices and framed guidelines concerning parameters for selection of audit with the direction to the Federal Board of Revenue to initiate the process afresh in the light of the said guidelines and in full compliance with the mandate given under S. 214C of the Income Tax Ordinance, 2001, S. 72B of the Sales Tax Act, 1990 and S. 42B of the Federal Excise Act, 2005.