KARACHI: The Sindh High Court (SHC) released a detail judgment and allowed 96 constitutional petitions including filed by Atlas Honda Limited against issuing of sectoral audit notices by Federal Board of Revenue officials. A judgment announced by Justice Muhammad Shafi Siddiqui and Justice Mahmood A. Khan.
On 18 February 2022 in a detail verdict, court mentioned that “root cause of this bunch of petitions is sectoral audit notices of FBR which triggered proceedings under section 177 of Income Tax Ordinance, 2001 (hereinafter referred to as “Ordinance 2001”) on issuance of notices by Commissioner, violating rights of petitioners, as claimed.
For the sake of brevity, arguments raised by petitioners‟ counsel have been summarized collectively without any disrespect to any of them with their grievance of sectoral audit, counsels for petitioners argued that under the scheme of Ordinance 2001, FBR has the power to select a taxpayer for an audit under section 214C based on a random or parametric ballot, whereas Commissioner has the power to select a person for an audit under section 177 after applying mind and providing reasons for such selection. The counsel emphasized that powers under the two provisions are independent. They argued that on numerous occasions Courts undisputedly held that powers of the Commissioner to select a person for audit under section 177 are independent of the powers of the FBR to select a person for an audit under section 214C of the Ordinance 2001.
The distinction is also apparent that in the later, the FBR may select a taxpayer through a random or parametric ballot whereas in the former the Commissioner examines the contents of return and form independent legitimate reasons for scrutiny through audit.
Mr Metlo, learned counsel appearing for respondents/ department, on the other hand, submitted that writ against such cause i.e. audit would not lie, Article 199 could only be enforced against specific right, which is being violated and since “audit denial” is not a right of taxpayer, neither it (audit) takes away any of the taxpayer‟s right, therefore no writ is maintainable3 . The audit is just procedural scrutiny and the remedies under statute could be exhausted at the relevant time.
He added that proceedings under section 177 are not amenable to writ jurisdiction. He further argued that reasons provided by the Commissioner not necessarily found justiciable for taxpayer as such discretion rests upon Commissioner and taxpayer‟s intervention for justiciable reason is uncalled at this stage of calling documents to conduct audit.
The insistence of the respondents‟ counsel for the dismissal of these petitions on the ratio of Allah Din‟s case (Supra) is also misconstrued as the observations therein cannot be read in isolation.
The ratio of the Allah Din‟s case was process of balloting from amongst pool of taxpayers objectively determined by Board whereas in the instant case sectoral audit was desired by Board through Commissioner. Hon‟ble Supreme Court at page 1337 paragraph 12 of the aforesaid judgment clearly held that the petitioners therein failed to show that the selection was arbitrary, mala fide or discriminatory.
The implication being that if any of these facts exist then such actions are amenable. The present petitions are based entirely on the fact that the selection for the audit is arbitrary, mala fide, discriminatory and predatory in nature as FBR trespassed beyond the statutory limits of Section 214-C directing the commissioner to conduct sector-wise audit, which is not permitted under the law, as discussed above.
Upshot of the above discussion is that the petitions categorized sector-wise as per attached list (Annexure-A) are allowed on the above conclusion”.
