ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) Islamabad has issued a significant ruling declaring the audit selection process conducted by the Federal Board of Revenue (FBR) and the Large Taxpayer Office (LTO) Islamabad under Clause 105A of the Income Tax Ordinance, 2001, as legally flawed.
Subsequent proceedings rendered invalid
As a consequence of this declaration, all subsequent proceedings, including the assessment order issued against the taxpayer in the case, have been rendered invalid by the tribunal.
Legal safeguards not properly followed
Sources familiar with the matter have indicated that in its landmark judgment, the ATIR observed that the tax authorities did not properly adhere to the procedural requirements and legal safeguards mandated by law for the selection of audits.
Tax lawyer hails decision as significant for taxpayers
Tax lawyer Waheed Shahbaz Butt, who represented the taxpayer before the ATIR, has described the tribunal’s decision as a significant victory for taxpayers across Pakistan. He emphasized the importance of transparency and strict adherence to statutory provisions by revenue authorities.
Far-reaching implications expected
The ruling is anticipated to have widespread implications for other similar cases where the audit selection processes undertaken by the FBR under Clause 105A may not have met the required legal standards.
Butt further stated that this decision underscores the fundamental principle that tax administration must operate within the confines of the law and ensure procedural fairness, thus safeguarding taxpayers from arbitrary or procedurally flawed actions.
ATIR order highlights legal non-compliance
The ATIR order explicitly stated that the “Approval granted by the Member, FBR, under clause (105A) of Part-IV of the Second Schedule to the Ordinance is not in compliance with the law.” The order further noted that the meeting held by the Board under section 3(7) of the FBR Act, 2007, exceeded the authority granted by the Act and its formulated rules.
The tribunal also pointed out that the power delegated by the Board to the Member had not been formally notified by the Board as required under section 8 of the FBR Act, 2007, in conjunction with rule 3(1). Additionally, sub-rules (3)(4) of rule 3 were found to conflict with section 9 of the FBR Act, improperly broadening its scope.
Subsequent actions automatically invalidated
The ATIR concluded that since the initial approval granted by the Board was flawed, all subsequent actions taken, including the issuance of the contested order under section 121 of the Income Tax Ordinance, 2001, were automatically rendered invalid.
The contention raised by the taxpayer’s representative was deemed well-founded, as Clause (105A) stipulates that the Commissioner must directly seek approval from the Board. Any deviation from this prescribed process can lead to significant procedural irregularities. Consequently, the ATIR ruled that the impugned order passed by the Board was illegal, void from the beginning (ab-initio), and without jurisdiction.
