ISLAMABAD: The Supreme Court of Pakistan has ruled that audit observations made by the Auditor General against federal or provincial government entities cannot be used by tax authorities to initiate audit or inspection proceedings against private taxpayers.
In a judgment authored by Justice Munib Akhtar, a two-member bench dismissed an appeal filed by the Inland Revenue Commissioner, Peshawar, and upheld the decision of the Peshawar High Court, which had quashed proceedings against Diamond Filling and CNG Station, Peshawar.
The tax department had initiated sales tax proceedings against the private CNG station on the basis of audit observations made by the Director General Revenue Receipt Audit, a wing of the Auditor General of Pakistan. Those observations related to the accounts of the Inland Revenue Department.
Justice Akhtar held that audit functions performed by the Auditor General under the Auditor General’s (Functions, Powers, Terms and Conditions of Service) Ordinance, 2001, operate in a separate legal domain from the powers exercised by tax authorities under fiscal statutes.
He ruled that an audit observation against a government department cannot be treated as “information” enabling tax authorities to audit a taxpayer or issue notices under tax laws.
