SYED HAMID ALI SHAH, J.- The order will dispose of Writ Petitions Nos. 5471, 5472, 5473, 5398, 5417, 6331 of 2006 as common question of law are involved in these petitions.
2. The petitioner company, filed income tax return for the year 2003 on 31.12.2003 under Income Tax Ordinance, 2001 (hereinafter to be referred as "Ordinance, 200I"). The return of income submitted by the taxpayer, under section 114 of the Ordinance, 2001, became an assessment order under the provisions of section 120 of the Ordinance, 2001. The petitioner received a- notice for selection of its case for audit under section 177 of the Ordinance, 2001, which was challenged by the petitioner through Writ Petition No. 2807 of 2005. This Court declared the notice under section 177(1), without lawful authority and Commissioner was given the choice to issue fresh notice after meeting the parameters laid down in the case of Muhammad Hussain Vs. Commissioner of Income Tax (2005 PTD 152). The respondent-Revenue approached the apex Court through various civil petitions for leave to appeal against the judgment of this Court, whereby the selection for audit under section 177 of the Ordinance, 2001 was set at naught. The civil petitions were converted into appeals and the parties before the august Supreme Court reached to an arrangement for the disposal of the appeals. The Hon'ble Supreme Court disposed of the appeals on the basis of the arrangement between the Revenue and the respondents in those appeals, resultantly certain portions of the impugned judgment i.e. Last part of para 7, paras 8 and 12 of the impugned judgment Muhammad Hussain (Supra) were expunged and the respondent-Revenue was directed to issue fresh notice in terms of section 177 of 'he Ordinance, 200I, disclosing the criteria/reasons for selecting the case for the purpose of audit. Thereafter, the respondent/Revenue issued the impugned notice dated 25.4.2005 under section 177(4)(d) of Ordinance, 2001. The petitioner has challenged this notice through the instant Constitutional petition.
3. Learned counsel for the petitioner has submitted that the Ordinance, 2001, imposes responsibility of filing true and correct return on the tax-payer and provides for objective accountability criteria, in case audit leads to any adverse discovery, the return is then to be modified. There is no concept of picking up the case for audit at random and no such authority vests either with the Commissioner or with the C.B.R. While referring to section 177 of the Ordinance, 2001, learned counsel has submitted that C.B:R. Has the authority to lay down criteria for selection of any person for audit through the Commissioner and the Commissioner has the powers under sub-section (2) of section 177 for selecting a person for audit on the basis of criteria laid down by the C.B.R. Learned counsel went on to argue that for selection of a case for audit there are various steps. The first step for the Revenue is to objectively lay the criteria instead of picking and choosing the cases at random. Law requires certain guidelines and criteria to the said objective selection of cases. After laying down criteria for selection the cases falling on the basis of that criteria of audit, are to be selected and notice .Thereof is required lander law to be issued. The case, which is selected Tor audit is required fo terms of section 177(5) for conducting of an audit into the income tax affairs of the taxpayer, whereby his accounts and record is to be examined; inquiry into the expenses; assets and liability, is to be made. Learned counsel has added that the final step is under section 177(6), which relates to amendment in the assessment under section 122(4) of the Ordinance, 2001.
4. Learned .Counsel has emphasized that the respondents have started examination of the record without first laying down a criteria for audit. Learned counsel while referring to the decision of Honorables Supreme Court on the Reference No. 2 of 2005 by the President of Pakistan (PLD 2005 SC 873) has submitted that according to enunciation of principle of law laid down by the Hon'ble Supreme Court, that un-guided powers are not vested with an authority, the authority has to remain within the parameters of law and excessive delegation of jurisdiction, denying the right to access to justice to the citizens is ultra vires the Constitution. Learned Counsel further submitted that without adhering to parameters of clauses (a) to (d) of section 17/ of the Ordinance, 2001 the respondents have issued the impugned notice which was not covered under clauses (a); to (d) of section 177 of Ordinance ibid. The case of M/s. Sahib Textile (Pvt) Ltd. Through Managing Director, Faisalabad Vs. Federation of Pakistan through Secretary Finance, Secretariat, Islamabad and 4 others (2004 PTD 1) was referred to contend that while considering the self- assessment scheme, a parallel provision in section 59 of repealed Income Tax Ordinance, 1979 (hereinafter to be referred as "repealed Ordinance"), this Court has disapproved the selection on the basis of guidelines of picking and choosing the cases on random basis. Learned counsel has referred to the case of M/s. Fazal Sweet, Lahore Vs. Secretary Revenue Division, Islamabad (2004 PTD 171), Akhlaq Cloth House, Faisalabad Vs. Secretary Revenue Division, Islamabad (2003 PTD 1513) and M/s. Decent Rice Corporation, Sheikhupura Vs. Secretary Revenue Division Islamabad (2005 PTD 1847), to contend that there must be a guideline for selection of cases for audit under section 177 of Ordinance, 2001.
The criteria can be objective only that is to say it is to be announced in advance and before the returns are put through process of audit. The same cannot be announced in midstream. A criteria, which is unannounced and secret can always be modified/changed. Parameters for selection are to be set before a case is selected for audit. Picking and choosing a case without a criteria, amounts to unbridled and unguided powers in the hands of Assessing Officer, it will result into arming the taxation officer with unchecked powers who can discriminately exercise the same.
Selecting one tax-payer among thousands is discriminatory. Learned counsel has further submitted that para 12 has been expunged from the judgment in the case of Ch. Muhammad Hussain (Supra), it was contended that as per the observation of the apex Court fresh notices, in terms of section 177, are to be served upon respondents, by disclosing therein the criteria and reason for selecting the case for purpose of audit. The respondent is to disclose criteria before issuing notice under section 177 of Ordinance, 2001. The impugned notice, without disclosing criteria, is non-compliance of direction of the Hon'ble Court.
5. Learned counsel for the respondent on,$ie other hand defended the impugned notice by submitting that notice was issued to the petitioner, stating therein the reasons for selection. He brought attention of this Court to clause (i) of the impugned notice whereby it was conveyed to petitioner that Gross Profit (G.P) was assessed at 21.18% in the preceding year but the same was declared at 17.6% in current year. Sudden decrease needed probe for ascertaining reason for downfall, it was well-reasoned notice in terms of section 177, for selecting the case for audit.
Disclosure of above reason in the impugned notice is sufficient compliance of the directions of the apex Court. Learned counsel has submitted that the return of income filed by the tax-payer becomes an assessm ent order, on the day when it is furnished as envisaged in section 120(i)(b) of Ordinance, 2001. A tax-payer is conscious of the fact that a formal order is not required to be passed, nor any scrutiny is liable to be made at the stage of filing of returns. Tax-payer is under legal and moral obligation to file true and correct return of income. The selection of case for audit is only a check in this respect and notice under section 177 in the first step and after completion of audit, Commissioner if considers it necessary can amend assessment. The amendment can only be made after issuing notice under section 122 of the Ordinance, 2001 wherein explanation of the tax-payer is obtained, on all issues discovered in the course of audit. The amendment is legally permissible only when the case of the tax-payer falls within the contemplation of sub-sections (5) and (5A) of the section 122. A tax-payer has full opportunity to defend the objections raised. Mr. .
Shahid Jamil Khan, Advocate, who represents Income Tax department in Writ Petitions Nos. 5417/06 and 6331/06 has made his submissions in addition to what Mr. Ilyas Khan advocate has contended.
Learned counsel has submitted that notice for audit is the initial step where tax-payer is asked to justify the returns of income and through test of audit prove the truth and the genuineness of declarations made in the returns. By selecting a case for audit, no adverse order has been passed against the petitioners. He added that after expungement of the paras 8 and 12 of judgment in the case of Muhammad Hussain (supra), the issue stands resolved that selection for audit is neither prejudicial to the interest of tax-payer, nor the same is adverse to his interest. Such action cannot be challenged through Constitutional petition. The writs challenging the issuance of notice are not maintainable and in this respect referred the cases of Mir Nabi Bakhsh Khan Khosoo Vs. Branch Manager, Jhatpat (2000 SCM R.1017) and Nazir Ali and others Vs. Federation of Pakistan (2004 M LD 460). Learned counsel while referring to a recent decision of the Hon'ble Supreme Court of Pakistan in the case of Commissioner of Income Tax, etc. Vs.,M/s. Media Network, etc. (C.As. Nos. 233 to 315 of 2004), has contended that selection of case, either through computer ballot or at random without specifying criteria before filing of return, has been held by the apex Court as unexceptionable and an objection in this respect is not legally tenable.
8. Heard learned counsel for the parties and record perused.
9. Conduct of audit into the income tax affairs (including examination of account and record, enquiry into expenditure, assets and liabilities), is new concept introduced for the first time, in income tax laws in Pakistan, it has to be understood in the scheme of Ordinance, 2001. The power to select a case for audit was power, vested with the Commissioner, who in relation to income tax affairs of person, having regard to clauses, (a) to (d) of section 177(4) of Ordinance, 2001, could select a case for audit. Section 177 was substituted through Finance Act, 2004 and subsection (1) was added, in view whereof, Central Board of Revenue was also given the authority, in its supervisory capacity, to lay down a criteria for selecting any person for audit through the Commissioner and the Commissioner, on the basis of that criteria, is to select a person for audit, besides the powers vesting in him under sub-section (4) of section 177.
10. An assessee under repealed Ordinance, 1979, was to file return of total income under section 55.
The Assessing Officer had the power, under section 59(a), to accept a return, after satisfying himself that return of income is correct, in case Assessing Officer was not satisfied, a notice/action under sections 61 and 62 was the consequence, whereby an assessee was asked to produce evidence in support of the declarations made in the return. Assessing Officer in pursuance of action in terms of sections 61 and 62, was required to specify the defects and confront the assessee with it. The Assessing Officer was to proceed in the matter as guss/-judicial authority and in that capacity was to receive evidence from the assessee. If the evidence produced by the assessee was found defective/inadmissible, the assessing officer was required, under section 62, to pass an assessm ent order, wherein the declared income/result is rejected and the income of assessee is computed in accordance with law through a speaking order. Law had provided the remedy of appeal against the assessment order before Commissioner (Appeals) and second appeal before Income Tax Appellate Tribunal. Besides the remedy of appeal against assessment order, the assessm ent could be reopened either under section 65 (on definite information regarding concealment or inaccurate furnishing of particulars which resulted into escape assessm ent or assessm ent at too low rate or under assessment or excessive relief) or under section 66-A (where Inspecting Additional Commissioner could revise order by cancelling, amending or evaluating or modifying the assessment or directing fresh assessment), where order passed was erroneous and prejudicial to the interest of Revenue.
11. In departure from the above explained assessment under the normal provision of the Ordinance of 1979, the Self-Assessm ent Scheme, under S. 59, was also formulated/issued by CBR, which normally used to be conditional and only the person whose return qualified under the scheme could claim acceptance of his declared version. The declared version was subject to preliminary/brief scrutiny, as provided under the scheme and under S. 59(1). Whereafter, either order u/s. 59(1) was passed or deemed order used to take place under S. 59(4). The rationale behind the scheme was to facilitate those assessees who had clean record, were not involved in litigation and were gradually increasing their income. For percentage of qualified returns used to be selected for assessm ent (u/s. 62 or 63) as authorized under S. 59(1A). Central Board of Revenue, was to announce Scheme of Self-Assessment for each year.
12. Return under the new Ordinance (Ordinance XL1X' of 2001) is furnished under section 114, which on furnishing complete return, constitutes an assessment within the contemplation of section 120. in the event of filing an incomplete return, the tax-payer is asked by Taxation Officer, to make up such deficiency within stipulated period (not beyond one month). The return again constitutes an assessm ent order, on making up the deficiency. Noncompliance of notice regarding making up the deficiency, results into the ex parte assessment under section 121. The assessee in the earlier enactment could revise his/its return only prior to the completion of assessment, but under the new Ordinance it can be revised even after the completion of assessment and as many time as the tax-payer considers appropriate. The tax-payer- in this respect has to meet the condition that an error or omission was found in earlier return. Provisions of sections 65 and 66 of the repealed Ordinance (Ordinance 1979) have been gathered in section 122 of the new Ordinance. Sections 65 of late Ordinance, corresponds with section 122(5). Complete assessment can be reopened under the provision of both the enactments on the basis of having possession of definite information, the only difference is that an approval of I.A.C. For reopening the case was an essential requirement but condition of approval has been done away, under the new, Ordinance. A superior authority under the new Ordinance, can amend the assessment, insofar it is prejudicial to the interest of Revenue (this provision of law. Corresponds with section 66- A of late Ordinance), such action cannot be invoked by Taxation Officer below the rank of Additional Commissioner. The concept, of audit, subsequent to completion of assessment, has been introduced, in the new enactment, to keep a check on the veracity of the declaration made in the return..
13. New law is enacted with main difference that previously, the Assessing Officer used to examine return Of assessee and satisfy himself as to its correction before passing an assessment order. The concept of enactment of Income Tax Ordinance, 2001, is to let the tax-payer make his/its own assessm ent. Now the. Assessm ent order is made by operation of law on furnishing of the complete return. Government/Revenue reserves its right, against the above concession, to look into the affairs of income of the tax-payer by resorting to the newly introduced concept of audit. The exercise of seeing the correctness of return is undertaken by selecting a person for audit under section 177. Selection of cases for audit, is to keep check on tax-payer for filing true and correct returns. Section 177 comprises two parts, each conferring upon the Commissioner i.e. Authority to subject a person for audit. The Commissioner selects a person for audit either on the basis of criteria laid down by the Central Board of Revenue or by resorting to sub-clause (4) of section 177.
While resorting to latter course regard to clauses (a) to (d) is an essential requirement. The impugned notices selecting the petitioners for audit fall under the latter category i.e. Under section 177(4). The authority of Commissioner to select a person for audit, under section 177 is two-fold, firstly on the guidelines of C.B.R, as envisaged in sub-sections (1)'& (2) and secondly at his own by resorcylic to provisions of sub-section (4). The Commissioner for the purpose of selecting for audit has to resort to the criteria laid down by C.B.R, in the cases falling under first category. Disclosure of reason that the regard having been given to clauses (a) to (d) of sub-section (4), is requirement for the cases falling under second category. The affairs of income of the petitioner fall in the second category, therefore, at the time of selection of audit, only the disclosure of reason was the requirement of law.
14. Now I will revert to objection of the petitioner as to the selection for audit, without laying down objective criteria before filing of returns. As mentioned in the preceding para that section 177 comprises two parts and authority of Commissioner to select a case, is separate under each part, in case the CBR has laid down a criteria, then the Commissioner is bound to select the case of that person on the basis of the criteria. Previous publication of criteria/guidelines in the objective form is not the requirement of law, nor it is justified. Firstly for the reason that according to provisions of section 177(3) of the Ordinance, 2001, CBR has to keep the criteria confidential. Secondly, as observed by the Hon'ble Supreme Court of Pakistan in the case of M/s. Media Network (Supra) previous publication of criteria/guidelines will be instrument in hands of tax-payers, who by knowing before hand that their cases will not be selected or scrutinized, will take full benefit of the situation. Previous publication of criteria, will fore-arm the tax-payer to evade tax. Issuance of criteria either before or at the time of announcement of scheme would frustrate the very object of provision of section 177(3). Revenue and various respondents, entered into arrangement before the apex Court (in Appeals Nos. 1962 to 2205/2005) whereby the appeals were disposed of by consent as a result thereof, Hon'ble Supreme Court, observed that fresh notices 1h terms of section 177 of Ordinance, 2001 be issued, disclosing criteria/reasons for selecting their cases for the purpose of audit. Revenue is bound to follow the arrangement and slightest departure from the observation/direction of the apex Court cannot be expected. The question whether the impugned notice, in any manner, negates the said arrangement, as the notices were served without laying down a criteria, the answer is obviously a big "No". Disclosure of criteria was only relevant when the cases were selected for audit on the basis of criteria laid down by C.B.R., in terms of section 177(1) & (2). Since the cases of the petitioners were selected under section 177(4), therefore, the Commissioner was to disclose reasons that while selecting the cases for audit, due regard was given to the provisions of section 177(4) (a) to (d). The judgment of the Hon'ble Court (in C.As. Nos.
1962 to 2205/2005) requires from the Revenue the disclosure criteria/reasons in the notice. The examination of impugned notices, challenged through these petitions, reveal that reasons for selection were duly conveyed, which are:- W.P. No. 5471/2006: Decrease in gross profit from 21.18% to 17.6% Decrease in gross profit from 14.64% to 12.49% Decrease in gross profit from 20% to 16.34% Receivables/debts were written-off, it was to examine that receivable were irrecoverable. Secondly interest on Rapco was merged in sale of investment examination.
Gain on shares, interest on share merged in profit on sale of investment.
W.P. No. 5472/2006 Wrongly allocating the profits from local business to presumptive tax regime.
15. The above reasons, disclosed in the impugned notices, sufficiently meet the requirement of section 177(4)(d). The cases of the petitioners are not selected for audit section 177(1) & (2), therefore, disclosing criteria in the impugned notices is not relevant. The issuance of notice for selecting the case of the petitioners for audit does not infringe the arrangement arrived at between the Revenue and various tax-payers. The notices comply with observation of the Hon'ble Supreme Court of Pakistan.
16. Coming to the objection of petitioners that selecting a person for audit, would unduly put the petitioners to the vigours of audit and process of audit without any benefit to Revenue, will unfairly cause hardship. Further the objections that selection of a case for audit without laying an objective criteria, is discriminatory and capable of arbitrary application, for the reason that it confers unbridled power on Commissioner to pick and choose, was thoroughly examined by Hon'ble Supreme Court in M/s. Media Network case (Civil Appeals Nos. 233 to 315-of 2004). The apex Court has held, these objections, not tenable. The selection of case for audit, in view of the afore- mentioned decision of the Hon'ble 1 Supreme Court, is open to exception only when selection involves personal bias; malafide either exists or has been pleaded by the petitioners. Additionally, the tax-payer is legally and morally bound to furnish true declaration of income in his/its return.
The tax-payer, while filing the return makes a declaration under section 114(2)(b) to the effect that relevant record alongwith other particulars is kept. A true statement in the return has been made and the record is maintained as per declaration. No prejudice is caused to a tax-payer on being selected for audit, if he makes true statement and maintaining record as per declaration.
17. The above discussion brings me to the conclusion that the grounds on which the notices have been assailed are without any force and have not persuaded me to issue writ of the kind prayed for. Additionally the Constitutional jurisdiction of this Court cannot be invoked on mere issuance of a notice when no adverse action has been taken, in this behalf, I am fortified by the dictum laid down in the case Mir Nabi Bakhsh Khan Khoso Vs. Branch Manager, NBP, Jhatpat- (Dera Allah Yar)
Branch and 3 others (2000 SCMR1017).
16 For what has been discussed above, the petitions are without any substance or force and are accordingly dismissed.