' SH. AZMAT SAEED J.---This order shall dispose of Writ Petitions Nos. 11166, 273, 12332, 11771, 19842, 14508, 19630, 19687, 19511, 12545, 16128, 18337, 12540, 16277, 16356, 18363, 19153, 11714, 11715, 12600, 12125, 13181, 13534, 13078, 12270, 12478, 13075, 12475, 9576, 11778, 11083, 13151, 12130, 12914, 18473, 12712, 10378, 17065, 11167, 12584, 12482, 12100, 13154, 198843(sic), 16915, 19785, 11608, 20446, 20454, 21866, 22055, 21981, 21568, 21982, 22010, 12326, 20846, 17445, 17447, 18451, 18452, 21387, 17064, 8700, 17067, 10112, 14824, 10111, 14399, 14147, 15765, 2389, 15516, 17722, 18334, 10152, 17936, 1749, 17643, 17322, 17642, 14037, 14038, 4293, 17721, 17066, 18126, 15489, 15491, 17069, 8535, 15398, 15399, 10128, 17068, 10113, 22614, 22656, 22657, 22746, 21828, 16694, 21829, 22157, 22176, 22245, 22254, 22328, 16015, 15965 and 17063 of 2009 involving common questions of law.
2. That the petitioners in each of the above titled writ petition are assessees and have been served with notice in terms of section 177 of the Income Tax Ordinance, 2001, (hereinafter to be referred as Ordinance) informing them that for the alleged reasons mentioned in the said notices, cases of the petitioners have been selected for audit. Being aggrieved of the issuance of the said notices, the petitioners have challenged the same as well as the constitutionality of section 177 of the Ordinance. Pursuant to notice issued by this Court, report and parawise comments have been furnished on behalf of respondents, and in addition to the learned counsel for the respondents, learned Deputy Attorney General made submissions on behalf of the Federation.
3. Learned counsel for the petitioners contend that prior to the promulgation of the Finance Act, 1997, all cases were subjected to scrutiny/audit, which proceeded the assessment. It is contended that self assessm ent scheme was introduced through the Finance Act 1996, which was subject to the discretionary powers of the Assessing Officer. Subsequently, Income Tax Ordinance, 1997 was promulgated, and by virtue of section 59 thereof, the concept of 'voluntary compliance' was not only re-introduced but also re-in-forced through the annual self assessment scheme (ASAS). The first of such scheme was introduced vide Circular No, 3 of 1979. Upon repeal of the Income Tax Ordinance, 1997 and its substitution by re-enactment by Income Tax Ordinance 2001, the universal annual self assessm ent scheme was introduced envisaging a substitution of pre-assessment audit as contemplated by erstwhile Act of 1922 by a post assessment audit subject to the limitation imposed by section 177 of the Ordinance 2001. All returns filed by assesses were covered by universal annual self assessm ent scheme, and such returns deemed to be assessment orders by virtue of section 120 of the ITO 2001. Powers were however, conferred upon the Commissioners Income Tax to select cases for audit under section 177 of the Ordinance, and such power extended to any person on the basis of criterion mentioned in the said provision. The amendments in section 177 of the Ordinance ibid were effected through the Finance Act 2004, whereby, in addition to the powers of the Commissioner, the Federal Board of Revenue (FBR) was also authorized to lay down the criterion for selection of cases for audit under section 177 of the Ordinance.
4. In the above backdrop, it is contended on behalf of the petitioners that admittedly the F.B.R. Has not laid down any criterion for selection for audit, hence, the Commissioner Income Tax is no longer vested with the authority to exercise powers under section 177 of the Ordinance. In this behalf it is contended that the powers purportedly exercised in the instant cases is primarily of subsection (4) of section 177 which states that in addition to selection, referred to in subsection 2 (selection on the basis of criteria laid down by F.B.R.), ,Commissioner may also affect selection subject to the conditions mentioned therein.
5. It is the case of the petitioners that powers in subsection (4) of section 177 of Ordinance of the Commissioner are no longer independent but dependent on the existence of a criteria being laid down by the F.B.R. In this behalf, great emphasis was laid on the phrase "in addition to". In the above perspective it is contended that the notices impugned having been issued by the Commissioner are wholly without jurisdiction and liable to be set aside. In the alternate, it is further contended that selection of an assessee for audit is an order or action prejudicial to the rights of the assessee, and such order cannot be passed or such action commenced without affording an opportunity of hearing to the petitioners, therefore, issuance of notices impugned, is violative of the principle of natural justice of audi alterm partem, hence, notices are liable to be struck down. It was next asserted that two single Benches of this Court have struck down the notice under section 177 of the Ordinance, therefore, rule of consistency requires that impugned notices in these petitions also be struck down.
6. In addition to the above, learned counsel for the petitioners have also raised various objection to the notices which were specific to their individual cases so as to contend that there was no occasion for selection of petitioners' cases for purposes of audit in terms of section 177(4) of the Ordinance especially as the criterion mentioned therein was not applicable. In support of their contentions, learned counsel relied on 2006 PTD 2502 Commissioner of Income Tax and others v.
Messrs Media Network and other's, 2005 PTD 152 Ch. Muhammad Hussain and others v.
Commissioner of Income Tax, 2009 SCMR 344 = 2009 PTD 37 Commissioner of Income Tax and others v. Fatima Sharif Textile Kasur and others 2007 PTD 239 Syed Bhais Pvt. Ltd v. CBR Islamabad and another, 2007 PTD 2188 Sadiq Hussain Majid v. Secretary Government. Of Pakistan and others, 2007 PTD 2063 Messrs NESPAK Pvt. Ltd., v. Federation of Pakistan through Secretary Law & Parliamentary Affairs and two others 2009 PTD 284 Muhammad Umar v. Commissioner Income Tax Karachi, 2009 PTD 841 Messrs Noble Pvt. Ltd., through Manager Finance & Administration v. FBR through its Chairman and 4 others, 2009 PTD 20 Messrs Honda Fort Pvt. Ltd. Through Director v.
Commissioner of Income and another; 1993 SCMR 2071 Paras Commercial Company and others v.
Commissioner of Income Tax Central Zone A Karachi, 2005 PTD 1974 Munir Bhimjee and others v.
Islamic Republic of Pakistan and 2 others and 1991 PTD 968 Messrs Novitas International v. Income Tax Officer (Films Circle) and others.
7. Learned counsel for the respondents and learned Deputy Attorney General for Pakistan have controverted the contentions raised on behalf of the petitioners. At the very outset, learned counsel for the respondents has objected to the maintainability of these petitions as being premature, and it is contended that mere issuance of notice does not cause any prejudice to the petitioners, as no adverse order has been passed so far. It is next contended that petitioners have every right to respond to the said notices, and the objection(s), if any taken, shall be dealt with and decided by the Commissioner Income Tax. Obviously, if the petitioners have not made any mis-statement in their returns, they have nothing to fear. In the eventuality that an order adverse to the petitioners is passed and the deemed assessm ent is to be amended, petitioners can always avail of their remedies provided by the Income Tax Ordinance, 2001 itself which could include ultimately a Reference to this Court. Consequently, it is contended that these writ petitions are not maintainable.
8. In the alternate it was next asserted that the grounds as mentioned in subsection (4) of section 177 of the Ordinance, on the basis whereof, the Commissioner on his own can issue notice under section 177 of the Ordinance are independent of the criteria as may be prescribed by FBR under subsection (1) of section 177 of the Ordinance. In this behalf, learned counsels laid emphasis on the word "also" mentioned in section 177(4) of the Ordinance.
9. In the above perspective, it is the case of the respondents that even in absence of criteria having been laid down by FBR in subsection (1) of section 177 of the Ordinance, the Commissioner can always issue notice in terms of subsection (4) of section 177 of the Ordinance.
10. It was also contended by the learned counsel for the respondents that section 177 of the Ordinance does not provide for a pre-selection notice prior to the selection of a person for audit. It was also contended that in the absence of an express provision in this behalf, words cannot be added to the Statute so as to imply a notice to the petitioners prior to invoking section 177 of the Ordinance. It is further argued that issuance of notices under section 177 of the Ordinance were challenged before this Court and said petitions were earlier dismissed by this Court vide orders passed by more than one Single Bench of this Court, whereafter, Division Benches of this Court also refuted the challenge thrown to the issuance of notices. Similarly, Sindh High Court also rejected the challenge to notice under section 177 of the Ordinance and judgments were handed down by the learned Division Benches of the said Court. Adds that similar petitions were also dismissed by the erstwhile Islamabad High Court and the matter was taken to the Honourable Supreme Court of Pakistan, where, leave to appeal was declined and the petitions were withdrawn.
11. In the above context, it is contended that the two odd judgments of this Court whereby notice under section 177 of the Ordinance have been struck down have been passed without taking into consideration the earlier single Bench and Division Benches' judgments of this Court and the judgment of the Honourable Supreme Court of Pakistan passed in the earlier round of litigation pertaining to un-amended section of 177 of the Ordinance.
12. In the above perspective, learned counsel have urged that this Court should follow the DB judgment of this Court and be guided by the observations of the Honourable Supreme Court of Pakistan made in the earlier round of litigation rather than follow the single Bench judgment of this Court relied upon by the learned counsel for the petitioners which are inconsistent therewith. In support of his assertions learned counsel relied on the judgments reported as 2007 PTD 239 Lahore
(HC) Messrs Syed Bhai Pvt. Ltd. v. CBR, 2009 PTD 20 Lahore (HC) Messrs Honda Fort Pvt. Ltd. v. CIT, 2009 PTD 37 SC CIT v. Fatima Sharif Textile Mills, 2009 PTD 284 (Kar HC) Muhammad Umar v. CIT, 2007 PTD 2188 (Lahore HC) Sadiq Hussain Majid v. Secretary Government of Pakistan, 2008 PTD 1440 Isl (HC) Messrs Amson Vaccines Pharma Pvt. Ltd. v. CIT, PLD 1963 Karachi 182 Messrs Rah-e- Manzil Transport v. Muhammad Amin, 2000 SCMR 1017 Mir Nabi Bakhsh Khan Khoso v. Branch Manager NBP, I.C.A. No,125 of 2007 (unreported) Messrs Kunja Textile Mills v. CIT, W.P. No,7146 of 2008 (unreported) Messrs Ittefaq Sugar v. FBR, W.P. No, 2928 of 2008 (unreported) Messrs DDFC Pvt. Ltd. v.
CIT.
13. In rebuttal the learned counsel for the petitioners have attempted to distinguish the judgments relied upon by the learned counsel for the respondents and have further contended that vested rights cannot be taken away without affording opportunity of hearing to the petitioners, and any provision of law that purports to do so cannot be termed good law or be sustained. They further added that the department in fact conceded to the cases of the petitioners, and in this behalf have issued Circular No, 4(36) ITP 2002 dated 5-10-2009, copy whereof was placed on record.
14. Learned counsel for the respondents reacted with utter surprise and barely concealed disdain when confronted with the said Circular and sought adjournment to obtain fresh instructions from the department and subsequently confirmed the issuance of said Circular, but disputed the interpretation that it amounted to conceding the case of the petitioners. It was further added that even otherwise the Circular was prospective in its application and the same did not have any application to the cases of the petitioners.
15. Heard. Record perused. In pith and substance the contentions of the learned counsel for the petitioners appears to be that by operation of law, a Return on filing is deemed to be an assessm ent and to re-open the same via selection and audit in law constitutes action adverse to the rights of the petitioners, and therefore, the petitioners have a right of hearing prior thereto as principles of natural justice are to be read into every statute.
16. Prior to the amendment introduced through the Finance Act, 2004 catering also for a criteria to be laid down by the FBR, section 177 of the Ordinance, as it then stood, was in para materia to subsection (4) of section 177 of the Ordinance now requiring interpretation by this Court. Notices were issued by the Commissioner Income Tax in terms of section 177 of the Ordinance, as it stood then, which were assailed before this Court through various Writ Petitions, wherein, inter alia, it had been contended as has been done in the instant case that pre selection notice is mandatory. The contentions were accepted vide judgment of a Single Bench of this Court in the case reported as 2005 PTD 152 Ch. Muhammad Hussain v. Commissioner Income Tax. The department challenged the said judgment before the Honourable Supreme Court of Pakistan, and during the course of a hearing the learned Attorney General for Pakistan stated that certain observations made by the learned single Judge of this Court were detrimental both to the interest of the FBR as well as the assesses, therefore, those observations needed to be expunged, and with the consent of the parties, the same were expunged and stood deleted from the judgment ibid in the case reported as 2006 94 Tax CIT v. Fatima Sharif Textile Mills etc. The portion of the judgment expunged are reproduced in the aforesaid judgment of the Honourable Supreme Court of Pakistan included Paragraph 8 of the judgment in Muhammad Hussain's case supra, wherein, it was held that a pre- selection notice was necessary.
17, After expunging the various portions from the said judgment including observations pertaining, to the necessity of a pre-selection notice, the Honourable Supreme Court observed that fresh notices be issued in terms of section 177 of the Ordinance as it was prevalent at the relevant time.
18. In view of above it is clear and obvious that necessity of pre selection notice in terms of section 177(4) of the Ordinance is neither the law as laid down by the single Bench judgment of this Court in the case of Ch. Muhammad Hussain ibid, as the observations relating to such notice had been deleted but also would be contrary to the law as laid down by the apex Court in Fatima Sharif's case wherein observations were made that notice be issued under section 177 of the Ordinance, and not a pre-selection notice, hence, the contentions of the learned counsel for the petitioners in this behalf cannot be accepted.
19. Furthermore, after judgment in Fatima Sharif's case, notices under section 177 of the Ordinance were in fact issued, which action was challenged before this Court through various Constitutional Petitions which were dismissed by a single Bench of this Court in Syed Bhai's case 2007 PTD 289 and by another single Bench judgment of this Court reported as 2009 PTD 20 Honda Fort Pvt. Ltd. v.
Commissioner of Income Tax and a Division Bench judgment of this Court in the case reported as Kunja Textile Mills v. Commissioner of Income Tax delivered in ICA # 125 of 2007. In the presence of the aforesaid judgments of this Court, it is difficult to be persuaded to hold that notice under section 177 of the Ordinance is illegal in the absence of a pre-selection notice, and the contentions of the learned counsel for the petitioners in this behalf are not only in conflict with the judgment of the apex Court but also cannot withstand the weight of authority against it.
20. Incidentally challenge to notices under section 177 of the Ordinance also came up before the Honourable Sindh High Court, and the petitions were dismissed by a learned Division Bench in the case reported as Muhammad Umar v. Commissioner of Income Tax 2009 PTD 289.
21. It is the case of the petitioners that in the absence of criteria having been laid down by the FOR, Commission Income Tax cannot issue notice under section 177(4) of the Ordinance, as such powers are dependent upon on the existence of the criteria by the F.B.R. The provisions for providing a criteria and selection on the basis thereof is mentioned in subsections (1) and (2), while subsection (4) of section 177 _ of the Ordinance provides for issuance of a notice by the Commissioner Income Tax on the basis of a, b, c, & d thereof. It is the sub section that requires interpretation and is reproduced as under: "Section 4. In addition to the selection referred to in subsection (2), the Commissioner may also select a person (or classes of persons) for an audit of the person's income tax affairs."
22. It appears to be the case of the petitioners that phrase 'in addition to' presupposes existence of a criteria in terms of subsection (1) of section 177 of the Ordinance. In this behalf great emphasis has been laid on the meaning of the said phrase.
23. Learned counsel on both sides are in agreement that phrase 'in addition to' means "furthermore, or moreover". However, learned counsel for the petitioners have lost sight of the word 'also' which occurs in subsection (4) reproduced ibid, which as per Words and Phrases Permanent Edition means: 'besides, in addition thereto and too.
24. In view of above it is clear and obvious that provision of subsections (1) and (2) are disjunctive and not conjunctive. A case can always be selected for audit on the basis of criteria as laid down by the F.B.R. Besides which and in addition thereto, persons can also be selected for audit by Commissioner under subsection (4) of section 177 of the Ordinance. The plain reading of subsection (4) leaves no room for any doubt that it clearly empowers the Commissioner Income Tax to issue notice on the basis of criteria spelt out in sub-clauses a, b, c, and d of subsection (4) of section 177 of the Ordinance. Not only is the weight of authorities against the petitioners but also to accept the contentions of the learned counsel for the petitioners would require ignoring the word `also' from the said provision. Unfortunately, for the petitioners they cannot wash away any word froth a provision. To accept the interpretation of the petitioners would require more violence to be done to the language of subsection (4) than this Court is prepared to do.
25. In Sadiq Hussain Majid's case 2007 PTD 2188 a single Bench of this Court while interpreting section 177 of the Ordinance held that two separate methods of selection have been provided by law.
26. In another judgment of this Court reported as 2010 PTD 395 Messrs Roots Montessoriy & High School Rawalpindi v. Commissioner of Income Tax (Audit) Regional Tax Officer Rawalpindi and others it was held that even in the absence of any criteria having been laid by the F.B.R., notices under section 177 of the Ordinance can be issued in exercise of subsection (4) thereof. (However in the said cases, notices were struck down on other grounds).
27. Judgments relied 'upon by the learned counsel for the petitioners in this behalf are distinguishable and not only in the provisions interpreted word 'also' was conspicuous by its absence, but the phrase 'in addition to' was scribed in a totally different context.
28. Adverting now to the contentions being raised on behalf of the petitioners, even otherwise, the provisions of section 177(4) of the Ordinance were not attracted to the facts and circumstances of their respective cases. It is contended that section 177(4) of the Ordinance does not confer absolute or unbridled powers upon the Commissioner to select any case or person for audit. Such powers can only be exercised if the conditions mentioned in sub-clauses .(a), (b), (c) and (d) have been met. It is contended that in the instant cases such conditions have not been fulfilled or taken into account and the reasons for selection are extraneous to law. In this behalf exception was taken to the content of the notices as well as inapplicability of the provisions to individual facts and circumstances.
29. There can be no escape from the fact that if section 177(4) of the Ordinance is interpreted in a manner so as to confer unfettered powers and unstructured discretion upon the Commissioner to select a person for audit not only the very constitutionality of the provision would become suspect, but also serious doubt would be cast upon the bona fides of the action taken thereunder. A law though not ex facie discriminatory but capable of being used or applied in a discriminatory manner can hardly be termed as good law. Even otherwise, a plain reading of the provisions reveals that person can only be selected for audit under section 177(4) of the Ordinance subject to the conditions and within the parameters prescribed by sub-clauses (a), (b), (c) and (d) thereof.
Whether in the instant cases the power in fact has been exercised subject to the limitation imposed therein needs to be examined. The objections raised on behalf of the petitioners on the one hand are with regard to the reasons disclosed or(not disclosed) in the notices which on the other hand, the absence of such reasons in the facts and circumstances of individual cases is also asserted. In this behalf reference has variously been made to the previous history of the assessee, orders passed thereon including by the Tribunal. Reference has also been made to changing circumstances which have allegedly denuded the notices of factual foundation. The objections raised on behalf of the 'petitioners required to be adjudicated upon on case to case basis.
30. It has also been noticed that the objections raised on behalf of individual petitioners go to the very heart of the jurisdiction purported to have been exercised by the respondents with issuance of the impugned notice under section 177(4) of the Ordinance. The conditions and parameters set forth in sub-clauses (a), (b),. (c) and (d) of subsection (4) of section 177 of the Ordinance are the jurisdictional basis, the existence whereof is a sine qua non for selection of a person for audit. The existence of such jurisdictional basis must necessarily be determined C before such power can be exercised. This determination can only be effected after hearing the petitioners and granting them opportunity to produce the material to displace the case of the respondents, which exercise can only be undertaken on an individual case to case basis. Thus though the respondents may very well issue notice purportedly under section 177(4) of the Ordinance but whether in fact' and in law respondents were entitled to exercise the powers conferred thereby and whether such powers have in fact been exercised within the parameters prescribed by law can always be challenged by the petitioners by responding to the notice including by objecting to the jurisdiction and authority of the Commissioner to issue the same. Needless to add that any objections raised would require to be adjudicated upon through a speaking order. If the very jurisdiction to issue such notice is challenged then obviously as is settled law, the question of jurisdiction would require to be dealt with and decided first, before the Commissioner can proceed further in the matter by commencing the intrusive process of audit.
31. The upshot of the above discussion is that this Court is not persuaded to strike down the impugned notices under section 177(4) of the Ordinance. However, the petitioners would be at liberty to respond thereto and raise any and all objections including but not limited to the absence of jurisdiction by filing their replies. Such objections would require to be adjudicated upon through a speaking order after providing fair opportunity of hearing to the petitioners, and such adjudication must precede the audit.
' Disposed of in the terms mentioned above.