' MUHAMMAD JAHANDAR (JUDICIAL MEMBER).---This order shall dispose of the above mentioned appeal filed by the Revenue against an order dated 26-2-2010 passed by learned. CIT(A-II), Islamabad.
2. Brief facts are that the case was selected for audit under section 177(4) of the Income Tax Ordinance, 2001 which was agitated by the taxpayer in appeal before learned CIT(A) on the ground that selection of the case for audit under section 177(4) is illegal because no notice was issued to the taxpayer before selection of case for audit and no further proceedings could be conducted.
Learned CIT(A) after hearing appeal followed an order passed by the Lahore High Court in Writ Petition No,4630 of 2009 wherein it has been held that selection of the case for audit in absence of issuance of notice is illegal. The Revenue aggrieved of this treatment is in appeal before this tribunal on the following ground:--
(i) That the learned CIR (A-II), Islamabad was not justified in holding that selection of case for audit and order passed was illegal, without considering the facts narrated in the decision of the Honorable Islamabad High Court, Islamabad in Writ Petition No,960 of 2008 dated 14-7-2009 and decision of Lahore High Court in Writ Petition No,11166 vide order dated 22-10-2009.
3. Learned D.R. Primarily relied on a judgment in Writ Petition No,11166 of 2009 to contend that there is no law requiring issuance of notice before selection of case for audit. He also referred to Re: Mr. Umer v. CIT 2009 PTD 284, a judgment by the Sindh High Court for, arguing that as per said judgment, there is no requirement of any pre selection notice. To the same argument, learned D.R.
Also referred to a judgment in Writ Petition No,960 of 2008 by Islamabad High Court and CIT v.
Fatima Sharif Textile, Kasur 2009 PTD 37. He maintained that in Para 8 of the said judgment, the very requirement of issuance of notice before audit has been expunged by the Supreme Court and as such, no advantage can be taken from the judgment of High Court since appealed.
4. As again this, learned A.R. Firstly maintained that in Fatima Sharif Textile case, the Supreme Court, as matter of fact, did not override the findings of the High Court as to the issuance of notice before selection of case for audit but the said observation was expunged in view of a compromise between the parties for letting the case to be reheard and thus these being no contra finding by the Supreme Court, the observation of the High Court still holds the field. Learned A.R. While referring to the judgment in Writ Petition No,11166 of 2009 by the Lahore High Court commented that the very tenor of the order emphatically sheds light on the requirement of issuance of pre selection notice; however, the conclusion is otherwise. As to the judgment in Muhammad Umer v. CIT 2009 PTD 284, learned A.R. Argued that the very question envisaging issuance of notice was question No,3; however in the order, this question was not decided by the court. Learned A.R further argued that the judgment of the Lahore High Court in Writ Petition 4630 of 2009 titled Mohsin Raza v.
Chairman, F.B.R., after going through the case law on the subject, has conclusively decided the very issue of requirement of issuance of notice, when some detrimental action against the assessee is taken.
5. After hearing arguments, it seems that the judgment by the Supreme Court in Re. CIT v. Fatima Sharif Textile, Kasur 2009 PTD 37 although does not specifically deal with the issue of issuance of notice before selection of case for audit yet it contained in Para 8 a reference of the findings of High Court envisaging a fundamental salutary principle that when a person is to be subjected to an action prejudicial to his interest he has to be confronted. Relevant observations on the subject are as follow:--
(8) "Learned counsel for the respondents attempted to negate the assertions of the petitioners by urging that no notice is needed before proceeding under section 177 of the Ordinance, because by the exercise of audit, no prejudice is caused to the assessee. Though this contention, has no substance in it and cannot be accepted even on its face value because general audit of a person does result in prejudice to the assessee as he becomes subject to security even regarding his meals and wearing yet the law itself provided that the return filed by the assessee would amount to an assessm ent order and when the department opts to reopen the case for scrutiny/audit/detailed analysis, a notice to the assessee has to be given before proceeding adverse to his interest, in spite of absence of specific provision of notice, in the said law. Law regarding notice to the concerned party is settled by this time and the superior judiciary of country is consistent on the question of giving notice to the concerned persons before proceeding against him, besides the applicability of principles of natural justice where under no one is to be condemned unheard."
' Though this para has been expunged, following remand of the case through compromise yet the same has persuasive value and though not a ratio decidendi but in an identical matter may have to be followed.
6. So far as the judgment in Muhammad Umer v. CIT 2009 PTD 284, is concerned, it may be stated that before a Division Bench of Sindh High Court, there were three questions framed in the reference to be redressed. The said questions are as follows:--
(1) Whether the statement filed by the appellant under section 115(4) read with section 113-A of the Income Tax Ordinance, 2001 under the presumptive/final tax regime is a return/complete return of income as envisaged under section 114 read with section 120 of the Ordinance ibid?
(2) Whether the learned ITAT is justified in holding that a statement filed under section 115(4) read with section 113-A of the Income Tax Ordinance, 2001 could be selected for audit under section 177 of the Ordinance, ibid?
(3) Whether the learned ITAT is justified in upholding the departmental action of selection of the taxpayer's case for audit for the tax year, 2005 when the said selection has not been made by the Commissioner himself and that too, without a prior notice before final selection of the case?
' It seems that the question No,3 espouses the very question of issuance of pre selection notice.
However, in Para 17 of the judgment, the said question has not been answered. Therefore, this judgment may not be taken for having overridden the .One given in Writ Petition No,4630 of 2009 in the case of Mohsin Raza v. Chairman F.B.R., etc.
7. The other judgment referred to by learned D.R. Is in Writ Petition No,11166 dated 22-10-2009 and it seems advisable to reproduce some of the relevant extracts from the said judgment. Para Nos. 30 and 31 of the said judgment are reproduced as under:--
(30) It has 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 notices 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 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 notice 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.
' In the above findings, the last sentence of Para 30 is much relevant as when the jurisdiction has been challenged, it is settled principle of law that question of jurisdiction should be dealt with first before any process of audit said to be intrusive is initiated.
8. The Lahore High Court in Writ Petition No,4630 of 2009 after a detailed discussion on the subject has observed, by referring to several judgments of the Supreme Court, as under:-- ' The selection of a case for audit in itself is tantamount to an adverse order since it undermines the sanctity of an assessm ent order issued by the Commissioner of Income Tax in terms of clause b of subsection (1) of section 120 of the Income Tax Ordinance, 2001. An adverse order made without affording an opportunity of personal hearing is to be treated as a void order. It is because of this reason that Hon'ble Supreme Court of Pakistan has always laid its utmost stress on strict observance of norms of natural justice in general and the principles of audi alteram partem in particular. These principles are to be read into every statute. Reliance in this regard is being placed on PLD 2008 SC 663; 2007 SCM R 330; 2005 SCM R 678; 2005 SCM R 1814 and PLD 2004 SC 441.
' Having regard to the aforesaid dicta of the Hon'ble Supreme 'Court, prior notice to the present petitioners qua selection of their cases for audit is of immense significance and in the absence thereof in the cases in question is sufficient to render the impugned letters to be devoid of any legal justification.
9. The last judgment referred to by the learned D.R. Is of Islamabad High Court in Writ Petition No,960 of 2008, the same may not again be preferred to that of Lahore High Court in Mohsin Raza's case wherein it was held that pre selection notice was necessary while relying on judgment of the Supreme Court of Pakistan even if the statute does not incorporate provision as to the issuance of notice yet the same shall be read as having been provided for an action which is detrimental to one's interest may be taken only after confronting him as to the nature of action. In view of the above discussion, it may be concluded that the very findings of the Lahore High Court in Mohsin Raza's case may have to be followed as to the requirement of the pre selection notice. In these circumstances, the findings of the learned CIT(A) are unexceptionable and there being no force in appeal, the same is rejected.
Appeal rejected.