' SYED NADEEM SAQLAIN (CHAIRMAN).---Titled appeal for the tax year 2008 has been filed at the instance of the taxpayer calling in question the impugned order dated 3-1-2011 passed the learned CIR(A), Multan. A number of objections have been raised through grounds of appeal, however, the sole grievance of the taxpayer is with regard to selection of the case for audit under section 177 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance) that same being without pre- selection notice was illegal.
2. Briefly stated the facts of the case are that the taxpayer is a private limited company, deriving income from manufacturing and supply/export of auto parts. Return for the year under consideration was filed declaring net income of Rs,4,485,142. Deemed assessment stood completed under section 120(1) of the Ordinance. Later on, the case of the taxpayer was selected for audit under section 177(4) of the Ordinance by the Commissioner of Income Tax, Audit Division, RTO, Multan on the ground that claim of manufacturing and profit and loss account expenses at Rs,46,955,471 and Rs,6,433,501 need examination for verifiability, reasonability and admissibility with reference to the provisions of sections 18, 20 and 22 of the Ordinance. After examination A of return of income, details of information produced, audited accounts a show-cause notice under section 122(9) of the Ordinance was issued. Since no documentary evidence in response to the said notice was provided, the already completed assessment under section 122(1) of the Ordinance was amended and total tax liability was created at Rs,2,828,748. Being aggrieved the taxpayer preferred appeal before the learned first appellate authority who vide an order dated 3-1-2011 allowed partial relief. Still dis-satisfied with the impugned order, the taxpayer is in further appeal before the Tribunal.
3. Both the parties have been heard and relevant orders perused. The learned A.R. Of the taxpayer reiterated the same arguments as put forth before the learned first appellate authority. However, the sole grievance which has been agitated at the time of hearing of appeal is that the selection of the case for audit is illegal and void as no pre-selection notice was issued to confront the appellant. It was argued, that a show-cause notice is pre-requisite before selecting a case for audit under section 177. Reliance was placed on a judgment of the Supreme Court of Pakistan reported as 2009 SCM R 344 = 2009 PTD 37 and judgment of the Lahore High Court, Rawalpindi Bench, Rawalpindi reported as 2010 PTD 395.
4. On the other hand the learned D.R. Supported the impugned findings recorded by the learned CIR(A). It was argued that the learned CIR(A) has rightly rejected the contention of the taxpayer with regard to issuance of pre-selection notice. It was argued that in a number of cases, the higher appellate for a have held that for selection of a case for audit under section 177 of the Ordinance, no pre-selection show-cause notice is required since the appellant would have ample opportunity to prove his case during the course of audit proceedings and if nothing untoward is found, the declared version would be accepted. The learned D.R. Prayed for maintaining the impugned order.
5. We have heard the learned counsel for both the parties and have gone through the relevant orders as well as case-law cited at the bar. In a recent judgment passed vide I.T.A. No,618/LB/09, while dilating upon the issue in hand, It was held by the Tribunal that:- "prior notice to the present petitioner qua selection of their cases for audit is of immense significance and the absence thereof in the cases in question is sufficient to render the impugned letters to be devoid of any legal justification.
' This court is of the opinion that Commissioner of Income Tax cannot select a case for audit under clause (d) of subsection (4) of section 177 of the Income Tax Ordinance, 2001 unless criteria provided has been duly laid down in terms of subsection (1) of section 177 by the Federal Board of Revenue because Commissioner can only select cases for audit in addition to selection of audit referred to in subsection (2) of section 177 but he cannot select cases for audit in subsection or in isolation thereof. This court has arrived at this estimation after having considered the import of the words "in addition to" appearing at the beginning of subsection (4) of section 177 of the Income Tax Ordinance, 2001."
6. In view of the parallel case cited supra I am of the view that selection of the case was not made in accordance with the parameters laid down by the law and the apex court. Even otherwise, the selection of the 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 Ordinance. Non-issuance of pre-selection notice is against the norms of natural justice i,e, audi alterm partem, hence I am of the considered view that selection, in the facts and circumstances was illegal void ab initio.
7. For the foregoing reasons, the impugned order is vacated and amended assessment order under section 122(1) of the Ordinance is hereby annulled.
8. Appeal of the taxpayer stands accepted.