WAQAR AHMAD SETH, J.---Impugned herein is the judgment in appeal of Income Tax Appellate Tribunal, Peshawar Bench, Peshawar dated 4-9-2009.
2. The petitioner, a Doctor by profession is taxpayer and has been paying tax through Self Assessm ent Scheme, for the year, 2003 he submitted his tax returns under the Self Assessment Scheme declaring his net income at Rs.3,95,000 but vide letter of respondent No..2, the case of the petitioner was selected for audit purportedly under section 177(4)(d) of the Income Tax Ordinance, 2001. It is contended that for the year, 2004 petitioner submitted his tax returns while declaring his total income from all sources as Rs.4,10,000 which was duly accepted by the respondents vide Letter No.13 dated 5-7-2008, respondent No.2 has illegally and without any justification selected the case of the petitioner for audit and the said order did not qualify the criteria laid down by sections 177 and 122(8) and (9) of the Ordinance.
3. Learned counsel for the petitioner contended that no notice was issued and as such the petitioner has been condemned unheard and unilaterally the proceedings were initiated, conducted and completed against which second appeal was filed before the Appellate Tribunal, which was dismissed vide the impugned order, hence, the present Tax Reference is filed on the following questions of law:-
(i) Whether under the facts and circumstances of the case, respondent No.2 was justified to select the case of the petitioner for audit under section 11 of the Ordinance.
(ii) Whether the Deputy Commissioner of income tax had the jurisdiction under section 177(d) read with section 122(1)(4)(5) to amend the impugned assessment and if not, then the order dated 25- 2-2009 of Deputy Commissioner of Income Tax is without lawful authority and coram non-judice thus at nullity in the eyes of law.
(i.e) Whether under the facts and circumstances of the case, there existed sufficient material/definite information before respondent No.2 to select the case of the petitioner for audit purportedly under section 177 of the Ordinance.
(iv) Whether under the facts and circumstances of the case, once the petitioner was selected for audit for the tax year of 2003 and which was finalized and the total income of petitioner was declared as Rs.4,62,200 thereby establishing a history, the respondents were justified to rely upon the tax history of 2002.
(v) Whether under the facts and circumstances of the case, respondent N3.1 was justified to conclude the assessm ent unilaterally without association of the petitioner.
(vi) Whether the powers of Commissioner under section 177(4) are invokeable in absence of the criteria to be laid down by Federal Board of Revenue (FBR) under subsection (1) of section 177.
(vii) Whether the reasons given the letter dated 5-7-2008 can be termed as definite information for the purpose of section 177(4) of the Ordinance.
(viii) Whether the selection of petitioner for audits for the tax year 2004 was an arbitrary and whimsical exercise of jurisdiction and the same is against the very spirit of Universal Self Assessm ent Scheme.
4. On 14-1-2010 this instant Tax Reference came-up for hearing and it was admitted on the following questions of law:-- The question of law raised and taken herein is as to whether the respondents have not violated the mandatory requirements of the provisions of section 177 of the Income Tax Ordinance, 2001, and because the one sided audit was carried out by a person below the rank of Commissioner, which was without lawful authority. Admit. Notice and record.
5. Learned counsel for the petitioner mainly argued that no notice prior and during the proceedings was issued and as such the petitioner has been condemned unheard and that there was no definite information with the concerned authority nor any such reasons or justification was communicated nor were having, to select the case for audit.
6. As against this, learned counsel for the respondents contended that under section 121 of the Income Tax Ordinance, 2001, the Commissioner can delegate its powers to any other authority and the same has been delegated to the Deputy Commissioner and as such he was competent to proceed with the case; that after the selection of the case on reasonable ground, notices were issued to the petitioner but he failed to appear before the competent authorities and as such the proceedings continued in his absence.
7. Arguments heard and record perused.
8. The Commissioner Income Tax or for that purpose Deputy Commissioner, at the time of assumption of jurisdiction under sections 122 and 177 is needed to act judiciously, by applying conscious judicial mind to the cases and after giving opportunity of hearing, was. To pass a speaking order. We have anxiously considered the respective arguments of the learned counsel for the parties and have examined the record, _appended herewith. The relevant provision of law under which the order/notice has been issued by the Deputy Commissioner Income Tax is section 177 of the Ordinance, 2001 which reads as under:- "Audit:---(I) The Commissioner may select any person for an audit of the person's income tax affairs having regard to..--
(a) the person's history of compliance or non-compliance with this Ordinance, the amount of tax payable by the person, the class of business conducted by the person, and any other matter that the Commissioner considers relevant.
(1-A) After selection of a person for audit under subsection (1), the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure,. Assets and liabilities) of that person.
(1-B) After completion of the audit under subsection (1-A) or subsection (3), the Commissioner may, if considered necessary, after obtaining taxpayer's explanation on all the issues raised in the audit, amend the assessment under subsection (1) or subsection (4) of section 122, as the case may be.
(2) The fact that a person has been audited in a year shall not preclude the person from being' audited again in the next and following years where there are reasonable grounds for such audits, particularly having regard to the factors in subsection (1).
(3) The Central Board of Revenue may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961), to conduct are audit of the income tax affairs of any person and the scope of such audit shall be as determined by the Central Board of Revenue on a case by case basis.
(4) Any person employed by a firm referred to in subsection (3) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purpose of (conducting) audit under, that subsection.
Whereas section 122(8) and (9) of Income Tax Ordinance, 2001 reads as under:--
122. Amendment of assessm ents.---(1)---
(2) ---- (3) ---- (4) ---- (5) ---- (6) ---- (7) ----- (8) For the purposes of this section, "definite information" includes information on sales or purchases of any goods made by the taxpayers'
(receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance), and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.
(9) No assessm ent shall be amended, or further amended, under this section unless the taxpayer, has been provided with an opportunity of being heard.
ExaminatiQn of the above produced provision of law, no doubtiA empower the competent authority/Cornmissioner Income Tax with the powers to select any person for any audit on the basis of any matter which he considered relevant. Any way, while invoking the powers under sections 122(8)(9) and 177 of the Income Tax Ordinance, 2001, the Commissioner Income Tax is not only required to mention reasons and justification (definite information) for such selection but also to give him an opportunity of hearing/explanation and prior notice.
10. Law regarding notice to the concerned authority is settled by the time and the superior judiciary is consistent on the question of giving notice to the concerned person before proceedings against him, besides, the applicability of principles of natural justice whereunder no one is to be condemned unheard. The Hon'ble Supreme Court of this Country has very graciously mandated that provision of notice to the person against whom you propose to proceed, has to be read in every statute irrespective of the fact that no such provision is incorporated therein. Reference in this behalf can be conveniently made to a chain of judgments, a few of those are in the cases of PLD 2002 SC 408, 1981 SCM R 1061 and so on.
11. In the case of Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others, reported in 2001 SCM R 838, the matter was graciously considered by the Hon'ble Supreme Court and it was held that demand notice was defective. In this alighted judgment of the Hon'ble Supreme Court, it was held that Commissioner Income Tax is bound to issue notice to the assessee before exercising of his powers under sections 122 and 177 of the Ordinance (ibid). Admittedly, no notice prior to the exercise of powers under sections 122 and 177 of the Ordinance was issued, in this case.
12. For the reasons mentioned above, we have no hesitation to hold that order to select the matter for audit is defective and as such all be subsequent impugned orders of respondents Nos.1 to 4 dated 5-7-2008, 25-2-2009, 15-4-2009 and 4-8-2009 are illegal, as the same lacks the essentials require by law to be noted wherein, when at the same time is abuse of exercise of the vested discretion and thus, the same are not sustainable at law and are declared to be illegal/void and non-existent. Before parting with the judgment, we must observe that the Commissioner Income Tax or for that matter any delegated authority, can initiate fresh proceedings of audit strictly in accordance with law and according to the observations made above.
13. Resultantly, this Tax Reference is allowed and answered with no order as to costs. .