' QALANDAR ALI KHAN, J.---Since identical questions have been raised, this consolidated judgment shall also dispose of connected writ petitions i.e. W.P. No.250-A/2015, W.P. No.251-A/2015, W.P.
No.252-A/2015, W.P. No.253A/2015 and W.P. No.254-A/2015.
2. These six writ petitions have been filed by three private limited companies, namely, Mujahid Oil Refinery (Pvt.) Limited, Fahd Hammad Oil and Ghee Industries (Pvt.) Limited and Ikram Yaqoob Ghee Industries (Pvt.) Limited, which are industrial undertaking and engaged in the business of refinery of ghee and edible oil. There are two sets of writ petitions, one against notices to the Companies under Sections 45 and 46 of the Federal Excise Act, 2005 (FEA) and section 38 of Sales Tax Act, 1990, and the other against notices to the same Companies pertaining to selection of the Companies for audit under section 177 of the Income Tax Ordinance, 2001 (ITO) Tax Year, 2014 and in W.P. No.254-A/2015 for Tax years, 2012 and 2013, by the Director, Intelligence and Investigation (IR)
(respondent No.1), in all the cases. However, the questions raised in the writ petitions are common, as in all the writ petitions, the petitioners have questioned the authority of respondent No.1 to serve them with notices for audit under section 46 of FEA before selection of their cases for audit by the Federal Board of Revenue (FBR) (respondent No.4) though computer ballot which could be random or parametric pursuant to section 42B of the FEA, inserted through Finance Act, 2010; and, likewise, the authority of respondent No.1 to select the Companies for audit under section 177 of the ITO, unless they were first selected for audit in terms of Section 214C of the ITO by respondent No.4 through computer ballot either random or parametric, in accordance with section 214C of the ITO inserted via Finance Act, 2010.
3. In order to appreciate the issues raised in the writ petitions, it may be appropriate to reproduce the above referred relevant sections of law, as follows:-- Federal Excise Act, 2005 "42B. Selection for audit by the Board.---(1) The Board may select persons or classes of persons for audit of records and documents through computer ballot which may be random or parametric as the Board may deem fit.
(2) Audit of such persons selected under subsection (1) shall be conducted as per procedure given in section 46 and all the provisions of the Act shall apply accordingly.
(3) For the removal of doubt, it is hereby declared that Board shall be deemed always to have had, the power to select any persons or classes of persons for audit."
"45. Access to records and posting of excise staff, etc.---(1) A person who is required to maintain any record or documents under this Act or any other law shall, as and when required by the Federal Excise Officer produce record or documents which are in his possession or control or in the possession or control of his agent and where such record or documents have been kept on electronic data, he shall allow access to such officer to have access and use of any machine on which such data is kept and shall facilitate such officer to retrieve whole or part of such data in such manner and to such extent as may be required by him.
(2) Subject to such conditions and restrictions, as deemed fit to specify, the Board may, post officer of Federal Excise to the premises of registered person or class of such persons to monitor production, removal or sale of goods and the stock position or the maintenance of records: Provided that if a Collector, on the basis of material evidence, has reason to believe that a registered person is involved in evasion of duty, he may, by recording the reason in writing, post an officer of Federal Excise to the premises of such registered person to monitor production, removal or sale of goods and the stocks position or maintenance of records.
(3) The Board may, by notification in the official Gazette, for the purpose to monitor production or manufacture of any goods, specify the manner and procedure for appointment and posting of technical staff and installation, operation, maintenance of close circuit T.V system anywhere in the factory premises."
"46. Departmental Audit.--(1) The Federal Excise Officer authorized by the Board by designation may, once in a year, after giving advance notice in writing, conduct audit of the records and documents of any person registered under this Act.
(2) In case the Collector has information or sufficient evidence showing that such registered person is involved in fraud or evasion of duty, he may authorize a Federal Excise Officer, not below the rank of Assistant Collector, to conduct audit at any time in a year.
(3) Notwithstanding the penalties prescribed in section 19, if a registered person wishes to deposit the amount of duty not paid, short paid or the amount of duty evaded along with default surcharge voluntarily, whenever it comes to his notice, before commencement of audit, no penalty shall be recovered from him: Provided that if a registered person wishes to deposit the amount of duty not paid, short paid or amount of duty evaded along with default surcharge during or after the audit but before the conclusion of original adjudication proceedings, he may deposit such amount along with twenty five percent of the amount of penalty prescribed under this Act or the rules made thereunder and in such case, further proceedings in the case shall abate.
(4) The Board may appoint a Chartered Accountant or a Cost and Management Accountant or a firm of such accountants to conduct audit of a person liable to pay duties under this Act in such manner and subject to such conditions it may specify.
(5) The audit of the registered person shall generally be a composite audit covering all duties and taxes to which his business or activity is liable under the laws administered by the Board."
Sales Tax Act, 1990 "38. Authorised officers to have access to premises, stocks, accounts and records.---(1) Any officer authorised in this behalf by the Board or the Commissioner shall have free access to business or manufacturing premises, registered office or any other place where any stocks, business records or documents required under this Act are kept or maintained belonging to any registered person or a person liable for registration or whose business activities are covered under this Act or who may be required for any inquiry or investigation in any tax fraud committed by him or his agent or any other person; and such officer may, at any time, inspect the goods, stocks, records, data, documents, correspondence, accounts and statements, utility bills, bank statements, information regarding nature and sources of funds or assets with which his business is financed, and any other records or documents, including those which are required under any of the Federal, Provincial or local laws maintained in any form or mode and may take into his custody such records, statements, diskettes, documents or any part thereof, in original or copies thereof in such form as the authorized officer may deem fit against a signed receipt.
(2) The registered person, his agent or any other person specified in subsection (1) shall be bound to answer any question or furnish such information or explanation as may be asked by the authorized officer.
(3) The department of direct and indirect taxes or any other Government department, local bodies, autonomous bodies, corporations or such other institutions shall supply requisite information and render necessary assistance to the authorized officer in the course of inquiry or investigation under this section."
' Income. Tax Ordinance, 2001 "177. Audit.---(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any there law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person: Provided that--
(a) the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and
(b) the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer: ' Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.
(2) After obtaining the record of a person under subsection (1) or where necessary record is not maintained, 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 or any other person and may call for such other information and documents as he may deem appropriate.
(6) After completion of the audit, 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.
(7) 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.
(8) The Board may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961) or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966), or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966) to conduct an audit of the income tax affairs of any person or classes of persons and the scope of such audit shall be as determined by the Board or the Commissioner on a case to case basis.
(9) Any person employed by a firm referred to in subsection (8) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that subsection.
(10) Notwithstanding anything contained in subsections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under subsection (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.
' Explanation .---For the removal of doubt, it is declared that the powers of the Commissioner under this section are independent of the powers of the Board under section 214C and nothing contained in section 214C restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under this section."
"214C. Selection for audit by the Board.---(1) The Board may select persons or classes of persons for audit of Income Tax affairs through computer. Ballot which may be random or parametric as the Board may deem fit. (1A) Notwithstanding anything contained in this Ordinance or any other law, for the time being in force, the Board shall keep the parameters confidential.
(2) Audit of Income Tax affairs of persons selected under subsection (1) shall be conducted as per procedure given in section 177 and all the provisions of the Ordinance, except the first proviso to subsection (1) of section 177, shall apply accordingly.
(3) For the removal of doubt it is hereby declared that Board shall be deemed always to have had the power to select any persons or classes of persons for audit of income Tax affairs.
' Explanation.--For the removal of doubt, it is declared that the powers of the Commissioner under section 177 are independent of the powers of the Board under this section and nothing contained in this section restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under section 177."
4. It may be added here that the FBR has conferred the powers of Commissioner (Inland Revenue) under Section 46 of FEA and section 177 of the ITO, respectively, on the Director, Intelligence and Investigation (IR) Peshawar i.e. Respondent No.1 through. S.R.Os. 116(1)/2015 and 115(1)/2015 dated 9th February, 2015.
5. The petitioners have raised the edifice of their case on the judgment of Hon'ble Single Bench of Lahore High Court in the case of 'Messrs Chenone Stores Ltd. Through Executive Director (Finance Accounts) v. Federal Board of Revenue through Chairman and two others' (2012 PTD 1815), followed by judgment of Hon'ble Division Bench of this Court in the case of 'Northern Bottling Company (Pvt.)
Ltd. Industrial Estate Peshawar v. Federation of Pakistan' (2013 PTD 1552). The ratio decidendi of both the cited cases is that selection for audit was non reactive and not default driven and never aimed at facilitating fishing expedition rather the selection is based on objective criteria through random computer ballot or on parametric basis by the FBR under section 42B of the FEA and section 214C of the ITO, instead of Commissioner Inland Revenue under Section 46 of the FEA and section 177 of the ITO, respectively.
6. The respondents, on the other hand, in their comments, laid stress on the availability of alternate remedy of appeal under the FEA and ITO and further that no adverse order or findings had yet been made against the petitioners; and defended inherent powers of the Commissioner or that of the Director I&I (IR.) conferred on him under the aforementioned S.R.Os to select cases for audit under the relevant sections of law. In support of their this stance, the respondents placed reliance on the judgment of the Hon'ble Islamabad High Court in the case of 'Messrs OMV Pakistan Exploration v.
Commissioner Inland Revenue' (2013 PTD 1620). The respondents contended that the audit was initiated to ascertain 'whether the petitioners were consuming the raw material in their industrial units or the same was sold in same state or was transferred to its sisters concerns for production', and further that whether the petitioner qualified for tax credit under section 65D.' The respondents claimed that the powers of respondent No.1 to conduct audit of federal excise affairs and income tax affairs under section 46 of FEA and section 177 of ITO, respectively, were not subservient to the selection of cases for audit by the FEA under Sections 42B of the FEA and 214C of ITO. The respondents disputed claim of the petitioners that selection for audit should be based on pre- selection criteria comprising objective standards as the same is not supported by the provisions of section 46 of the FEA and section 177 of ITO and further that the petitioners have already been duly informed about the reasons for selection of their tax affairs for audit. The respondents concluded that provisions of section 177 and section 214C of ITO were independent sections and selection of a case under section 177 was not conditional upon its prior selection by the FBR under section 214C.
7. We have heard arguments of Mr. Mansoor Usman Awan, Advocate, counsel for the petitioners, and Messrs Zahid Idrees Mufti and Khurram. Ghias Khan, Advocates, counsel for the respondents; and have also gone through the record with their assistance. Indeed, we would like to place on record our appreciation for their valuable assistance.
8. The learned counsel for the petitioners traced the history of universal self assessment in greater detail, and urged that with filing of the return by a taxpayer the concept of deemed assessment comes into play, which is brought to a naught when the tax regulator reverts to regular assessment under the garb of audit and that too after the passing of the deemed assessment audit under the law. While placing reliance on the judgments of Hon"ble Lahore High Court in Messrs Chenone Stores Limited and that of this Court in Northern Bottling Company (Pvt.) Limited, the learned counsel contended that after threadbare discussion on the issues involved in the cases and taking into consideration the relevant provisions of law, the Hon'ble Courts arrived at the conclusion that section 177 of the ITO envisaged a procedural provision whereby the Commissioner could only conduct audit after first selection of case for audit by the FBR. The mainstay of the case of petitioners, as explained by their learned counsel, was that objective selection criteria was an essential prerequisite for selection of a case for audit.
9. The learned counsel for the respondents, on the other hand, defended the impugned notices on the ground that respondent No.1 was empowered under the relevant sections of law to select a case for audit for reasons mentioned in the notice and that this power was not conditional upon selection of the case for audit through computer ballot. The learned counsel pointed'out that the judgment dated 10-5-2012 of the Hon'ble Lahore High Court in Messrs Chenone Stores Limited was assailed by the FBR in the august apex Court through several appeals, wherein, the leave granting order dated 24-10-2012 was rescinded and appeals were sent to the ICA Bench for the purpose of deciding them, as Intra Court Appeals, vide order dated 3-1-2013. According to the learned counsel, the Intra Court Appeals are still pending, and have not yet been decided. The learned counsel further pointed out that judgment dated 17-1-2013 of this Court in the Northern Bottling Company (Pvt.) Limited has also been impugned before the august apex Court, and the Hon'ble Supreme Court has granted leave to appeal vide order dated 8-4-2014. It was further pointed out by the learned counsel for the respondents that the Hon'ble Islamabad High Court in the judgment dated 12-3-2013, in a number of writ petitions, held that objective criteria or prior selection was not requirement of audit to be conducted by the Commissioner and that section 177 and section 214C of ITO were two independent sections and further that the Commissioner had the authority to verify the correctness of the assessm ent filed by the taxpayer under self assessment scheme. The learned counsel added that the Warid Telecom, one of the petitioners before the Hon'ble Islamabad High Court, also assailed dismissal of the writ petition by the Hon'ble Islamabad High Court vide judgment dated 12-3-2013, wherein, leave to appeal has, simultaneously, been granted by the august apex Court vide the above referred order of the Hon'ble Supreme Court, dated 8-4- 2014. While concluding their arguments, the learned counsel for the respondents referred to a recent judgment dated 27-5-2015 of the Lahore High Court, whereby, the notices issued by the Commissioner Inland Revenue for audit of income tax affairs under section 177 of the ITO were held to have been validly issued, while holding the Commissioner empowered to issue notices in exercise of his powers under section 177 of the ITO, without selection of a person for audit by the FBR under section 214C of the ITO.
10. Having heard learned counsel for the parties and gone through the judgments cited at the bar, one thing emerges clear that both the judgments of Hon'ble Lahore High Court in Messrs Chenone Stores Limited and that of this Court in Northern Bottling Company (Pvt.) Limited have not yet attained finality, as appeal against the judgment dated 17-1-2013 of this Court in the aforementioned case as well as Intra Court Appeals against the judgment dated 10-5-2012 of the Hon'ble Lahore High Court in the aforesaid case are still pending. However, after the said two judgments containing interpretation of sections 177 and 214C of ITO in a manner favourable to the assessees/taxpayers, a contrary view has come to surface vide judgment of the Hon'ble Islamabad High Court dated 12-3-2013, and recent judgment of the Hon'ble Lahore High Court dated 27-5-2015, thereby dissenting from the view taken by an Hon'ble Bench of the same High Court in Messrs Chenone Stores Limited. It may be noted here that judgments in. Messrs Chenone Stores Limited and Northern Bottling Company Limited were rendered before insertion of explanations in both sections 177 and 214C of the ITO by the Finance Act, 2013, as in the former case the judgment is dated 10th May, 2012, while the latter case was decided on 17-1-2013. Apart from the fact that the explanations inserted in the said two sections of law by the Finance Act, 2013, declared that the powers of the Commissioner under section 177 of the ITO were independent of the powers of the Board under section 214C of the ITO, the current prevailing view, reflected in the judgment of the Hon'ble Islamabad High Court dated 12 March, 2013, even before insertion of explanations by the Finance Act, 2013, and recent judgment of the Hon'ble Lahore High Court dated 27-5-2015, obviously, in the post insertion period, unequivocally hold that powers of Commissioner under Section 177 of ITO were independent of powers of the Board under section 214C of ITO and that nothing contained in section 214C ITO restricted powers of the Commissioner to call for record or documents including books of accounts of the taxpayer for audit and to conduct =lit under section 177 of the ITO.
11. We also subscribe to the view adopted by the Hon'ble Islamabad High Court and the Hon'ble Lahore High Court in a recent judgment for more than one reason.
' Firstly, the exercise of power by the Commissioner to call for record is based upon the return filed by a person himself which may have been found lacking on cursory examination necessitating closer scrutiny leading to an audit, as against the powers conferred on the FBR, which are fundamentally different in nature, scope and genesis as the same are not record based, no material is available with the FBR and no reasons need to be disclosed to the person why his name has been selected for audit through ballot.
' Secondly, the audit, per se, is not conclusion of proceedings, rather it is only a beginning, as assessm ent deemed remains undisturbed as long as correct and true particulars of income have been given, and even if any action is warranted under section 122 of the ITO, before taking such action, proper opportunity of being heard is required to be provided to the taxpayer. Thirdly, the powers of Commissioner under section 177 ITO are under Chapter X-Procedure, while that of FBR under section 214C ITO are under Chapter XI-Administration of ITO, thereby, making a clear distinction between the powers of Commissioner and FBR, the first for verification and checking and the second for keeping an eye and check on the tax regime and over the system as to whether the tax authorities were performing their duties in accordance with law.
' Fourthly, there are sufficient safeguards against arbitrary use of powers by the Commissioner under section 177 ITO, as, in the first place, the Commissioner is required to record reasons in writing before calling for record or documents including books of accounts of the taxpayer and also communicate such reasons to the taxpayer; and further in terms of section 177(6) yet another safeguard has been provided whereby on completion of the audit and before exercising his powers to amend the assessm ent under subsections (1) and (4) of section 122, the Commissioner is required to obtain the taxpayers explanation on all issues raised in the audit and it is only after the explanation offered is found unsatisfactory then the assessment can be amended. It has further been provided in 177(91 that no assessment shall he amended or further amended unless the taxpayer has been provided with an opportunity of being heard.
' Fifthly, if at all there was any ambiguity in the matter, the legislature itself clarified and explained the same by inserting the abovementioned explanations and for removal of doubt it was declared that the powers of the Commissioner under section 177 were independent of the powers of the Board under Section 214C and nothing contained in section 214C restricted the powers of the Commissioner to call for the record or documents including books of the accounts of the taxpayer for audit and to conduct audit under section 177 of the ITO. It is once again emphasized that these explanations were inserted in the aforementioned relevant sections of law by Finance Act, 2013, in the post judgment period of Hon'ble Lahore High Court in May, 2012 and that of this Court in January, 2013.
Sixthly, the Income Tax Ordinance, 2001 nowhere indicates that mere selection of a taxpayer for audit and calling of books of accounts to verify the version declared in his return under the universal self A assessm ent scheme, being the main theme of the ITO, cause any injury/prejudice to the taxpayer.
12. Notwithstanding conflicting claims of the parties, the petitioners claiming forcible taking away of the record while the respondents, on the other hand, asserting voluntary handing over of the record by the petitioners, the fact remains that the requisite record has become available to the concerned authorities for the purpose of audit, thereby rendering questions about respective powers of the Commissioner/ Director I&I (IR) and FBR only of academic interest.
13. Undoubtedly, the universal self assessment scheme has traveled to this country from developed countries, where the system is, presumably, based on mutual trust and confidence and honesty and integrity of both the taxpayers and the taxation departments; but even then the most developed systems cannot be termed free from fraud and tax evasion; therefore, the tax authorities there are armed with extensive powers of verifications and checks to the extent that it is said that 'there is no escape from two things e.g. Death and tax authorities'. In other words, no universal assessm ent scheme can be imagined as free from verification and check; and no return filed under the universal assessm ent scheme can, as such, be considered as a sacrosanct document, not subject to any verification or check. In the above stated scenario, can a blanket immunity from verification and check through audit be extended to 'taxpayers in a developing country, like Pakistan, where tax fraud and evasion are rampant and order of the day. Needless to say that owing to failure to meet revenue targets, because of tax frauds and evasions, not only the country and its people, particularly, those on the receiving end, have been placed at the mercy of international financial institutions but the economy is also constantly under the pressure of inflation, unemployment and price hike etc, not only retarding progress of the nation, but also breeding frustration, disaffection, sense of alienation and deprivation, thus creating space for extremism and militancy. The priority, in such like situation, would not be to allow tax fraud and evasion by considering the filing of return as a deemed assessment and, as such, a past and closed transaction, and to wait for selection of the case for audit through ballot by the FBR, but to unearth the fraud and tax evasion on the basis of record by the tax. Authorities. There can possibly be no concept of absolute freedom and liberty, as no system is averse to the imposition of reasonable restrictions, which are, indeed, essential in the national interest. The verification and check system under the relevant provisions of ITO are, as such, based on objective realities obtaining in the country; while at the same time, safeguarding the taxpayers from the arbitrary use of powers by the tax authorities.
14. In view of the foregoing discussion, when the concerned authorities have acted in accordance with law, when reasons have been enumerated in the impugned notices, when no prejudice has been caused to the petitioners by mere selection of their cases for audit, when sufficient legal safeguards are available to them against use of powers by tax authorities in an arbitrary manner, and more particularly, when their records have already reached the tax authorities, there appear no merit in the writ petitions, which are accordingly dismissed.