This order shall decide the instant petition as well as the connected petition (WP.No.4241 1/2017) as both these petitions involve identical question of law and facts.
2. This Constitutional petition challenges the notice dated 17.11.2016 issued by respondent No.4, Addl.
Commissioner , Inland Revenue, LTU Lahore. The petitioner alleges that the notice violates the holding of this Court in a judgment reported as Maple Leaf Cement Factory Ltd. Vs. Federal Board of Revenue and others (2016 PTD 2074 ) wherein it is held as:- "It may, once again, be made clear that the stance taken by the petitioners does not impinge upon the power of the departmental authorities to proceed with the impugned notices which have been issued. The only effect will be that the records demanded of the petitioners will not be produced on the simple plea that the record is not available with the petitioners. In case, that plea is taken by the petitioners in response to the show cause notice, the necessary corollary would be that the department or the authority issuing the impugned notices will be debarred from proceedings against the petitioners in any manner to enforce the compliance of the impugned notices or to require compulsorily the petitioners to produce the record. In other words, in case the petitioners do not produce the record which they were required to maintain in terms of section 174, no penal consequences will follow ."
3. Thus according to above precedent, a taxpayer is obliged to maintain the record under section 174 of the Income Tax Ordinance, 2001 ("Ordinance") for a period of six years (five years at the relevant tax year, subject matter of these petitions) and it was further held that the taxpayer could not be compelled to produce the record for a tax year beyond the period of five years as stipulated in section 174 of the Ordinance. Therefore, according to the learned counsel for the petitioners the impugned notice in this petition have been issued beyond the period of five years admittedly and hence the petitioner s are not obliged to produce the record required to be done in the notices.
Section 174 of the Ordinance reads as under:- "174. Records.-- (1) Unless otherwise authorized by the Commissioner , every taxpayer shall maintain Pakistan such accounts, documents and records as may be prescribed.
(2) The Commissioner may disallow or reduce a taxpayer 's claim for a deduction if the taxpayer is unable, without reasonable cause, to provide a receipt, or other record or evidence of the transaction or circumstances giving rise to the claim for the deduction.
(3) The accounts and documents required to be maintained under this section shall be maintained for five years after the end of the tax year to which they relate.
Provided that where any proceeding is pending before any authority or Court the taxpayer shall maintain the record till final decision of the proceedings. {Explanation. --Pending proceedings include proceedin gs for assessment or amendment of assessment, appeal, revision, reference, petition or prosecution and any proceedings before an Alternative Dispute Resolution Committee.}
(4) For the purpose of this section, the expression--deduction means any amount debited to trading account, manufacturing account, receipts and expenses account or profit and loss account.
(5) The Commissioner may require any person to install and use an Electronic Tax Register of such type and description as may be prescribed for the purpose of storing and accessing information regarding any transaction that has a bearing on the tax liability of such person."
4. The learned counsel for the respondents relies upon 3rd proviso to section 174 of the Ordinance to contends that time for maintaining the record of a tax year has been extended by the proviso where any proceedings are pending before any authority or court and in such case the taxpayer shall maintain the record till final decision of the proceedings.
5. In the instant petition (W.P.N38666/201 6) the case of the petitioners was selected for audit for the tax year 2008.
The petitioners-company challenges the letter dated 24.04.2010 issued by the Federal Board of Revenue as well as notice dated 11.02.201 1 before this Court which was decided on 02.02.2016. A fresh notice to the petitioners in the instant petition was issued on 17.11.2016 i.e. after nine months after complying the directions issued by this Court in its order referred to above, i.e. notice which has been brought under challenge herein.
6. In connected petition (W.P.No.4241 1/2017) selection of the petitioner was made for the tax year 2010. However , the matter kept pending before the hierarchy of the department and finally decided on 19.08.2015. The impugned notice in this case was issued on 01.06.2017 i.e. after almost two years. The same set of grounds has been taken to challenge this notice.
7. It is not disputed that five years (six years by subsequent amendment) for which taxpayer were required to maintain the record has come to an end in both these cases. The only reliance of the respondents is on the 3rd proviso to section 174 of the Ordinance which extended the time till final decision of the proceedings before any authority or Court. However , the crucial aspect is that 3rd proviso to section 174 of the Ordinance merely requires the taxpayer to maintain the account and documents till final decision of the proceedings. The petitioners are right in submitting that in both these cases the petitioners have maintained the record till final decision of the proceedings. However , the notices have been served on them after considerable period of the decision made by the Courts in their respective cases. Clear mandate of the 3rd proviso relies upon by the respondents is for the taxpayer to maintain the record till final decision of the proceedings and not beyond that date. It would be useful to clarify that section 174 of the Ordinance merely relates to maintaining the record and documents and does not prohibit the powers conferred by other provisions of the Ordinance such as audit etc. This was the basis of the judgment in Mapple Leaf case where in conclusion it was held that the audit proceedings may continue yet the department could not compel the taxpay er to maintain the record beyond the period of five years. Quite clearly , section 174 of the Ordinance is an independent section and places obligation on a taxpayer to maintain the record for a certain period of time. It places corresponding duty on the officers of the Income Tax Department to initiate their proceedings within the time prescrib ed therein so that may be able to procure the accounts and documents which are necessarily required for any proceedings initiated under the Ordinance. In the earlier petition filed by the petitioners-company in W.P.No.38666/2016 an interim relief which was granted was merely to the effect that, "subject to notice and till the next date of hearing, no final order shall be passed against the petitioner ."
8. It is evident, therefore, that the Court did not restrain the officers of the Income Tax Department from proceedings with the notices but merely restrained them from passing final order . There was, thus, no impediment in the way of the officers to have collected the accounts and other record from the petitioners during that period. If law requires anything to be done with a certain time frame then the taxpayer cannot be burdened with a liability which is not caste by the law itself nor can the department confer an authority which is beyond the mandate of law.
The petitioner in the present case complies the letter of law and cannot be required to produce record beyond the statutory limit.
9. In view of above, both these petitions are allowed. However , it is made clear that the proceedings of audit of income tax under section 177 of the Ordinance may continue but the petitioners shall not be required by the department to produce the record.