Aamer Farooq, C.J. This appeal, is directed against judgment dated 02.06.2016, whereby writ petition filed by the Respondent was allowed.
2. The facts, in brief, are that the Respondent received a letter dated 27.04.2016 under Section 161 of the Income Tax Ordinance, 2001, whereby audit of the Respondent was sought to be conducted on account of its failure to withhold the relevant amount. The referred notice/letter was challenged by way of a petition under Article 199 of the Constitution before this Court, which was allowed by the Judge in Chambers on 02.06.2016, hence the appeal.
3. Learned counsel for the Appellant, inter alia, contended that the law does not bar conducting proceedings under Section 161 of the Income Tax Ordinance, 2001. It was submitted that since the Respondent failed to withhold the amount, hence it is its responsibility as a principal taxpayer.
4. Learned counsel for the Respondent controverted the position and submitted that audit cannot be conducted under Section 161 of the Income Tax Ordinance, 2001, however, proceedings can be conducted accordingly. It was submitted that audit can only be conducted under Section 177 as well as under Section 214C of the Ordinance.
5. Submissions of the parties have been heard and the documents placed on record examined with their able assistance.
6. The background leading to filing of the instant appeal has been mentioned hereinabove. The Appellant issued notice to conduct audit under Section 161 of the Income Tax Ordinance, 2001. For ease of convenience, the relevant provision of law is reproduced below:- "161. Failure to pay tax collected or deducted.--(1) Where a person--
(a) fails to collect tax as required under Division II of this Part [or Chapter XII] or deduct tax from a payment as required under Division III of this Part [or Chapter XII] [or as required under Section 50 of the repealed Ordinance]; or
(b) having collected tax under Division II of this Part [or Chapter XII] or deducted tax under Division III of this Part [or Chapter XII] fails to pay the tax to the Commissioner as required under Section 160, [or having collected tax under Section 50 of the repealed Ordinance pay to the credit of the Federal Government as required under sub-section (8) of Section 50 of the repealed Ordinance,] the person shall be personally liable to pay the amount of tax to the Commissioner who may [pass an order to that effect and] proceed to recover the same.
[(1A) No recovery under sub-section (1) shall be made unless the person referred to in sub-section
(1) has been provided with an opportunity of being heard.
(1B) Where at the time of recovery of tax under sub-section (1) it is established that the tax that was to be deducted from the payment made to a person or collected from a person has meanwhile been paid by that person, no recovery shall be made from the person who had failed to collect or deduct the tax but the said person shall be liable to pay [default surcharge] at the rate of ("twelve"] percent per annum from the date he failed to collect or deduct the tax to the date the tax was paid.
(2) A person personally liable for an amount of tax under sub-section (1) as a result of failing to collect or deduct the tax shall be entitled to recover the tax from the person from whom the tax should have been collected or deducted.
[(3) The Commissioner may, after making, or causing to be made, such enquiries as he deems necessary, amend or further amend an order of recovery under sub-section (1), if he considers that the order is erroneous in so far it is prejudicial to the interest of revenue: Provided that the order recovery shall not be amended, unless the person referred to in sub- section (1) has been provided an opportunity of being heard."
The above provision of law clearly provides that before passing any order under Section 161 of the 2001 Ordinance, an opportunity of hearing shall be granted to the taxpayer, however, the said law does not empower the tax department to conduct the audit proceedings. Under the provisions of the Income Tax Ordinance, 2001, audit proceedings can only be conducted under Section 177 by the Commissioner and under the same, the Commissioner has to record reasons for conducting audit; the audit proceedings can also be conducted under Section 214C of the Income Tax Ordinance, 2001, whereby the Board may select a taxpayer for audit through computer ballot which may be random or parametric as laid down in the said provision. In the referred background, it is clear that proceedings under Section 161 of the 2001 Ordinance can be initiated for recovery of the amount which the taxpayer failed to withhold, however, no roving inquiry can be undertaken in this behalf and the law is to be followed in letter and spirit. In case, however, the department felt that the needful has not been done and was not sure about the amount in question, it could undertake the audit under Section 171 of the Income Tax Ordinance, 2001, but cannot conduct audit under Section 161 ibid.
7. During the course of proceedings, learned counsel for the Appellant placed reliance on a decision of the Supreme Court of Pakistan in Messrs Islamabad Electric Supply Company Limited versus The Appellate Tribunal Inland Revenue, Islamabad (2023 SCMR 1516). Reading of the judgment of the Supreme Court shows that the scheme of law as opined by this Court hereinabove has been reiterated. It has been discussed in paragraph-10 of the judgment that the legislature has not put into effect any precondition under Section 177 of the Ordinance to embark on an audit exercise first and then start proceedings under Section 161 of the Ordinance. There is no cavil with these principles and in case the department has cogent information that the amount has not been withheld which was required under the law, the Commissioner may, under Section 161, recover the said amount and the proceedings for recovery will commence under Section 161 after the taxpayer has been provided with an opportunity to be heard. Where, however, no definite information exists but there is only suspicion that amount has not been withheld, the competent authority could undertake audit and determine the amount which the taxpayer failed to withhold and in doing so the audit cannot be conducted under Section 161 of the Ordinance but only under Section 177 ibid. In view of the referred position of law, the judgment impugned before this Court does not suffer from any error of fact and law warranting interference.
8. For the above reasons, the instant appeal is devoid of merit and is accordingly dismissed.