' This judgment shall dispose of the following Writ Petitions:--
(1) W.P. 4964 of 2003; (2) W.P. 4479 of 2003; (3) W.P. 4146 of 2003; (4) W.P. 4816 of 2003; (5) W.P. 4480 of 2003; (6) W.P. 4478 of 2003; (7) W.P. 4229 of 2003; 8) W.P. 5025 of 2003; (9) W.P. 6306 of 2003; (10)
W.P. 6286 of 2003; (11) W.P. 4321 of 2003; (12) W.P. 6062 of 2003; (13) W.P. 6064 of 2003; (14) W.P. 6065 of 2003; (15) W.P. 8093 of 2003 and (16) W.P. 8306 of 2003.
2. In these cases the petitioners had submitted their income tax returns under the Self-Assessment Scheme for the years 2002-2003 within the due date. The grievance arose to them when their cases were set apart for total audit under the provisions of paragraph No,9 of the Circular No, 7 of 2002, dated 15-6-2002 issued by the Central Board of Revenue reflecting the Self-Assessment Scheme for the years 2002-2003. The Self-Assessment Schemes (SAS) are issued under the provisions of section 59 of the Income Tax Ordinance, 1979, which reads as follows:-- ' Self-Assessm ent:--(1) Where the return of total income for any income year furnished by the assessee not being a company engaged in the business of banking, leasing and modaraba, under section 55 qualifies for acceptance in accordance with the provisions of a scheme of self- assessm ent made by the Central Board of Revenue for that year or under any instructions or order issued thereunder, the Deputy Commissioner shall assess, by an order in writing, the total income of the assessee on the basis of such return and determine the tax payable on the basis of such assessm ent.
(1-A) Notwithstanding anything contained in subsection (1), the Central Board of Revenue or any authority subordinate to it, if so authorized by the Central Board of Revenue in this behalf, may, in accordance with a scheme referred to in subsection (1), select out of returns referred to in that subsection any cases or -classes of cases or persons or class of persons, howsoever determined, for assessm ent under section 62, and the Deputy Commissioner shall proceed to make the assessm ent under that section or, if the circumstances so warrant, under section 63, accordingly.
(3) In assessing the total income and determining the tax payable under subsection (1), the Deputy Commissioner may make such adjustments as may be necessary, including any adjustment under sections 34, 35, 36, 37, 38, 50, 53 or 54, the rules made under section 165, the First Schedule and the Third Schedule.
(4) No order under subsection (1) shall be made in any case after the thirtieth day of June of the financial year next following the income year in respect of which a return of total income has been furnished under section 55:-- ' Provided that if such order is not passed by such date order under subsection (1) shall be deemed to have been passed on such date."
3. The Scheme for 2002-2003 had the following scope:--(1) Scope of the Scheme; (1.1)All returns filed by taxpayers, other than those that are ineligible under para 7 of this Scheme, shall qualify for acceptance subject to the fulfillment of the following conditions, namely:--
(a) tax has been fully paid under section 54 of the Ordinance and proof of such payment is attached with the return;
(b) return of income for the assessment year 2002-2003 has been filed under section 55 of the Ordinance, within due date as defined in this Scheme;
(c) returns of Public Limited Companies quoted on stock exchange, where tax payable on the income declared is equal to or more than the tax payable on the income last declared or assessed, whichever is higher;
(d) returns of other Companies, where tax payable on the income declared is higher by ten per cent (10%) or more compared to the tax payable on the income last declared or assessed, whichever is higher;
(e) returns of Registered Firms of Professionals not liable to pay Super Tax under clause (2B) of Para (A) of Part-IV of 1st Schedule to the Ordinance, where the tax computed, under Part-II of the 1st Schedule to the Ordinance, on income declared is higher by twenty per cent (20%) as compared to the similar tax computed on the income last declared or assessed, whichever is higher; and
(f) returns of Persons not being Companies of Registered Firms of Professionals, as indicated in sub-para (c) (d) & (e) above, where tax payable on income declared his higher by twenty per cent (20%) or more as compared to the tax payable on the income last declared or assessed, whichever is higher.
4. The returns which are not eligible for purposes of the Scheme are covered under its paragraph 7 which reads as follows:-- RETURNS NOT ELIGIBLE:-- ' Following returns shall not be eligible for acceptance and shall automatically be subject to total audit:--
(I) All cases where loss has been declared.
(ii) All 'cases where income has been arrived at by making a lump-sum addition.
(iii) All cases of non-residents.
(iv) All cases of modarabas and companies engaged in the banking and leasing business.
(v) All cases, where a legal issue is pending in any appeal in respect of a previous assessment and the same issued exists in the current year, unless the appeal/reference is withdrawn either by the taxpayer or the Department as the case may be, before the filing of return under the Scheme.
(vi) All returns where there is evidence of concealment of income.
5. Whereas, for the selection of cases for purposes of audit, the procedure prescribed under section 9 reads as follows:-- SELECTION OF CASES FOR AUDIT:--
(a) From amongst the returns filed under the Self-Assessment Scheme (excluding salary aid only property income cases), twenty per cent (20%) returns may be selected for total audit in the following manner:--
(i) through computer ballot which may be random or parametric, as -deemed fit by C.B.R.
(ii) By Regional Commissioners of Income Tax on the recommendations of Commissioners concerned, in the light of guidelines issued by the Central Board of Revenue in this behalf.
(b) Returns qualifying for self-assessment shall be expeditiously processed either manually, or through computer, after the selection of cases for total audit. The Assessing Officer shall made necessary adjustments under section 59(3) of the Ordinance, if so required, after giving a notice in writing to the assessee and considering his explanation, if any. These adjustments may include add-backs on account of:--
(i) expenses claimed which are legally inadmissible;
(ii) any 'sum (s) deemed to be income under the Ordinance: and
(iii) adding agricultural income to the chargeable income for the purposes in terms of Proviso to clause (1) of part-I of the Second Schedule to the Ordinance.
' And the processing of cases selected for audit are given in paragraph No,10, which reads as follows:-- "The cases selected for total audit, shall be scrutinized in detail, including field audit by departmental officers or by professional auditors authorized under section 4A of the Ordinance.
The investigation and assessm ent proceedings shall be monitored and completed under guidance of supervisory officers within the meaning of section 7 of the Ordinance. Information collected from available sources shall be utilized for determining income of the taxpayer and tax payable thereon."
6. On the 17th of December, 2002, the Board of Revenue addressed a guideline pursuant to the Scheme for selection of cases for total audit and this reads as follows:-- "In order to fulfill the above obligation of the Scheme regarding issuance of the guidelines, it has been decided that the RCsIT shall only those revenue potential cases, where there is an evidence, information or reason to believe that the true particulars of income have been suppressed. Such selection may be based upon factors including an evidence decline in income and disparity in expense on utilities vis-a-vis income declared. Besides, cases of taxpayers acquiring new assets or incurring a liability of Rs,.5,000 or more through a non-institutional loan, as declared in their wealth statements or where Department is otherwise in the knowledge of some investments made by them, also need to be considered for selection, if it is felt that sources of such acquisition/investment require detailed examination. In order to identify such cases the tax profiles of Survey & Registration may also be consulted.
' Further, the Racist may please recall that last year a number of taxpayers lodged complaints before the learned Federal Tax Ombudsman that their cases were selected on frivolous grounds.
This time it must be ensured that selection is based on material evidences and a fair and just treatment is accorded to all taxpayers. Before making a final selection, the Racist must confront the assessee, provide them due opportunity of being heard and must indicate the basis of their proposed selection in the notices to be communicated to them.
' Board would like to further add that powers to set apart cases for total audit must not be indiscriminately used and be restricted to only those revenue potential cases where there is a sound basis. Board desires that the process of selection of cases for total audit must be finalized by 10th of January, 2003 and thereafter be favoured with Zone-wise lists of cases so selected. It may be reiterated that selection of cases for total audit must be carried out in a judicious and transparent manner."
7. Historically speaking the Self-Assessment Scheme was being empirically tested since the inception of rule 46 of the Income Tax Rules 1962. It took the shape of statutory scheme through the Finance Tax Ordinance, 1979 and because of Circular No,3 of 1979 issued on 13th August, 1979 by the Central Board of Revenue, the Self-Assessment Scheme was given effect and a methodology was prescribed for entry, A processing and for decisions.
8 . Obviously, the aim of the scheme was to structure discretion and to encourage people to come forward with their declarations voluntarily.
9. The rationale behind the scheme is reflected in the case of Income Tax Officer and another v.
Messrs Chappal Builders (1993 SCM R 1108), which reads as follows:-- "The purpose of self-assessm ent scheme introduced in the Income Tax Law of Pakistan was to encourage the taxpayers to make contribution towards State efforts in running the Government and other related State machinery more willingly than it used to be under the normal assessment scheme. One purpose was to save an honest taxpayer from unnecessary suspicion, accusation and torture of being accused and/or found guilty of deceit and falsehood. This being the main purpose, case was taken to safeguard the interest of the State also against deceit and cheating even in the Self-Assessm ent Scheme. For the latter purpose the scheme as well as the provisions in the Income Tax Ordinance provided for a very limited re-opening of the self-assessment."
10. In this connection reference may further be made to the case of Messrs Ikhlaq Cloth House, Faisalabad v. Assistant Commissioner of Income Tax, Faisalabad and others (2001 PTD 3121).
11. It is the case of the petitioners that as the Self-Assessment Scheme curtailed the excessive discretionary powers of the Income Tax Officer, they in vengeance had been steadfastly and with perseverance endeavouring to defeat the scheme so that they enjoyed the powers which they did before 1979.
12. That the problems arise when the selection is made as per paragraph 9(2) of the SAS 2002- 2003. When the Regional Commissioner pick cases without adverting to the facts and circumstances and on the basis of whims and history of the cases while acting subjectively and mechanically. In these cases when. Notices were issued to the assessees informing them that their cases were not longer to be treated in the SAS, they made replies explaining the queries raised. But it is said that without hearing and, rather perfunctorily their pleas were dropped and the cases were fixed for total audit.
13. It is said that when a Government declares a scheme like the one under reference, it should repose sufficient confidence in the taxpayers in the matter of filing of the returns. That SAS cannot be used as a trap. That when the Government offers an incentive, it cannot defeat the very purpose of the incentive on flimsy grounds. That otherwise Government's own reputation will be at stake and it creditability impaired.
14. It was argued that if the replies submitted were properly considered and petitioners were also heard, the occasion for setting apart their cases for detailed scrutiny may have not arisen in these cases.
15. It has also been argued that the Board of Revenue being a delegatee of the legislature had to act itself under section 59 of the D Income Tax Act and could not delegate powers for selection of cases for setting apart under the Scheme under reference.
16. However, this argument coming from the petitioners' side can be answered while making reference to the cases of: (1) Mrs. Yasmeen Lari v. Registrar, Income Tax Appellate Tribunal (1990 PTD 967); and (2) Muhammad Asghar and others v. Income Tax Officer and others (1986 PTD 357).
17. In the case of Mian Kamal Anwar, Sargodha Road Faisalabad v. Income Tax Appellate Tribunal, Lahore and others (2002 PTD 1895), it was laid down that C.B.R. Was authorized to frame Self- Assessm ent Scheme and any instruction issued by the Board in furtherance, of Self- E Assessment Scheme ought to be read as a part of the Scheme.
18. It was argued that any method adopted for purposes of selection has to be transparent, objective, sensible in terms of the dynamics of business rather than based no anachronistic theory of income and expenditure.
19. Another grievance raised by the petitioners was that after fixing the date of 10th of January, 2003, the date was arbitrarily and quietly rather surreptitiously extended in order to trap more people who had submitted their returns under the SAS.
20. Talking of transparency and while making reference to the cases of Messrs Muhammadi Oil Trading Co. Karachi. v. Regional Commissioner of Income Tax, Southern Region, Karachi and another (1994 PTD 494) and Messrs Pakistan Educational Society v. The Government of Pakistan through Chairman and Secretary, Revenue Division, Islamabad and 2 others (1993 PTD 804), it was said that the Assessing Authority must have a solid information about any tax evasion not one based on a mere guess, gossip or rumor, rather it should be based on material evidence available on the record. And that an Income Tax Officer ought to honestly believe that the material does support his view about the concealment of the true income.
21. The learned counsel appearing on behalf of the Department was of the view that a subordinate to the Board of Revenue could execute the scheme according to the guidelines to be given by the Board of Revenue and that there was no illegality attached either to the instructions/guidelines or the scheme itself which has a statutory backing.
22. While going through these cases it was discovered that notices were issued by the Regional Commissioner to the writ petitioners mentioning the grounds for directing the cases to be put through audit test. We also had the advantage of seeing the detailed replies.
23. Some of the petitioners took the plea that had their documents has been different. Which, obviously, means that after the submission of the reply to the Show-Cause Notice given by the Regional Commissioner Income Tax to the assessees if hearing too was afforded and a speaking order written in their presence and the presence of department's representative and record seen in that sitting, it would have met the ends of justice. That the exercise of hearing was in harmony with the instructions of the Board of Revenue and which would have helped the department in picking up only the befitting cases for total audit.
24. On the other hand, we also have to keep in mind that all civilized Government keep narrow their credibility gap vis-a-vis their citizens otherwise, all policies of the government were bound to be taken skeptically and the failures were inevitable.
25. By throwing open a promise that the cases filed under SAS would be acceptable without the smell of embellishment/suppression of income/its concealment assured a taxpayer that he will be trusted as far as possible until there were real and floating circumstances appearing from the record reflecting cheating on his part. The promise gave him an understanding that only in such a case he would be denied availing the benefit of this Scheme and not otherwise.
26. As we are aware, persuasive epigrams can be written to show proper scrutiny of record without the exact exercise having taken place as a prelude for setting of a case for total audit. But how is the preliminary scrutiny possible without hearing the person who replies to a Show-Cause Notice and appends documents showing the source of his income, the actual income, his expenditures and savings with any admissible benefits.
27. Of course, Government policies framed with noble intentions get bruised and defeated often fractured in the arena of the subordinate echelons where invariably the spirit and purpose of the policies framed by the Board of Revenue hardly permeate.
28. For ensuring that its policy succeeded, the Board of Revenue as the apex body in matters of revenue ought to have a forum for checking whether an assessee whose returns under SAS was being set apart for complete audit had a genuine grouse and, if so what was the cure. Ubi Jus Ibi Remendium is an elementary maxim, which means that if a person has a right, he should also have a means to vindicate and maintain it, and a remedy if he is injured in the exercise and enjoyment of it; and, indeed, it is a vain thing to imagine a right without a remedy, for want of right and want of remedy are reciprocal. Per Holt, C.J., in Ashby v. White, 2 Raym. Ld. 938 at p.753 see per Vaughan, C.J., in Dixon v. Harrison, Vaugh. 37, at P. 47, and in North v. Code, Vaugh, 251, at P.253; and per Willers, C.J., in Winsmore v. Greenbank, Will, 577, at p.581.
29. Obviously, entitling every assessee to submit his assessment under the Self-Assessment Scheme, in bestowing a right on him which is of course subject to the condition that if there was any skepticism about it, may fail on ground of eligibility. But this skepticism has to be well based and calls for scrutiny and check. Otherwise, the rights bestowed would be nullified on basis of guess, whims and bias, and this way the progressive ideas needing caress and protection would get destroyed.
30. This duty can be performed by a committee comprising of the local Regional Commissioner Income Tax joined by the Commissioner of Income Tax and any other inductee conversant with the law. Who may hear the parties and then adjudge. This will then be a domestic forum for resolving the dispute without delay. It will provide an in house care and will surely be helpful in reducing litigation, safe guarding Government policies while keeping a check on arbitrariness so rampant in our system.
31. As this Court has not been informed whether such a body exists, it would like to remit all these cases to a body of three persons to be constituted by the Board of Revenue for each zone headed by a Regional Commissioner and membered by the Commissioners for taking a M majority decisions through a speaking order on the question of validity of the objections raised by a assessee before his case is put to total audit. This can be the minimum safeguard to be provided to a citizen in our difficult system.
32. As in these cases before embarking upon setting aside of the returns under SAS no hearing was afforded to the assessees for personal explanation, the Committee to be formed in the next fourteen days shall study each of the cases aforementioned and will then determine in the light of the observations aforementioned the guidelines, the rationale of SAS and the instructions issued from time to time by the Board of N Revenue the merits of each case. The Committee shall finalize all these cases after passing speaking and objective orders to be signed by all the members within a period of ten weeks from today and during which time the orders impugned through these writ petitions shall be kept in abeyance. Copy of the orders thus passed shall be sent to this Court through its Deputy Registrar (Judicial).
33. Copies of this order be sent to the Board of Revenue and Regional Commissioner Income Tax, Lahore, for compliance.
34. With these observations, the writ petitions are disposed of.