Friday, 7 August 2015

Powers to Conduct Audit

PLJ 2015 (AJ&K) 1
Present: M. Tabassum Aftab Alvi, J.
versus
W.P. No. 1140 of 2014, decided on 2.7.2014.
----S. 44--Sales Tax Act, (VII of 1990), Ss. 25 & 72-B--Income Tax Ordinance, 2001--S. 177--Issuance of notice--Notice to complete sales tax and federal excise--Officers of Inland Revenue--Power to select and conduct audit--Failed to produce for audit of tax affairs--Recalling notice to conduct audit--Selection for audit is sole prerogative of Board of Revenue--No jurisdiction to issue notice--Taxpayer was provided facility of self assessment--Maintainability of petition--Income Tax Ordinance, 2001, also authorized commissioner to call record or documents including books of accounts maintained under Ordinance for purpose of conducting audit of income tax affairs--Empowered Commissioner for selecting and conducting audit or reassessing assessment filed by taxpayer and object of same is verification of assessment filed by taxpayer--Self assessment is to be considered as a gospel truth and by verifying same, any right of taxpayer would be violated--Self-assessment scheme no doubt, is a facility provided to taxpayer but object of same is to save taxpayer from agony of scrutiny, wasting time in offices and avoiding corrupt practices of tax authorities--Commissioner Inland Revenue can exercise his authority under Section 25, only in respect of a person, who has been selected by Board of Revenue, that would mean adding interpretation of statute levying taxes, however, it is established rule not to extend provision by implication, beyond clear import of language used or to enlarge their operation so as to embrace matters not specifically pointed out--No substance in instant writ petition, same is hereby dismissed in limine.                 [Pp. 7, 9, 10 & 11] A, B, C, D, E & F
Barrister Humayun Nawaz Khan, Advocate for Petitioner.
Mr. Babar Ali Khan, Advocate for Respondents.
Date of hearing: 2.7.2014.
Order
The supra titled writ petition has been addressed under Section 44 of the Azad Jammu & Kashmir Interim Constitution Act, 1974 whereby vires of impugned notices dated 15.01.2014, 12.02.2014, 26.03.2014 and 13.05.2014 respectively, issued by Respondents No, 1 to 3 against petitioner-company to complete sales tax and federal excise record, has been challenged for having been issued without lawful authority.
2.  The summary of the case is that petitioner is a company incorporated under law of Pakistan which is owner and developer of 84MW Hydroelectric Power Generating Complex, known as The New Bong Escape Hydroelectric Power Complex, located at 7 km (approx) down stream of Mangla Dam. It is averred that Additional Commissioner Inland Revenue, Respondent No. 2, without any lawful authority, issued a notice to complete sales tax and federal excise record within fifteen days of issuance of notice dated 15.01.2014. The petitioner being company through its Chartered Accountant, responded to the aforesaid letter, through representation/letter dated 23.01.2014 and objected the same on various grounds. However, despite the above mentioned representation/letter Respondent No. 2, arbitrarily and unilaterally again directed to petitioner for production of requisite details through letter dated 12.02.2014. Meanwhile, Deputy Commissioner Inland Revenue-Respondent No. 3, issued a similar notice to petitioner on 26.03.2014 and directed to produce relevant record to audit office on 30.4.2014, which was controverted through letter dated 28.04.2014. As Respondent No. 2 turned down legal demands of petitioner through letter dated 13.05.2014, hence, petitioner constrained to file the instant constitution petition.
3.  On pre-admission notice, Respondents No. 1 & 2 have filed parawise comments, wherein it is stated that petitioner has got no locus standi to file the instant writ petition. It is averred that petitioner has got an alternate and adequate remedy, hence, writ petition is not maintainable. It is further stated that petitioner was selected for audit by Commissioner Inland Revenue, Respondent No. 1, in exercise of powers entrusted under Section 25 of Sales Tax Act, 1990, read with Section 46 of Federal Excise Act, 2005 and prayed for dismissal of writ petition in limine.
4.  Barrister Humayun Nawaz Khan, the learned counsel for petitioner vehemently argued that Commissioner and Additional Commissioner Inland Revenue, Respondents No. 1 to 3 were having no jurisdiction to issue the impugned notices to conduct audit under Section 25 of Sales Tax Act, 1990, coupled with Section 46 of Federal Excise Act, 2005. He argued that under Section 72B only Board was empowered to select person or classes of persons for audit of tax affairs, hence, the impugned notices were coram-non-judice, which are liable to be struck down. The learned counsel in support of his contention referred to and relied upon an unreported judgment of the Lahore High Court passed in Writ Petition No. 393/2012, titled M/s. Chenone Stores Ltd. v. The Federal Board of Revenue, etc. decided on 20.05.2012 and submitted for admission of writ petition.
5.  Mr. Babar Ali Khan, the learned counsel for Respondents No. 1 and 2 strenuously argued that under Section 25 of Sales Tax Act, 1990; the Commissioner or officers of Inland Revenue, were in empowered to select and conduct audit, hence, the writ petition is baseless. The learned counsel pressed into service that ambiguity, if any, amongst the powers of Board of Revenue under Section 72B and Commissioner under Section 25 of Sales Tax Act, 1990, was clarified by the law makers through adding "Explanation" to sub-section (5) of Section 25 of Sales Tax Act, 1990. He further argued that powers of Commissioner Inland Revenue and Board of Revenue under the aforesaid provisions of law are independent, however, petitioner for mala-fide reasons failed to produce relevant record for audit of tax affairs. The learned counsel submitted that on identical facts and grounds various notices issued by Commissioner Inland Revenue were challenged before the Islamabad High Court in case titled OMV Pakistan Exploration V. Commissioner of Inland Revenue etc. decided on 12.03.2013, however, all the writ petitions were dismissed through the aforesaid consolidated judgment and submitted for dismissal of writ petition in limine.
6.  After hearing the learned counsel for parties, I have perused the contents of writ petition as well as comments, examined the appended documents with utmost care and have given my earnest thought to the points raised by the learned counsel for parties. A perusal of record reveals that Additional Commissioner Inland Revenue, Respondent No. 2, issued notice dated 15.01.2014, to conduct audit of petitioner-company and directed it to complete sales tax and federal excise record within 15 days of the issuance of the aforesaid notice. The petitioner while referring judgment of the Lahore High Court passed in Writ Petition No. 393/2012 titled M/s. Chenone Stores Ltd. v. The Federal Board of Revenuedecided on 20.05.2012, craved for recalling notice to conduct its audit on the ground that selection for audit is sole prerogative of Board of Revenue under Section 72B of Sales Tax Act. 1990, however, Commissioner Inland Revenue, under Section 25 of the aforesaid Act, was having no jurisdiction to issue the impugned notice. Before considering vice-versa stand of parties pertaining to power of Commissioner to issue notice to produce record or documents from taxpayer, it is appropriate to reproduce Section 25 of Sales Tax Act, 1990, which reads as under:--
"25. [25. Access to record, documents, etc.--A person who is required to maintain any record or documents under this Act [or any other law] shall, as and when required by [Commissioner], 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 [the officer of Inland Revenue authorized by the Commissioner] and use of any machine on which such data is kept.]
[(2). The officer of Inland Revenue authorized by the Commissioner, on the basis of the record, obtained, under sub-section (1), may, once in a year, conduct audit:
          Provided that in case the Commissioner has information or sufficient evidence showing that such registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner, to conduct an inquiry or investigation under Section 38:
          Provided farther that nothing in this sub-section shall bar the officer of Inland Revenue from conducting audit of the records of the registered person if the same were earlier audited by the office of the Auditor General of Pakistan.
[(3)  After completion of the audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person's explanation on all the issues raised in the audit shall pass an order under Section 11 or Section 36, as the case may be]
[(4)  ***]
[(4A)  ***]
[(5)  Notwithstanding the penalties prescribed in Section 33, if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with [default surcharge] voluntarily, whenever it comes to his notice, before receipt of notice of audit, no penalty shall be recovered from him:
          Provided if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with [default surcharge] during the audit, or at any time before issuance of show-cause notice [* * *], he may deposit the evaded amount of tax, [default surcharge] under Section 34, and twenty-five percent of the penalty payable under Section 33:
          Provided further that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with [default surcharge] after issuance of show-cause notice, he shall deposit the evaded amount of tax, [default surcharge, under Section 34, and full amount of the penalty payable under Section 33 and thereafter, the show-cause notice, shall stand abated.]
[Explanation.--For the purpose of Sections 25, 38, 38A, 38B and 45A and for removal of doubt, it is declared that the powers of the Board, Commissioner or officer of Inland Revenue under these Sections are independent of the powers of the Board under Section 72B and nothing contained in Section 72B restricts the powers of the Board, Commissioner or officer of Inland Revenue to have access to premises, stocks, accounts, records, etc. under these Sections or to conduct audit under these sections.]
Likewise Section 72B of Sales Tax Act, 1990, relied upon by petitioner-company is also reproduced as follows:--
"[72B. Selection for audit by the Board.--
(1)  The Board may select persons or classes of persons for audit of tax affairs through computer ballot which may be random or parametric as the Board may deem fit.
(2)  Audit of tax affairs of persons selected under sub-section (1) shall be conducted as per procedure given in Section 25 and all the provisions of this Act shall apply accordingly.
(3)  For the removal of doubt, it is hereby declared that the Board shall be deemed always to have had, the power to select any persons or classes of persons for (sic)".
The bare reading of Section 25 of Sales Tax Act, 1990, makes it abundantly clear that Commissioner or officers of Inland Revenue authorized by Commissioner, are empowered to ask any taxpayer to produce record or documents which are in his possession or control for the purpose to conduct audit. Section 72B of the Act, supra, is independent which never ousted jurisdiction of Commissioner as visualized under Section 25 of the Act. The ambiguity, if any, was removed by the law makers through Explanation added by Finance Act, 2013 (XXII of 2013), assented on 29.06.2013. Therefore, the contention of the learned counsel for petitioner that Respondents No. 1 to 3 could not solicit record or select the company for audit is misconceived, hence, repelled.
7.  For the purpose of audit Section 177 of Income Tax Ordinance, 2001, also authorized the Commissioner to call record or documents including books of Accounts maintained under the Ordinance for the purpose of conducting audit of the Income Tax affairs, which is reproduced as follows:--
"[177. Audit.--[(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax (sic) 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:
(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 sub-section (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.]
[(3) to (5) ***]
(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 sub-section (1) or sub-section (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] [or the Commissioner] may appoint a firm of Chartered Accountants as defined under the Chartered Accounts Ordinance, 1961 (X of 1961) [or a firm of Cost and Management Accounts as defined under the Cost and Management Accounts 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 sub-section (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 sub-section.]
[(10)  Notwithstanding anything contained in sub-Sections (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 Accounts appointed by the Board or the Commissioner under sub-section (8) to conduct an audit, any accounts, documents and record, 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 Accounts or the firm of Cost and Management Accounts 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.]"
8.  A bear reading of Section 177 of Income Tax Ordinance, 2001, makes it clear that the same is pari materia of Section 25 of Sales Tax Act, 1990. Both the aforesaid Sections empowered the Commissioner for selecting and conducting the audit or reassessing the assessment filed by the Taxpayer and the object of the same is verification of assessment filed by the Taxpayer.
9.  Section 25 of Sales Tax Act, 1990, as it stands today, does not require any interpretation as the same is neither ambiguous nor vague. It must not be interpreted in the light of Section 72B rather the intent and object of Section 25 is required to be adjudged independently. By law a taxpayer has been provided facility of self-assessment. So the question is that if a taxpayer submits his returns and the same is deemed to be an assessment, would that mean that return filed by the taxpayer is not required to be verified? and whether the State has no authority to check the returns filed by the taxpayer and verify as to whether the assessment made by the taxpayer is correct or not?
10.  According to my humble view, it would be incorrect to hold that the self-assessment is to be considered as a gospel truth and by verifying the same, any right of the taxpayer would be violated. The self-assessment scheme no doubt, is a facility provided to the taxpayer but the object of the same is to save the taxpayer from agony of scrutiny, wasting time in the offices and avoiding corrupt practices of the tax authorities, if any. However, at the same time, the taxpayer is required to show source of income, his expenditure, the tax assessed honestly and without concealing anything. In these circumstances, the self-assessment submitted by the taxpayer has to be verified. It is because of this necessity that under Section 25, the Commissioner has been given the powers to call for record or documents of any person. The Commissioner, therefore, will have the authority to verify the record and assessment filed by any taxpayer. Section 25 of Sales Tax Act, 1990, is regarding procedure. Procedural provisions in fiscal laws refer to mechanism of assessment and collection of taxes from the taxpayers. The Commissioner Inland Revenue, therefore, will have the authority to conduct audit of the Tax affairs including examination of accounts and records, enquiry into the expenditures, assets and liabilities of the taxpayer. In other words, when the taxpayer was given the authority of self assessment, the Commissioner was given the authority to verify the assessment.
11.  Similarly Section 25 of Sales Tax Act, 1990, being clear and unambiguous, hence, neither any effort is required to look at the legislative history nor need any interpretation. In the present case, if it is presumed that the Commissioner Inland Revenue can exercise his authority under Section 25, only in respect of a person, who has been selected by the Board of Revenue, that would mean adding interpretation of statute levying taxes, however, it is established rule not to extend provision by implication, beyond the clear import of the language used or to enlarge their operation so as to embrace matters not specifically pointed out.
12.  The various petitioners, on identical facts and grounds challenged notices before the Islamabad High Court and all the writ petitions were dismissed against similar notices through consolidated unreported judgment titled OMV Pakistan Exploration V. Commissioner of Inland Revenue etc. decided, on 12.03.2013. In this regard relevant Paragraphs No. 31 and 32 of the aforesaid judgment are reproduced as follows:--
"31. Section 214 (C) has been placed in Chapter 11 of the Income Tax Ordinance, 2001, which is regarding administration of tax authorities. Section 214(b) and (C) are regarding powers of Board to call for any record. The object of Section 214(C) is that the Board must keep a check upon the subordinate officers and must confirm that the assessments are properly made. Section 214(C) is in fact check upon the tax authorities, so that they must not be left unchecked. Since it would not be possible for the Board to examine every case, so the law has provided that without any discrimination, through computer ballot, Board may select a person or class of persons and conduct the audit of those persons in accordance with the procedure provided in Section 177, in order to satisfy itself that the tax authorities had performed their duty in accordance with law and the taxpayer had made proper assessment.
32.  In view of abovementioned facts, I hold that the objective criteria or prior selection is not requirement of audit to be conducted by the Commissioner. Section 177 and Section 214(C) are two independent sections. Section 214(C) is not subservient to Section 177. Under Section 177, the Commissioner has the authority to verify the correctness of assessment filed by the taxpayer under self-assessment scheme. The same is not violative of any article of the Constitution and cannot be treated as discriminatory. Accordingly, all these writ petitions are dismissed."
13.  The contention of the learned counsel for petitioner that in view of law laid down by the Lahore High Court in case titled M/s. Chenone Stores Ltd. vs. The Federal Board of Revenue etc. decided on 20.05.2012, the Commissioner and other Officers of Inland Revenue cannot select any tax payer for the purpose of audit is not tenable for the reason that, the aforesaid judgment was declared as nullity in the eye of law by the apex Court of Pakistan in Civil Appeal No. 1032/2012 titled Federal Board of Revenue through its Chairman, etc. vs. M/s. Jamal Pipe Industries (Pvt.) Ltd., Lahore, along with 88 other appeals, decided on 03.01.2013.
14.  The law on the subject is, therefore, unambiguous rather crystal clear which hardly need any interpretation of this Court.
15.  For the reasons enlisted above, admission of writ petition in view of the clear provisions of law, would be a futile exercise, hence, finding no substance in the instant writ petition, the same is hereby dismissed in limine and consigned to record.
(R.A.)                                                                      Petition dismissed.


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