LAHORE – Putting the Federal Board of in a great trouble, the Lahore High Court on Thursday declared unconstitutional the Federal Board of Revenue (FBR) powers under 1A of section 214C of Income Tax Ordinance 2001 to keep confidential the parameters under which the taxpayers are selected for their audit selections.
The court also set aside all the notices issued under sub-section 1A of section 214c to the various taxpayers selected for audit also denying their access to from parameters under which they are selected for audit.
Justice Abid Aziz Sheikh partially allowed all the writ petitions moved by the taxpayers challenging the 1A of section 214C of Income Tax Ordinance 2001 by interpreting that sub-section 1A of section 241C is a violation of Article 10-A and 19-A of the constitution of Pakistan which guarantees the right of fair trail of every citizen and provision of every information.
Muhammad Ajmal Khan Advocate, counsel of a tax payer ‘happy manufacturing’, argued that impugned provision of section 214C(1A) of the Ordinance, which required the Board to keep the parameters for selection of case for audit confidential is ultra vires of provision of Articles 4,8,10-A,19 and 19-A of the Constitution. He remarked that decision of Board to keep the parameters for selection of audit confidential is also against the law settled by the court. He further argued all the laws including Qanoon-e-Shahadat Ordinance in the country allows the accused persons to know that charge on them, but only Income Tax Ordinance denies the information under which the tax payers are being trailed.
“How can a taxpayer defend himself and queries raised before him during the process of audit when parameters and reasons will not be disclosed to him”? Advocate Khan concluded.
Naveed A. Andrabi, Advocate for some another petitioners submitted that provision of section 214C(1A) does not specifically restrain the Board after selection, from disclosing the specific parameter on the basis of which, the petitioners are selected for audit and therefore, Board is mis-constructing the impugned provision of section 214C(1A).
He added that impugned provision is violative of petitioner’s fundamental right of fair trial and due process guaranteed under Article 10-A of the Constitution and even petitioner’s right of business under Article 18 of the Constitution has been infringed as petitioners have unnecessarily been involved in giving details of their accounts, during audit without any specific allegation.
FBR Counsels opposed the petitions by arguing that mere selection for audit does not cause any actionable injury to tax payers. Submits that guidelines for selection of audit are administrative in nature and meant only for internal consumption of tax authorities, therefore, no fundamental right of petitioners has been infringed for not disclosing said guidelines.
The Court, after hearing the detailed arguments, issued the judgment by holding that the impugned orders for not disclosing the specific parameter applied to petitioners for selection of their cases for audit under section 214C of the Ordinance, are declared to be illegal and without lawful authority and therefore set aside.
The court holds that the impugned provision is construed and read down to the effect that under subsection (1A) of Section 214C of the Ordinance, the Board shall keep the parameters confidential. However, once persons or classes of persons are selected for audit under section 214C of the Ordinance, they shall be informed about the particular risk parameter applied to them for selection of audit, if demanded by them for their information.
The judgment says that Board is directed to inform the petitioners forthwith if requested by them, the specific parameters on the basis of which, their cases were selected for audit under section 214C of the Ordinance.
The court observed in the judgment that the matter regarding selection of audit on parametric basis under the Ordinance was considered by this Court as well as Hon’ble Supreme Court and in number of cases and disclosure of parameters was never considered as a threat resulting in evasion of tax or frustration of Audit Policy. Rather the learned Courts have repeatedly held that risk parameters should be fair and publically advertised for the sake of taxpayer convenience.
The court further observed that “In present case, it is not legally justified that what evil will be remedied by keeping the parameters confidential, especially when it is repeatedly directed by Courts that parameters be transparent and publically disclosed.”
In the verdict against FBR, the court also noted that Audit Policy, 2016 itself provide that paradymic shift from random to parametric selection audit and from general to risk base approach, will minimize chance of selection of Audit of compliant taxpayer.
This means that taxpayer who are selected are in some manner not compliant taxpayers, hence they have right to know that under which particular parameter, their case fall for selection of audit.
The court further noted that Audit Policy, 2016 itself provide that paradymic shift from random to parametric selection audit and from general to risk base approach, will minimize chance of selection of Audit of compliant taxpayer. This means that taxpayer who are selected are in some manner not compliant taxpayers, hence they have right to know that under which particular parameter, their case fall for selection of audit restriction under section 214C(1A) of the Ordinance unreasonable.
Justice Abid Aziz Sheikh also holds that the impugned provision is also unreasonable for giving arbitrary and unstructured power to the Board. The judge observed that the income tax audit is conducted by Commissioner under section 177 or by Board under section 214C of the Ordinance and under section 177 he is bound to give reasons for impugned selection for audit whereas the Board under section 214C has absolute discretion for selection of Audit and is not even bound to disclose parameters. He further observed that It is settled law that discretion must be structured and exercised justly, fairly and in transparent manner.
