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Official Citation: 2024 PTD 8
Court / Jurisdiction: Lahore High Court
Year of Decision: 2022
Decision Date: 2022-12-28
Parties: Outfitters Stores (Private) Limited vs Federation of Pakistan, etc.
Ruling Summary: This decision was rendered by the Lahore High Court on 2022-12-28, officially reported as 2024 PTD 8. In this matter between Outfitters Stores (Private) Limited and Federation of Pakistan, etc., the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2024 PTD 8
Court Name: Lahore High Court Judge(s): Asim Hafeez Title: Outfitters Stores (Private) Limited vs Federation of Pakistan, etc. Case No.: W.P. No.68823/2022 Date of Judgment:2022-12-28 Reported As: 2022 LHC 8442, 2024 PTD 8 Result: Petition Dismissed
Judgment ORDER Context of the petition This is second constitutional petition, within a span of two months, wherein following reliefs are claimed, "In view of above facts and circumstances, it is most respectfully prayed that audit report dated 21.10.2022 issued under 177(6) of the Income Tax Ordinance, 2001 and show cause notice dated 24.10.2022 issued under Section 11 of the Sales Tax Act, 1990 be declared illegal, unlawful, void ab initio and violative of the orders dated 19.10.2022 passed by this Honourable Court in W.P. No.64261/2022. It is also prayed that Authorization Order dated 27.09.2022 issued under Section 175 of the Income Tax Ordinance, 2001 by respondent No.2 / CIR and coercive actions including raid, search and impounding of record, documents and equipment by the respondent No.3 / DCIR along with other two dozen officials of the FBR be declared unlawful, illegal, void ab initio, without jurisdiction and violative to the law settled on the subject by the Honourable High Courts of the Country. It is also prayed that the respondents may graciously be directed to return all equipment, laptops, desktops, record and documents impounded from the premises of the petitioner in terms of Section 175 of the Ordinance". 2. To contextualize the context of instant petition, it is expedient to reproduce reliefs earlier sought through W.P. No.64261/2022 ('earlier petition'), which read as, "In view of above facts and circumstances, it is most respectfully prayed that this Honourable Court may graciously declare and direct the following,
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i. Impugned order dated 27.09.2022 issued by the respondent No.2 / Commissioner IR may graciously be declared unlawful, illegal, without jurisdiction, void ab initio and be set aside. ii. The assumption and exercise of power by the respondent No.3 / Deputy Commissioner IR along with 20 unauthorized persons against the petitioner, is without lawful authority, unconstitutional, wholly without jurisdiction, and the same are of no legal effect. iii. Further proceedings on the basis of illegal orders and actions taken by the respondents may kindly be declared void, illegal, and impermissible under the law. iv. The respondents may graciously be directed to return all equipment, laptops, desktops, record and documents impounded from the premises of the petitioner. It is also prayed that proceedings initiated for tax year 2021 i.e. under Section 161 of the ordinance, show cause notice under Section 122(5A) of the Ordinance, selection for audit under Section 177 of the Ordinance and selection for audit under Section 25 of the Sales Tax Act, 1990, be declared illegal, unlawful and in violation of the law settled by this Honourable Court". 3. Earlier petition was disposed of by learned Single Judge in Chambers on 19.10.2022, operative part of the order reads as follows, "3. In this Court's opinion, the reasons noted above for invoking provisions of Section 175 and its denial by the petitioner constitute disputed facts, which cannot be looked into in constitutional jurisdiction. Nevertheless, the petitioner has a right of being heard particularly on the points of jurisdiction, if there is any, and for resolution of disputed facts. Same would be the legal position for notice under Section 161 and 122 of the Ordinance of 2001, which are independent proceedings. An office/commissioner, having jurisdiction to invoke these provisions cannot be stopped from proceedings merely on the allegation of malafide. Petitioner to raise these objections in writing before the concerned officers. If such objection is raised and any disputed facts or jurisdictional ground is required to be resolved the same be done through an independent order before proceeding further under the respective notices particularly notices dated 27.09.2022. For availing the remedy, in pursuance of this order, the petitioner has to approach the respondents within two days without fail. 4. At this stage, learned counsel for the petitioner submits that whole record has been taken into possession by the respondents and is not being returned, causing hardship for the petitioner to run the business affairs. This request be also taken before the respondents. If so raised the issue be resolved within seven days without fail. If there is any delay in returning the record, the reasons be communicated". 4. Record evidenced that thereafter, petitioner submitted series of written objections - copies whereof are available from pages 79 to 114 of this petition. Objections raised were apparently decided on 02.11.2022 by the respondent No.3. Copy of the order of 02.11.2022 was brought on record, by the counsel for respondent No.2, through application bearing C.M. No.6 of 2022. Incidiently, this petition was also filed on 02.11.2022, wherein, lately, petitioner has sought amendment through application bearing C.M. No.9/2022, for amending the petition inter alia to include challenge to the order dated 02.11.2022. Learned counsel for the respondent No.2 had objected to the application for amendment and emphasized that petition under reference is not maintainable in law, hence, no question of allowing any amendment arises. Since amendment sought, largely, has challenged legality of order of 02.11.2022, therefore request was allowed, and amended petition was accordingly taken on record. Object of the challenge: 5. Overtly the legal challenges tossed through this petition, are directed against purported exercise of powers under section 175 of the Income Tax Ordinance, 2001 ('Ordinance, 2001'), wherein inter
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alia certain declarations were sought against the conduct of continuing audit proceedings, attributing illegality to those proceedings in the wake of claim of illegal search, besides seeking declarations against show cause notice issued under section 11 of the Sales Tax Act 1990 ('Act, 1990'). Submissions on behalf of the Petitioner 6. Learned counsel primarily denounces alleged search carried out, purportedly in exercise of powers in terms of section 175 of the Ordinance, 2001. While elaborating submissions, learned counsel states that alleged raid-cum-search was conducted in the garb of authorization, allegedly granted by respondent No.2 - Commissioner Inland Revenue -, vide authorization letter dated 27.09.2022, which authorization was per se illegal and otherwise violates the mandate of the Circulars / directions, variously issued by the FBR, and no approval was solicited from the authorities, cited therein, before allegedly raiding petitioners' business premises. Adds that Circulars issued, and instructions conveyed are binding and have had to be adhered to, and any defiance qua terms thereof would denudes alleged action and all consequent proceedings of any legality. Reference is made to section 214 of the Ordinance, 2001, which is sought to be read in the context of Circular No. (24) Rev. Bud/2019 dated 14.05.2019 - where no premises could be raided without the permission of the Member (IR-Operations) and the Chairman. Learned counsel referred to sections 72 of Act, 1990 and section 233 of the Customs Act, 1969 (Act, 1969), calling these as pari materia provisions. Binding effect of circular / directions is emphasized by placing reliance on decisions in cases reported as Collector of Customs, Lahore V. Nestle Milk Pack Limited, Sheikhupura (2007 PTD 921), Muhammad Waheed through Attorney V. Customs Appellate Tribunal and another (2016 PTD 35) and (1) The Province of West Pakistan through the Secretary, Social Welfare and Local Government Department, and (2) The Registrar, Co- operative Societies, West Pakistan, Lahore V. Ch. Din Muhammad and others (PLD 1964 Supreme Court 21). 7. While explaining scope of section 175 of the Ordinance, 2001, learned counsel emphasized that instructions communicated through Circulars were essentially issued to guard against the highhandedness of the tax officers and to provide checks to control and regulate the powers / authority to search. Adds that such Circulars are intended to safeguard the taxpayers against exploitation and misuse of authority. Adds that similar actions, purportedly taken in the garb of powers under section 175 of the Ordinance, 2001, were declared illegal by the constitutional courts, and reference is made to decisions reported as Agha Steel Industries Ltd. through Authorized Company Secretary and another V. Directorate of Intelligence and Investigation through Director and 2 others (2019 PTD 2119), Khurram Shahzad V. Federation of Pakistan and others (2019 PTD 1124), K.K. Oil and Ghee Mills (Pvt.) Ltd. V. Federal Board of Revenue and others (2016 PTD 2601), A.M.Z. Spinning & Weaving Mills (Pvt.) Ltd. through Manager Finance V. Federation of Pakistan through Secretary, Revenue Division/ Ex-Officio Chairman, C.B.R., Islamabad and 2 others (2009 PTD 1083). Learned counsel submits that various other statutes in the family of fiscal laws, coming under the purview of FBR, contained and provided adequate limitations and restraints to control arbitrary and abrupt expeditions, which limitations and restraints were liberally construed and progressively reinforced by the constitutional courts, and such decisions are binding and have had to be followed by the authorities before conducting searches. Adds that adherence to judicial precedents is conspicuously lacking in the circumstances of instant case, where no approvals were procured before raiding the premises. Learned counsel referred to section 40 of Act, 1990, section 25 of the Federal Excise Act, 2005 (Act, 2005) and section 162 of Act, 1969. Submits that limitations provided, and restraints defined in related statutes must be read and borrowed while construing section 175 of the Ordinance, 2001. Submits that discretion extended under section 175
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ibid, calls for structuring and rationalization under constitutional dispensation. To support submissions, reference is made to the cases of Messrs Ihsan Yousaf Textile Mills (Pvt.) Ltd., Faisalabad V. Federation of Pakistan through Ministry of Finance, Islamabad and 4 others (2003 PTD 2037), Federation of Pakistan through Secretary, Ministry of Finance, Federal Secretariat, Islamabad and 4 others V. Messrs Master Enterprises (Pvt.) Ltd. through Managing Director (2003 PTD 1034) and Collector of Sales Tax and others V. Messrs Food Consults (Pvt.) Ltd. and another (2007 PTD 2356). 8. Elaborating submissions, learned counsel step of conducting raid, disguised as audit related search, when petitioner had extended full cooperation to the officials conducting audit and substantially provided all requisite documents, voluntarily. Submits that details of the information / documents provided are provided in paragraph 3 of the petition. And factum of provisioning of voluminous record was acknowledged. Agitating the grievance, learned counsel submits that department ambushed the premises and even took away irrelevant and unnecessary documents, comprising of cheque books, employees record, classified business / trade information, which documents are still retained and requests for providing copies fell on deaf ears. And such failure had rendered petitioner unable to facilitate conduct of audit. Learned counsel further submits that directions by this Court issued in W.P. No.64261/2022 were not followed. Submits that various objections were raised qua initiation and maintainability of multiple proceedings, involving notices under sections 161, 122 (5) of the Ordinance, 2001 and section 25 of Act, 1990. Objections were separately raised against each set of proceedings, wherein primarily the authority / jurisdiction of the officers were challenged, which objections were rejected without appreciating jurisdictional questions. Adds that respondent No.3 has allegedly decided these objections, who is subordinate in rank to respondent No.2 - which had issued authorization letter -, and how it could be expected that respondent No.3 would act impartially and fairly, while adjudging the legality of authorization letter dated 27.09.2022. Adds that mere passing of composite order of 02.11.2022 is contrary to the directions issued, hence, the order is illegal and liable to be declared as ineffective. Response of the Federation and Department 9. Conversely, Assistant Attorney General objects to the maintainability of the petition, in the context of order dated 19.10.2022 and audit proceedings. Submits that action taken under section 175 of the Ordinance, 2001 was opted for upon default of the petitioner to provide the documents demanded, despite reminders, which were essentially required for effective conduct of audit. Submits that judicial review jurisdiction cannot be invoked to obstruct or to ascertain the validity of audit proceedings, which proceedings accordingly progressed, and report was prepared in terms of sub-section (6) of section 177 of the Ordinance, 2001, copy whereof was provided to the petitioner. Support is sought from the ratio settled in decisions of cases of Pakistan Petroleum Limited through authorized Officer V. Pakistan through Secretary Finance and 4 others (2016 PTD 2664) and Raza Motor Industries through Authorized Representative V. Federation of Pakistan through Secretary Finance, Revenue Division, Islamabad and 3 others (2022 PTD 19) and Commissioner of Inland Revenue, Sialkot and others V. Messrs Allah Din Steel and Rolling Mills and others (2018 SCMR 1328). 10. Learned counsels representing FBR and respondents No.2 & 3, supplemented the submissions of Assistant Attorney General by adding that despite repeatedly issued notices petitioner demonstrated reluctance to provide complete record. Learned counsel referred to and read the text of the notices / letters, wherein requisite record / documents were identified for the purposes of audit. Submits that authorization dated 27.09.2022 met the conditions required for invoking section 175 of the Ordinance, 2001, and officer authorized was competent to exercise the powers available, who acted accordingly and constituted a team to carry out inspection. Adds that resort to available jurisdiction was indispensable when respondent No.2 being convinced that petitioner has
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avoided provisioning of documents and matter was being delayed upon seeking frequent adjournments. Adds that action under section 175 of the Ordinance, 2001 was initiated pursuant to the default of the petitioner, upon clear non-compliance of the provisions of the Ordinance, 2001. Further submits that order passed by this Court in W.P. No.64261/2022 stood duly complied with, and order dated 02.11.2022 was issued upon perusing objections submitted. Submits that various notices were issued, in wake of multiple violations, but then those proceedings were abandoned, once audit commenced, wherein complete scrutiny of tax affairs was undertaken qua the Tax Year(s) in question. Reiterates that audit report was prepared, and copy has been provided to the petitioner. Adds that respondent No.2 is entitled to proceed to amend the assessment, based on the audit report, subject to the fulfilment of requirements of sub-section (9) of section 122 of the Ordinance, 2001. 11. On query, learned counsel submits that inventory was prepared pursuant to the search conducted and details of the documents, secured, were provided in the recovery memo prepared, which was signed by the representatives of the petitioner - copy thereof is available at page 72 of this petition. Determination 12. Submissions heard. Record perused. 13. In essence, this court, through instant petition, is called upon to determine the scope, effect and legality or otherwise of the impugned Authorization letter dated 27.09.2022 (warrant of authorization), in the context of powers extended and exercised under section 175 of the Income Tax Ordinance, 2001, and effect thereof in the context of on-going audit proceedings. It is expedient to reproduce the text of warrant of authorization, and relevant statutory provisions, often referred by the counsel for the petitioner. Text of warrant of authorization is reproduced hereunder as, OFFICE OF THE COMMISSIONER INLAND REVENUE AUDIT-III, CORPORATE TAX OFFICE, 1st FLOOR, TAX HOUSE, SYED MAUJ-E-DARYA ROAD, LAHORE. C No.CTO-Lhr/CIR Audit-III Authorization-175/01 Dated 27.09.2022 Authorization Order U/s 175 of the Income Tax Ordinance 2001 read with Rule 72 of Income Tax Rules, 2002. The taxpayer is a Company existing at NTN 6425260. Return of Income for tax year 2021 has been filed by the taxpayer, which has been selected for audit of its income tax affairs us 177(1) of the Income Tax Ordinance 2001 by the under signed vide Bar Code 100000119742345 dated 24.03.2022 on account of several discrepancies IDR was issued to the taxpayer vide Bar Code 1000000123319171 dated 18.04.2022 requisitioning certain documents. The taxpayer, through his reply dated 20.05.2022, furnished certain documents and requested for adjournment to furnish the remaining documents/information Thereafter, despite provision of several opportunities, the taxpayer failed to furnish the remaining record/documents. Thereupon, a notice was issued to the taxpayer dated 05 09.2022 requisitioning specific documents mentioned in the notice. However, the taxpayer has opted not to furnish the requisite record/documents. From the above, it is clear that the taxpayer has been provided sufficient opportunities to submit the requisite record, however, the taxpayer appears unwilling to provide the record documents required for completion of audit in a satisfactory manner. Therefore, enforcement of provisions of Income Tax Ordmance, 2001 pertaining to provision of record/documents is necessary through entry and search of premises and impounding of record u/s 175 of the Income Tax Ordinance 2001 in the case of M's Outfitters Stores (Pvt.) Ltd, 1-KM Defence Raod, Off Bhubitan Chowk, Near
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Rarwind Road, Lahore, having NTN 6425260, so as to accurately audit tax affairs of the taxpayer. Therefore, Mr. Muhammad Nacem Asad, Deputy Commissioner Inland Revenue. Audit-III Corporate Tax Office, Lahore is hereby authorized u/s 175 of the Income Tax Ordinance 2001 to exercise the powers and functions given in the said section. For the said purposes, a team comprising of following officer/officials is hereby constituted to assist the authorized officer for completion of all actions provided u/s 175 of the Income Tax Ordinance 2001 read with Rule 72 of the Income Tax Rules, 2002. A prescribed order form o authorization is enclosed. Sr. #Name of officer/officials 1 Mr. Tariq Saeed Ghumman, ACIR 2 Mr. Muhammad Azeem Raza, Senior Auditor 3 Mr. Jameel Ahmad, Senior Auditor 4 Mr. Ishaq Ahmad, Senior Auditor 5 Mr. Irfan Ashraf, Senior Auditor 6 Rana Shahbaz Hussain, Senior Auditor 7 Mr. Imtiaz Ahmad, IIR 8 Mr. Ghulam Sajid, IIR 9 Mr. Saleem Ullah, IIR 10Mr. Muhammad Ijaz, IIR 11Syed Naeem Abbas, IIR 12Mr. Muhammad Shoaib, IIR 13 OTHER SUPPORTING STAFF, CLERKS, HAWALDAR, SEPOYs AND N.Qs ETC.
(ZULQARNAIN ALI SHAHEEN HARAL) Commissioner Inland Revenue [Emphasis supplied] OFFICE OF THE COMMISSIONER INLAND REVENUE AUDIT-III, CORPORATE TAX OFFICE, 1st FLOOR, TAX HOUSE, SYED MAUJ-E-DARYA ROAD, LAHORE. C No.CTO-Lhr/CIR-Audit-III/175/02 Dated 27.09.2022 Form of Authorization (See Rule 72 Section 175) In pursuance of and as empowered under section 175 and to carry out the purpose and objects of the Section, Mr. Muhammad Naeem Asad, Deputy Commissioner Inland Revenue. Audit-III, Corporate Tax Office, Lahore is authorized with regard to the tax related matters of M/s Outfitters Stores (Pvt) Ltd., 1-KM Defence Rand, Off Bhubtian Chowk, Near University Raiwind Road, Lahore, having NTN 6425260, to enter any premises and to have full and free access to any place, accounts, documents or computer, and to impound or to take extracts or copy of such material and/or examine and prepare notes, details of inventory and its valuation, or computer disc of information or floppies from hard disc or inventory of any article found at the place. The officers authorized shall handover a copy of inventory of goods and material to the persons available on premises and/or put/affix on the conspicuous place in case of refusal of such person to receive or accept. In the later situation, may also send such copy through registered post/courier service as
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early as possible The Officer of Inland Revenue may keep in mind the enquiry/investigation, audit relating to tax issues only. (ZULQARNAIN ALI SHAHEEN HARAL) Commissioner Inland Revenue Commissioner Inland Revenue [Emphasis supplied] Sections 175 and 214 of the Ordinance, 2001 read as, "175. Power to enter and search premises. - (1) In order to enforce any provision of this Ordinance (including for the purpose of making an audit of a taxpayer or a survey of persons liable to tax), the Commissioner or any officer authorised in writing by the Commissioner for the purposes of this section - (a) shall, at all times and without prior notice, have full and free access including real-time electronic access to any premises, place, accounts, documents or computer; (b) may stamp, or make an extract or copy of any accounts, documents or computer-stored information to which access is obtained uner clause (a); (c) may impound any accounts or documents and retain them for so long as may be necessary for examination or for the purposes of prosecution; (d) may, where a hard copy or computer disk of information stored on a computer is not made available, impound and retain the computer for as long as is necessary to copy the information required; and (e) may make an inventory of any articles found in any premises or place to which access is obtained under clause (a). (2) The Commissioner may authorize any valuer or expert to enter any premises and perform any task assigned to him by the Commissioner. (3) The occupier of any premises or place to which access is sought under sub-section (1) shall provide all reasonable facilities and assistance for the effective exercise of the right of access. (4) Any accounts, documents or computer impounded and retained under sub-section (1) shall be signed for by the Commissioner or an authorised officer. (5) A person whose accounts, documents or computer have been impounded and retained under sub-section (1) may examine them and make extracts or copies from them during regular office hours under such supervision as the Commissioner may determine. (6) Where any accounts, documents or computer impounded and retained under sub-section (1) are lost or destroyed while in the possession of the Commissioner, the Commissioner shall make reasonable compensation to the owner of the accounts, documents or computer for the loss or destruction. (7) This section shall have effect notwithstanding any rule of law relating to privilege or the public interest in relation to access to premises or places, or the production of accounts, documents or computer-stored information. (8) In this section, "occupier" in relation to any premises or place, means the owner, manager or any other responsible person on the premises or place. (9) For the purpose of clause (a) of sub-section (1), the Board may make rules relating to electronic real-time access for audit or a survey of persons liable to tax. ....................................... 214. Income tax authorities to follow orders of the Board. (1) Subject to sub-section (2), all income tax authorities and other persons employed in the execution of this Ordinance shall observe and follow the orders, instructions and directions issued by the Board. (2) No orders, instructions or directions shall be given by the Board that will interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate function". [Emphasis supplied]
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14. Section 175 of the Ordinance, 2001 empowers the Commissioner, or any officer, authorized in writing by the Commissioner, to have full and free access, at all times and without prior notice, to any premises, place, accounts, documents or computers, for the purposes of enforcing any provision of this Ordinance, inter alia for the purpose of carrying audit of taxpayer. Notices were often issued, indicating factum of on-going audit and complaining of non-cooperation by the petitioner to provide complete record / documents, asked for. It is not the case of the petitioner that information / documents solicited were concealed / hidden and delegatee carried out search with an intent to discover any evidence of guilt / offence. The access sought was more akin to an inspection, during which process documents /…
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