Legal Principle & Question Decided

Ruling Summary: This decision was rendered by the Islamabad High Court, officially reported as 2026 IHC 260427. In this matter between M/s Zhongxing Telecom Pakistan Limited and FOP through Secretary Revenue Division 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.

Full Judgment Text & Judicial Ruling

COURT: Islamabad High Court (Honourable Mr. Justice Arbab Muhammad Tahir) AUTHOR JUDGE: Honourable Mr. Justice Mohsin Akhtar Kayani DECISION DATE: 14-MAY-2026 CASE NO: Writ Petition-930-2025 CITATION: 2026 IHC 260427 PARTIES: M/s Zhongxing Telecom Pakistan Limited VS FOP through Secretary Revenue Division etc LAW / SECTION: under section 214-A of the Income Tax Ordinance, 2001 || under section 176(1) of the Ordinance || under section 177 pertaining to Tax Year 2019 SUBJECT: Tax & Banking, Tax REMARKS: Tax: petitioner is aggrieved that 5-year limitation for audit of 2019 lapsed with 2024 ending but still it has now been selected for audit under section 177 ============================================================ JUDGMENT SHEET ISLAMABAD HIGH COURT, ISLAMABAD JUDICIAL DEPARTMENT

WRIT PETITION NO. 930 OF 2025

M/S ZHONGXING TELECOM PAKISTAN (PVT.) LTD. VERSUS FEDERATION OF PAKISTAN AND OTHERS

Petitioner by: M/s Muhammad Uzair Bin Shafie, Umar Shahzad Abbasi and Saif Mehmood Abbasi, Advocates. Respondent No. 1 by: Mr. Muhammad Asif Jadoon, AAG. Respondent No. 2 to 5 by: Mr. Ali Nawaz Kharal, Advocate. Assisted by: Muhammad Yahya Khan Niazi, Judicial Law Clerk. Date of Hearing: 23.02.2026

INAAM AMEEN MINHAS, J:- Through the instant writ petition, the petitioner assails the condonation letter dated 16.01.2025 (“Impugned Condonation”) granted by respondent No. 2(i)/Member IR (Operations) under section 214-A of the Income Tax Ordinance, 2001 (“Ordinance”) whereby the period of limitation prescribed by the second proviso to section 177(1) of the Ordinance was enlarged and has also impugned notices dated 07.02.2025 and 10.02.2025 issued by Respondent No. 5/Deputy Commission Inland Revenue (“DCIR”) under section 176(1) of the Ordinance. Additionally, the petitioner also seeks declaration that the respondents/Federal Board of Revenue (“FBR”) cannot enlarge the period of limitation prescribed by the second proviso to section 177(1) of the Ordinance and that the audit proceedings under section 177 pertaining to Tax Year 2019 is time barred. Lastly, the petitioners seek the interpretation of section 214-A of the Ordinance. 2. The facts of the instant petition, in brief, are that the petitioner having special tax year was selected for audit under section 177 of the Ordinance, for the period from 01.01.2018 to 31.12.2018 (“Tax Year 2019”), by Commissioner Inland Revenue (Audit-II) (“CIR”). The CIR issued notice dated 23.05.2022 (“Intimation Notice”) under section 177(1) of the Ordinance, W.P. No. 930 of 2025 2

wherein the petitioner was informed that its case has been selected for audit. Thereafter, CIR under section 177(1) of the Ordinance issued another notice dated 22.08.2022 (“Information Notice”) seeking Record/Documents/Books of Account in relation to the ongoing audit proceedings and sought for compliance by 05.09.2022. The petitioner in compliance furnished detailed responses dated 05.08.2022, 20.09.2022, and 06.10.2022. Afterwards, the audit proceedings continued and FBR accordingly issued multiple reminders and notices. Notably, show cause notice dated 19.05.2023 under section 182(2) of the Ordinance was issued for non-compliance and the petitioner controverted the said allegation and submitted replies dated 23.05.2023 and 26.05.2023. Thereafter, no further requisition of information was made and the matter remained dormant. Subsequently, the CIR vide its letter dated 16.12.2024 sought condonation of delay for finalizing audit proceedings and the Second Secretary (Inland Revenue Operations) issued the Impugned Condonation upon the approval of the competent authority i.e. respondent No. 2/Member IR (Operations) exercising powers under section 214-A of the Ordinance, thereby extending the statutory period of limitation for audit proceedings, which was otherwise set to lapse on 31.12.2024, by an additional six months up to 30.06.2025. Subsequently, on 07.02.2025 and 10.02.2025, Respondent No. 5/Deputy Commissioner Inland Revenue (“DCIR”) issued notices under section 176(1) of the Ordinance seeking further information in continuation of the audit proceedings to which the petitioner submitted a response dated 17.02.2025. 3. The learned counsel for the petitioner contended that the Impugned Condonation and the subsequent notices issued under section 176 of the Ordinance are wholly without lawful authority, having been issued in disregard of the mandatory framework governing audit proceedings. It was argued that section 177(1), read with its second proviso, prescribes a strict and unambiguous limitation period of six years for calling record and documents, which expired on 31.12.2024, and that such limitation cannot be enlarged through recourse to section 214A of the Ordinance. Learned counsel submitted that the power to initiate and conduct audit proceedings under section 177 is circumscribed by both substantive and procedural safeguards. The legislature, by employing the expression “shall not” in the second proviso to section 177(1), has imposed a mandatory embargo upon the respondents from seeking record after expiry of W.P. No. 930 of 2025 3

the prescribed period and such a restriction reflects a clear legislative intent to render the limitation absolute and not subject to extension through a general provision. The learned counsel argued that section 214A is a provision of general application conferring limited discretionary power upon the Federal Board of Revenue to condone delay in procedural matters. However, in the absence of any non-obstante clause, the said provision cannot override a specific statutory limitation, particularly one couched in negative and mandatory terms. Since the legislative scheme demonstrates that while a general power was conferred under section 177(1), it was consciously curtailed through the proviso, thereby creating a strict temporal boundary. In furtherance of this, learned counsel submitted that upon expiry of the statutory limitation, a vested right accrued in the petitioners favour, rendering the matter a past and closed transaction which cannot be reopened. 4. Learned counsel for the petitioners further contended that the Impugned Condonation fails to meet the judicially recognized standards governing the exercise of discretionary power which must be exercised in good faith, for advancement of statutory objectives, and in a reasonable manner. According to the learned counsel, the Impugned Condonation, being devoid of reasons and having being passed in a mechanical manner, does not satisfy the said test. It was also urged that the Impugned Condonation is violative of section 24A of the General Clauses Act, 1897 (“GCA, 1897”), which mandates that statutory powers be exercised fairly, reasonably, and through speaking orders. The absence of any cogent reasoning, coupled with the failure to afford an opportunity of hearing, is asserted to render the Impugned Condonation arbitrary and unconstitutional. Lastly, it was contended that the delay in concluding the audit proceedings is solely attributable to the respondents, who, despite having ample time since 2022, failed to act diligently whereas the petitioner, on the other hand, remained compliant throughout and thus, the respondents cannot be permitted to defeat the statutory limitation through belated and unstructured exercise of discretion, as the same would undermine certainty, fairness, and the rule of law. 5. Conversely, the learned counsel for respondents raised preliminary objections as to the maintainability of the petition, contending that section 214A W.P. No. 930 of 2025 4

of the Ordinance confers a broad and general power upon the Federal Board of Revenue to extend time for carrying out any act prescribed under the Ordinance. It was submitted that the said provision is of overriding application and extends to all provisions of the Ordinance and the rules framed thereunder and that the interpretation of such condonation powers has been authoritatively settled by the Honorable Supreme Court in Collector of Sales Tax, Gujranwala and others vs. Super Asia Mohammad Din and others, (2017 SCMR 1427, 2017 PTD 1756), wherein section 74 of the Sales Tax Act, 1990 being pari materia to section 214A was held to permit extension of limitation for a reasonable period upon due application of mind. The learned counsel submitted that the extension of six months granted in the present case squarely falls within the parameters laid down in the said judgment. Learned counsel argued that the petition is an attempt to frustrate lawful audit proceedings, particularly in light of the petitioner’s failure to furnish complete documentation in response to notices issued under section 177 and that repeated reminders were issued, culminating in a penalty notice under section 182, thereby demonstrating non-compliance on the part of the petitioner. 6. On merits, learned counsel submitted that there exists no statutory requirement to provide detailed reasons or to afford a hearing prior to condonation under section 214A and that the provision merely requires the exercise of discretion in good faith and in a reasonable manner, which stands satisfied in the present case and thus, the allegation of violation of Articles 4, 10A, and 18 of the Constitution is denied. Learned counsel also contended that the notices issued under section 176(1) are independent in nature and are further fortified by subsection (5), which contains a non-obstante clause enabling the authorities to call for information notwithstanding any other provision. It was thus argued that even otherwise, the issuance of such notices is lawful and within jurisdiction. Lastly, the learned counsel for the respondents denied that any vested right accrued to the petitioner upon expiry of the initial limitation period, since the principle of past and closed transaction would only arise after the lapse of the extended period permissible under section 214A. Thus, it was prayed that the petition, being devoid of merit and legal substance, be dismissed with costs. W.P. No. 930 of 2025 5

7. We have given anxious consideration to the arguments of the learned counsel for the parties and perused the record with their able assistance. 8. It is reflected from the record that audit proceedings in the instant case pertain to Tax Year 2019, which ended on 31.12.2018. The statutory limitation of six (6) years for calling records/documents therefore ended on 31.12.2024. However, after the expiry of the prescribed limitation period, the Second Secretary (Inland Revenue Operations) issued the Impugned Condonation under section 214-A of the Ordinance, extending the statutory period of limitation for audit proceedings by an additional six months i.e. up to 30.06.2025, which was otherwise set to lapse on 31.12.2024. In such backdrop, the principal question which arises for determination is whether the said condonation is without lawful authority or, conversely, whether the same is sustainable within the statutory framework governing the field. 9. It is manifest from the record that an identical question came up for consideration before a Division Bench of this Court in the case of Huawei Technologies Pakistan Limited vs. Federation of Pakistan and others, (PLJ 2026 Islamabad 51 DB) wherein the scope and effect of section 214-A of the Ordinance was examined in the light of authoritative pronouncements of the Honorable Supreme Court of Pakistan1. It was observed that section 214-A is a provision of general applicability conferring upon the Federal Board of Revenue a statutory power to condone delay in respect of any act or thing required to be done under the Ordinance, including audit proceedings. Thus, in view of the judgment in Huawei Technologies (Ibid) this Court is disinclined to adopt a contrary view since we are also of the considered view that FBR apparently has

1 In this regard, reliance was placed upon the judgment of the Honorable Supreme Court in Collector of Sales Tax, Gujranwala and others vs. Super Asia Mohammad Din and others, (2017 SCMR 1427), wherein, while interpreting the pari materia provision contained in section 74 of the Sales Tax Act, 1990, it was held that such provisions vest an overriding and independent power in the Board to extend time limits prescribed under the statute. However, the apex Court simultaneously circumscribed the exercise of such power by holding that it must be exercised within a reasonable period, not exceeding six months from the expiry of the original limitation, and upon due application of mind. It was further noted that although certain reservations were subsequently expressed with respect to the ratio laid down in Super Asia (supra), the same stood conclusively reaffirmed by a larger Bench of the Honorable Supreme Court in WAK Limited and others vs. Collector Central Excise and Sales Tax, (2025 PTD 1179), which upheld the principle that while the Board possesses the authority to grant extension, such power is neither unfettered nor open-ended, and must be exercised judiciously, reasonably, and within the outer limit of six months.

W.P. No. 930 of 2025 6

the power under section 214-A of the Ordinance to grant condonation and consequently, the petitioner’s argument is devoid of merit. 10. The question that now arises is whether the power was exercised in accordance with the law. It is settled law that statutory power cannot be exercised in an unstructured, unguided, or unbridled manner, for such exercise undermines the statutory scheme. It would be more appropriate to examine the matter through the lens of the standard in which the Board, or any officer exercising the power of condonation under section 214-A on its behalf, must invariably ask itself: what order should I pass if I were to act justly, fairly, and reasonably? If the order ultimately passed is inconsistent with the answer to that question, the Board/Taxation officer exceeds its lawful jurisdiction and commits an abuse of the authority entrusted to them. Therefore, this Court shall now examine whether the said power was exercised in accordance with the law. I. Whether the power under 214-A was exercised reasonably? 11. Reasonableness in this context requires a demonstrable application of mind, a conscious evaluation of the circumstances warranting extension, and the articulation of reasons that reveal a rational nexus between the material on record and the conclusion reached. If the order is bereft of reasons, proceeds mechanically, or fails to address the statutory preconditions, it cannot meet the threshold of reasonableness. The Honorable Supreme Court in the case of Super Asia (Supra) held:- “However this does not mean that in exercise of its power under section 74 of the Act, the Board will have unfettered and unbridled authority to extend time when, and for however long, it feels it expedient to do so. Rather time would only be extended in certain cases, after application of mind and that too for a reasonable amount of time.” 12. Similarly in the case of Commissioner of Inland Revenue vs. Messrs Allah Din Steel and Rolling Mills and others, (2018 SCMR 1328) the Honorable Supreme Court expounded on the manner of exercise of discretionary power in the following terms:- “However, if delays are inevitable, beyond the control of the Department and do not occur on account of any act or omission on the part of the Taxation Officers and happen on account of litigation and grant of stay orders, the Audit Officer may seek W.P. No. 930 of 2025 7

extension of time from the Federal Board of Revenue for completion of the audit after recording reasons in writing for seeking such extension explaining reasons for his inability to complete the audit within the stipulated time. The Board may on consideration of such reasons grant reasonable extension in order to enable completion of the audit. It is however emphasized that extension if granted should be supported by due application of mind and appropriate reasoning on the part of the Board. It should not be granted casually, repeatedly and as a matter of routine. Adherence to guidelines and timeframes would enhance confidence of the Taxpayers in the system and at the same time act as a check on lethargy and inefficiency on the part of the departmental functionaries.” 13. It follows from the above that extension of time is not automatic, it can only be granted in specific cases after due consideration, and only for a reasonable period. It is evident from the record that Respondent No. 2 issued the Impugned Condonation without identifying any specific facts or circumstances warranting such relief and proceeded to extend the limitation period by six months on the bare and generic assertion of “taking cognizance of the facts of the case”. The Impugned Condonation does not demonstrate the existence of any circumstances or facts of the case that could lawfully justify the exercise of its power of extension. Rather, the officer empowered on the Board’s behalf appears to have acted on the mistaken premise that such power can be invoked as a matter of course, without undertaking the requisite objective assessment mandated by law. Further reliance is placed on the recent case of Additional Collector of Customs, Faisalabad vs. Messrs Fatima Enterprises, Multan and another, (2025 SCMR 1929). The exercise of discretion in this manner, divorced from evidence and reason would amount to an arbitrary and colorable exercise of authority in derogation of the principles of natural justice. 14. Moreover, Section 24A of the GCA, 1897 stipulates that statutory power must be exercised reasonably, fairly, justly, and for advancement of the purpose of the enactment. The Superior Courts have dilated upon section 24 of GCA, 1897 and enunciated the principle that the executive authorities while exercising discretion must give reasons for its decision through a speaking order. The requirement to articulate reasons is neither a mere procedural formality nor an empty ritual; rather, it is a substantive safeguard designed to demonstrate that discretion has been exercised judiciously, objectively, and with due application of mind. Reasoned decision-making ensures that affected persons are apprised W.P. No. 930 of 2025 8

of the basis of the action taken, facilitates meaningful judicial review, and acts as a restraint against arbitrariness or caprice. 15. Applying the facts of the instant matter to the test laid down by the Superior Courts essentially amounts to a blatant disregard of section 24 of the GCA, 1897. Hence, we are disinclined to treat any extension as “lawful” due to the failure to record reasons which as stated above is meant to ensure fairness and transparency. Similar view was expressed by the Honorable Supreme Court in the case of Federal Board of Revenue vs. Abdul Ghani, (2021 SCMR 1154) wherein the Court ordered to set aside the condonation granted under section 74 of the STA, 1990 in the following terms:- “More importantly, the order passed under section 74 of the Act by the FBR fails to state any reason for extending the limitation period....The said requirement is meant to ensure fairness and transparency in the exercise of statutory discretion by the FBR which suffers from opacity and therefore unreasonableness….we are not inclined to interpret the said provision as authorizing the unchecked reversal of a statutory limitation period and consequential rights created by it.” 16. Moreover, this Court in Huawei Technologies (Supra) expounded on the matter by observing that the principles laid down in Super Asia (Supra) were confined to the specific context of an order-in-original issued upon the breach of a mandatory timeline, and the larger Bench in WAK Limited (Supra) expressly reserved the question of their broader application to a suitable future case. The Court therefore undertook an independent construction of section 214-A, unassisted by those principles, and the construction that emerged was that, “While a six-month extension may, in isolation, appear modest, but when acting “justly” its reasonableness must be assessed in the context of the already generous period provided by law. Thus, while a short statutory period (such as the one under consideration in the Super Asia case) may rationalize a modest extension, a six-year period already signifies legislative generosity. Accordingly, when the power of condonation is examined through the lens of acting justly, the guiding principle is that the longer the original statutory period prescribed for performing the act, the stronger the justification needed for any extension.” Accordingly the standard of “acting justly” when exercising a power of condonation is not fixed or uniform rather it is measured against the generosity W.P. No. 930 of 2025 9

of the original statutory period. Similarly, in the instant matter the statutory period (a period of six years under the second proviso to section 177(1)) granted is, by any measure, more than adequate and any additional time in the absence of any “exceptional justification” would amount to a reward for administrative inefficiency, which the law does not permit. Therefore, any condonation of time without recording any exceptional circumstances which might justify further extension constitutes an act of highhandedness and amounts to executive overreach. However, in the present matter the Impugned Condonation was granted on the basis of the generic observation of “taking cognizance of the facts of the case” without specifying any grounds. Thus, the Impugned Condonation does not even satisfy the basic threshold of eligibility for consideration under this test. 17. This Court shall now examine whether the power was exercised justly. The Court in Huawei Technologies (Supra) observed that when “acting justly” while exercising the power of condonation, the same would also include an examination of the facts to reflect why the taxation officer has not adhered to the guidelines and statutory timeframes since this would enhance confidence of the taxpayers in the system and at the same time act as a check on lethargy and inefficiency on the part of the departmental functionaries. The Honourable Supreme Court in the case of Messrs Panther Sports2 observed that the Ordinance is largely structured around time-framed provisions such as sections 120 (assessment), 122 (amendment of assessment) and 221 (rectification of mistakes) in order to make the taxing mechanism certain, transparent and the tax administration and tax governance smarter and efficient. In this regard the Court categorically held that the tax department is under an obligation to be vigilant and efficient enough so as to proceed against a taxpayer within the statutory timeframe provided. Furthermore, in the case of Commissioner of Messrs Allah Din Steel and Rolling Mills3 the Court held that if delays are inevitable, beyond the control of the Department and do not occur on account of any act or omission on the part of the Taxation Officers and happen on account of litigation and grant of stay orders, the Audit officer may seek extension of time from the Federal

2 Commissioner Inland Revenue, Zone-IV, Lahore vs. Messrs Panther Sports and Rubber Industries (Pvt.) Ltd. and others, (2022 SCMR 1135) 3 Inland Revenue vs. Messrs Allah Din Steel and Rolling Mills and others, (2018 SCMR 1328) W.P. No. 930 of 2025 10

Board of Revenue for completion of the audit after recording reasons in writing for seeking such extension explaining reasons for his inability to complete the audit within the stipulated time. 18. A perusal of the CIR’s request dated 12.12.2024 reveals that the CIR sought condonation on the basis of (i) reorganization of FBR’s field formations, (ii) frequent transfers and postings of the concerned assessing officer/unit office and (iii) delay in the provision of complete records by petitioner. However, the record contains no material whatsoever to substantiate the assertion regarding frequent transfers, as not a single document has been produced to demonstrate the same. Likewise, no notification pertaining to the reorganization of the FBR’s field formations has been furnished by the respondents meaning thereby that no corroboration or proof exists regarding the reorganization relied upon by the CIR. As for the reasoning of delayed provision of records by the petitioner, it is manifest from the record that the delay in bringing proceedings…

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