SOHAIL SARFRAZ

ISLAMABAD: Lahore High Court (LHC) has stopped the Federal Board of Revenue (FBR) official to issue notice under Section 122 of Income Tax Ordinance, 2001 (Ordinance) in tax year 2016 audit selection by Commissioner Inland Revenue under Section 177 of the Ordinance.

It is learnt that a taxpayer, through tax lawyer Waheed Shahzad Butt, has challenged the audit selection notices for the tax year 2016 issued by the field formation of the FBR on the basis that petitioner has availed exemption certificate under Section 159/148 of the Ordinance for the period relevant to tax year 2017; therefore, as per proviso of Clause 72B, Part IV, 2nd Schedule to the Ordinance, CIR is empowered to conduct audit for tax year 2016.

The petitioner stated, “The CIR vide order dated 31.01.2017 issued under Section 177(1) of the Ordinance, selected the case of the petitioner for audit for the period July 2015 to June 2016 i.e. period relevant to tax year 2016. No lawful cogent grounds/reasons have been given in the said order for selection of case for audit but reference has been made to the proviso of Clause 72B of Part IV of 2nd Schedule to the Ordinance.

“The CIR has no lawful authority to select the case of the petitioner for audit for the tax year 2016. Order under Section 177(1) on the basis that petitioner has availed exemption certificate under Section 159/148 of the Ordinance for the period relevant to tax year 2017; therefore, as per proviso of clause 72B, Part IV, 2nd Schedule to the Ordinance, CIR is empowered to conduct audit for tax year 2016 is contrary to principles of fair play and natural justice and runs counter to the landmark judgment in Commissioner of Income Tax Vs Vatika Township. Question of law which requires consideration is as to “whether the proviso appended to Clause 72B of Part IV of Second Schedule to the Income Tax Ordinance, 2001 which was inserted in that Clause by the Finance Act, 2016 is to operate prospectively or has retrospective operation.”

Tax lawyer Waheed Butt added that the law passed in present cannot be applied to the events of the past. “If we do something today, we do it keeping in view the law of today and in force and not tomorrow’s backward adjustment of it. Our belief in the nature of the law is founded on the bed rock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. A retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.  Proviso added to Clause 72B of Part-IV of Second Schedule to the Income Tax Ordinance, 2001 is not beneficial to the taxpayer. On the contrary, it is a provision which is onerous to the taxpayer, therefore, department have to proceed with the normal rule of presumption against retrospective operation.”

The LHC order states: “Petitioner has challenged notice dated 11.10.2017, whereby case relating to Tax Year 2016 has been selected for audit by commissioner in view of Clause 72B of Part-IV of Second Schedule to the Income Tax Ordinance, 2001. The learned counsel for the petition submitted that the proviso in Clause 72B was inserted through Finance Act, 2016 and is effective from 01.07.2016; therefore, this clause could not have been invoked retrospectively.

“The petitioner shall join the proceedings; however, notice under Section 122 of Income Tax Ordinance, 2001 shall not be issued, till next date of hearing.”