SOHAIL SARFRAZ

ISLAMABAD: Islamabad High Court (IHC) has dismissed a series of writ petitions filed by taxpayers challenging their selection for income tax audit.

In this regard, IHC has issued judgments in favour of the Federal Board of Revenue (FBR). Resultantly, the FBR will resume audits of taxpayers, who challenged this audit before the IHC.

The taxpayers including poultry feed manufacturers contended that in view of Clause 105A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001, the tax authorities are barred from selecting them for audit for a period of four years following the completion of their previous audit. In support of their argument, the petitioners placed reliance on the Federal Board of Revenue’s (FBR) Circular dated 21.07.2022.

The writ petitions were heard by a single-member bench of the Islamabad High Court, comprising of Justice Muhammad Azam Khan.

The FBR and its field formations engaged Advocate Osama Shahid to plead their case. He raised a preliminary objection regarding the maintainability of the writ petitions, arguing that mere selection for audit does not constitute an actionable injury. As such, the petitions were not maintainable under Article 199 of the Constitution of the Islamic Republic of Pakistan, 1973.

Further, it was contended by FBR’s counsel that the taxpayers in question had been selected for audit prior to the enactment of Clause 105A. Accordingly, in view of the settled principles of statutory interpretation, laws cannot be applied retrospectively simply because they are beneficial in nature. Therefore, he submitted that the audit selections are legal and do not warrant interference by the IHC in the exercise of its constitutional jurisdiction.

The IHC, through its judgment, concurred with the submissions of the FBR’s counsel and dismissed the petitions being devoid of any merits. The IHC also noted that the Sindh High Court, through its judgment in Messrs Fazlee Sons (Pvt.) Ltd. Vs. Federation of Pakistan, Const. Petition (D) No. 6280/2024, has held that the FBR’s Circular dated 21.07.2022 is not in consonance with Clause 105A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001. Therefore, the period of four years is to be computed from the tax year that is selected for audit—not the year in which the audit is concluded.

In light of this judgment, it is expected that the tax department will resume audits of taxpayers whose cases had been stayed by the IHC during the pendency of these writ petitions.