2022 PTD 1889

BALOCHISTAN HIGH COURT

Income Tax Appeal No.01 of 2014, decided on 22nd August, 2022, Date of hearing: 1st
August, 2022.

PRESENT:
ZAHEER-UD-DIN KAKAR, JUSTICE
MUHAMMAD AAMIR NAWAZ RANA, JUSTICE

PETITIONER(S): COMMISSIONER INLAND REVENUE ZONE-I REGIONAL TAX

OFFICE, QUETTA
VS
RESPONDENT(S): MESSRS BALOCHISTAN ONYX DEVELOPMENT
CORPORATION LTD.

Sohail Ansari assisted by Sanaullah Ababki, Additional Attorney General for Applicant.
Sharjeel Haider for Respondent.

Law: Income Tax Ordinance (XLIX of 2001)

Sections: 122, 122(1), 122(4), 122(5), 133

JUDGMENT: MUHAMMAD AAMIR NAWAZ RANA, JUSTICE:---.---

Through this Income Tax Reference, following questions of law have been brought before this
Court by the Commissioner Inland Revenue Zone-I, Regional Tax Office, Quetta (applicant):

Questions of law:
(1) Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland
Revenue was justified in holding that the CIR did not have the jurisdiction to select the case for
audit under section 177(2) in view of the amendment made in Finance (Amendment) Ordinance
2009 dated 28-10-2009.

(2) Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland
Revenue was justified in holding that the CIR/DCIR may amend the assessment under section
122(1), (4)/(5) after fulfilling the requirement of law, subject to definite information within the
meaning of section 155(5) read with 122(8) of the Income Tax Ordinance 2001.

Facts:
2. The respondent/taxpayer is a private limited company having the business of extraction and
sales of marbles. The respondent/taxpayer had filed return of income for the year 2009 declaring
net income of Rs.726,812/-. The case was selected for audit by the Commissioner Inland
Revenue Zone-I on 05.04.2011 and subsequently order was passed u/s 122(1) r/w section 122(5)
of the Income Tax Ordinance, 2001 (same shall be referred hereinafter “the Ordinance”) through
which liability of Rs. 22,289,727/- was created against the respondent. For ready reference the
operative portion of the same is reproduced herein below:

“In the light of the above discussion the deemed assessment order under section 120(1)(b) of the
Income Tax Ordinance 2001 warrant amendment under section 122(1) read with 122(5) of the
Income Tax Ordinance 2001 as under:
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Income declared by the taxpayer Rs.726812/-
Addition proposed
1. No deduction of withholding taxes as mentioned above. Rs. 1,480,520/-
2. Deprecation as discussed above. Rs.2,525,000/-
3. Trade discount as mentioned above Rs.1,884,800/-
4. Addition u/s 21(c) and 21(L) on account of payments made to suppliers and services provided
as discussed above. Rs.57,067,803/-
Total Proposed Income Rs.63,684,935/-
Tax on the proposed income @35% Rs.22,289,727/-
Less Tax paid Rs. 254,384/-
Balance tax payable Rs.21,935,343/-

3. That the said order was challenged by the taxpayer before learned Commissioner Inland
Revenue (Appeals-III), Karachi @ Hyderabad. The appeal so filed by the taxpayer was allowed
vide order dated 16.02.2012 and the order passed by adjudicating authority was set-aside, against
the said order the department filed an appeal before the Appellate Tribunal Inland Revenue
(Pakistan) Karachi Bench, Karachi but same was also dismissed vide order dated 30.11.2013,
hence this Reference u/s 133 of the Ordinance.

• Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland
Revenue was justified in holding that the CIR did not have the jurisdiction to select the case for
audit under section 177(2) in view of the amendment made in Finance (Amendment) Ordinance
2009 dated 28-10-2009.

In order to resolve the referred question of law, the legislative history[1] of section 177(2) has to
be kept in mind from the inception. From 13.09.2001 to 30.06.2002 Commissioner enjoyed the
power to select a taxpayer for audit on the basis of an objective criteria supplied in subsection
(1)(a) to (d) of section 177 of the Ordinance (as it stood on that date). The Central Board of
Revenue (subsequently stood as Federal Board of Revenue) enjoyed power u/s 177(3) of the
Ordinance to appoint a firm of chartered accountants to conduct an audit of the income tax
affairs of any person. Power to select a taxpayer for audit, however, mainly lay with the
Commissioner. During the period 01.07.2002 to 29.06.2004, the same position continued except
with the insertion of sections 177(1-A) and (1-B) through Finance Ordinance, 2002 and 2003
which further streamlined the process of audit by highlighting that the audit be conducted once
the taxpayer is selected for audit and in case of discrepancy the assessment be amended.

Through Finance Act, 2004 CBR was specifically given the power to lay down a criteria for
selection of any person for audit of its tax affairs. Additionally, the Commissioner could select a
person for audit on the criteria framed by the CBR or according to the statuary selection criteria
given in section 177(4)(a) to (d). This position continued till 30.06.2009; through Finance Act,
2009 the Commissioner enjoyed the power to select a person for audit according to the criteria
laid down by the CBR or according to the statuary criteria u/s 177(4)(a) to (d) of the Ordinance;
relevant to point out here section 177(8) (as it was on 01.07.2009) states that CBR may appoint a
firm of chartered accountants to conduct audit of the income tax affairs of a person selected for
audit by the Commissioner or by the Board of Revenue. Under Finance (Amendment)
Ordinance, 2009 and 2010 the word “select” was dispensed with in section 177(1) and the
Commissioner was vested with the power to call for record of any case for conducting the audit
of the Income tax affairs of any person. More importantly, the statuary criteria for selecting a
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taxpayer for audit by the Commissioner (provided in section 177) was also deleted, however,
section 177(8) (as it stood on 28.10.2009) provided that Board may appoint a firm of Chartered
Accountants or a firm of Cost and Management, Accountants to conduct the audit of the income
tax affairs of any person or classes of person selected for audit by the Commissioner or by the
Board (no criteria of selection is provided in the said section). On 01.07.2010 under Finance Act,
2010 the status of section 177 remained largely the same except the introduction of the first
proviso of section 177(1)(a)(b) which provided that in case records are called from a tax payer as
opposed to a “person” in section 177(1), the Commissioner will record reasons in writing for
doing so. The words “selected for audit” u/s 177(8) were removed. Finance Act, 2010 also
introduced section 214C in the Ordinance. This section reintroduced and reinforced the concept
of selection and empowered FBR to select a person for audit on the basis of computer ballot,
which is either random or parametric; section 214C further provides that once the taxpayer is
selected for audit, the said audit is to be conducted as per procedure provided u/s 177 and all the
provisions of the Ordinance, except the first proviso of subsection (1) of section 177 of the
Ordinance shall apply.

4. Since in this Reference the tax return of taxpayer pertaining to tax year 2009 are in question so
we have to see what was the legal position of section 177 in the said year; from 13.09.2001 till
27.10.2009, the said section clearly provided the taxpayer had to be selected for audit by the
Commissioner on the basis of statutory criteria developed by the CBR or on the basis of statuary
criteria u/s 177 (4).

5. In view of the judgment passed in Shahnawaz case[2], the Ordinance applies in relation to the
tax year as it stands on the first day next succeeding the last day of the tax year. Thus, in relation
to the tax year 2009, section 177 is to be applied as it stood (as part of the 2001 Ordinance) on
01.07.2009 and it is on that basis the taxpayer can be selected for audit.

Admittedly from 13.09.2001 till 27.10.2009, the said section clearly provided that a taxpayer had
to be selected for audit by the Commissioner on the basis of statutory criteria developed by the
CBR or on the basis of statuary criteria u/s 177(4) (sub section 4 of section 177 was omitted
through the Finance Act, 2010) so in such view of the matter with regard to law applicable in the
year 2009, the selection made by the Commissioner Inland Revenue Zone-I regarding the returns
of income for the year 2009 so filed by the taxpayer, the same has rightly been declared illegal
and without lawful authority by the Commissioner Inland Revenue (Appeals-III) as well as by
the Appellate Tribunal Inland Revenue (Pakistan) so this law question is decided against the
applicant.

• Whether on the facts and circumstances of the case, the Learned Appellate Tribunal Inland
Revenue was justified in holding that the CIR/DCIR may amend the assessment under section
122(1), (4)/(5) after fulfilling the requirement of law, subject to definite information within the
meaning of section 155(5) read with 122(8) of the Income Tax Ordinance 2001”.

That adjudicating authority i.e. Commissioner Inland Revenue Zone-I in violation to the legal
provision as it stood on 01.07.2009 selected the case for audit of the taxpayer and subsequently
vide order under section 122(1) r/w section 122(5) of the Ordinance created a tax liability of
Rs.22,289,727/-. In order to initiate such like proceedings “definite information” was required
but it is apparent from the orders of the fora below that merely on the basis of presumptions and
assumptions proposed income was supposed which is against the mandate of section 122(5) of
the Ordinance. In this regard reliance is being place upon the case titled as C.I.R v. Khan CNG
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and Filling Station[3]. The relevant excerpt is reproduced as under:

“12. The term "definite information” in section 122(5) of the Ordinance is not just any
information but definite enough to satisfy the concerned officer that income chargeable to tax of
an assessee has escaped assessment or total income of an assessee has been under-assessed, etc6.
"Definite" means7 indisputable, known for certain, explicitly precise, clearly defined, leaving
nothing to implication, established beyond doubt and cut and dried. Definite information is,
therefore, that select information which falls within the restrictive meaning of the word "definite"
explained above. The law also provides that definite information must be acquired from audit or
otherwise. Applying the interpretative tool/doctrine of ejusdem generis which literally means "of
the same kind or class" and the doctrine provides that where general words follow an
enumeration of two or more things, they apply only to persons or things of the same general kind
or class specifically mentioned the word "otherwise" appearing next to the word "audit" in
section 122(5) of the Ordinance on the basis of the above doctrine means a methodology akin or
similar to audit where some determined, final, certain, indisputable, calculated information is
picked up from any available record of the assessee. "Otherwise," therefore, does not mean
putting information through further process of calculation by the department. The word
"acquired" used in section 122(5) of the Ordinance which literally means to "gain possession of"
in the present context connotes that the information already exits and has to be picked up from
the records or documents. This acquisition provides no margin for incomplete, imprecise and
inexact information to be completed through further calculation or processing as that would not
be acquiring information but analyzing it.

13. Reading of section 122(5) of the Ordinance, therefore, shows that information in a definite,
final and conclusive form must already exist in some document or record at the time of
acquisition. Any information which is incomplete or requires further processing falls outside the
domain of definite information and can best pass for a departmental opinion, judgment,
guesstimate, approximation or estimate ”.

6. The perusal of order under section 122(1) r/w 122(5) of the Ordinance passed on 01.12.2011
by the adjudicating authority reveals that without any definite information within the scope of
section 122(5) of the Ordinance, the proceedings were initiated and merely on the basis of
assumptions the liability was created. The Commissioner Inland Revenue (Appeals) and
Appellate Tribunal Inland Revenue have rightly recorded findings against the decision of
adjudicating authority. The said decisions are in consonance with the fiscal and legal
interpretation of referred sections therefore do not require intervention of this Court.
Consequently, the legal issues are decided against the applicant and Reference is answered
against the applicant by upholding the impugned decisions of the fora below.

Office shall send a copy of this judgment under seal of the Court to learned Appellate Tribunal
as per section 133(5) of the Income Tax Ordinance, 2001.
___________________________
1- Legislative history mentioned in detail in the case of Messrs CHENONE STORES LTD. V.
FEDERAL BOARD OF REVENUE 2012 PTD 1815
2-2011 PTD 1558
3-2003 PTD 884

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