Section 214C of ITO 2001: Whole income tax audit selection process not ultra vires to law: FBR

ISLAMABAD: The Federal Board of Revenue (FBR) has declared that the whole income tax audit selection process under section 214C of the Income Tax Ordinance 2001 was not ultra vires to the Constitution or law and procedure.

In this regard, FBR Member Audit has recently (January 2024) issued an order in the matter of M/s Shahraj Fabrics Pvt.

In December 2023, FBR Member Audit issued an order in the case of M/s JDW Sugar Mills Limited for determination of the applicability of audit parameters, whether selected rightly or otherwise.

This is the second order issued by FBR Member Audit in another case. Both the orders of the FBR Member Audit endorsed that the whole audit selection process has been made justly, fairly and in a transparent manner in accordance with law.

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According to a recently issued order of the Member Audit, having considered the arguments of the counsels for the party, departmental representative and examination of the record of the cases as mandated by the Lahore High Court, Lahore and by virtue of jurisdiction conferred upon to the Member (Audit) under the provision of 214C of the Income Tax Ordinance 2001 for selection of audit cases by the Board, the representation emanating from Lahore High Court’s order in the case of Writ Petition No. 4025 of 2017 titled M/s Shahraj Fabrics Pvt. Ltd Vs FOP, etc., is disposed of in the manner and to the extent indicated.

In view of above discussion and available record including current proceedings, the whole audit selection process has been made justly, fairly and in a transparent manner in accordance with law. Hence are not ultra vires to the Constitution or law and procedure, FBR Member Audit added.

A brief description of the facts leading up to the aforementioned judgment of Lahore High Court is that for the Tax Year, 2011, FBR selected cases for audit through computer balloting on the basis of certain parameters under Section 214C of the Income Tax Ordinance, 2001.

This selection was challenged by M/s Premier Industrial Chemical Manufacturing Co before the Lahore High Court. The court set aside the selection of cases for audit for Tax Year 2011 with the direction that FBR should initiate the process of selection for audits afresh, by framing separate sets of parameters for each tax type.

Accordingly, the selection of audit for the Tax Year 2011 was done afresh under the Courts guidelines by the FBR through Computer Ballots on the basis of parameters.

In compliance of the court’s decision, the petitioners approached the Review Panels that disposed of the applications. Not satisfied with the decisions of the Review Panels, the selection was again challenged before the Lahore High Court.

The court referred the matter back to FBR in the case of M/s JDW Sugar Mills Ltd Vs Federation of Pakistan, etc. (Writ Petition No. 19084/13) with the directions that FBR may constitute a high powered audit commission for resolution of disputes regarding selection of audit cases.

The high powered commission in its meetings/ deliberations reviewed all the cases, referred to in the aforesaid Order of the Lahore High Court, and arrived at the conclusions.

On the basis of findings, the high powered commission decided that in order to maintain uniformity and to ensure non-discrimination amongst taxpayers who were selected for audit for Tax Year 2011, the Audit Policy should apply equally to all such cases including those specified in the Schedule-A to the Judgment of Hon’ble Lahore High Court dated 13.03.2014 in W.P. 19084/13 and all cases be audited accordingly.

Being aggrieved with the decision of the high powered commission“, M/s Defense Housing Authority and others filed petitions before the Honourable Lahore High Court Lahore. After listening to the views of both the parties, the Hon’ble Court issued directions as afore-mentioned to Syed Ijaz Hussain (Member TPA) in person.

Consequently, the then Member (Audit) FBR observed that, “From the above referred Judgment of the Court, it is crystal clear that the applicability of even a single parameter constitutes “high risk”. As is evident from Table II, at least one or more parameters are attracted in every case.

“I have; therefore, no doubt that cases of taxpayers were rightly selected by the Board for audit for Tax Year 2011”, FBR Member Audit added.

Copyright Business Recorder, 2024