The Lahore High Court has restrained the Deputy Commissioner Inland Revenue (DCIR) from passing final order on the plea of the taxpayer that amendment made providing audit once in three years is applicable retrospectively to such audits pending as on July 1, 2018. It is first interim order on the issue across Pakistan and would affect thousands of audit cases of sales tax and income tax pending.
The background facts were that the case of the petitioner was selected under section 72B of the Sales Tax Act 1990 for audit of tax period of July 2013 to 2014 and audit proceedings were finalized and order in original under section 11 was passed.
Later the case of the petitioner was again selected for audit of tax period of July 2015 to June 2016 as well. The DCIR issued notice under section 25 to conduct audit.
In response to the notice the petitioner filed representation stating that the amendment has been made through Finance Act 2018 and a Third Proviso has been added to section 25(2) providing that audit under this section shall be conducted only once in every three years and this amendment is curative and beneficial in nature and as such would be applicable retrospectively. Request was made to drop the audit proceedings in view of amended law.
However the DCIR has rejected the representation with the observation that, "The amendment was made in section 25 of the Sales Tax Act, 1990 through Finance Act, 2018 which is applicable from 1st July 2018. There is no retrospective effect in this amendment made in section 25(2) vide Finance Act, 2018."
Against the refusal order writ petition was filed before Lahore High Court. Mudussar Shuja Uddin Advocate of Tax Forum pleaded that earlier in another round of litigation against selection for audit the Lahore High Court had observed that the FBR should streamline audit policy and remove the defects inter alia about the selection of consecutive tax years for audit.
After the authoritative decision by the High Court the Federal Legislature through Finance Act, 2018 made a curative, remedial, explanatory, clarificatory amendment and inserted Third Proviso to section 25(2) that audit shall be conducted once in three years.
The counsel pleaded that since defect pointed out by the court has been cured so the audit proceedings being undertaken by the DCIR are coram non judice. It was argued that whereas the observation of DCIR regarding prospective application of amendment is erroneous and against the principles of interpretation of law as the Hon'ble Lahore High Court Lahore in a case reported as 2014 PTD 320 decided that the amendment in the nature of remedial or curative shall be applicable retrospectively.
After hearing both the side at length the Court has passed the interim order.
When contacted Shahid Jami , tax consultant explained that similar amendment was made in Income Tax Ordinance 2001 by inserting clause 105 in Part IV of the Second Schedule by which selection for audit by the FBR as well as by the Commissioner was limited to once in four years as compared to sales tax audit of once in three years. He urged FBR to issue a clarification so that other taxpayers in similar situation are saved from un-necessary litigation.
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