Income tax department barred from calling third party information of taxpayer

Lahore High Court (LHC) on Monday barred the income tax department from calling third party information of a taxpayer from an internationally reputed chartered accountant firm under Section 176 of the Income Tax Ordinance, 2001.
Syed Naved Andrabi, Advocate Supreme Court has filed writ petition in the Lahore High Court challenging the departments' power to call for information about a taxpayer from its chartered accountant firm u/s 176 of the Ordinance, 2001.
The CA firm was engaged to conduct a special purpose review of the records of a housing society on the request of a Housing Authority. It has been requested that the proceedings under Section 176 and 190 of the Income Tax Ordinance may be declared illegal and without jurisdiction.
Justice Khawaja Farooq Saeed has heard the legal viewpoint of the petitioner and issued pre-admission notice to the department and ordered that the information may not be obtained by the department. Moreover, the LHC has also issued stay order against the initiation of penalty proceedings under Section 190 of the Ordinance 2001. The next hearing of the case has been fixed in first week of March, 2009.
According to the petitioner, the department generally issues notice to any person and asks for required information. It has been argued that Section 176 has two parts 176 (1) (a) which deals for calling of information from the person who is likely to be taxed or not. This means that the information of the person on whom the tax proceedings are initiated. This provision is identical to provision of Section 61 of the repealed Income Tax Ordinance, 1979.
The second provision is 176 (1) (b) where the Commissioner can call a person to give evidence on oath and on having done that may ask for giving any information of any person from any person. This reflects that the information can be obtained from third party also who has in their control any accounts, documents or computer stored information. This provision is identical to provision of Section 144 and 148 of the repealed Income Tax Ordinance, 1979.
The department had asked the chartered accountant company to submit a certified copy of the Special Audit report of a Co-operative Housing Society, on the grounds that the same was required in connection with the tax audit of the said society. The CA firm responded that as per code of ethics the CA firm is bound to maintain confidentiality of their relations with the clients and are not to divulge any information to a third party, obtained during the course of assignment and rendering of professional services. The special purpose review of the records was completed and report under the code of ethics was handed over to the concerned housing society.
Secondly, the CA firm was not in possession of any accounts, documents or computer stored information of the society. In this case specific survey report done by a leading chartered accountant firm was being obtained u/s 176 (1) (a ) of the Ordinance. This information cannot be called under Section 176 (1) (a).
The department did not agree and issued notice u/s 190 to levy penalty. The reply was filed and adjournment sought, however, the department levied penalty and issued further notice u/s 190 for continuing default of not giving the information, petitioner opined. After hearing the case, the LHC issued pre-admission notice to the department and ordered that the information may not be obtained by the department till final decision of court.