The parametric selection of cases for audit has been challenged in writ jurisdiction before the LHC. The petition filed was listed for hearing before Justice Mansoor Ali Shah on December 13, 2012. After hearing the arguments of Naved Andrabi, notices were issued to the Department and the Federation for assistance on the next date of hearing ie, December 24, 2012. It was also directed that the Member Audit FBR should depute a responsible officer to assist the court on the next date of hearing along-with relevant record. The tax department including Commissioner Inland Revenue, Zone-VII Regional Tax Office - II till the next date of hearing has also been directed to maintain status quo.
It has been argued that the FBR has not disclosed the parameters on the basis of which the selection of cases has been done. It has been contended that the non-disclosure of parameters depicts exercise of arbitrary powers and establishes a non-transparent system for selection. It was further argued that through a single ballot the case of a taxpayer can not be selected for all the three laws falling into the domain of Inland Revenue as there is no provision in the law for composite audit. It was further argued that the selection of case for audit under each law can be parametrical or random to be executed by FBR; however, separate parameters for each law are to be given and selection on the basis of each, independent of the other has to be made.
Naved Andrabi argued that the powers for selection of audit on the basis of parameters can only be exercised after identifying the parameters/conditions ie the reasons for selection of case for audit and that too for all the three laws, separately/independently as they all cater to different taxes under different conditions/rates.
Advocate SC said that the tax department has failed to point out any condition for the case to be selected for any law, what to state of a composite audit. The selection without fulfilling all the legal requirements render the action taken to be illegal and without jurisdiction. No provision under the Ordinance/Act exists for a composite audit, therefore, the selection is illegal and without jurisdiction.
Moreover, no limitation of selection of cases for audit has been provided under section 177 of the Ordinance and 25 of the Act, which is in direct conflict with the provisions of the Limitation Act and a hanging sword, which remains on the taxpayer head for an unlimited period. The entire exercise is ultra vires and against the provisions of Article 4, 10A, 18, 24 & 25 of the Constitution.
Sources said that only reason for selection of the case for composite audit is seemingly to erase the determined refund available to the taxpayer. No composite audit can be conducted under the provisions of two independent and separate statues ie Income Tax Ordinance 2001 and Sales Tax Act 1990 as the requirement for registration, submission of return and chargeability of tax etc is totally different and there is no nexus between them.
The combined selection under one ballot is unlawful for the reason that the two independent provisions are to be applied separately and exclusive of each other. The combined ballot exposes a person simultaneously to the "double jeopardy" of an audit of sales tax as well as income tax affairs, for which there does not appear to be any reasoning or provision in law. In the absence of any express provision in the Income Tax Ordinance, 2001 and Sales Tax Act, 1990, no composite audit is permissible in relation to these two separate and independent statues, hence illegal and uncalled for.
If the law had prescribed method for doing a thing in a particular manner, such provision of law is to be followed in letter and spirit for achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted, Andrabi added.