According to a recent judgement of Sindh High Court on November 9, 2018, the service provider company had challenged its selection for an audit by the SRB on the grounds that: (i) the notice did not provide any reasons for selection the plaintiff for an audit; and (ii) the SRB was not empowered to conduct an audit at the company's premises.
The SHC granted an injunction and held that (i) the SRB (like the FBR) is required to provide reasons for selecting a person for an audit and cannot select a taxpayer for an audit without providing reasons; and (ii) the SRB cannot conduct an audit on the taxpayer's premises but can only call for the record.
The applicant, a service provider company, is primarily aggrieved by its selection for audit for the tax year 2014 and the notice issued thereon. Through listed application, the plaintiff seeks a restraining order against the defendants (SRB) from proceeding any further on the basis of impugned notice dated 25.06.2018.
The SHC added that in view of facts, circumstances and discussion, it can be safely concluded that firstly, the officer of SRB, while exercising powers under Section 28 of the Sindh Act, is mandatorily required to give reasons after examining the tax returns of a tax payer, and before deciding that he intends to conduct audit of the registered person.
The reasons may or may not be satisfying the requirement and the wishes of a tax-payer, but they should at least be made after a tentative assessment and examination of the tax payers returns. As to the other aspect of the matter, there is no exception that under the Sindh Act, the concept of conducting audit of a registered' person at its office premises or from where the business is being run, is an alien concept and nowhere such power or authority has 'been provided. Hence, no audit in such manner can be conducted.
SHC maintained that it is also important to note that under the Sales Tax Act, 1990 and the Federal Excise Act, 2005, though there is no specific requirement for recording reasons while selecting a person for audit; but it has been the consistent view of the Courts that even in such situations, the Officer concerned cannot be conferred with unfettered discretion.
The concerned officer has to and must apply his mind before issuing any notice or selecting a person for audit. He does not have unguided powers to call anybody for conducting audit.
His powers are circumscribed with the doctrine of acting reasonably, justly and fairly and not whimsically, and these doctrines are well known in our jurisprudence, SHC said.
The upshot of the discussion is that company has made out a prima facie case for indulgence, and therefore, impugned notice dated 25.6.2018 is hereby suspended till final decision of this suit.
The application for injunction is allowed. However, the defendant is at liberty to issue a fresh notice after assigning proper and cogent reasons for conducting audit, and to proceed further in accordance with law, but such audit cannot be conducted at or within the office or business, premises of the registered person, SHC added.