If a case is subjudice proviso of Sec 174 (1) of ITO will kick in: SC

ISLAMABAD: The Supreme Court noted that if a case is subjudice before a legal forum then it is enough for proviso of Section 174 (1) of the Income Tax Ordinance, 2001, to kick in and dilute the effect of six-year timeframe till the matter is taken to its logical end under the law.

A three-judge bench, headed by Chief Justice Yahya Afridi, and comprising Justice Muhammad Shafi Siddiqui and Justice Miangul Hassan Aurangzeb set aside the Lahore High Court (LHC) order directing that the taxpayer shall not be required by the department to produce record, on account of lapse of statutory timeframe.

The question was whether the respondent was bound to maintain his tax records after the expiry of five years from the date of his deemed assessment for the tax year 2010 which was on or about 30.09.2010.

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The instant matter pertains to deemed assessment for the tax year 2010. The show cause notice and reassessment orders were dated 27.02.2015 (within timeframe prescribed by law) which falls within the proviso to Section 174(3) of the Ordinance.

The order said that the cognisance was taken with five years when notice was issued and notwithstanding the interim order, in the said case/ litigation on the subject of challenging a notice, the taxpayer is bound to retain documents under the law.

It said; “Therefore, whether or not any stay is operative in the matter, if the cause is subjudice it is enough for proviso to kick in and dilute the effect of six years timeframe till the matter is taken to its logical end under the law, provided that the initial notice was also within time prescribed by law. The requisite proviso may enable the department to act accordingly.”

A writ petition challenging a notice dated 17.11.2016 issued by petitioners was challenged by the taxpayer on the count that it violates the findings and law laid down in Maple Leaf case.

LHC allowed the petition; however, observed that proceeding of audit may continue but the taxpayer shall not be required by the department to produce record, on account of lapse of statutory timeframe prescribed to retain document in terms of Section 174 (1) of the Income Tax Ordinance, 2001.

The department then approached the Supreme Court against the LHC. The apex court in CPLA issued notices, whereas, respondent chose not to appear; therefore, on 16-09-2022, the Court passed an ex-parte order.

The instant matter pertains to tax year 2010. The petitioner was issued a show-cause notice under Section 122(5A) of the Ordinance, 2001 and subsequently an adverse order was passed on 27.02.2015. Thereafter, his appeal was allowed and the matter was remanded on 19.08.2015.

The Court noted that a blanket cover was given to the taxpayer as far as retention of record is concerned. It said no doubt a timeframe is prescribed under the law; i.e., Section 174(1) of the Ordinance for retaining the documents; however, it is supplemented by the proviso along with an explanation inserted by Finance Act, 2010, which say; “Provided that where any proceedings is pending before any authority or court the taxpayer shall maintain the record till final decision of the proceeding. “Explanation: Pending proceedings include proceedings for assessment or amendment of assessment, appeal, revision, reference, petition or prosecution and any proceedings before an Alternative Dispute Resolution Committee]”.

Copyright Business Recorder, 2025