A division bench of the Sindh High Court has held that selection of cases for audit by issuing notices without giving reasons for such an action is defective in the eyes of law. Disposing of constitutional writ petition filed by Muneer Bhimjee and others wherein selection of a return for audit was challenged, Justice Zaheer Jamali and Justice Muhammad Mujeebullah Siddiqui held that audit notices without reason/grounds is a defective procedure and not maintainable.
The court held that "in case the commissioner of income tax intended to initiate proceedings against the petitioner in terms of section 177 of the Income Tax Ordinance 2001, it was necessary for him to have incorporated relevant grounds, reasons and clauses of section 177 of the ordinance to enable the assessee to find the rationale/criterion and jurisdiction of his case for audit within the scope of section 177 of the ordinance".
The court observed that as otherwise, by virtue of section 120(1)(b) of the ordinance, a return qualifying for acceptance under the universal self-assessment scheme was deemed to be the assessment order made and issued by the commissioner on the date the returns were furnished.
"Thus it enjoyed protection against any arbitrary action, which will be against the very spirit of self-assessment scheme available under the ordinance."
The petitioner had submitted income tax return for the tax year 2003 under USAS covered by section 114 of the ITO-2001.
According to the petitioner, it had attained finality in terms of provision of section 120(1)(b) providing assessment on the date of filling of return.
After a lapse of some time, income tax commissioner issued impugned notice to petitioners, intimating them about selection of their case for audit as contemplated under section 177/(1-A), without assigning any reason or giving detail for doing so.
Advocate Shahid Pervez Jami appeared on behalf of the petitioner.
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