Clause 105A of Income Tax Ordinance, 2001: ATIR Islamabad declares audit selection process illegal

ISLAMABAD: Appellate Tribunal Inland Revenue (ATIR) Islamabad has declared the audit selection process undertaken by the Federal Board of Revenue (FBR) and Large Taxpayer Office (LTO) Islamabad under clause 105A of the Income Tax Ordinance, 2001 as legally flawed.

Consequently, all subsequent proceedings, including the assessment order issued against the taxpayer, have been rendered invalid.

It is reliably learnt that ATIR in a landmark judgment, while adjudicating the matter, observed that the procedural requirements and legal safeguards enshrined in the law for audit selection were not properly adhered to by the tax authorities.

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When contacted tax lawyer Waheed Shahbaz Butt, who represented the case before ATIR, has termed this decision a significant development for taxpayers across Pakistan, reiterating the importance of transparency and strict compliance with statutory provisions by revenue authorities.

The ruling is expected to have far-reaching implications for similar cases where audit selection processes may not have met the legal standards stipulated under Clause 105A.

Waheed further added that this decision reinforces the principle that tax administration must operate within the bounds of law and procedural fairness, ensuring that taxpayers are protected against arbitrary or procedurally defective actions.

ATIR order stated “Approval granted by the Member, FBR, under clause (105A) of Part-IV of the Second Schedule to the Ordinance is not in compliance with the law. Meeting held by the Board under section 3(7) of the FBR Act, 2007, exceeds the authority granted by the FBR Act, 2007, and the rules formulated under it.

Power delegated by the Board to the Member has not been formally notified by the Board as required by section 8 of the FBR Act, 2007, in conjunction with rule 3(1). Sub-rules (3)(4) of rule 3, conflict with section 9 of the FBR Act. These rules improperly broaden the scope of section 9“.

Since the approval granted by the Board is flawed, the subsequent actions taken, including the issuance of the impugned order under section 121 are automatically rendered invalid.

Contention raised by the AR is well-founded, as the process outlined in Clause (105A) requires the Commissioner to directly seek approval from the Board, and any deviation from this process may result in significant procedural issues. Impugned order passed by the Board is declared illegal, void ab-initio, and without jurisdiction: ATIR ruled.

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