Section 175C of ITO: IHC suspends judgement related to issuance of notices to taxpayers

ISLAMABAD: The Islamabad High Court (IHC) suspended the impugned judgment relating to the issuance of notices to taxpayers under the newly inserted Section 175C of the Income Tax Ordinance, 2001, introduced through the Finance Act, 2025.

A Division Bench, comprising Justice Khadim Hussain Shaikh and Justice Asif Mehmood, on Monday, heard an intra-court appeal of the Secretary Revenue Division and the Federal Board of Revenue (FBR), etc., against Zubair Feeds Industries (PVT) Limited.

The appeal challenged the impugned judgment dated 05.09.2025 in a writ petition No. 2744/2025, whereby a single judge bench of the IHC had interpreted Section 175C that before granting extensions under the said provision, reasons must be recorded and intimated to the taxpayer, along with the imposition of a prescribed time-limit. On this basis, the orders issued under Section 175C were set aside.

FBR operationalises Section 175C of ITO

Hafiz Ehsaan Ahmad Khokhar, representing the FBR and the Chief Commissioner, Large Taxpayers Office, Islamabad, argued that the impugned judgment is legally unsustainable as it imposes conditions wholly alien to the statutory language of Section 175C. He contended that the said provision, validly enacted by Parliament, is confined solely to monitoring purposes.

Since no adverse order arises at the stage of issuance of notice under Section 175C, there is no statutory requirement to provide prior reasons to the taxpayer. By judicially inserting such conditions into the provision, the impugned judgment undermines the legislative intent, renders Section 175C redundant, and frustrates the very object for which it was enacted.

He explained that Section 175C is designed to monitor entire sectors rather than targeting individual taxpayers. Within the framework of self-assessment, where sales volumes remain disproportionately high in comparison to the revenue yield, monitoring becomes imperative.

He highlighted that similar provisions under Section 40B of the Sales Tax Act have been applied to sectors such as cement, sugar, and beverages, producing tangible revenue outcomes. It was only in continuation of this fiscal policy that the poultry sector has now been brought under monitoring through Section 175C. Thus, the mechanism is a regulatory measure of general application, not an adversarial action against specific entities.

Khokhar argued that the requirement of assigning detailed reasons at the stage of issuing notices would open the floodgates of frivolous litigation and frustrate the process of monitoring. He clarified that where monitoring leads to any adverse action, the taxpayer is duly apprised of the reasons and has full remedies under the tax laws to challenge such action.

Therefore, due process remains adequately safeguarded within the statutory scheme, and there is no justification for courts to judicially import additional requirements into Section 175C.

He also distinguished the precedents relied upon in the impugned judgment, submitting that they involved situations where adverse consequences directly flowed from notices. By contrast, Section 175C merely authorises monitoring without any immediate penal or fiscal effect.

He emphasised that by imposing extra-statutory obligations, the single judge exceeded the permissible limits of judicial interpretation, thereby undermining legislative intent and disrupting settled practice, particularly as no such interpretation has ever been given in cases involving Sections 175C or 40B.

Finally, Khokhar urged that the impugned judgment is contrary to law and liable to be set aside.

He requested its suspension to ensure the lawful continuation of monitoring under Section 175C.

After hearing the arguments, the Division Bench suspended the operation of the impugned judgment, thereby restoring the validity and enforceability of Section 175C.

Copyright Business Recorder, 2025