Law: Income Tax Ordinance, 2001

Section: 122, 177, 214C

JUDGMENT;   Adnan Iqbal Chaudhry J.- The Petitioner challenges audit proceedings taken against it by the Inland Revenue, Karachi pursuant to audit notice dated 17.02.2017 under section 177 of the Income Tax Ordinance, 2001 [ITO]. The premise of the challenge is as follows.    The Petitioner was under audit for tax year 2014 when it was also selected for audit of tax year 2015 pursuant to a random computer ballot held under section 214C of the ITO. By the impugned notice dated 17.02.2017, issued under section 177 of the ITO, the Deputy Commissioner (Audit), Inland Revenue-IV, Karachi called upon the Petitioner to furnish documents for such audit. While audit of both tax year 2014 and tax year 2015 was pending,  clause 105 was inserted in Part IV of the Second Schedule to the ITO by the Finance Act, 2018, which came into force on 01.07.2018 to provide an exemption from provisions of audit as follows: “(105): The provisions of sections 177 and 214C shall not apply to a person whose income tax affairs have been audited in any of the preceding three tax years: Provided that the Commissioner may select a person under section 177 for audit with approval of the Board.”[1]   Soon after the insertion of clause 105, the Petitioner’s audit for tax year 2014 culminated on 15.08.2018 in an order of amended assessment passed under section 122(1) of the ITO.    By an interim order passed in this petition on 08.03.2019, the Inland Revenue was restrained from finalizing the Petitioner’s audit for tax year 2015. It appears that before such order could be communicated, the Inland Revenue passed an order of bestjudgment assessment against the Petitioner on 11.03.2019 under section 121 of the ITO. However, when confronted with a contempt application, the Inland Revenue recalled that assessment order in exercise of powers under section 122A of the ITO. Therefore, audit of the Petitioner for tax year 2015 remains stayed.   It is submitted by the Petitioner that w.e.f. 01.07.2018, when clause 105 was inserted in Part IV of the Second Schedule to the ITO, the Deputy Commissioner (Audit), Inland Revenue could no longer…