APPELLATE TRIBUNAL INLAND REVENUE, DIVISION
BENCH-I,
ISLAMABAD
(Tax Year 2020)
ITA No.95/IB/2025
MA(Cond) No.68/IB/2025
(Tax Year 2020)
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M/s Sprint Oil and Gas Services,
FZC Plot # 5-B, Main Road, Sector I-10/3, Islamabad. |
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Appellant |
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Vs |
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Commissioner Inland Revenue,
Zone-III, CTO, Islamabad |
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Respondent |
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Appellant By: |
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Mr. Waheed Shahzad
Butt, Advocate & Mr. Khurram Shahzad, ITP |
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Respondent By: |
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Mr. Ghulam Qasim
Bhatti, LA Mr. Sheryar Akram,
DR |
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Date of Hearing: |
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13.03.2025 |
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Date of Order: |
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27.03.2025 |
ORDER
M. M. AKRAM (Judicial Member): The appellant taxpayer has filed the titled
appeals as first appeals under section 131 of the Income Tax Ordinance, 2001 ("the
Ordinance"). Both appeals pertain to the tax year 2020. In the appeal
referenced as ITA No. 1993/IB/2024, the appellant challenges the impugned order
dated 13.11.2024 issued by the Deputy Commissioner Inland Revenue, Zone-I,
Range-I, CTO, Islamabad, under section 121 of the Ordinance. This order
resulted in the creation of a significant tax demand amounting to Rs.
1,622,638,655/- based on the grounds outlined in the appeal memorandum. In the
second appeal, ITA No. 95/IB/2025, the appellant contests the impugned order of
approval dated 05.12.2024, issued by the Federal Board of Revenue (Board)
under Clause (105A) of Part-IV of the Second Schedule to the Ordinance[“Clause
(105A)”]. The grounds for challenge are specified in the memorandum of
appeal, and the appeal is accompanied by an application for the condonation of
delay. Given the interrelationship between both appeals, they are being decided
through this common order. However, as the impugned order of the Board forms
the basis for the assessing officer’s decision under section 121 of the
Ordinance, we have opted to first address the appeal in ITA No. 95/IB/2025.
ITA No. 95/IB/2025
2. The case was partially heard on 12.03.2025
and continued on 13.03.2025. According to the department, the facts of the case
are that the appellant’s case was initially selected for audit under section
214C of the Ordinance by the Board for the tax year 2017 on 22.04.2019, and the
proceedings were concluded on 31.12.2020. For the case to be selected again for
audit in respect of the tax year 2020 which is now under consideration, it was
mandatory for the concerned Commissioner IR to obtain prior approval from the
Board, as per Clause (105A). In line with this requirement, the learned
Commissioner IR allegedly sought approval from the Board through the impugned
order of approval dated 05.12.2024, which the appellant now challenges on
several grounds.
3. We have heard both parties and reviewed
the record. In relation to the application for condonation of delay, the
learned Advocate representing the appellant strongly argued that the appellant
had made efforts to obtain service of the impugned order, including sending
reminders, but to no avail. The appellant subsequently obtained a certified
copy of the order from this tribunal after the learned Departmental
Representative, upon the court’s direction, placed the copy of the impugned
order on the record. Upon receiving the order, the appellant promptly filed the
present appeal. It was therefore contended that the appeal was filed within the
prescribed time limit, with the application being submitted as a precautionary
measure. The application was duly filed, accompanied by an affidavit from the
appellant, and the assertions made were substantiated by the relevant records.
Accordingly, the application for condonation of delay is hereby allowed, and
the appeal is decided on its merits.
4. To properly understand the law and the
arguments raised, it is essential to reproduce the relevant clause from Part-IV
of the Second Schedule to the Ordinance:
“(105A). 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 four tax years:
Provided
that the Commissioner may select a person under section 177 for audit with the
approval of the Board.”
A. Definition of "Board"
As defined under the Federal
Board of Revenue Act, 2007 (“FBR Act, 2007”), the term "Board"
refers to the Federal Board of Revenue (FBR), which was initially established
under the Central Board of Revenue Act, 1924 (IV of 1924). However, with the
commencement of the Federal Board of Revenue Act, 2007, the FBR was re-established
under Section 3 of this Act. Therefore, in this context, the "Board"
refers to the Federal Board of Revenue (FBR) as constituted under the Federal
Board of Revenue Act, 2007.
B. Clause (105A) of Part-IV of the Second Schedule to the Ordinance.
Clause (105A) specifies that
the provisions of Section 177 (which deals with the Commissioner’s power to
conduct audits) and Section 214C (which relates to the Board’s authority to
select individuals for audit through computer balloting) do not apply to persons
whose income tax affairs have been audited in any of the preceding four tax
years. However, an exception is provided in the proviso to this clause. It
allows the Commissioner to select an individual for audit under Section 177,
but only with the approval of the Board. This means the Commissioner cannot
independently initiate the audit process without first obtaining approval from
the Federal Board of Revenue (FBR).
C. Procedure for
Audit with the Approval of the Board.
Based on the provisions of
Clause (105A), the process for selecting a person for audit typically unfolds
as follows:
Step
1: Selection for Audit
The Commissioner identifies a
person whose income tax affairs are to be audited under Section 177. This
selection is based on criteria established by the Commissioner, but the
selection alone does not authorize the commencement of the audit.
Step
2: Approval from the Board
Before proceeding with the
audit, the Commissioner must seek approval from the Federal Board of Revenue
(FBR). The FBR, as the "Board" in this context, will review the
selection and the rationale behind it to ensure compliance with tax laws and
internal policies.
Step
3: Proceed with the Audit.
Once approval from the FBR is
granted, the Commissioner is authorized to proceed with the audit of the
selected individual's tax affairs.
5. The learned AR for the appellant argues
that, under the mandate of Clause (105A), the Board has the authority to grant
approval to the Commissioner directly or, alternatively, may delegate this
power to any other member of the Board under Section 8 of the FBR Act, 2007.
The appellant's counsel contended that, according to the impugned order, the
approval was issued by the Member (IR-Ops) without any delegation of power from
the Board. To support this argument, the learned AR referred to Notification
C.No.6(96)S(BIC)/Admin/2020/23382-R, dated 16th February 2021, and argued that,
based on this notification, no such power had been delegated to the Member
(IR-Ops). Therefore, the appellant’s counsel contended that, as a result, the
approval is invalid and void ab initio.
In
response, the Learned Legal Advisor (LA) asserted that Clause (105A) was
introduced through the Finance Act, 2022, whereas the notification cited by the
Authorized Representative (AR) was issued on 16th February 2021, prior to the
insertion of Clause (105A) into the statute. The LA therefore argued that the
notification was not relevant to the issue at hand. Additionally, the Learned
Departmental Representative (DR) was unable to provide any subsequent
notification from the Board that would substantiate the delegation of power to
the Member (IR-Ops). Given the significant tax amount involved and the critical
nature of the issue raised by the AR on behalf of the appellant, we have
personally inquired with the Board regarding the issuance of any relevant notification
on this matter. In response, we have received a letter dated 7th
July 2023, which appears to demonstrate the delegation of power to the Member
(IR-Ops). The letter isreproduced below for reference, to assist in the proper
resolution of this issue.
The
above documentary evidence explicitly states that “the 7th meeting of the
Board-in-Council did not hold face-to-face” but was instead conducted
through the circulation of an agenda item to all Board members, requiring their
recommendations and comments. This letter has raised significant legal and
procedural concerns regarding the validity of this meeting. In light of this,
the following issues and questions have emerged for the court's consideration,
which are reproduced below:
Q1. Whether the process of circulating the
agenda among Board-in-Council members for written recommendations, without a
physical or virtual assembly, fulfill the legal requirement of a ‘meeting’
under Section 3(7) of the Federal Board of Revenue Act, 2007?
Q2.
Upon the court's findings on the
above issue, what is the legal status and effect of the decision made through
such a process, and can it be considered valid and enforceable?
6. Before we proceed to address the questions
at hand, it is essential to refer to the key provisions of the relevant
statutes that form the basis of the present circumstances.
1.
Federal Board of Revenue Act 2007
“Section.3
Establishment of the Federal Board of Revenue⎯ (7)
The Board shall meet at least once in two months, but a special meeting of the
Board may be convened by the Chairman at any time or on the request of any
member.”
Interpretation
Section 3(7) of the FBR Act, 2007, mandates that the Board
must “meet” at least once every two months. In addition, the provision
allows the Chairman to call a special meeting whenever deemed necessary, or
upon the request of any Board member. The use of the term “Meet”
signifies “Meeting”, which should be interpreted in its ordinary and
natural meaning.
· In Black's Law Dictionary (12th ed. 2024) the word
“meeting” is defined as:
“A coming together or gathering of people, whether few or many. An assembly, convention,
or congregation.”
· In
Stroud’s Judicial Dictionary 11th Edition:
"The
word 'meeting' implies a concurrence, or coming face to face, of at least two
persons."
· As
per Jowitt’s Dictionary of English Law 6th Edition:
“A
Meeting is “an assembly of persons whose consent is required for anything to
decide, by a proper majority of votes, whether or not that thing shall be done.
A single person cannot constitute a meeting.”
1) Corpus
Juris Secondum, Vol. 57, page 1044 puts it as
follows:
"Meeting"
- As a noun. A number of people having a common duty or function who have come
together for any legal purpose, or the transaction of business of a common
interest; an assemblage."
2) Henry M. Robert, in his book Robert's Rules of Order (10th ed), defined a meeting as “an event of their being assembled to transact business.”
3) In
Sharp v. Dawes, (1876) 2 QBD 26 it is held: "A meeting means coming
together of persons for the purpose of discussing and acting upon some matter
or matters in which they have a common interest."
4) In
ILR (1958) AndhPra 17 it was held that: "Meeting implies the coming
together of persons for certain purposes or consultations: it is an assembly
and is not constituted every time a subject is introduced. The entire assembly
as such transacting the business before it, is the meeting and the fact that
the number of members present fluctuates during the meeting does not make any
difference to the nature of the meeting itself......."
5) Frank
Shackleton in his Book “Law and Practice of Meetings” defines a meeting
as follows:
"A
meeting is a gathering or assembly of a number of people for purposes of
intercourse, entertainment, discussion, legislation, and the like or for the
purpose of the discussion of matters of public interest or for the purpose of
the expression of views on such matters."
From the above-mentioned dictionary meanings, case law,
and references, a meeting can be referred to as a formal assembly where members
gather physically or virtually to deliberate on matters, engage in discussions,
and collectively make decisions.
A meeting, whether convened physically or virtually (e.g.,
via video or teleconference), must adhere to certain fundamental principles to
ensure its legality, validity, and effectiveness in achieving the intended
objectives. A meeting can be characterized by the following essential elements:
1.
Actual Assembly of Members
– Either in person or via a virtual platform, there must be a structured
gathering where the Board engages in real-time communication.
2.
Opportunity for Deliberation
– Members must have the chance to debate, raise concerns, seek clarifications,
and collectively arrive at conclusions through discussion.
3.
Notice: All
members must be given adequate notice of the meeting, specifying the time,
date, location (or platform for virtual meetings), and agenda. This ensures
that members are aware of the meeting and can prepare accordingly.
4.
Quorum: A
minimum number of members, as specified in the governing rules or bylaws, must
be present for the meeting to be valid and for decisions to be made. Without a
quorum, the meeting may not be considered legally binding.
5.
Agenda: A
clear and defined agenda should be established, outlining the topics and items
to be discussed. This provides structure to the meeting and ensures that all
relevant matters are addressed.
6.
Chairperson:
A designated person, often the Chairman or another authorized member, must
preside over the meeting to maintain order, ensure the meeting follows the
agenda, and facilitate the decision-making process.
7.
Minutes:
Accurate and official minutes must be recorded, documenting the proceedings,
discussions, and any decisions or resolutions made during the meeting. These
serve as the official record.
8.
Participation:
All members should have the opportunity to participate in discussions and
decision-making processes, ensuring that the meeting is conducted in an
inclusive and democratic manner.
7. In the case at hand, a meeting was
convened by the Chairman through the circulation of an agenda item, requiring
the members of the board to submit their recommendations/comments. The letter dated
7th July 2023 clearly states that "the 7th meeting of the
Board-in-Council did not hold face-to-face". There was no physical or
virtual assembly of members for deliberation, which contradicts the requirement
of Section 3(7) of the FBR Act, 2007, that the Board shall "meet."A
mere exchange of written recommendations cannot be deemed to constitute a
'meeting' within the meaning of the law, as it lacks the essential element of
real-time discussion and deliberation. The absence of interactive engagement among
the members of the Board renders the proceedings legally deficient, and
therefore, this meeting is held to be invalid. The FBR Act, 2007, and the rules
enacted under it do not explicitly allow decision-making through circulation, meaning
this method is not legally recognized.It
is an immutable principle of law that defective assumption/exercise of
jurisdiction by the authorities is incurable. Reliance may be placed on Director
General Intelligence and Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746), Director
General Intelligence and Investigation and others Vs M/s AL-Faiz Industries
(Pvt.) Limited and othersPTCL 2008 CL 337(S.C) and Collector,
Sahiwal and 2 others Vs Muhammad Akhtar(1971 SCMR 681).
In view of the above discussion, it is evident that the
purported meeting fails to meet the statutory requirements. Accordingly, the
question Nos.1& 2 under consideration are answered in the negative.
8. Without
prejudice to the foregoing, even assuming that the meeting was duly convened
and the power under Clause (105A) was validly delegated to the Member (IR-Ops),
it remains a mandatory requirement to issue a notification in this regard under
Section 8 of the FBR Act, 2007, read in conjunction with Rule 3(1) of the FBR
Rules, 2007. However, the Board has failed to issue such a notification.
Consequently, under the law, the delegation of power is premature and
ineffective until the required notification is formally issued. Additionally,
rule 4 of the FBR Rules, 2007 stipulates that all decisions or orders made by
the Board or its members, when exercising delegated powers, must be formally
notified through the signature of the Secretary or a member. Therefore, issuing
of notification under section 8 of the FBR Act, 2007 is a necessary condition
for giving effect to the order/direction.It goes without saying that the
so-called notification is not signed by the Secretary or any Member. In support
of the forgoing observation, reliance is placed on Commissioner Inland
Revenue, Zone-I, RTO, Peshawar, and others. Vs Ajmal Ali Shiraz M/s Shiraz
Restaurant, Peshawar, (2023 SCMR 2084)wherein it was
observed that:-
“5. This civil review petition is a classic example of a case not
properly presented. The point raised today had already been argued at the time
of hearing the appeal and indulgence had also been shown to the petitioner
(Commissioner Inland Revenue) to disclose the requisite authority bestowed on
the Deputy Commissioner. The very same officer, who is present today, namely,
Mr. Sohail Ahmed, Additional Commissioner, FBR was in attendance then too, but
he did not refer to the said order. Surprisingly, a senior officer was
not aware of the said order which necessitates that all notifications/orders
should be gazetted and also displayed on the website of the FBR to facilitate
the officers of the FBR, tax practitioners, and taxpayers.
6. The said order does not delegate the statutory power of the
Commissioner to Deputy Commissioners, therefore, the purported amendment made
to the assessment order was not sustainable. The said order also does not grant
such specific authorization. Consequently, this review petition is dismissed
with costs of ten thousand rupees; to be paid to a charity of the choice of the
petitioner.
7. Copy of the order passed today be sent to the Chairman, FBR for
onward circulation to all Commissioners of the Inland Revenue. We also
expect that the FBR/Inland Revenue will gazette all notifications, orders etc.
which may affect taxpayers and also to display them on the website of the FBR.”
(Emphasis supplied)
The
notification in question, dated 7th July 2023, has neither been published in
the official gazette nor is it available on the FBR's website. Consequently,
this stands in direct violation of the statutory provisions outlined in the FBR
Act, 2007, along with the rules formulated under it, as well as the
aforementioned ruling by the Apex Court.
9. Now the question arises "What is
meant by 'notification'?". Section 2(41) of the West Pakistan General
Clauses Act, 1956 (West Pakistan Act VI of 1956), defines 'notification' as
follows:-
“notification'
shall, mean a notification published under proper authority in the official
Gazette."
As
the word "notification" has not been defined in the FBR Act, 2007,
the definition given in the West Pakistan General Clauses Act shall be applied.
It requires that any direction/order which is published under proper authority
in the official Gazette is called a notification. Mere issuance of an order or
direction will not amount to a notification. Even if it is published in the
newspapers, affixed on the Notice Board, or is published in any other manner,
it shall not amount to a notification. Notification published in an official
Gazette is a public document and carries certain presumptions of its legality
and authority and its enforcement as well. Such attributes cannot be attached
to an order or direction which is issued, notified, or published without
publication in the official Gazette.
10. We recognize that Section 9 of the FBR Act,
2007 stipulates that the validity of any act, proceeding, decision, or order of
the Board or its committees cannot be questioned or invalidated solely on
account of:
- A
vacancy within the Board or a committee.
- A
defect in the composition of the Board or a committee.
The
underlying purpose of Section 9 is to ensure that decisions and actions taken
by the Board or its committees retain their validity, even in the event of
temporary vacancies or irregularities in their structure. This provision is
intended to maintain the continuity of governance and protect actions from
being invalidated on mere technicalities. However, the illegalities pointed out
above do not fall within the scope of this section, and as such, these actions
cannot be validated under this provision.
11. We havealso
read the sub-rules (3) and (4) of rule 3 of the Federal Board of Revenue (FBR)
Rules, 2007 which extend the scope of Section 9 of the FBR Act, 2007 by
allowing the Chairman or other members to take actions that are later ratified
by the Board, even if these actions are taken in an interim period when the
delegation of powers has not been formally completed. The key issue here is
whether the rules—specifically sub-rule (3)and (4) of rule 3—extend the
scope of Section 9 by allowing the Chairman or other members to take actions
that are later ratified by the Board, even if these actions are taken in an interim
period when the delegation of powers has not been formally completed. This
issue can be analyzed as follows:
For convenience rule 3 of the FBR Rules, 2007 is
reproduced hereunder:-
Rule 3. Powers, functions and business
of the Board.-(1) The Board may under section 8 of the Act, delegate its
powers and functions to the Chairman or the line member, functional member and
support member who shall transact such business, and exercise such powers and
functions singly as Board, as may be allocated to him.
(2) The Chairman may, under sub-rule (1),
distribute the powers and functions, and the business of the Board amongst its
members as he may deem fit.
(3) Until the powers, functions and
business of the Board are delegated or distributed under this rule, any power
exercised, function performed and business transacted by the Chairman or a
member shall be deemed to have been allocated to him thereunder.
(4) Any power, function or business of
the Board so exercised or transacted by the Chairman or any member under
sub-rule (3) shall be ratified by the Board provided that the powers exercised,
functions performed and business transacted fall under section 4 of the Act.
(5) Any power, function or business of the
Board not so delegated or distributed under this rule may be transacted by the
Board, till further delegation or distribution of such powers and functions.
i. Section 9 of the FBR Act, 2007, is
unequivocal in its scope and intent. Its purpose is to ensure the validity of
actions taken by the Board or its committees despite any vacancies or technical
defects in their composition. This provision specifically addresses procedural
concerns such as vacancies or issues with the constitution of the Board,
ensuring that these do not invalidate the actions or decisions taken by the
Board or its committees. However, it is crucial to note that Section
9 does not inherently confer additional powers or
authority to individual members of the Board, such as the Chairman or other
members. Its focus is solely on ensuring that the actions of the Board remain
valid despite any procedural defects. It does not grant authority for interim
delegation or decision-making by individual members outside of the formal
delegation process outlined in the Act.
ii. Sub-rules
(3) and (4) of Rule 3 of the Federal Board of Revenue Rules, 2007:
Rule 3 of the FBR Rules, 2007, introduces provisions (sub-rules 3 and 4) that
allow individual members, particularly the Chairman, to exercise powers of the
Board before formal delegation has occurred.
Specifically, sub-rule (3)
grants authority to individual members or the Chairman to exercise the powers
of the Board as though they had been formally delegated, and sub-rule
(4) stipulates that any such actions taken by the
Chairman or other members are subject to ratification by the Board.The fundamental
concern here is that these sub-rules effectively
permit individual members to act in a capacity that
goes beyond the scope of Section 9.
While Section 9
is concerned with ensuring the validity of actions taken by the Board despite
technical issues, these rules grant individual members the authority to make
decisions in an interim capacity even beforeformal
delegation. This is not merely a procedural matter; it appears to extend the scope
of authority granted by the Act to
individual members in a manner not explicitly provided for in the parent
statute.
iii. Rules Cannot Extend the Scope of the
Statutory Provisions of the Act:
Under well-established principles of delegated
legislation and statutory interpretation, rules
cannot extend the scope of the parent statute.
While rules are designed to implement
and give effect
to the provisions of the Act, they cannot
alter or expand its fundamental intent. The
power of rule-making is an incidental power that must follow and not run
parallel to the parent statuteIn this case, Section
9 of the FBR Act clearly addresses the validity
of actions taken by the Board or its committees in
the event of vacancies or defects in the constitution but does not authorize
interim delegation of the Board’s powers to
individual members, such as the Chairman.The provisions in sub-rules
(3) and (4) of Rule 3 go beyond the scope of what
Section 9 allows. They effectively permit
individual members to exercise powers of the Board
before such powers have been formally delegated. This, in essence, extends the
authority of individual members in a way that is not supported by the statutory
framework laid out in the FBR Act, thereby conflicting
with the intent and limits of the Act.
iv. It is well-established in legal systems
that delegated legislation, such as rules made under an Act, cannot
alter the substantive provisions of the parent statute.
The role of rules is to flesh out procedural details
or to make the Act operational, but not to expand
or modify the core provisions of the statute. If a
rule goes beyond the scope or purpose of the parent Act, it can be challenged
as ultra vires (i.e., beyond the powers
granted by the Act).In this case, sub-rules
(3) and (4) of Rule 3 would be considered
inconsistent with the FBR Act since they allow
individual members of the Board to take actions before formal delegation, which
extends the powers of the Board to individuals in a manner not permitted by the
Act.
Conclusion:
After
considering the statutory framework and legal principles, it is evident that sub-rules
(3) and (4) of Rule 3 of the FBR
Rules, 2007 extend the scope of Section
9 of the FBR
Act, 2007. Section
9 is focused on ensuring the validity of
actions taken by the Board despite technical issues, but it does not grant
individual members the authority to act before formal delegation. The rules,
however, allow individual members to exercise the
Board's powers in an interim period,
which is beyond the scope of Section 9. Reliance is placed on Pakistan
Electronic Media Regulatory Authority vs Pakistan Broadcasters Association and
others, PLD 2023 SC 378, SUO MOTU CASE No.13 of 2009, PLD 2011 Supreme Court 619,PAKISTAN
through Secretary Finance, Islamabad and 5 others versus ARYAN PETRO CHEMICAL
INDUSTRIES PVT.) LTD., PESHAWAR, and others, 2003 SCMR 370 (NATIONAL
ELECTRIC POWER REGULATORY AUTHORITY versus FAISALABAD ELECTRIC SUPPLY COMPANY
LIMITED), 2016 SCMR 550, (MIAN ZAIUDDIN versus PUNJAB
LOCAL GOVERNMENT and others) 1985 SCMR 365, (M. NAZIR
AHMAD versus MUHAMMAD ASLAM and others), 2013 SCMR 363.Jurists
Foundation v. Federal Government PLD 2020 SC 1; Zarai
Taraqiati Bank v. Said Rehman 2013 PLC (C.S.) 1223; Suo
Motu Case No. 11 of 2011, PLD 2014 SC 389; Suo Motu Case
No. 13 of 2009, PLD 2011 SC 619 and Farrukh Raza Sheikh v.
The Appellate Tribunal Inland Revenue 2022 SCMR 1787.
According to established legal principles, rules cannot
expand the substantive scope of the Act; their purpose is to implement, not
alter or broaden, its provisions. As such, sub-rules (3) and (4) likely exceed the
authority granted by Section 9 and may be deemed inconsistent with the
statutory framework set out in the FBR Act. These rules may need to be reviewed
and revised to align with the legislative intent of the Act.
12. We now turn to the impugned order and
consider the submissions made by the learned AR on behalf of the appellant. The
appellant argued that the approval granted by the Board through the impugned
order was issued to the Chief Commissioner Inland Revenue, rather than to the
Commissioner, as required by the aforementioned clause. In contrast, the
department maintained that the Commissioner sought approval through the Chief
Commissioner, as evidenced by the Commissioner’s letter dated 21.11.2023
addressed to the Chief Commissioner. To properly evaluate the parties
arguments, it is beneficial to reproduce the contents of the impugned Board's
approval.
“Government of Pakistan
Revenue Division
Federal Board of Revenue
Inland Revenue
Phone: 051-9208456 Email:secretary.ir.opv@tbr.gov.pk
C.No.6(5)S(IR-Operations)/2023 Islamabad, the 05th of December, 2023
Chief Commissioner Inland Revenue
Large Taxpayers' Office
Islamabad
Subject:Approval under clause 105A of Part-IV to the
Second Schedule of Income Tax Ordinance, 2001 for Selection of case under
Section 177(1) of the Income Tax Ordinance, 2001 In the case of M/s Sprint Oil
and Gas Services FZC, (NTN: 2209880) Tax Year 2020
I am directed to refer to your office letter bearing F.No. HQ/LTO/2022/1095 dated 29-11-2023 whereby it has
been requested to Board to grant approval under clause 105A of Part IV to the
Second Schedule of the Income Tax Ordinance, 2001 (the Ordinance) for selection
of audit case under Section 177(1) of the Ordinance in the case of M/s M/s
Sprint Oil and Gas Services FZC (NTN: 2209880) for Tax Year 2020.
02. In this context, I am further directed to communicate that
the matter has been examined. Taking cognizance of the facts of the case, Member
IR-Operations has been pleased to grant approval under clause 105A of
Part IV in case of aforementioned taxpayer for tax year 2020.
Sadaf Ihsan
Second Secretary (IR-Operations)”
Upon
reviewing the procedure outlined in the preceding paragraph, in conjunction
with Clause (105A) and the relevant documents, it is clear that, according to
the mandate of the provisions of Clause (105A), the Commissioner is required to
directly seek approval from the Board for the selection of a case for audit
under Section 177 of the Income Tax Ordinance, 2001. Clause (105A) does not
stipulate that the request for approval must be made through the Chief
Commissioner, nor does it imply that the Chief Commissioner should act as an
intermediary in this process. Additionally, even when an authority is carrying
out judicial function, higher authorities cannot intervene in judicial process
unless supported by legal provisions.
Therefore,
it is imperative that the Commissioner personally submits the request for
approval to the Board. The involvement of the Chief Commissioner in
transmitting the request introduces an additional administrative layer, which
could lead to potential delays or uncertainties in the process. In the event
that the Chief Commissioner either refuses to forward the request to the Board
or disagrees with the Commissioner’s recommendation to select a person for
audit, there appears to be no legal remedy available to the Commissioner under
the current provisions. This creates a significant procedural issue, as the
Commissioner would be unable to proceed with the audit without the necessary
approval from the Board, and the refusal to forward the request by the Chief
Commissioner would effectively prevent the audit from proceeding.
Given
this potential impasse, the law does not appear to provide a direct mechanism
for the Commissioner to bypass the Chief Commissioner in such circumstances.
This administrative bottleneck could result in delays or even the denial of the
audit. To prevent such a scenario, the legislature has, with clear intent,
mandated that the Commissioner directly seek approval from the Board,
circumventing any potential administrative hurdles that could arise from
involving the Chief Commissioner.
In
light of the above, the contention raised by the learned AR on behalf of the
appellant 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.
13. For what has been discussed above, the
impugned order passed by the Board is declared illegal, void ab-initio, and
without jurisdiction.
ITA No.1993/IB/2024
13. As mentioned in paragraph 1, the appellant
in the present appeal contests the impugned order dated 13.11.2024, issued by
the Deputy Commissioner Inland Revenue, Zone-I, Range-I, CTO, Islamabad, under
section 121 of the Ordinance. This order resulted in the imposition of a
substantial tax demand of Rs. 1,622,638,655/-, as detailed in the appeal
memorandum. The impugned order is founded on the Board’s order dated December
5, 2023, which, as established in the preceding paragraphs, has been deemed
illegal and void ab initio. Consequently, the structure built upon this
foundation, namely the impugned order, must also be considered null and void.
Reliance may be placed on the judgment titled Moulana Atta Ur Rehman Vs
Al-Hajj Sardar Umer Farooq and others (PLD 2008 SC 663) wherein it
was held that:-
“In the same string
are the cases reported as Rehmatullah and others v. Saleh Khan and others (2007
SCMR 729), Punjab Workers' Welfare Board Government of Punjab and Human
Resources Department, Lahore v. Mehr Din (2007 SCMR 13), Muhammad Tariq Khan v
Khawaja Muhammad JawadAsami (2007 SCMR 818) and All Pakistan Newspapers Society
v. Federation of Pakistan and others (PLD 2004 SC 600). The learned High Court
has not appreciated the law laid down in the above reported cases. It is well settled that when the basic
order is without lawful authority and void ab initio, then the entire
superstructure raised thereon falls to the ground automatically as held in
Yousaf Ali v. Muhammad Aslam Zia (PLD 1958 SC 104)”. (Emphasis
supplied)
By respectfully following the above judgment, the impugned
order dated 13.11.2024 is annulled.
14. CONCLUSION
OF THE ABOVE APPEALS
i. The
approval granted by the learned Member (IR-Ops), FBR, under clause (105A) of
Part-IV of the Second Schedule to the Ordinance is not in compliance with the
law.
ii. Furthermore, the 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.
iii. Additionally, the power delegated by the
Board to the Member (IR-Ops) has not been formally notified by the Board as
required by section 8 of the FBR Act, 2007, in conjunction with rule 3(1) of
the FBR Rules, 2007.
iv. Moreover, sub-rules (3) and (4) of rule 3
of the FBR Rules, 2007, conflict with section 9 of the FBR Act, 2007. These
rules improperly broaden the scope of section 9, which contradicts the
established legal principle that rules cannot extend the scope of statutory
provisions.
v. As a result, since the approval granted by
the Board under Clause (105A) is flawed, the subsequent actions taken,
including the issuance of the impugned ex-parte order under section 121 of the
Ordinance, are automatically rendered invalid.
|
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Sd/- (M. M. AKRAM) JUDICIAL
MEMBER |
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Sd/- (IMRAN LATIF MINHAS) ACCOUNTANT
MEMBER |
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