PAKISTAN PETROLEUM LIMITED VS PAKISTAN through Secretary Finance, 2016 PTD-KARACHI-HIGH-COURT-SINDH 2664 (2016)

(a) Interpretation of statutes---

----Casus Omissus, principle of--- Applicability--- Courts while interpreting a provision of statute are not required to read into something which is not there---Principle of Casus Omissus is applicable when a matter which should have been but has not been provided for in a statute---Such matter cannot be supplied by Court, as to do so is legislation and not construction.

Hansraj Gupta v. Dehra Dun Mussoorie Electric Tramway Co. Ltd. AIR 1933 PC 63; Nadeem Ahmed Advocate v. Federation of Pakistan 2013 SCMR 1062 and Collector of Customs (Appraisement) v. Abdul Majeed Khan and others 1977 SCMR 371 rel.

(b) Income Tax Ordinance (XLIX of 2001)---

----S. 177---Selection of case for audit---Objections---Case of taxpayer was selected for audit but Commissioner did not pass any speaking order on the objections filed by taxpayer against the notice---Validity---Notice in question was a valid notice as contemplated under S. 177 of Income Tax Ordinance, 2001---Notice provided sufficient reasoning for selecting case of plaintiff for audit purposes---Law did not provide that upon taxpayer's objections to such notice, Commissioner was required to pass any justiciable speaking order in support of his reasoning nor any further judicial review of the same was mandated either within the hierarchy of Income Tax department or before a competent Court of law---Subsequent notices and proceedings pursuant to the first notice were also valid and justified---Taxpayer was at liberty to contest its case before departmental hierarchy in accordance with law--- Suit was dismissed in circumstances.

Pakistan Telecommunication Company Ltd. v. Federation of Pakistan 2016 PTD 1484; Messrs Pfizer Pakistan Ltd. v. Deputy Commissioner and others 2016 PTD 1429; Messrs K.G. Traders and another v. Deputy Collector of Customs and 4 others PLD 1997 Kar. 541; Messrs Kohinoor Sugar Mills v. Federation of Pakistan (LHC Writ Petition No. 4691 of 2010); Messrs Castrol Pakistan (Pvt.) Ltd. v. Additional Commissioner Inland Revenue and others (C.P.No. D-23/ 2015); Sanofi Aventis Pakistan Limited v. Commissioner Inland Revenue and others (C.P. No. D-2911/2012); Messrs Pakistan Petroleum Limited v. Additional Commissioner Inland Revenue and others (C.P. No. D-1821/2015); Messrs Amin Textile Mills (Pvt.) Ltd. v. Commissioner of Income Tax and 2 others 2000 SCMR 201; Marghub Siddiqui v. Hamid Ahmad Khan and 2 others 1974 SCMR 519; Managing Director SNGPL v. Neelab CNG Filling Station PLD 2014 Pesh. 218 and Mian Akbar Hussain v. Mst. Aisha Bai PLD 1991 SC 985 rel.

Hyder Ali Khan for Plaintiff.

Muhammad Sarfaraz Ali Metlo assisted by Dr. Muhammad Ali Khan, Commissioner Inland Revenue, Zone III, LTU, Karachi for Defendants.

Date of hearing: 7th June, 2016.

JUDGMENT

MUHAMMAD JUNAID GHAFFAR, J.---This is a Suit, whereby, the plaintiff has impugned notice dated 8.4.2016 issued by defendant No. 3 in exercise of powers vested under section 177 of the Income Tax Ordinance, 2001, for conducting Audit of the Income Tax affairs of the plaintiff.

2.Precisely the facts as stated are that the plaintiff who is engaged in the business of exploration and production of Natural Gas and Petroleum Products, filed its return of Income for Tax year 2015, which in terms of section 120 of the Ordinance, 2001 is supposed to be a deemed assessment order. It is the case of the plaintiff that the Impugned Notice dated 8.4.2016, whereby, the plaintiff has been selected for audit of its Income Tax affairs by defendant No. 3 is not in accordance with the provisions of Ordinance, 2001 as defendant No. 3 has failed to give proper reasons for selection of the plaintiff's return of Income for conduct of audit. It is further stated that pursuant to the aforesaid notice, defendant No. 5 also issued a Notice dated 11.4.2016 under section 176 of the Ordinance, 2001 calling for certain documents which was replied by the plaintiff on 25.4.2016. On 2.5.2016 the defendant No. 4 responded to the plaintiff's objections and again on 12.5.2016 the plaintiff was communicated that its objections have been rejected/dismissed and the plaintiff was provided a final opportunity to furnish records and information failing which proceedings under section 182 of the Ordinance, 2001 would be initiated. All these notices have been impugned through instant Suit.

3.Learned counsel for the plaintiff has contended that the present controversy has been put to rest by a larger bench decision of the Islamabad High Court in the case of Pakistan Telecommunication Company Ltd. v. Federation of Pakistan (2016 PTD 1484), whereby, the notices issued under section 177 of the Ordinance, 2001 have been set aside. Per learned counsel the plaintiff's case cannot be selected for audit without proper reasoning, whereas, the plaintiff has a right to object to even such reasoning and thereafter a proper order is required to be passed by the Commissioner to justify its reasoning for selection of the 'plaintiff's case and such order has to be justiciable. Learned Counsel has further contended that plaintiff is entitled for a proper hearing as it has objected to the so-called reasons given by the Commissioner for selection of the plaintiff's case for audit, whereas, the intention of the legislature for giving such reasoning necessarily implies that they may be objected to and must be adjudicated upon through a speaking order. Per learned Counsel the reasoning, if any, given in the Impugned Notice dated 8.4.2016 is contrary to the very mandatory provisions of section 177 of the Ordinance, 2001 and if this is permitted merely on the ground for verification of facts and figures in an Income Tax Return, then every single Return filed by the assessee should be subject to audit. This according to the learned Counsel is against the spirit of self-assessment scheme. Learned Counsel has further contended that insofar as instant Suit is concerned, it does not challenge the powers of the Commissioner to select a person for audit under section 177 of the Ordinance, 2001, as such issues has been settled by a learned Division Bench of this Court in the case of Messrs Pfizer Pakistan Ltd. v. Deputy Commissioner and others (2016 PTD 1429) and the challenge is only in respect of the manner in which such powers are to be exercised by the Commissioner to call for a taxpayer's record after recording reasons in writing. In response to the arguments raised on behalf of the defendants on the very maintainability of the instant suit, learned Counsel has contended that since no order has been passed in the instant matter, whereas, no right of appeal has been provided against impugned notice and proceedings thereafter, therefore, instant Suit is not barred under section 227 of the Ordinance, 2001. In support of his contention learned Counsel has relied upon the case of Pakistan Telecommunication Company Ltd. v. Federation of Pakistan (2016 PTD 1484) judgment dated 26.5.2016 passed in the case of Engro Elengy Terminal (Pvt.) Ltd. v. Federation of Pakistan and others (Suit No. 1084 of 2015), M/s K.G. Traders and another v. Deputy Collector of Customs and 4 others (PLD 1997 Karachi 541) and the case of M/s Kohinoor Sugar Mills v. Federation of Pakistan (LHC Writ Petition No. 4691 of 2010).

4.On the other hand, learned counsel for the defendants has contended that instant Suit besides being not maintainable under the Ordinance, 2001, is even otherwise premature as merely a notice has been impugned by the plaintiff. Learned Counsel has further contended that in the Impugned Notice dated 8.4.2016, valid reasons have been assigned for selecting the plaintiff's case for audit purposes, whereas, the law does not provide for considering any objections on such reasons. He has further contended that under the amended provision of section 177 of the Ordinance, 2001, the Commissioner has been empowered to conduct audit of any assessee independently by giving reasonable grounds for selecting the case of a taxpayer for audit. Per learned counsel there is no requirement of any subjective or objective reasons before selecting a taxpayer's case for audit. Learned Counsel has relied upon judgment dated 12.02.2015 in the case of M/s Castrol Pakistan (Pvt.) Ltd. v. Additional Commissioner Inland Revenue and others (C.P. No. D-23/2015), dated 2.10.2015 in the case of Sanofi Aventis Pakistan Limited v. Commissioner Inland Revenue and others (C.P. No.D -2911/2012) [subsequently reported as Pfizer Pakistan Limited v. Deputy Commissioner [2016 PTD 1429] and dated 21.04.2015 in the case of M/s. Pakistan Petroleum Limited v. Additional Commissioner Inland Revenue and others (C.P. No. D-1821/2015), M/s. Amin Textile Mills (Pvt.) Ltd. v. Commissioner of Income Tax and 2 others (2000 SCMR 201), Marghub Siddiqui v. Hamid Ahmad Khan and 2 others (1974 SCMR 519), Managing Director SNGPL v Neelab CNG Filling Station (PLD 2014 Peshawar 218) and Mian Akbar Hussain v. Mst. Aisha Bai (PLD 1991 SC 985).

5.I have heard both the learned Counsel and perused the record. At the joint request the entire Suit was taken up for final adjudication as the parties did not wish to lead any evidence. Accordingly, with their consent following legal issues were framed:-

1)Whether the Suit is maintainable?

2)Whether the Impugned Notice dated 8.4.2016 is a valid notice with reasons within the contemplation of section 177 of the Ordinance, 2001?

3)What should the decree be?"

6.Issue No. 2 is taken up first. The plaintiff's entire case is based on the ground that before a taxpayer's case is selected for audit by a Commissioner under section 177 of the Ordinance, 2001, the Commissioner is required to give proper and valid reasons for selection of the taxpayer's case. The plaintiff's further case is that the taxpayer has a right to object to such reasoning, through a proper representation to the Commissioner, who is thereafter required to pass a reasoned order on such objections prior to conduct of any audit and such order has to be justiciable and subject to judicial review by a Court of competent jurisdiction. Before proceeding further, it would be advantageous to refer to the provision of section 177 of the Ordinance, 2001 as is currently applicable:-

"[177. Audit.---(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person:

Provided that:--

(a)the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and

(b)the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer:

Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.]

[(2) After obtaining the record of a person under subsection (1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.]"

7.Perusal of the aforesaid provision reflects that the Commissioner is authorized to call for any record or document including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of a person, however, the Commissioner may only do so, after recording reasons in writing for calling record or documents including books of accounts of the taxpayer and the reasons shall be communicated to the taxpayer while calling such record or documents including books of accounts of the taxpayer. A bare reading of the aforesaid provisions reflects that insofar as the selection of a taxpayer's case is concerned, the Commissioner is duty bound to record reasons and communicate the same to the taxpayer while calling for record and or documents as the case may be, before an audit is conducted under subsection (2) of section 177 of the Ordinance, 2001. However, it nowhere provides that the taxpayer can object to such reasoning of the Commissioner and upon such objections the Commissioner is required to pass a justiciable order of which a further judicial review can be undertaken by a competent Court. The argument so advanced by the learned Counsel for the plaintiff in fact amounts to extending the provision of section 177 of the Ordinance, 2001 into an independent provision firstly for selection of a case for audit and its justification in an independent manner under the judicial hierarchy. The law as it stands today does not provide for any such extended meaning. The Courts while interpreting a provision of the statute are not required to read into something which is not there. The aforesaid provision insofar as considering the objections of a taxpayer against selecting his case for audit is concerned, is silent and therefore, it cannot be presumed by the Court that the legislature intended to provide such mechanism to the taxpayer. What the legislature has provided is, that the Commissioner has to give reasons for selecting a case for audit purposes, whether such reasons are valid or not cannot be objected to by the taxpayer before an audit is conducted. The taxpayer has been provided ample opportunity of defending its case at the time of audit and so also when the deemed assessment order (section 120(1) of the Ordinance, 2001) is being amended pursuant to such audit (section 122(9) and section 177(6) of the Ordinance, 2001). The taxpayer has been further provided the remedy of appeal against any such amended assessment order under the Ordinance, 2001. Merely for the fact that the taxpayer believes that the reasoning provided in a notice under section 177 of the Ordinance is not valid, the audit cannot be stopped or withheld on this ground alone. If that would have been the case, then the legislature would have provided such procedure under the law and the Court is precluded from reading something into the statute which has not been provided there. The manner in which the learned Counsel for the plaintiff wants this Court to read the said provision in turn would make it impossible to Audit any Tax Return for whatsoever reasons. In fact under the Self-Assessment the tax payer has to be more tax compliant, whereas, a more vigilant and effective Audit is to be conducted so as to minimize the evasion of tax. The principle of "Casus Omissus" is squarely applicable here, that a matter which should have been, but has not been provided for in a statute cannot be supplied by Courts, as to do so will be legislation and not construction, [Hansraj Gupta v. Dehra Dun Mussoorie Electric Tramway Co. Ltd., AIR 1933 PC 63]. A Casus Omissus can, in no case, be supplied by the Court of law as that would amount to altering the provision, [Nadeem Ahmed Advocate v. Federation of Pakistan 2013 SCMR 1062]. Moreover, in interpreting a penal or taxing statute the Courts must look to the words of the statute and interpret them in the light of what is clearly expressed. It cannot imply anything which is not expressed; it cannot import provisions in the statute so as to support assumed deficiency, [Collector of Customs (Appraisement) v. Abdul Majeed Khan and others 1977 SCMR 371].

8.A learned Division Bench of this Court in the case of Messrs Pfizer Pakistan Ltd. Through Company Secretary and others v. Deputy Commissioner and others (2016 PTD 1429), while dealing with the provisions of sections 177 and 214C of the Ordinance, 2001, to the extent that whether the Commissioner had any powers to select a taxpayer for audit in view of the powers vested in FBR under section 214C ibid, has been pleased to observe that:

3. Section 177 and section 214C when read together by no means suggest that the power of the Board to select persons for audit under section 214C is the only mode of selection of persons for audit. It can be seen that section 120(IA) begins with non obstante clause thereby override the provisions of section 120(1). This means that notwithstanding the fact that a tax return filed under section 120(I) is taken as an assessment order, the Commissioner has been empowered to conduct audit under section 120(IA) in case he might deem fit to do so and thereby can amend a tax return. Thus under section 120(IA), a tax return which is taken to be an assessment order, can be reassessed and amended after conducting audit. Now this object can never be achieved if the Commissioner in his own discretion is unable to select a person for audit and has to necessarily depend only on the selection made by the Board of Revenue under section 214C. In our view, section 120(1A) does not in any way suggest that the power of the Commissioner to conduct audit is solely dependent upon selection of persons under section 214C. Had the authority to select persons for audit been solely vested in the Board under section 214C then there was no need to incorporate section 120(IA). It can also be seen that under section 177(7) a person can be audited again and again where there are reasonable grounds for doing so. Now the words 'where there are reasonable grounds for such audit' contained in section 177(7) mean that through application of mind a decision is to be reached to audit a particular person. Obviously, it is the Commissioner, in whose mind, the reasonable grounds may emerge to conduct audit of a particular person. Had audit of a person been made solely dependent on Board's selection in random computer balloting then the words 'where there are reasonable grounds to such audit' contained in section 177(7) would become absolutely redundant. Thus, section 120(IA), in our view, vests in the Commissioner, the power to select a person for audit if there exists reasonable grounds for doing so, irrespective of the fact that section 120(IA) mentions the words 'conduct audit' and not 'to select a person for audit'. This power to conduct audit is granted to the Commissioner so that where he feels necessary, he can bring any assessment under scrutiny.

6. The power to impose tax vests in the State. A taxpayer is accountable to the State for his incomes so that the leviable tax can be collected. State has every right to ensure that tax is properly calculated and paid. This obligation of a person to pay correct amount of tax means that a vested right has accrued to the State to examine the account books of a taxpayer. Audit of accounts is the most effective mode of determining the correct liability of tax. Right to conduct audit being absolute, it is hard to imagine that such a right could be left mainly to chance i.e. computer balloting or as and when the Board decides. The power of the Board to choose persons for audit is a general power which is in addition to the power of the Commissioner under Section 120(IA). How then could we hold that when the Commissioner wants to select a specific person to conduct audit, he does not have the discretion to do so under any provision of the Income Tax Ordinance, 2001. If the Commissioner is unable to select a person to conduct audit under Section 120(IA) then there would be no other provision in the Income Tax Ordinance, 2001, which would facilitate the taxing authority to examine a tax return and if circumstances suggest conduct person specific audit. If we accept the interpretation of petitioner's counsel then a person specific audit can never be possible even though a tax return may be required by the taxing authority to be scrutinized in detail. It may be true that frequent audit of the same person at times become a nuisance for him but to make such an affective tool to determine correct income inoperative just because section 214C exists cannot be accepted. The Commissioner then would never be able to select a particular person for conducting audit though circumstances may exists where such a decision has to be taken. This can never be the intention of the legislature. Such an interpretation of section 214C would make the provisions of section 120(IA) utterly redundant. In this........ (emphasis supplied)

9.The learned Counsel for the plaintiff has forcefully relied upon the case of PTCL (supra) by contending that in that case a larger bench of the Islamabad High Court has dealt with the provisions of section 177 of the Ordinance, 2001, section 25 of the Sales Tax Act, 1990 and section 46 of the Federal Excise Act 2005 and after setting aside the judgment of the learned Single Judge (whereby, the petitions were dismissed) has directed the relevant Commissioners to afford an opportunity of hearing to the appellants before proceeding to conduct audit pursuant to the Impugned Notices and the respective Commissioners shall pass speaking order(s) prior to conducting the audit. At the very outset, I may observe that insofar as the case of PTCL (supra) is concerned, the facts of that case including the contents of the notices impugned therein, appears to be somewhat different than the present case of the plaintiff. Though in the entire Judgment the Impugned Notice dated 23.4.2013 has not been reproduced (but discussed at Para-32), however, on directions, the learned Counsel for the plaintiff has placed the same on record through his written synopsis, which reflects that it was in fact a notice for conducting audit under section 25 of the Sales Tax Act, 1990 and section 46 of the Federal Excise Act, 2005 and was not a notice under section 177 of the Ordinance, 2001. Perusal of the said notice further reflects that the same had in fact no reasons, whereas, even otherwise section 25 of the Sales Tax Act, 1990 and section 46 of the Federal Excise Act, 2005 does not require that reasons were to be assigned while issuing any such notices. In the circumstances it is difficult to comprehend the discussion in the said judgment vis-a-vis the notice issued in terms of section 177 ibid and assigning of reasons and its justification. The entire discussion is in relation to the provisions of section 177 of the Ordinance, 2001, whereas, the notice (as placed on record) was issued in terms of section 25 of the Sales Tax Act, 1990 and section 46 of the Federal Excise Act, 2005, which are not analogous to section 177 ibid. In fact the learned Islamabad-High Court was dealing with a number of petitions challenging notices under section 177 of the Ordinance, 2001, section 25 of the Sales Tax Act, 1990 and section 46 of the Federal Excise Act, 2005, and perhaps for this reason much emphasis has been laid on the provision of section 177 of the Ordinance, 2001, which provides for giving reasons before issuance of any notice for auditing the Tax affairs. On the other hand there is no mandatory requirement for stating any reasons under the Sales Tax Act, 1990 and the Federal Excise Act, 2005. Whereas, the learned Islamabad High Court has gone to an extent whereby the Commissioners have been directed to afford opportunity of proper hearing to the taxpayers and thereafter pass a speaking order on their objections, to which with profound respect I am unable to agree with. Notwithstanding that even otherwise the dicta laid down by the learned Islamabad High Court is persuasive in nature and not a binding precedent on me. Insofar as the notice impugned in the instant Suit is concerned, it sufficiently provides for valid reasons as the plaintiff has been confronted with various discrepancies in its return and therefore, it cannot be said that the Impugned Notice is without any valid reasons. The plaintiff has been provided an opportunity of satisfying the defendants that such discrepancies are not justified and the plaintiff has paid the tax and filed the return in accordance with law.

10.Even otherwise, the learned Islamabad High Court in the judgment of PTCL (Supra), forcefully relied upon by the learned Counsel for the Plaintiff, has been pleased to observe that mere conduct of an audit does not create any liability, nor in any manner adversely affects the return treated as an assessment order under section 120 of the Ordinance. It would be advantageous to refer to the relevant findings of the learned Islamabad High Court which reads as under:-

"27. In the context of further appreciating the powers of the Commissioner under section 177, it would be relevant to examine the consequences flowing from conducting an audit. Is audit in itself an adverse action and order, or a necessary tool to safeguard the interests of the exchequer, particularly in the context of a universal self-assessment scheme. The mere conducting of an audit may not even cause inconvenience if the taxpayer has fulfilled the statutory duty of maintaining the record prescribed under the Ordinance of 2001 or any other law. As already noted above, the scope of audit is restricted to two categories of records, documents etc. If a taxpayer has maintained the records, documents etc prescribed under the Ordinance, 2001 or under any other law at the time being enforced, the latter is not exposed to the consequences stipulated in subsection (2) of section 177. The failure on the part of a taxpayer to fulfil the statutory obligation of maintaining the prescribed record would empower the Commissioner to exercise powers envisaged under section 177(2). The legislature has, therefore, struck a balance and has provided a mechanism to safeguard the rights of both the taxpayer as well as the exchequer. The mere conducting of an audit does not create any liability or in any manner adversely effects the return treated as an assessment order under section 120. The completion of an audit has no effect whatsoever on the assessment order deemed to have been passed under section 120, as it can only be amended in the manner prescribed under section 122. In this regard the legislature has prescribed a stringent procedure and pre-conditions. Section 122 provides for the mechanism and the safeguard for amending an assessment order.........." (underlining is mine)

11.In view of hereinabove facts and circumstances of the case, I am of the view that the Impugned Notice dated 8.4.2016 is a valid notice as contemplated under section 177 of the Ordinance, 2001 as it provides sufficient reasoning for selecting the case of the plaintiff for audit purposes, whereas, the law does not provide that upon plaintiff's objections to such notice the Commissioner is required to pass any justiciable speaking order in support of his reasoning nor any further judicial review of the same is mandated either within the hierarchy of the department or before a competent Court of law. It is further held that subsequent notices and proceedings pursuant to the first notice dated 8.4.2016 are also valid and justified, however, the plaintiff would be at liberty to contest its case before departmental hierarchy in accordance with law. Accordingly, the issues are answered as under:-

ISSUE NO. 1

Since Issue(s) No. 2 has been answered in affirmative by dismissing the Suit, this issue is not required to be answered.

ISSUE NO. 2

Affirmative

ISSUE NO. 3

The Suit of the plaintiff is dismissed however, with no order as to cost(s).

MH/P-21/SindhSuit dismissed.