FBR’s undisclosed parameters for taxpayers audit ‘illegal’

LHC says the board’s use of certain section of tax ordinance violates Constitution

LAHORE: The Lahore High Court has put the Federal Board of Revenue in a spot of bother after it declared that the latter’s powers to keep confidential the parameters, under which taxpayers are selected for audit, as unconstitutional. The FBR would normally exercise these powers under Subsection 1A of Section 214c of the Income Tax Ordinance, 2001.

The court also set aside all notices issued under Subsection 1A of Section 214c to various taxpayers selected for audit. It also denied access to the parameters under which they are selected for audit.

Justice Abid Aziz Sheikh partially allowed all the writ petitions moved by taxpayers challenging Subsection 1A. He interpreted that 1A of Section 214c was a violation of Article 10-A and 19-A of the Constitution of Pakistan. These articles guarantee the right of a fair trial to every citizen and the provision of all necessary information.

Advocate Muhammad Ajmal Khan, counsel for taxpayer Happy Manufacturing, argued that  impugned provision of section 214x (1A) of the Ordinance, which required the board to keep the parameters for the selection of a case for audit as confidential, is ultra vires of the provision of Articles 4,8,10-A,19 and 19-A of the Constitution.

He added that decision of the FBR to keep the parameters confidential is also against the law settled by the court. He further stated all the laws, including Qanoon-e-Shahadat Ordinance, allows accused persons access to information on the charges against them. He said the Income Tax Ordinance denies the information under which the taxpayers are being tried.

“How can a taxpayer defend himself and understand the queries raised before him during the process of audit when the parameters and reasons are not disclosed”? Advocate Khan concluded.

Advocate Naveed A Andrabi, who was representing some petitioners, submitted that the provision of Section 214C (1A) does not specifically restrain the board from providing information after selection for audit. He added the board is misconstruing impugned provision of Section 214C(1A). He added the provision violates the petitioner’s fundamental right of a fair trial and due process guaranteed under Article 10-A of the Constitution. He said the petitioner’s right of business, under Article 18 of the Constitution, has been infringed upon.

He said the petitioners had been forced into providing details of their accounts, during audit, without any specific allegation. FBR Counsels opposed the petitions by arguing that mere selection for audit does not cause any actionable injury to tax payers.

The counsel argued that guidelines for selection of audit are administrative in nature and meant only for internal consumption of tax authorities, therefore, no fundamental right of petitioners has been infringed for not disclosing said guidelines.

The LHC, after hearing the detailed arguments, issued the judgment. It held that impugned orders for not disclosing the specific parameter applied to petitioners for selection of their cases for audit, under section 214C of the Ordinance, are declared to be illegal and without lawful authority and therefore set aside.

The court held that the impugned provision is construed and read down to the effect that under subsection (1A) of Section 214C of the Ordinance, the board shall keep the parameters confidential. However, once persons or classes of persons are selected for audit under section 214C of the Ordinance, they shall be informed about the particular risk parameter applied to them for selection of audit, if demanded by them for their information.

The judgment stated that the FBR was directed to inform the petitioners forthwith, if requested by them, the specific parameters on the basis of which their cases were selected for audit under Section 214C of the Ordinance.

The court observed that neither it nor the Supreme Court of Pakistan, in a number of cases, never considered the disclosure of parameters as a threat resulting in evasion of tax or frustration of Audit Policy. It said the courts have repeatedly held that risk parameters should be fair and publically advertised for the sake of taxpayer convenience.

The court further observed that “In the present case, it is not legally justified that what evil will be remedied by keeping the parameters confidential, especially when it is repeatedly directed by Courts that parameters be transparent and publically disclosed.” 

Published in The Express Tribune, June 28^th, 2019.