9/3/25, 2:00 AM 2025 P T D 502

2025 P T D 502
[Lahore High Court]

Before Shams Mehmood Mirza, J

HONDA ATLAS CAR (PAKISTAN) LIMITED
Versus
FEDERAL BOARD OF REVENUE and others
Writ Petitions Nos.38459 and 49337 of 2021, decided on 7th November, 2024.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss.122(5), 122(5A), 122(9) & 177---Ongoing proceedings of amendment of
assessment---Audit, selection for---Parallel proceedings---Scope---Taxpayer
assailed notices showing its selection for audit under S. 177 of the Income Tax
Ordinance, 2001 ('the Ordinance, 2001') contenting that in the presence of
proceedings for amendment of its assessment the parallel proceedings for tax audit
could take place---Argument of the petitioner /taxpayer was that its selection for
audit must pass the rationality test laid down in the case titled Raza Motor
Industries v. Federation of Pakistan reported as 2022 PTD 19 ('Raza Motor case')---
Validity---Contents of impugned notices revealed that reasons set out in the same
(notices) for selection of petitioner for audit had no nexus with the proceedings that
were initiated for amendment in the assessments and orders passed thereon---Audit
under S. 177 of the Ordinance, 2001 falls in the jurisdiction and authority of the
Commissioner, that is, to select the case of a taxpayer and the Legislature has
granted considerable flexibility and discretion to the Commissioner to call for the
record and documents from the taxpayer without confining it by any specified
criteria except requiring him to give reasons for summoning the record/documents--
-Under S.177 of the Ordinance 2001, the Commissioner is required to grant a
further right of hearing at the culmination of audit to the taxpayer seeking its
explanations on the issues that surfaced during the audit and that even after the
amendment of the assessment multiple rights of appeal/reference are available to
the taxpayer---Concept of audit requires pinpointing of non-compliant trends,
defects in system, ambiguities in practice and law and selection and conduct of
audit is not necessarily detrimental to the interests of the taxpayer---Taxpayer's
duty to make correct declarations in the tax returns under the self-assessment
regime must be balanced against the right of the Revenue to audit---In case, the
taxpayer satisfies the authorities that the tax returns submitted by him are truthful,
reliable and supported by the necessary documentation, it may not culminate in
further proceedings or in an amendment in the returns and enhanced tax liability
may not be the outcome---This is so because mere selection for audit by itself is not
a complete process, but is the beginning of a process which may or may not
culminate in revision of assessment, enhanced tax liability or other adverse legal
consequences---Even otherwise, the Commissioner is merely seeking the records /
documents from the taxpayer by providing him reasons which at the pre-audit stage

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cannot be assailed before a Court of law---Petitioner's contention/ argument (that

its selection for audit must pass the rationality test laid down in the 'Raza Motor
case') had no force---No ground for interference by the High Court was made out---
Constitutional petition was dismissed.
Raza Motors Industries v. Federation of Pakistan and others 2022 PTD 19; The
Federal Board of Revenue and others v. Messrs Chenone Stores Limited and others
2018 PTD 208 and Commissioner of Inland Revenue Sialkot and others v. Messrs
Allah Din Steel and Rolling Mills and others 2018 SCMR 1328 ref.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss. 122(5), 122(5A), 122(9) & 177 [as amended through Finance Act, 2009 and
Finance Act, 2010]---Audit---Selection for multiple years---Scope---Taxpayer
assailed notices showing its selection for audit under S. 177 of the Income Tax
Ordinance, 2001 ('the Ordinance, 2001')---Argument of the petitioner /taxpayer was
that as per Circular dated 05.10.2009 issued by the Federal Board of Revenue, there
was no warrant under S. 177 of the Ordinance, 2001 for selection of audit of a
taxpayer for multiple years---Validity---Text of S. 177 of the Ordinance, 2001 does
not lay down any impediment on the authority of the Commissioner to select the
case of a taxpayer for multiple years---All that the provisions in S. 177 require
from the Commissioner is to record reasons in writing for calling for
record/documents and those reasons are to be communicated to the taxpayer---If
these conditions are fulfilled, the Commissioner can select a taxpayer for multiple
years---Thus, reliance placed by the petitioner on Circular-in-question is of no help
to it---Petitioner ignored the amendments made in S. 177 through Finance Act,
2009 and Finance Act, 2010---Section 177(7) visualizes a situation where audit in a
particular year has already taken place and audit for subsequent year would require
furnishing of reasonable grounds---This provision is not applicable to selection of
audit for multiple years---In the present case, the Commissioner had furnished
reasons for calling for record/documents for conducting audit in each of the notice
which fulfilled the conditions laid down in the proviso to section 177---No ground
for interference by the High Court was made out---Constitutional petition was
dismissed.
(c) Income Tax Ordinance (XLIX of 2001)---

----Ss. 122(5), 122(5A), 122(9) & 177---Ongoing proceedings of amendment of

assessment---Audit, selection for---Sectoral audit drive---Taxpayer assailed notices
showing its selection for audit under S. 177 of the Income Tax Ordinance, 2001
('the Ordinance, 2001') contenting that the impugned notices were part of sectoral
audit---Validity---Notices impugned did not contain anything that would suggest
that it was part of a sectoral audit drive authorized by the Federal Board of
Revenue---In each of the notice reasons had been given for selecting the case of the
petitioner for audit thereby satisfying the requirements of S. 177 of the Ordinance,
2001---No ground for interference by the High Court was made out---
Constitutional petition was dismissed.

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Waqas Ahmad Mir, Hammad Hussain and Ali Hussain Gillani for Petitioner (in
W.P. No.38459 of 2021).
Basharat Ali Awan for Petitioner (in W.P. No.49337 of 2021).
Syed Zain ul Abedeen for Respondent/FBR (in W.P. No.49337 of 2021).
Ahmed Pervaiz for Respondent/FBR (in W.P. No.38459 of 2021).
Sheraz Zaka, Assistant Attorney General.
JUDGMENT
SHAMS MEHMOOD MIRZA, J.---This order shall decide the present writ
petition as well as connected Writ Petitions No.49337 of 2021 which deal with
similar legal issues.
2. For the purposes of this order only the facts of the present case shall be stated.
3. The petitioner has called into question notices dated 27.05.2021 and
28.05.2021 through which it has been selected for audit for the tax years 2017,
2018, 2019 and 2020 in terms of section 177 of the Income Tax Ordinance, 2001
(the Ordinance).
4. In order to support the grounds agitated in this petition, it is submitted that a
number of notices were issued to the petitioner under section 122(5A) read with
section 122(9) of the Ordinance for the tax years 2017 to 2019 on which orders
were passed, and the cases are now pending before the appellate forums. It is,
however, conceded that such is not the case with respect to the tax year 2020. The
petitioner also referred to circular dated 05.10.2009 issued by the Federal Board of
Revenue holding that a case shall be selected which shall be selected for audit for
the current year only. The Federal Board of Revenue, it is argued, is required to
give reasons for selecting the petitioner for audit for multiple years. While making
reference to paragraph No.20 of the judgment rendered in the case of Raza Motors
Industries v. Federation of Pakistan and others 2022 PTD 19, it is contended that
the action of the respondents in selecting the case of the petitioner for multiple
years does not pass the rationality test laid down in the said judgment. A reference
was also made to the judgment rendered by this Court in Writ Petition No.15880 of
2021 titled D.G. Khan Cement Company Limited v. Federal Board of Revenue and
others by stating that the selection of the petitioner for audit was part of sectoral
audit initiated under the directives issued by Federal Board of Revenue which
action was declared to be without lawful authority and of no legal effect.
5. Learned counsel for the respondents by rebutting the contentions of the
petitioner submitted that the scope of section 122(5A) is fairly limited and that any
observations pursuant to the audit shall be adjudicated upon under section 122(5). It
is argued that there is a difference between the two provisions and the mere fact
that the petitioner's tax returns were selected for amendment in the assessment
under section 122(5A) shall not preclude the selection of the petitioner for audit. In
regard to the successive selection for audit, learned counsel referred to the case of
Nestle Pakistan Limited and others v. Federal Board of Revenue 2017 PTD 686 to

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submit that a taxpayer can be selected for audit for multiple years. It is also
contended that circular dated 05.10.2009 on which reliance was placed by the
petitioner was issued much prior to the judgments (Raza Motors and Nestle
Pakistan Limited) rendered by this Court. The allegation of the petitioner that its
selection for audit was part of sectoral audit was also rebutted by the learned
counsel for the respondents.
6. The primary argument of the petitioner that in the presence of proceedings for
amendment of its assessment the parallel proceedings for tax audit cannot take
place is negated by the comparative chart placed on record by the respondents. This
chart reflects that the reasons set out in the notices (impugned herein) for selection
of petitioner for audit have no nexus with the proceedings that were initiated for
amendment in the assessments and orders passed thereon.
7. This Court in the case of Raza Motor traced the legislative evolution of
section 177 to hold that it falls in the jurisdiction and authority of the
Commissioner to select the case of a taxpayer and that the legislature has granted
considerable flexibility and discretion to the Commissioner to call for the record
and documents from the taxpayer without confining it by any specified criteria
except requiring him to give reasons for summoning the record/documents. This
Court furthermore observed that under section 177 the Commissioner is required to
grant a further right of hearing at the culmination of audit to the taxpayer seeking
its explanation on the issues surfaced during the audit and that even after the
amendment of the assessment multiple rights of appeal/reference are available to
the taxpayer. This Court also referenced the judgment rendered in the case of The
Federal Board of Revenue and others v. Messrs Chenone Stores Limited and others
2018 PTD 208 in which it was held that the concept of audit requires pinpointing of
non-compliant trends, defects in system, ambiguities in practice and law and that
selection and conduct of audit is not necessarily detrimental to the interests of the
taxpayer and that the taxpayer's duty to make correct declarations in the tax returns
under the self-assessment regime must be balanced against the right of the Revenue
to audit. The case of Commissioner of Inland Revenue Sialkot and others v. Messrs
Allah Din Steel and Rolling Mills and others 2018 SCMR 1328 was also referred to
in which it was held that "In case, he satisfies the authorities that the tax returns
submitted by him are truthful, reliable and supported by the necessary
documentation, it may not culminate in further proceedings or in an amendment in
the returns and enhanced tax liability may not be the outcome. This is so because
mere selection for audit by itself is not a complete process. This is the beginning of
a process which may or may not culminate in revision of assessment, enhanced tax
liability or other adverse legal consequences." Raza Motors also holds that "Even
otherwise, the Commissioner is merely seeking the record/documents from the
taxpayer by providing him reasons. These reasons are not justiciable, which at the
pre-audit stage cannot be assailed before a Court of law in view of the law laid
down in Kohinoor's case and Messrs Allah Din Steel and Rolling Mills case."
8. The petitioner's contention that its selection for audit must pass the rationality
test laid down in the case of Raza Motor has no force in view of reproduction of the
above excerpts of the said judgment.

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9. It was also contended by the petitioner that there is no warrant under section
177 for selection of audit of a taxpayer for multiple years. The argument so put
forward by the petitioner is also without any merit. The text of section 177 does not
lay down any impediment on the authority of the Commissioner to select the case
of a taxpayer for multiple years. All that the provisions in section 177 requires from
the Commissioner is to record reasons in writing for calling for record/documents
and that those reasons are to be communicated to the taxpayer. If these conditions
are fulfilled, the Commissioner can select a taxpayer for multiple years. Circular
dated 05.10.2009 issued by the Federal Board of Revenue on which reliance was
placed by the petitioner is of no help to it. The argument made by the petitioner
ignores the amendments made in section 177 through Finance Act, 2009 and
Finance Act, 2010. Section 177(7) visualizes a situation where audit in a particular
year has already taken place and audit for subsequent year would require furnishing
of reasonable grounds. This provision is not applicable to selection of audit for
multiple years. Be that as it may, as noted above, the Commissioner has furnished
reasons for calling for record/documents for conducting audit in each of the notice
which fulfills the conditions laid down in the proviso to section 177.
10. In regard to the allegation that the impugned notices were part of sectoral
audit, suffice it to state that this was not part of the grounds taken by the petitioner
in this writ petition. Notwithstanding the - absence of such ground, the notices
impugned in this writ petition do not contain anything that would suggest that it
was part of a sectoral audit drive authorized by the Federal Board of Revenue. It
may be pointed out that in each of the notice reasons have been given for selecting
the case of the petitioner for audit thereby satisfying the requirements of section
177.
11. For what has been stated above, this writ petition and the connected writ
petition fail and are accordingly dismissed.
MQ/H-12/L Petition dismissed.

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