M/s Zhongxing Telecom Pakistan Limited VS FOP through Secretary Revenue Division etc

JUDGMENT SHEET

ISLAMABAD HIGH COURT, ISLAMABAD

JUDICIAL DEPARTMENT

WRIT PETITION NO. 930 OF 2025

M/S ZHONGXING TELECOM PAKISTAN (PVT.) LTD.

VERSUS

FEDERATION OF PAKISTAN AND OTHERS

M/s Muhammad Uzair Bin Shafie, Umar Petitioner by: Shahzad Abbasi and Saif Mehmood Abbasi, Advocates.

Respondent Mr. Muhammad Asif Jadoon, AAG.

No. 1 by:

Respondent Mr. Ali Nawaz Kharal, Advocate.

No. 2 to 5 by:

Muhammad Yahya Khan Niazi, Judicial Law Assisted by:

Clerk.

Date of

Hearing:

INAAM AMEEN MINHAS, J:- Through the instant writ petition, the petitioner assails the condonation letter dated 16.01.2025 (“Impugned Condonation”) granted by respondent No. 2(i)/Member IR (Operations) under section 214-A of the Income Tax Ordinance, 2001 (“Ordinance”) whereby the period of limitation prescribed by the second proviso to section 177(1) of the Ordinance was enlarged and has also impugned notices dated 07.02.2025 and 10.02.2025 issued by Respondent No. 5/Deputy Commission Inland Revenue (“DCIR”) under section 176(1) of the Ordinance. Additionally, the petitioner also seeks declaration that the respondents/Federal Board of Revenue (“FBR”) cannot enlarge the period of limitation prescribed by the second proviso to section 177(1) of the Ordinance and that the audit proceedings under section 177 pertaining to Tax Year 2019 is time barred. Lastly, the petitioners seek the interpretation of section 214-A of the Ordinance.

2.The facts of the instant petition, in brief, are that the petitioner having special tax year was selected for audit under section 177 of the Ordinance, for the period from 01.01.2018 to 31.12.2018 (“Tax Year 2019”), by Commissioner Inland Revenue (Audit-II) (“CIR”). The CIR issued notice dated 23.05.2022 (“Intimation Notice”) under section 177(1) of the Ordinance,

wherein the petitioner was informed that its case has been selected for audit. Thereafter, CIR under section 177(1) of the Ordinance issued another notice dated 22.08.2022 (“Information Notice”) seeking Record/Documents/Books of Account in relation to the ongoing audit proceedings and sought for compliance by 05.09.2022. The petitioner in compliance furnished detailed responses dated 05.08.2022, 20.09.2022, and 06.10.2022. Afterwards, the audit proceedings continued and FBR accordingly issued multiple reminders and notices. Notably, show cause notice dated 19.05.2023 under section 182(2) of the Ordinance was issued for non-compliance and the petitioner controverted the said allegation and submitted replies dated 23.05.2023 and 26.05.2023. Thereafter, no further requisition of information was made and the matter remained dormant. Subsequently, the CIR vide its letter dated 16.12.2024 sought condonation of delay for finalizing audit proceedings and the Second Secretary (Inland Revenue Operations) issued the Impugned Condonation upon the approval of the competent authority i.e. respondent No. 2/Member IR (Operations) exercising powers under section 214-A of the Ordinance, thereby extending the statutory period of limitation for audit proceedings, which was otherwise set to lapse on 31.12.2024, by an additional six months up to 30.06.2025. Subsequently, on 07.02.2025 and 10.02.2025, Respondent No. 5/Deputy Commissioner Inland Revenue (“DCIR”) issued notices under section 176(1) of the Ordinance seeking further information in continuation of the audit proceedings to which the petitioner submitted a response dated 17.02.2025.

3.The learned counsel for the petitioner contended that the Impugned Condonation and the subsequent notices issued under section 176 of the Ordinance are wholly without lawful authority, having been issued in disregard of the mandatory framework governing audit proceedings. It was argued that section 177(1), read with its second proviso, prescribes a strict and unambiguous limitation period of six years for calling record and documents, which expired on 31.12.2024, and that such limitation cannot be enlarged through recourse to section 214A of the Ordinance. Learned counsel submitted that the power to initiate and conduct audit proceedings under section 177 is circumscribed by both substantive and procedural safeguards. The legislature, by employing the expression “shall not” in the second proviso to section 177(1), has imposed a mandatory embargo upon the respondents from seeking record after expiry of

the prescribed period and such a restriction reflects a clear legislative intent to render the limitation absolute and not subject to extension through a general provision. The learned counsel argued that section 214A is a provision of general application conferring limited discretionary power upon the Federal Board of Revenue to condone delay in procedural matters. However, in the absence of any non-obstante clause, the said provision cannot override a specific statutory limitation, particularly one couched in negative and mandatory terms. Since the legislative scheme demonstrates that while a general power was conferred under section 177(1), it was consciously curtailed through the proviso, thereby creating a strict temporal boundary. In furtherance of this, learned counsel submitted that upon expiry of the statutory limitation, a vested right accrued in the petitioners favour, rendering the matter a past and closed transaction which cannot be reopened.

4.Learned counsel for the petitioners further contended that the Impugned Condonation fails to meet the judicially recognized standards governing the exercise of discretionary power which must be exercised in good faith, for advancement of statutory objectives, and in a reasonable manner. According to the learned counsel, the Impugned Condonation, being devoid of reasons and having being passed in a mechanical manner, does not satisfy the said test. It was also urged that the Impugned Condonation is violative of section 24A of the General Clauses Act, 1897 (“GCA, 1897”), which mandates that statutory powers be exercised fairly, reasonably, and through speaking orders. The absence of any cogent reasoning, coupled with the failure to afford an opportunity of hearing, is asserted to render the Impugned Condonation arbitrary and unconstitutional. Lastly, it was contended that the delay in concluding the audit proceedings is solely attributable to the respondents, who, despite having ample time since 2022, failed to act diligently whereas the petitioner, on the other hand, remained compliant throughout and thus, the respondents cannot be permitted to defeat the statutory limitation through belated and unstructured exercise of discretion, as the same would undermine certainty, fairness, and the rule of law.

5.Conversely, the learned counsel for respondents raised preliminary objections as to the maintainability of the petition, contending that section 214A

of the Ordinance confers a broad and general power upon the Federal Board of Revenue to extend time for carrying out any act prescribed under the Ordinance. It was submitted that the said provision is of overriding application and extends to all provisions of the Ordinance and the rules framed thereunder and that the interpretation of such condonation powers has been authoritatively settled by the Honorable Supreme Court in Collector of Sales Tax, Gujranwala and others vs. Super Asia Mohammad Din and others, (2017 SCMR 1427, 2017 PTD 1756), wherein section 74 of the Sales Tax Act, 1990 being pari materia to section 214A was held to permit extension of limitation for a reasonable period upon due application of mind. The learned counsel submitted that the extension of six months granted in the present case squarely falls within the parameters laid down in the said judgment. Learned counsel argued that the petition is an attempt to frustrate lawful audit proceedings, particularly in light of the petitioner’s failure to furnish complete documentation in response to notices issued under section 177 and that repeated reminders were issued, culminating in a penalty notice under section 182, thereby demonstrating non-compliance on the part of the petitioner.

6.On merits, learned counsel submitted that there exists no statutory requirement to provide detailed reasons or to afford a hearing prior to condonation under section 214A and that the provision merely requires the exercise of discretion in good faith and in a reasonable manner, which stands satisfied in the present case and thus, the allegation of violation of Articles 4, 10A, and 18 of the Constitution is denied. Learned counsel also contended that the notices issued under section 176(1) are independent in nature and are further fortified by subsection (5), which contains a non-obstante clause enabling the authorities to call for information notwithstanding any other provision. It was thus argued that even otherwise, the issuance of such notices is lawful and within jurisdiction. Lastly, the learned counsel for the respondents denied that any vested right accrued to the petitioner upon expiry of the initial limitation period, since the principle of past and closed transaction would only arise after the lapse of the extended period permissible under section 214A. Thus, it was prayed that the petition, being devoid of merit and legal substance, be dismissed with costs.

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7.We have given anxious consideration to the arguments of the learned counsel for the parties and perused the record with their able assistance.

8.It is reflected from the record that audit proceedings in the instant case pertain to Tax Year 2019, which ended on 31.12.2018. The statutory limitation of six (6) years for calling records/documents therefore ended on 31.12.2024. However, after the expiry of the prescribed limitation period, the Second Secretary (Inland Revenue Operations) issued the Impugned Condonation under section 214-A of the Ordinance, extending the statutory period of limitation for audit proceedings by an additional six months i.e. up to 30.06.2025, which was otherwise set to lapse on 31.12.2024. In such backdrop, the principal question which arises for determination is whether the said condonation is without lawful authority or, conversely, whether the same is sustainable within the statutory framework governing the field.

9.It is manifest from the record that an identical question came up for consideration before a Division Bench of this Court in the case of Huawei Technologies Pakistan Limited vs. Federation of Pakistan and others, (PLJ 2026 Islamabad 51 DB) wherein the scope and effect of section 214-A of the Ordinance was examined in the light of authoritative pronouncements of the Honorable Supreme Court of Pakistan1. It was observed that section 214-A is a provision of general applicability conferring upon the Federal Board of Revenue a statutory power to condone delay in respect of any act or thing required to be done under the Ordinance, including audit proceedings. Thus, in view of the judgment in Huawei Technologies (Ibid) this Court is disinclined to adopt a contrary view since we are also of the considered view that FBR apparently has In this regard, reliance was placed upon the judgment of the Honorable Supreme Court in Collector of Sales Tax, Gujranwala and others vs. Super Asia Mohammad Din and others, (2017 SCMR 1427), wherein, while interpreting the pari materia provision contained in section 74 of the Sales Tax Act, 1990, it was held that such provisions vest an overriding and independent power in the Board to extend time limits prescribed under the statute. However, the apex Court simultaneously circumscribed the exercise of such power by holding that it must be exercised within a reasonable period, not exceeding six months from the expiry of the original limitation, and upon due application of mind. It was further noted that although certain reservations were subsequently expressed with respect to the ratio laid down in Super Asia (supra), the same stood conclusively reaffirmed by a larger Bench of the Honorable Supreme Court in WAK Limited and others vs. Collector Central Excise and Sales Tax, (2025 PTD 1179), which upheld the principle that while the Board possesses the authority to grant extension, such power is neither unfettered nor open-ended, and must be exercised judiciously, reasonably, and within the outer limit of six months.

the power under section 214-A of the Ordinance to grant condonation and consequently, the petitioner’s argument is devoid of merit.

10.The question that now arises is whether the power was exercised in accordance with the law. It is settled law that statutory power cannot be exercised in an unstructured, unguided, or unbridled manner, for such exercise undermines the statutory scheme. It would be more appropriate to examine the matter through the lens of the standard in which the Board, or any officer exercising the power of condonation under section 214-A on its behalf, must invariably ask itself: what order should I pass if I were to act justly, fairly, and reasonably? If the order ultimately passed is inconsistent with the answer to that question, the Board/Taxation officer exceeds its lawful jurisdiction and commits an abuse of the authority entrusted to them. Therefore, this Court shall now examine whether the said power was exercised in accordance with the law.

I. Whether the power under 214-A was exercised reasonably?

11.Reasonableness in this context requires a demonstrable application of mind, a conscious evaluation of the circumstances warranting extension, and the articulation of reasons that reveal a rational nexus between the material on record and the conclusion reached. If the order is bereft of reasons, proceeds mechanically, or fails to address the statutory preconditions, it cannot meet the threshold of reasonableness. The Honorable Supreme Court in the case of Super Asia (Supra) held:-

“However this does not mean that in exercise of its power under section 74 of the Act, the Board will have unfettered and unbridled authority to extend time when, and for however long, it feels it expedient to do so. Rather time would only be extended in certain cases, after application of mind and that too for a reasonable amount of time.”

12.Similarly in the case of Commissioner of Inland Revenue vs. Messrs Allah Din Steel and Rolling Mills and others, (2018 SCMR 1328) the Honorable Supreme Court expounded on the manner of exercise of discretionary power in the following terms:-

“However, if delays are inevitable, beyond the control of the Department and do not occur on account of any act or omission on the part of the Taxation Officers and happen on account of litigation and grant of stay orders, the Audit Officer may seek

extension of time from the Federal Board of Revenue for completion of the audit after recording reasons in writing for seeking such extension explaining reasons for his inability to complete the audit within the stipulated time. The Board may on consideration of such reasons grant reasonable extension in order to enable completion of the audit. It is however emphasized that extension if granted should be supported by due application of mind and appropriate reasoning on the part of the Board. It should not be granted casually, repeatedly and as a matter of routine. Adherence to guidelines and timeframes would enhance confidence of the Taxpayers in the system and at the same time act as a check on lethargy and inefficiency on the part of the departmental functionaries.”

13.It follows from the above that extension of time is not automatic, it can only be granted in specific cases after due consideration, and only for a reasonable period. It is evident from the record that Respondent No. 2 issued the Impugned Condonation without identifying any specific facts or circumstances warranting such relief and proceeded to extend the limitation period by six months on the bare and generic assertion of “taking cognizance of the facts of the case”. The Impugned Condonation does not demonstrate the existence of any circumstances or facts of the case that could lawfully justify the exercise of its power of extension. Rather, the officer empowered on the Board’s behalf appears to have acted on the mistaken premise that such power can be invoked as a matter of course, without undertaking the requisite objective assessment mandated by law. Further reliance is placed on the recent case of Additional Collector of Customs, Faisalabad vs. Messrs Fatima Enterprises, Multan and another, (2025 SCMR 1929). The exercise of discretion in this manner, divorced from evidence and reason would amount to an arbitrary and colorable exercise of authority in derogation of the principles of natural justice.

14.Moreover, Section 24A of the GCA, 1897 stipulates that statutory power must be exercised reasonably, fairly, justly, and for advancement of the purpose of the enactment. The Superior Courts have dilated upon section 24 of GCA, 1897 and enunciated the principle that the executive authorities while exercising discretion must give reasons for its decision through a speaking order. The requirement to articulate reasons is neither a mere procedural formality nor an empty ritual; rather, it is a substantive safeguard designed to demonstrate that discretion has been exercised judiciously, objectively, and with due application of mind. Reasoned decision-making ensures that affected persons are apprised

of the basis of the action taken, facilitates meaningful judicial review, and acts as a restraint against arbitrariness or caprice.

15.Applying the facts of the instant matter to the test laid down by the Superior Courts essentially amounts to a blatant disregard of section 24 of the GCA, 1897. Hence, we are disinclined to treat any extension as “lawful” due to the failure to record reasons which as stated above is meant to ensure fairness and transparency. Similar view was expressed by the Honorable Supreme Court in the case of Federal Board of Revenue vs. Abdul Ghani, (2021 SCMR 1154) wherein the Court ordered to set aside the condonation granted under section 74 of the STA, 1990 in the following terms:-

“More importantly, the order passed under section 74 of the Act by the FBR fails to state any reason for extending the limitation period....The said requirement is meant to ensure fairness and transparency in the exercise of statutory discretion by the FBR which suffers from opacity and therefore unreasonableness....we are not inclined to interpret the said provision as authorizing the unchecked reversal of a statutory limitation period and consequential rights created by it.”

16.Moreover, this Court in Huawei Technologies (Supra) expounded on the matter by observing that the principles laid down in Super Asia (Supra) were confined to the specific context of an order-in-original issued upon the breach of a mandatory timeline, and the larger Bench in WAK Limited (Supra) expressly reserved the question of their broader application to a suitable future case. The Court therefore undertook an independent construction of section 214-A, unassisted by those principles, and the construction that emerged was that, “While a six-month extension may, in isolation, appear modest, but when acting “justly” its reasonableness must be assessed in the context of the already generous period provided by law. Thus, while a short statutory period (such as the one under consideration in the Super Asia case) may rationalize a modest extension, a six-year period already signifies legislative generosity. Accordingly, when the power of condonation is examined through the lens of acting justly, the guiding principle is that the longer the original statutory period prescribed for performing the act, the stronger the justification needed for any extension.” Accordingly the standard of “acting justly” when exercising a power of condonation is not fixed or uniform rather it is measured against the generosity

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of the original statutory period. Similarly, in the instant matter the statutory period (a period of six years under the second proviso to section 177(1)) granted is, by any measure, more than adequate and any additional time in the absence of any “exceptional justification” would amount to a reward for administrative inefficiency, which the law does not permit. Therefore, any condonation of time without recording any exceptional circumstances which might justify further extension constitutes an act of highhandedness and amounts to executive overreach. However, in the present matter the Impugned Condonation was granted on the basis of the generic observation of “taking cognizance of the facts of the case” without specifying any grounds. Thus, the Impugned Condonation does not even satisfy the basic threshold of eligibility for consideration under this test.

17.This Court shall now examine whether the power was exercised justly. The Court in Huawei Technologies (Supra) observed that when “acting justly” while exercising the power of condonation, the same would also include an examination of the facts to reflect why the taxation officer has not adhered to the guidelines and statutory timeframes since this would enhance confidence of the taxpayers in the system and at the same time act as a check on lethargy and inefficiency on the part of the departmental functionaries. The Honourable Supreme Court in the case of Messrs Panther Sports2 observed that the Ordinance is largely structured around time-framed provisions such as sections 120 (assessment), 122 (amendment of assessment) and 221 (rectification of mistakes) in order to make the taxing mechanism certain, transparent and the tax administration and tax governance smarter and efficient. In this regard the Court categorically held that the tax department is under an obligation to be vigilant and efficient enough so as to proceed against a taxpayer within the statutory timeframe provided. Furthermore, in the case of Commissioner of Messrs Allah Din Steel and Rolling Mills3 the Court held that if delays are inevitable, beyond the control of the Department and do not occur on account of any act or omission on the part of the Taxation Officers and happen on account of litigation and grant of stay orders, the Audit officer may seek extension of time from the Federal Commissioner Inland Revenue, Zone-IV, Lahore vs. Messrs Panther Sports and Rubber Industries (Pvt.) Ltd. and others, (2022 SCMR 1135)

Inland Revenue vs. Messrs Allah Din Steel and Rolling Mills and others, (2018 SCMR 1328)

Board of Revenue for completion of the audit after recording reasons in writing for seeking such extension explaining reasons for his inability to complete the audit within the stipulated time.

18.A perusal of the CIR’s request dated 12.12.2024 reveals that the CIR sought condonation on the basis of (i) reorganization of FBR’s field formations, (ii) frequent transfers and postings of the concerned assessing officer/unit office and (iii) delay in the provision of complete records by petitioner. However, the record contains no material whatsoever to substantiate the assertion regarding frequent transfers, as not a single document has been produced to demonstrate the same. Likewise, no notification pertaining to the reorganization of the FBR’s field formations has been furnished by the respondents meaning thereby that no corroboration or proof exists regarding the reorganization relied upon by the CIR. As for the reasoning of delayed provision of records by the petitioner, it is manifest from the record that the delay in bringing proceedings to an end was fully within the control of the Department and arose directly from acts and omissions on the part of the audit officers. It is apparent that show cause notice dated 19.05.2023 under section 182(2) of the Ordinance was issued for non- compliance and the petitioner controverted the said allegation and submitted replies dated 23.05.2023 and 26.05.2023. Thereafter, no penalty was imposed and the matter remained dormant. It is thus evident that there was an unexplained delay of approximately nineteen months. Accordingly, it stands evident that no external or unavoidable constraint hindered the proceedings, and the FBR could, with due diligence, have proceeded within the prescribed time. Ultimately, the benefit of such conduct rebounds entirely to the taxpayer, not by operation of law but through the Department’s own failure to discharge its obligations with diligence and integrity.

19.Moreover, if the power had been exercised in a just manner, the empowered officer of the Board would have examined why the Audit officers were not vigilant and efficient enough to proceed against the petitioner, and why they failed to meaningfully or effectively exercise the wide and comprehensive powers vested in them under the Ordinance, such as the one enshrined in section 175. The failure to utilize these powers within the statutory timeframe, despite the clear legislative command and judicial guidance, reflects a dereliction of the

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fiduciary obligations incumbent upon the tax administration. Even otherwise, where the law confers authority for the protection of the public revenue, that authority must be exercised with diligence, discipline, and fidelity to statutory purpose. All these factors must be looked at holistically and taken into consideration when exercising powers under 214-A, which is not evident in the present case.

20.This Court shall now examine whether the power under section 214-A was exercised fairly. This lens requires examination of whether the Impugned Condonation was issued in a procedurally fair manner. It is evident from the record that the Impugned Condonation was issued without affording the petitioner any opportunity to be heard and the petitioner was deprived of the opportunity to demonstrate its own compliance or contest the grounds urged by the CIR which is a violation of the principle of audi alteram partem i.e. no one should be condemned unheard. It is settled law that every person is entitled to have due notice of proceedings, which effects his rights along with being afforded a reasonable opportunity to defend.4 For its application, the maxim does not depend upon whether the proceedings are judicial or quasi-judicial or administrative or quasi administrative. It applies to judicial as well as administrative bodies, especially where the proceedings taken may affect the person.5 The Honorable Supreme Court in the case of Hazara Hill Tract6 categorically observed that the principle of natural justice enshrined in the maxim audi alteram partem is one of the most important principle and its violation is always considered enough to vitiate even most solemn proceedings. However, the petitioner was denied the opportunity to place before the department the fact of compliance and the department’s own prolonged inaction. In the absence of such hearing, the Impugned Condonation cannot be regarded as having been issued fairly and in compliance with the principles of natural justice. For all the foregoing reasons, the Impugned Condonation fails on each of the three standards i.e. reasonableness, acting justly, and fairly, and is accordingly declared to have been issued without lawful authority.

Aftab Shahban Mirani vs. President of Pakistan, (1998 SCMR 1863) and New Jubilee Insurance vs. National Bank of Pakistan, (PLD 1999 SC 1126).

Rahim Shah vs. Chief Election Commissioner, (PLD 1973 SC 24) and Raziuddin vs. Chairman Pakistan Airlines Corporation, (PLD 1992 SC 531).

Hazara (Hill Tract) Improvement Trust vs. Mst. Qaisra Elahi, (2005 SCMR 678).

21.Since the Impugned Condonation has been found to be unlawful, the audit proceedings in respect of Tax Year 2019 must be treated as having lapsed upon the expiry of the statutory limitation on 31.12.2024. The question that now arises is what is the legal effect of the subsequent notices dated 07.02.2025 and 10.02.2025 (“Impugned Notices”), issued by the DCIR under section 176(1) of the Ordinance. The answer to this question is determinative of the legality of the Impugned Notices at a point in time when the audit under section 177 stood extinguished by limitation. In this regard the learned counsel for the respondents contended that these notices are independent in nature and are fortified by subsection (5) of section 176, which contains a non-obstante clause enabling the authorities to call for information notwithstanding any other provision. The learned counsel for the petitioner, conversely, submitted that section 176 notices cannot be issued in furtherance of a time-barred audit, since a vested right accrues to the taxpayer upon expiry of the limitation and the limitation has to be read harmoniously with section 174. The resolution of this dispute requires a careful statutory construction of sections 176 and 177 in juxtaposition.

22.For ease the relevant portions of section 176 and 177 (as they stood at the relevant time) are reproduced below:- “176. Notice to obtain information or evidence.— (1) The Commissioner may, by notice in writing, require any person, whether or not liable for tax under this Ordinance –

(a)to furnish to the Commissioner or an authorised officer, any information relevant to any tax leviable under this Ordinance or to fulfill any obligation under any agreement with foreign government or governments or tax jurisdiction, as specified in the notice; or; and

(b)to attend at the time and place designated in the notice for the purpose of being examined on oath by the Commissioner or an authorised officer concerning the tax affairs of that person or any other person and, for that purpose, the Commissioner or authorised officer may require the person examined to produce any accounts, documents, or computer-stored information in the control of the person or

(c)the firm of chartered accountants or a firm of cost and management accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966)], as appointed by the 6 [Board or the Commissioner], to conduct audit under section 177, for any tax year, may with the prior approval of the Commissioner concerned, enter the business premises of a taxpayer, 7 [ ] to obtain any information, require production of any record, on which the required information is stored and

examine it within such premises; and such firm may if specifically delegated by the Commissioner, also exercise the powers as provided in sub-section (4).

(1A)...

(4)For the purposes of this section, the Commissioner shall have the same powers as are vested in a Court under the Code of Civil Procedure, 1908 (Act V of 1908), in respect of the following matters, namely: —

(a)enforcing the attendance of any person and examining the person on oath or affirmation;

(b)compelling the production of any accounts, records, computerstored information, or computer;

(c)receiving evidence on affidavit; or

(d)issuing commissions for the examination of witnesses.

(5)This section shall have effect notwithstanding any law or rules relating to privilege or the public interest in relation to the production of accounts, documents, or computer-stored information or the giving of information.”

“177. Audit.— [(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any there 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 sub-section (1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination of 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.”

23.A plain and textual reading of the two provisions reflects that Section 177 is a provision of specific application whose subject matter is audit. It encompasses a formal, structured examination of a taxpayer’s income tax affairs and the power it confers upon the Commissioner to call for record and documents, including books of accounts, is instrumentally linked to and inseparable from that audit function. The proviso to section 177(1) also sets the limitation of this power with precision by including that the Commissioner shall not call for record or documents of the taxpayer after the expiry of six years from the end of the tax year to which they relate. The six-year period is not a procedural guideline rather it is a substantive limitation which is critical in delineating the contours of audits timeframe. Section 176, by contrast, is a provision of general and expansive application. Its title/heading “Notice to obtain information or evidence” reflects at the outset, a purpose that is distinct from and broader than audit. Under section 176 the Commissioner is empowered to issue a written notice requiring any person, regardless of whether such person is liable to tax under the Ordinance, to provide information or evidence relevant to the administration of tax laws. Under this authority, the Commissioner or an authorized officer may direct any third party or such person to furnish specified information pertaining to any tax liability under the Ordinance or to meet obligations arising from agreements with foreign governments or tax jurisdictions. The notice may further require the person to appear at a designated time and place to be examined on oath in relation to their own tax affairs or those of another person, and to produce accounts, documents, or electronically stored information within their control. Additionally, a firm of chartered accountants or cost and management accountants, duly appointed by the Board or the Commissioner for the purpose of conducting an audit under section 177, may, with prior approval, enter the business premises of a taxpayer to obtain information, require the production of relevant records, and examine such materials on-site. Where specifically authorized, such firm may also exercise further powers as conferred under sub section 4.

24.The textual distinction between the two provisions is therefore clear since section 177 is the vehicle for audit, equipped with a six-year limitation whereas

section 176 is the vehicle for the collection of information and evidence in aid of the Commissioner’s broader tax administration functions, and is not solely limited to audit nor is itself subject to any prescribed timeframe limitation. The Honorable Divisional Bench of Lahore High Court in Federal Board of Revenue vs. Chenone Stores LTD., (2018 PTD 208 LHC) briefly observed the same:- “24...The argument, by Mr. Shahbaz Butt Advocate, appearing for taxpayer's side, that proviso was declared ultra vires being in conflict with audit scheme and historical perspective has already been answered against. However, his argument that Commissioner already had power to call for record under section 176 of the Ordinance of 2001 needs to be addressed. Bare perusal of sections 177 and 176, if juxtaposed, would reveal that call for record in both the Sections is under different circumstance; under section 177 record can be called only for conducting audit after being selected by Commissioner or FBR. Whereas, under section 176 record can be called for obtaining information or evidence from any person, as is evident from the caption of the Section. The purpose and manner of requiring information or evidence, in any shape, is enumerated in the provisions contained in this Section. Commissioner's power to call for record under section 177(1) is for distinct and specific purpose, therefore, the argument fails.” Moreover, the Single Bench of this Court in the case of Shabnam Ashraf, Proprietor of Preparatory School, Islamabad vs. The Director HQ I &I-IR, Directorate General of Intelligence and Investigation IR and 5 other, (2020 PTD 1917) observed:- “The contention of the Learned Counsel for the Petitioner that the Petitioner has claimed immunity from audit under section 177 as per SRO 1040(I)/2013 dated 05.12.2013, therefore, no notice under section 176 can be issued to call for information, has no force as initiation of proceedings for audit is altogether a separate issue and admittedly no proceedings for audit for the tax year 2013 have been initiated.... So far as jurisdiction to issue notice under section 176 is concerned, it is held that language of Section 176 of the Ordinance, in clear and unambiguous terms, provides vast powers to Commissioner/authorized officer to obtain any information or evidence from any person through notice in respect of tax leviable under the Ordinance”

25.Thus, the two provisions sit in comfortable coexistence, each occupying its own distinct domain. The difficulty, however, arises where section 176 is sought to be deployed not for its own independent purpose but for the collection of information as a surrogate for, or a continuation of audit such as in the present matter and the same is manifest from the notice dated 10.02.2025 which has been

issued under section 176(1) read with section 177(1) of the Ordinance. The principle is a well-settled one in statutory construction i.e. a general power cannot be invoked to circumvent the specific limitation that the legislature has placed upon a more specific power operating in the same field. Where the legislature has, with deliberation, circumscribed the audit jurisdiction by a six- year limitation, it would be an affront to the legislative design to permit the same investigative objective i.e. the examination of a taxpayer’s books and records for the purpose of assessing or amending his tax liability, to be achieved through the indirect route of a section 176 notice, thereby rendering the limitation in section 177 redundant. The limitation in section 177 is not merely a procedural formality, it is the legislature’s considered answer to the question of how long a taxpayer’s affairs may remain exposed to the revenue’s scrutiny. The test, therefore, is not whether section 176 is formally independent of section 177 rather plainly it is whether, in the circumstances of this case, it is being deployed for its own independent informational purpose or whether it is being wielded as an instrument to conduct, in substance, what can only be described as audit by another name. A perusal of notice dated 10.02.2025 reflects that information is being sought with respect to the audit proceedings relating to the Tax Year 2019 and not for an independent informational purpose which leads to the inescapable conclusion that section 176 is being used not in its own right but as a device to circumvent the limitation that the legislature has prescribed which is not a permissible exercise of statutory power. Section 24A of the GCA 1897 requires that every statutory power be exercised reasonably and for the advancement of the purposes of the enactment. The purpose of section 176 is to equip the Commissioner with a broad informational tool and not to provide the revenue with an inexhaustible reservoir of investigative authority with which to revisit, at will, tax years that the legislature has placed beyond the reach of audit.

26.However, the controversy does not end here since a separate and distinct question arises in respect of the notice dated 07.02.2025, which was issued under section 176(1) read with section 108(4) of the Ordinance, and thus cannot, on its face, be said to be issued in direct furtherance of the audit under section 177. The question that now arises is whether section 176, which bears no limitation on its face, may nonetheless be used to call for a taxpayer’s records and documents after the expiry of the six-year statutory time for calling of the record under

section 174(3) of the Ordinance. It is this question that requires the most careful scrutiny. The phrasing of section 176 does allow for obtaining information or evidence by notice in writing from any person “whether or not liable for tax under this Ordinance.” The term “any person” reflects the legislature’s intention to include the taxpayer within the ambit of section 176, and also to extend the reach of section 176 beyond taxpayers, which is further reinforced by the expansive formulation “whether or not liable for tax under this Ordinance.” Thus, neither part can be rendered redundant. However, to allow section 176, which contains no timeframe or limitation to operate as an unlimited extension of a taxpayer’s exposure would be to defeat the time-bound protection expressly afforded by section 174. Thus, section 176 needs to be construed harmoniously. It necessarily follows that if section 176 notice read with section 108(4) of the Ordinance is issued to a taxpayer, the same should be reasonably be subject to section 174(3). A similar issue, where a notice was issued under a provision which contained no express timeframe or statutory limitation, was adjudicated by the Honourable Supreme Court in Commissioner Inland Revenue, Zone-IV, Lahore vs. Messrs Panther Sports and Rubber Industries (Pvt.) Ltd. and others, (2022 SCMR 1135), wherein the Court came to the conclusion that the absence of a prescribed limitation period within a particular provision does not render the power exercisable without temporal constraint. The Honorable Supreme Court captured this distinction with precision by observing:- “4. Section 174(1) binds a taxpayer to maintain such accounts, documents and records as may be prescribed. Rule 29(1) of the Rules provides a list of such records. Subsection (3) of section 174 makes the duty of the taxpayer to maintain the records for a period of six years. Rule 29(4) reiterates the same timeline. Time based obligation of maintaining records contemplated under the Ordinance and the Rules is a legislative mandate that promotes efficient and smart fiscal administration and governance. It is underlined that the Ordinance is largely structured around time- framed provisions in order to make the taxing mechanism certain and transparent and the tax administration and tax governance smarter and efficient. Reference, with advantage, can be conveniently made to sections 120 (assessment), 122 (amendment of assessment) and 221 (rectification of mistakes) of the Ordinance in this regard.

5.Reading of the Ordinance and the Rules envisages that any proceedings against a taxpayer that is based on the tax records maintained by the taxpayer should be initiated within a fixed timeframe. Section 174 creates an obligation on the taxpayer to maintain such accounts, documents and records as prescribed for

a period of six years, except in case of pending proceedings, where the obligation of a taxpayer to maintain the record is till the final decision of the proceedings (exception is not attracted in the present case), while the same provision protects the taxpayer from being asked to produce the record beyond the said period. As notices under sections 161, 165 and Rule 44(4) can only be replied to on the basis of the record maintained by the taxpayer, joint reading of sections 161, 165 and Rule 44(4) and section 174(3) and Rule 29 establishes that the tax department is under an obligation to be vigilant and efficient enough so as to proceed against a taxpayer within the statutory timeframe provided under section 174(3). Even though there is no specific limitation for issuance of notices under section 161(1A) or 165(2B) or Rule 44(4) but these provisions cannot be actualized or given effect to unless the record, available with the taxpayer, is examined and verified by the tax authorities. Since the aforesaid provisions of law require taxpayer to maintain record for a period of six years, hence notices beyond a period of six years cannot be given effect to. As the taxpayer is under no legal obligation to maintain tax records after the said statutory period, any such notices demanding the taxpayer to furnish such information are inconsistent with the clear provisions of the Ordinance and hence unlawful. Harmonized reading of the statute requires that section 174(3) and sections 161, 165 and Rule 44(4) must complement each other so as to promote the purposes of the Ordinance and equally protect and safeguard the rights of both the tax manager and the taxpayer as envisaged under the Ordinance. Therefore, even though notices under sections 161(1A), 165(2B) and Rule 44(4) have no prescribed period of limitation, the statutory timeframe kicks in the minute the time period under section 174(3) is exhausted rendering such notices ineffective and unenforceable, attracting no penal consequences for the taxpayer. It is clarified that the department is only restricted where it seeks record beyond the statutory period under section 174(3) from the taxpayer but is otherwise free to proceed if the action or proceedings under the Ordinance are based on the record already in possession of the department.

6.We, therefore, endorse the view expressed in Maple Leaf4 by the Lahore High Court, where a similar question had come up before the court. We have also examined Habib Bank5 which holds that the department can override the timeframe under section 174(3) by justifying the delay in initiating the matter against the taxpayer. Section 174(3) of the Ordinance read with Rule 29(4) of the Rules is clear and leaves no room for any such departmental justification, which in any case cannot deprive the taxpayer of the statutory protection under section 174(3) of the Ordinance. We, therefore, do not support the view expressed in Habib Bank as we have not been able to find any statutory support for the conclusion arrived at in the said case.

7.It is also useful to draw attention to section 214A of the Ordinance which specifically deals with "condonation of time limit". Perusal of the said provision shows that it applies where

there is a time limit provided in the provision, which is not so in the case of sections 161 and 165 of the Ordinance. Further section 214A deals with "any act or thing to be done" within a timeframe. Section 174(3) on the other hand does not require any act or thing to be done in a particular timeframe but quite on the contrary provides that after a lapse of a period of six years, the taxpayer shall not be obligated to maintain its tax records. Therefore, section 214A has no application to the present case and cannot be invoked to deprive the taxpayer of the statutory protection under section 174(3) of the Ordinance.

8.For the above reasons we hold that a taxpayer is obliged to maintain the record under section 174(3) of the Ordinance for a period of six years and the taxpayer cannot be compelled to produce the record for a tax year beyond the period of six years as stipulated in section 174(3) of the Ordinance. Hence notices issued under section 165(2B) or 161(1A) of the Ordinance being ineffective and unenforceable are set aside.”

27.Thus, it transpires from the above that any proceedings against a taxpayer which are based on records maintained by the taxpayer, such proceedings must be initiated within the six-year period prescribed under section 174(3) of the Ordinance. The reason being that the Ordinance is structured around time- framed provisions to make the taxing mechanism certain, transparent, and efficient. The Court in Panther Sports (Ibid) held that a notice issued under a provision bearing no internal limitation period cannot be given effect to once the taxpayer’s obligation to maintain records under section 174(3) has been exhausted, since such a notice cannot be complied with on the basis of records which the taxpayer is no longer legally obligated to retain. The ratio of Panther Sports applies with full force to the present case. The six-year period under section 174(3) within which the petitioner was obligated to maintain its records has elapsed. A notice under section 176, even one issued for a purpose independent of section 177, cannot compel the production of records which a taxpayer is no longer legally obligated to maintain. To allow the same would be to reward the very administrative lethargy that the time-framed architecture of the Ordinance is designed to prevent. The notice dated 07.02.2025 is accordingly declared to be unenforceable and without legal effect insofar as it seeks the production of records pertaining to Tax Year 2019 beyond the period prescribed under section 174(3) of the Ordinance.

28.In view of the above discussion, the instant petition is allowed. The Impugned Condonation is declared void and without lawful authority. The

Impugned Notices are likewise declared void. The respondents are restrained from seeking further information pertaining to Tax Year 2019 in pursuance of the Impugned Condonation or either of the said notices.

(ARBAB MUHAMMAD TAHIR) (INAAM AMEEN MINHAS)

JUDGE JUDGE

Announced in open Court on 14.05.2026

JUDGE JUDGE

APPROVED FOR REPORTING

M. YAHYA KHAN NIAZI, L.C.