LHC quashes notices of tax authorities to seek taxpayers’ bank
statements
The Lahore High Court (LHC) has quashed notices issued by Inland Revenue authorities to commercial banks seeking taxpayers’ account statements, ruling that information-gathering powers cannot be used to circumvent statutory time limits for tax assessment proceedings.
A division bench comprising Justice Hassan Nawaz Makhdoom and Justice Muhammad Ajmal Zahid accepted two constitutional petitions, including one filed by Syed Naved Amjad Andrabi, challenging notices issued under Section 176 of the Income Tax Ordinance, 2001.
The notices directed banks to provide details of accounts maintained by the petitioners.
Representing the petitioners, Advocate Taffazul Haider Rizvi argued that his clients had filed their income tax returns up to tax year 2015 and paid their liabilities in accordance with the law. He said that although
certain other taxpayers had been selected for audits covering tax years 2011 to 2014, the petitioners had not been chosen for audit.
The counsel contended that the notices were issued despite no pending proceedings, inquiry or investigation against his clients. He further maintained that the relevant bank statements had already been supplied to the tax authorities, rendering the fresh requests unlawful.
Court Questions Legal Basis for Bank Data Requests
During the proceedings, the bench asked the tax authorities’ counsel whether the notices were intended to facilitate proceedings under Sections 121, 122 or 124 of the ordinance, or any other legal provision.
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According to the judgment, the respondents’ counsel failed to identify any specific pending proceedings or lawful purpose justifying the requests and did not contest the petitioners’ submissions.
Justice Muhammad Ajmal Zahid, who authored the judgment, focused on whether tax officials could continue seeking information to support assessment proceedings that they were no longer legally authorised to initiate because the prescribed limitation period had expired.
The court observed that Sections 175, 176 and 177 of the ordinance empower tax authorities to access premises and records, requisition information and conduct audits. However, these provisions do not grant an independent authority to bypass the legal requirements governing tax assessment jurisdiction.
The judgment noted that information obtained under Section 176
could be relevant to an assessment, but the provision could not expand the powers conferred under Sections 120, 121, 122 and 124.
“Limitation is not a mere procedural formality, it defines the temporal boundaries within which a statutory authority may lawfully exercise its jurisdiction,” the judge held.
Limitation Period Cannot Be Circumvented
The court emphasised that when legislation prescribes a specific period for initiating or completing proceedings, the relevant authority must comply with that deadline, subject to any legally permitted exclusion,
extension or exception.
It ruled that issuing a notice under Section 176 neither preserves nor suspends jurisdiction that has expired due to limitation, nor can it revive such jurisdiction.
The judgment further stated that tax officials cannot use information-gathering powers to achieve indirectly what the law prohibits them from doing directly. Requests for information, it added, cannot replace the statutory procedures required to determine a taxpayer’s liability.
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The bench, however, clarified that its ruling was confined to the purpose for which the challenged notices had been issued. The expiry of the limitation period for one assessment, it noted, does not automatically eliminate every other power available to tax authorities under the ordinance.
Concluding that the respondents had failed to establish a lawful purpose for the requisitions, the court allowed both petitions and set aside the notices issued to the commercial banks.
The ruling underscores the requirement for tax authorities to exercise their information-gathering powers within the limits prescribed by law and not as a means of bypassing statutory deadlines for tax assessments.
Source: Dawn