Non-filers of income tax returns: officials empowered to make provisional assessment

The federal government has empowered the income tax officials to make provisional assessment of the non-filers of income tax returns on the basis of any information available with the department under the Finance (Amendment) Ordinance, 2009.
Tax experts told Business Recorder here on Sunday that the discretionary powers of the income tax officials had been considerably enhanced by allowing them to make provisional assessment of non-filers, who failed to respond to notices. The government had introduced section 122C in the Income Tax Ordinance 2001 through Finance (Amendment) Ordinance, 2009.
They said the section 122C had empowered the tax officials to make best judgement assessment (ex-parte assessment) on the basis of any kind of data available with the department. This would be applicable in the cases where any person failed to respond to the notice under section 114 for filing of income tax returns. In the presence of section 121 (best judgement assessment), there was no requirement for introducing another assessment provision in the Ordinance 2001. Finance (Amendment) Ordinance, 2009 is mainly related to the harmonisation of taxes, but it seems that the discretionary powers of the tax officials have been enhanced through new assessment provisions in the Income Tax Ordinance 2001.
The income tax officials could make ''best judgement assessment'' relying on the departmental data, but the section 122C has not specified that the information should be supported by necessary proof. The authenticity of information needs to be verified before passing ''best judgement assessment''.
Legal experts apprehended that powers of section 122C might be misused, as the term "any available information" has a wider scope, which would allow the officials to pass such assessment using any kind of information. This term "any available information" should be clarified to avoid misuse of the provision.
Under the new provision, if the person files return within 60 days of passing of provisional assessment, the assessment would not remain valid. In case of non-compliance, the provisional assessment would be treated as the final assessment after expiry of 60 days.
They said the Income Tax Ordinance 1979 was repealed and Income Tax Ordinance 2001 was promulgated to end the discretionary powers of the income tax officials under Universal Self Assessment Scheme (USAS). Under the Ordinance 2001, the term assesse was replaced with the taxpayer to ensure implementation of the self-assessment scheme.
However, the board gradually started enhancing powers of the income tax officials by introducing the concept of best judgement assessment into the income tax law. In 2003, an amendment was made in the Ordinance 2001 to introduce the concept of best judgement assessment. "Now, another amendment has been made by inserting section 122C. The board seems to be reverting to the assessment powers available in the repealed Income Tax Ordinance 1979," they added.
When contacted, an official said a legal flaw had been removed from the Income Tax Ordinance 2001. Previously, it was assumed that the provisional assessment could not be done in cases where taxpayers failed to respond to notices under section 121 of the Ordinance 2001. Now this legal flaw had been removed by introducing section 122C in the Ordinance 2001.
Following is the text of the new section 122C inserted into the Income Tax Ordinance 2001 through Finance (Amendment) Ordinance, 2009:
"122C. Provisional assessment.- (1) Where in response to a notice under sub-section (3) or sub-section (4) of section 114 a person fails to furnish return of income for any tax year, the Commissioner may, based on any available information or material and to the best of his judgement, make a provisional assessment of the taxable income of the person and issue a provisional assessment order specifying the taxable income assessed and the tax due thereon.
(2) Notwithstanding anything contained in this Ordinance, the provisional assessment completed under sub-section (1) shall be treated as the final assessment after the expiry of 60 days from the date of service of order of provisional assessment and the provisions of this Ordinance shall apply accordingly: Provided that the provisions of sub-section (2) shall not apply if return of income alongwith wealth statement, wealth reconciliation statement and other documents required under sub-section (2A) of section 116 are filed by the person for the relevant tax year during the said period of 60 days.", it added.