The Regional Tax Office (RTO) Karachi and the Income Tax Bar Association (ITBA) Karachi have signed an agreement to resolve the issues pertaining selection of cases for audit. The ITBA office bearers informed Business Recorder here on Friday that decision regarding the criteria for selection of persons under audit have been taken unanimously in the agreement by the two parties.
The selection of taxpayers for audit, by the tax officials, had been under strong criticism since long, as in most of the cases, selection was made without any proper reason, they said. "Selection of cases for audit was the most unruly and undisciplined operation that had opened new avenues of corruption and malpractice in the taxation authority," said a bar's office bearer.
He said that lengthy negotiations were held between the two parties on the issue and all major issues have been resolved with consensus. The RTO officials would follow the decisions made in the agreement, signed by Director General RTO Karachi, Asrar Rauf and President ITBA Karachi, Abdul Qadir Memon, while selecting the cases for audit, he maintained.
In the agreement, it was decided that the cases, covered under the presumptive and final tax regimes, will not be selected for audit unless the taxation officer on examination of Wealth Statement acquires definite information that the taxpayer has escaped assessment, shown excessive income or facts are wrongly declared in the statements.
On the issue of selection of persons for audit simultaneously for more than one year, it was agreed that only cases for the tax year 2006 and 2007 would be selected for audit. However, the taxation officer may amend the assessment under section 122(9), if any common legal issue is involved in the previous years.
In the case, if the taxpayer has already been selected for audit for the tax years 2003, 2004 or 2005, the taxation officer may amend the assessment for the tax year 2006 and 2007 under section 122(9), if any common legal issue is involved in these years as well.
For cases, in which the persons were selected for audit to verify and reconcile the figures of sales with Sales Tax Records, it was agreed that the taxation officer now should verify the facts from the internal records available with the department, instead of selecting the case for audit just for the same purpose.
In case, where the taxpayer was selected for audit on grounds that its rate of gross or net profit was low or lower than the gross or net profit declared by the other taxpayers, the bar's suggestion has been accepted by the RTO that the person may not be selected for audit unless there is a significant and abrupt decline in rate.
The RTO also accepted the bar's view in case of selection of case for audit where profit and loss or cost of goods sold had been shown at certain percentage of Sales or required verification as well as examination under section 21 of the Income Tax Ordinance.
The bar was of the view that the case may be selected for audit only where the claim appears grossly disproportionate to the turnover or department has any third party information that is contrary to the facts declared by the taxpayers.
It was agreed, in the case where the addition of assets requires examination in respect of withholding of tax and depreciation under section 22, 23 and 24 of the Income Tax Ordinance, 2001, that the taxpayer should submit the Depreciation Schedule as and when required by the taxation officer.
If the taxpayer has not claimed depreciation or an amortisation in accordance with law, then the taxation officer may rectify the order under section 221 of the Ordinance. Regarding applicability of withholding provision the taxation officer shall verify the same from the statements filled under section 165.
It was agreed that on the request of taxation officer, the taxpayer would submit the details of liabilities only for the purpose of section 34(6) of the Ordinance, where the declared liabilities require verification and examination under the same section.
The RTO agreed with the bar's suggestion that the Workers Welfare Fund (WWF) should be charged after issuance of notice for the same and may be rectified under section 221 of the Ordinance.
In cases where the current assets require verification, advances from customers have been shown and require to be examined under section 39(3), stock has been declared and the complete details of the raw material and finished foods need to be examined under section 35 and the trade debtors have been shown and need to be examined under section 111, the bar suggestion has been accepted that audit should only be made in all such cases where there is a significant abrupt increase or decline is witnessed.
In case where the books of accounts have not been submitted, the bar was of view that the submission of books of accounts along with the returns is not mandatory under the law and the RTO agreed with the bar's view.
The RTO also agreed with the bar's suggestion that the non-filing of wealth statement and columns, non-showing the capital amount in the return form and the verification of source of income should not be made the basis for selection of case for audit and deficiencies should be removed by calling these information from the taxpayers. In case of declaration of rental income of property that needs verification, both the parties agreed that the taxpayer would provide rental agreement or any other documentary evidence required by the taxation officer to ascertain the declared income.
In case where the apportionment of expenses needs verification and examination as per provisions of Rule 13 of the Income Tax Rules read with the section 67 of the Ordinance, it was agreed that on the request of taxation officer, the taxpayer will submit computation of income and tax thereon.
If the taxation officer found any excessive adjustment against income covered under the normal law, the same may be added to the taxable income by invoking provision under section 221 of the ordinance. The bar's office-bearers lauded DG RTO Asrar Raouf for his pursuit to conclude the agreement. The agreement, earlier, seemed difficult to take place, however, DG's sheer commitment made it possible, they observed.
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