Computer balloting: FBR empowered to pick income tax cases for audit

The Federal Board of Revenue (FBR) is legally empowered to pick income tax cases for audit through computer balloting by specifying random sampling technique as selection criterion under section 177 of the Income Tax Ordinance 2001. Sources told Business Recorder here on Thursday that the Income Tax Ordinance 2001 had neither specifically mentioned random selection of cases for audit nor barred from conducting audit applying random sampling method.
But it has not been written anywhere in the Income Tax Ordinance not to conduct audit on random basis. Secondly, the FBR has the authority to choose selection criterion for audit under sub-section (2) of section 177 of the Ordinance 2001. Under this sub-section, the Commissioner shall select a person for audit in accordance with the criterion laid down by the board.
It is a discretionary power vested in the FBR. For example, the board can pick any specific sector or industry for audit under the laid down criterion. The board has the inherent powers for chalking out any criterion for audit purposes. If the random sampling criterion has been adopted by the audit, it is allowed under the said provisions of the Ordinance 2001. The sources said that the FBR was in the process of finalising the parameters for selection of cases for income tax audit.
On the other hand, some tax experts have a different viewpoint on the selection of cases for audit under section 177 of the Ordinance 2001. It is generally believed that the FBR has no legal authority to randomly select cases for audit through computer balloting under the provisions of the Income Tax Ordinance 2001.
As the words, "random selection through computer balloting", has not been mentioned in the Ordinance, it has been assumed that the FBR has no authority to apply the method. They were of the view that the government's intention to select cases for income tax audit on random basis is not allowed under the Income Tax Ordinance 2001.
In this regard, the government has to amend the provisions of the Income Tax Ordinance 2001 to clearly specify random selection using computerised balloting or lay down some other criterion in this regard. In an earlier attempt, where the board has already selected certain persons for composite audit and sent the lists to the concerned commissioners for initiating the audit proceedings, some cases were challenged in courts.
Resultantly, the field offices are not able to conduct further audit. It is necessary that the board should follow the provisions of law in letter and in sprit or bring necessary changes in the law through amendment to the Finance Act to select the cases randomly for audit through computer balloting.
In the absence of audit procedure, neither the taxpayers are declaring correct income, nor the department is able to properly access to their record. Under section 177 of the Income Tax Ordinance 2001, the board may lay down criterion for selection of any person for audit, so that the commissioner shall select a person for audit in accordance with the criterion laid down by the board.