The federal government has harmonised the audit powers of the section 177 of the Income Tax Ordinance 2001 with the sales tax audit powers of the Sales Tax Act, 1990 through Finance (Amendment) Ordinance, 2009. Through promulgation of the Finance (Amendment) Ordinance, 2009, the procedure for income tax audit under section 177 of the Income Tax Ordinance, 2001 has been revised.
After promulgation of the Presidential Ordinance, the board cannot lay down criteria for selection of cases for audit. The federal government has amended section 177 of the Income Tax Ordinance 2001 through Finance (Amendment) Ordinance, 2009. Sources told Business Recorder here on Friday that the FBR cannot devise criteria for carrying out audit on the sales tax side under the Sales Tax Act, 1990.
The section 32A of the Sales Tax Act is related to the special audit by chartered accountants or cost accountants. Similarly, section 32 of the Sales Tax Act is related to the delegation of collector''s powers to their junior sales tax officials. Following creation of Inland Revenue Service, the income tax audit laws including section 177 are also harmonised with the relevant provisions of the Sales Tax Act, 1990.
Sources said that if the provision of Income Tax Ordinance to lay down criteria for audit is no more applicable, the administrative instructions of the FBR could be used for specifying criteria for audit. The board''s instructions have ample powers to direct the concerned officials for implementation of audit.
The board''s directives are binding upon the field formations except adjudication process and such instructions could be used for effective audit. The administrative instructions of the FBR have overriding effect and board can issue any kind of instructions to the field offices for composite audit of sales tax and income tax.
Even if board cannot lay down criteria for audit under section 177 of the Ordinance 2001, the FBR can lay down such criteria through administrative instructions, if required. For example, there is nowhere written in the Sales Tax Act, 1990 to take prior approval of the board for carrying out sales tax investigative audit.
However, the FBR had directed the field formations to take prior approval for investigative audit through administrative instructions. In case commissioner has been empowered to conduct income tax audit under section 177, the FBR is the ultimate authority to issue guidelines to the field formations for audit. According to the Finance (Amendment) Ordinance, 2009, section 177 of the Income Tax Ordinance 2001 has been revised.
In section 177, for sub-section (1) the following shall be substituted, namely: "(1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other 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 authorised by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may take into possession such machine 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 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.
For sub-section (2) the following shall be substituted, namely: (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.
The amended sub-section (7) said, the fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years.
The Board may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961) or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966) to conduct an audit of the income tax affairs of any person Or classes of persons selected for audit by the Commissioner or by the Board] and the scope of such audit shall be as determined by the Board on a case to case basis.
After sub-section (9), the following new sub-section (10) shall be added, namely: "(10) Notwithstanding anything contained in sub-sections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board under sub-section (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgement assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.", the amended section 177 of the Ordinance added.
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