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Appellate Tribunal Inland Revenue has held that reconciliation of tax deductions declared in the withholding statements can only be made when return of total income tax of the relevant tax year has been filed by the taxpayer. In a landmark judgment on a new legal issue, Appellate Tribunal Inland Revenue also declared that reconciliation of withholding statement is to be made with the return of total income, its annexes and audited accounts and not with monthly sales tax returns.
The judgment of the tribunal further clarified, this also means that reconciliation of monthly withholding statement of a few months with the monthly sales tax return also do not get mandate from Rule 44(4) as the statement and documents mentioned therein are under the Income Tax Ordinance, 2001 and not under the Sales Tax Act, 1990.
When contacted Shahid Jami, APTMA Tax Consultant explained the relevant facts and order thereof. The legal issue involved was that whether reconciliation notice under Rule 44(4) of Income Tax Rules 2002 can be issued for a period less than 12 months envisaged for a Tax Year. This legal issue was that in the case under consideration the Tax Year involved was 2016, which covered the period from July 2015 to June 2016. However the notice under Rule 44(4) was issued on 14.04.2016 that is before the close of Tax Year on June 2016 and filing/due date of return of total income for Tax Year 2016 which was due by 30.09.2016. Moreover in the notice reconciliation of withholding statements for the period from July 2015 to February 2016 was sought with monthly sales tax returns of the same period. As per Jami the twin legal issue of first impression involved was timing of the reconciliation and contends to be reconciled.
Whereas, the provision of Rule 44 of the Income Tax Rules, 2002 is as under:
"(2) Pursuant to sub-section (2) of section 165, a person responsible for collecting or deducting tax under Division II or Division III of Part V of Chapter X of the Ordinance or under Chapter XII of the Ordinance shall furnish or e-file a monthly statement by the 15th day of the month following the month to which withholding tax pertains as set out in part X of the Second Schedule to these rules.
(3) The statement referred to in sub-rule (2) shall be accompanied by the evidence of deposit of tax collected or deducted to the credit of the Federal Government.
(4) A person required to furnish the statement under sub-rule shall, wherever required by the Commissioner, furnish a reconciliation of the amounts mentioned in the aforesaid monthly statements with the amounts mentioned in the return of income, statements, related annexes and other documents submitted from time to time."
ATIR observed that from the aforesaid text of Rule 44(4) it is evident that reconciliation is of amounts mentioned in the monthly withholding statement is to be made with the following:
Amounts mentioned in the return of total income , statements, related annexure and other documents submitted from time to time.
The statements under section 165 and 149 are monthly statements and there is annual statement under section 149 as well in respect of salary payments. Whereas, Return of Total Income, Statement of Final Taxation and related annexure covers a period of 12 months comprising a Tax Year. ATIR held that from that it follows that until and unless the Return of Total Income or Statement of Final Taxation has been filed the reconciliation envisaged under Rule 44(4) would not be possible.

Copyright Business Recorder, 2019

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