The Federal Tax Ombudsman (FTO) has endorsed the decision of Large Taxpayer Unit (LTU), Karachi, to select a case for audit for the 'tax year 2004' on the basis of several parameters, including investigation of unexplained investment.
Official sources told Business Recorder on Wednesday that the Central Board of Revenue (CBR) has termed it as a landmark achievement, and circulated the FTO verdict to the Regional Commissioners of Income Tax (RCITs) for compliance.
RCITs would use the CBR directive as a precedent to pursue cases selected for audit (tax year 2004).
The LTU, Karachi has so far selected 60 cases for audit under Universal Self-Assessment Scheme (USAS) for the 'tax year 2004', and other regional commissionerates have also made parametric selection of cases.
The LTU had selected Bawany Sugar Mill, Karachi, for audit for the 'tax year 2004' on the basis of seven parameters. These included history of poor compliance; there were contradictions in the directors' report and auditors' report; auditors report was qualified on certain issues; figures of previous years did not match with the figures disclosed in the audited printed accounts of last year; outstanding liabilities for more than three years were not added back; various inadmissibles were not added back while computing the income and cash credits and unexplained investment were required to be probed as high-risk areas.
Audit Division of LTU had informed the unit that the case had been selected as per sub-section (4) of section 177 of the Income Tax Ordinance 2001. The unit should cooperate with the audit team, it added. However, audit processing would be closed if nothing adverse was discovered, it said.
The complainant approached the FTO, taking the plea that the Income Tax Department had not conducted any audit of the income tax returns filed for the 'tax year 2004'. Thus, the department had taken discriminatory action against the sugar mill. Moreover, the concerned Commissioner of Income Tax (CIT) had selected the case without fulfilling the requirement under section 177 of the Income Tax Ordinance 2001, the complaint said.
LTU, Karachi, informed the FTO that no discriminatory treatment had been given to this unit, as a number of other cases had also been selected for audit all over the country.
FTO gave the judgement that the provisions of section 177 of the Income Tax Ordinance 2001 equips the CIT to select any person for audit on the basis of four factors given in the law. The CIT, in his notice, had not only mentioned the clauses of the above referred law under which the assessee was selected for audit, but had also given reasons for such selection. This showed that the CIT had applied conscious judicial mind and had not acted mechanically in selection of the complainant for audit. He had incorporated the relevant grounds, reasons and clauses of section 177 of the Ordinance enabling the complainant to find out the rationale/criteria and justification for selection for audit within the scope of section 177 of the Ordinance. The impugned notice/letter had met the requirements of section 177 of Income Tax Ordinance, 2001 and, thus, no case of maladministration had been made out.
"Proceedings in the matter are, therefore, filed," the FTO order added.