The Central Board of Revenue (CBR) has proposed to the Auditor-General of Pakistan that the sub judice cases at the level of High Court and Supreme Court of Pakistan, involving interpretation of tax laws, should not form the basis for raising audit objections by external auditors.
Secondly, the Board has also requested the AG office to avoid audit objections in cases where income tax assessments have been finalised, keeping in view relevant CBR circulars and notifications.
Thirdly, the auditors of Directorate of Revenue Receipt Audit (DRRA) should not re-audit any case for at least three years where audit has been completed of a specific unit. Instead of focusing on one unit every year, other cases may be picked for audit based on international accounting practices.
Sources told Business Recorder on Saturday that CBR and AG office are jointly working on a mechanism to resolve outstanding audit-related issues on top priority basis. In this connection, the Board has dispatched a set of recommendations to the AG office.
The Board has proposed a strategy for the AG office to effectively deal with the issues pertaining to sub judice cases. According to the Board, the cases decided by the Income Tax Appellate Tribunal (ITAT) level should be recommended for settlement of audit objections. However, the cases referred to High Court or Supreme Court are usually on question of law involving interpretation, which is outside the scope of audit, and DRRA cannot raise audit objections on the basis of these cases.
Sources said that CBR officials are legally bound to follow the income tax circulars/notifications and directives to the commissioners etc. Therefore, the auditors of AG office should not raise any objection regarding income tax assessments finalised in accordance with CBR circulars and notifications. However, audit observations may be directly sent to the CBR, if any.
The CBR and AG office have also discussed the issue of audit of a particular year, where no action can be taken due to statutory limitations or decisions of apex court. In this regard, the CBR has proposed that the audit of those case years should not be taken up where action cannot be taken because of statutory limitations or decisions of apex court.
The Board has also requested the audit authorities to bar its auditors from raising audit observations merely on the basis of presumptions. For example, auditors presume to raise demands for calculation of withholding tax on purchases and expenses. The AG office should discuss these cases with the income tax department during audit proceedings for avoiding presumptions.