The Directorate-General of Intelligence and Investigation of FBR has busted an organised gang of senior tax officials of Karachi, who issued bogus income tax refunds to unscrupulous businessmen, who used names of advertising agencies/media companies on the basis of illegal 'tax deduction certificates'.
An official of the DG Intelligence on Sunday told Business Recorder that the gang used to file refund claims pertaining to years 2006, 2005 and 2004 to evade the authorities. The cases were related to Enforcement Zone B, Karachi, where other several cases of tax fraud were also detected by the agency in 2007. FIRs would be lodged against the refund claimants, who caused loss of over Rs 10 million to the national exchequer.
The DG intelligence had detected several scams in the Income Tax Enforcement Zone, Companies-IV Karachi. This zone is the hub of income tax refund payment to the non-corporate taxpayers.
The amount of tax fraud was not much in the instant case, but the techniques used by the racket might be used for claiming similar kinds of refund claims in the jurisdiction of other tax offices. The names of big entities were used for claiming illegal refund claims in connivance with the concerned income tax officials, who verified such claims on forged documents, sources said.
Details showed that tax fraud case involves the same income tax officials who were facing disciplinary proceedings for issuance of illegal refunds in other cases at Enforcement Zone-B, Karachi.
The modus operandi used by the fraudulent refund claimants showed that bank accounts were opened in fake names of advertising agencies and National Tax Numbers (NTN) of media companies. The refund claimants used to file income tax returns in the name of these advertising agencies to claim refunds on the basis of bogus 'tax deduction certificates'. However, the concerned withholding agent confirmed that such certificates were illegal. Therefore, bogus claims were filed using such deduction certificates.
Keeping in view of the nature of tax fraud, the DG Intelligence has apprehended that there is possibility of using such fake names of prominent companies for claiming bogus income tax refund claims within the jurisdiction of other tax offices.
Details showed that the Vigilance Wing, DG Intelligence had dug out a case of fake income tax refund wherein the taxpayers, with the active connivance of concerned officers blatantly defrauded the national exchequer of Rs 10.037 million. The instant case had all the ingredients of tax fraud, forgery, misdeclaration, criminal negligence and connivance.
A resident of Karachi ie Talha runs a private business of cable internet under the name of Talcomp. He filed income tax returns from 2004 to 2006. However, he fraudulently filed income tax return under the cover of an advertising company at the Enforcement Unit 29, Division III, Zone-B, Karachi. A new set of tax returns for the tax years 2004, 2005 and 2006 were filed under the name and style of media related company.
The claimant filed different refund claims taking the total to over Rs 10 million. The taxation officer and the additional commissioner processed the case without any verification and submitted the case to commissioner of Income Tax (CIT), Zone-B for the administrative approval of Rs 3.272 million. However, Special Assistant to commissioner of income tax, smelling a rat, wrote a verification letter to the withholding agent (PTV) who confirmed in writing that no deduction certificates were ever issued by it.
The CIT office issued clear instructions for detailed investigation in the case, but the Additional Commissioner concerned made only a belated, evasive and non-committal response. No concrete steps were taken ie neither the real culprit and his accomplices were identified nor the responsibility was fixed.
The conscious in-action of these tax officers only emboldened the fraudster and claimant immediately filed another claim at Companies Zone-IV, Karachi under fake name, claiming refund of different amounts for the tax years ie 2004, 2005 and 2006.
According to the agency, taxation officer, Additional Commissioner, SA to CIT Companies Zone-IV; CIT processed, sanctioned and issued this bogus claim involving Rs 6.594 million in less than a week from June 25 to 30, 2007.
Sources said that the performance of the said team of tax officers impressed the taxpayer/fraudster so much that they immediately filed yet another claim of refund for the same tax years under the name and style (with a different NTN) and the said gang of four once again sanctioned and issued, within a fortnight, another refund of Rs 3.443 million.
The DG Intelligence found that the NTN belonged to one Ayub who derives income from property and declared income for the tax years 2004, 2005 and 2006. Bank account was opened in the name of this fake company and refunds pertaining to the prior tax year ie 2004, 2005 and 2006 were claimed, processed, sanctioned and issued by some officials of Companies IV, Karachi.
Similarly bank account in the name of another company (which had been used for bogus refunds) was opened on 9.6.2007 and refunds of prior years have been parked in the said account.
In view of the tax fraud, DG has recommended that disciplinary proceedings should be initiated against all the concerned officers who had approved the refund claim.
Secondly, as inquiry proceedings against a deputy commissioner of income tax and commissioner of income tax are already underway on identical charges so in their cases the charge sheets can be strengthened by adding new charges.
Thirdly, FIRs need to be lodged against the refund claimants on account of fraud and embezzlement of government revenue. The agency has also asked the Regional Tax Office, Karachi to remain alert in the instant case as the fraudster Talha has added on May 18, 2008 yet another business concern to his NTN profile under the name and style of a company and he can launch his claim of refund anywhere at Karachi which can be extremely detrimental to the interest of revenue because of the fact that this company, a genuine business concern, is a big name and the name and documents can be misused by the swindler identified in this case.
It is important to mention that the DG Intelligence had blamed poor/manual maintenance of tax record at the reformed units like Regional Tax Offices (RTOs), which resulted in missing/tampering of income tax record at Karachi.
According to DG intelligence, there is no standard operating procedure for transfer, safety and management of record. A major portion of record is still lying in defunct offices in bad shape, unattended and vulnerable to tampering as well as disappearance.
The agency has warned that poor record maintenance had been seen in tax offices of urban areas, whereas the situation at smaller centres may be worse. Sources said that DG Intelligence had recovered income tax returns along with complete supporting documents and detailed record of taxpayers. The agency had handed over the record to the Information Division of RTO, Karachi for safe custody and necessary action.
The agency also combined tax record of many individuals, which was scattered in various regional tax offices of Karachi. The record including refund voucher-books was used to issue illegal refund to the fraudulent companies by a former commissioner of Companies-IV Enforcement Zone B, Karachi.
Referring to another past case, sources said that some franchise mobile phone companies in Karachi had obtained illegal refunds on the basis of wrong National Tax Numbers (NTNs), which were actually issued to some other persons.
The directorate also recovered tax record of certain units registered with the Enforcement Zone-B, Karachi. The verification of data pertaining to 1200 cases showed that tax record of taxpayers is still missing and Information Division of RTO Karachi has verified different cases.