The Large Taxpayer Units (LTUs) have started audit of certain banks under section 177 of the Income Tax Ordinance 2001. One of the notices issued to a commercial bank has asked for detailed audit (tax year 2008) for verification of expenses, intangible assets, withholding taxes and verification of claim of provisions for bad and doubtful debts, etc.
Sources told Business Recorder on Sunday that the audit criteria for this commercial bank include verification of mark-up expense in relation to withholding of taxes; verification of intangible assets and verification of claim of provisions for bad and doubtful debts. The department would also verify the expense claimed on account of penalties paid to the State Bank of Pakistan (SBP).
According to the notice, in pursuance of the provisions of clause (b) and (d) of sub-section (4) of section 177 of the Income Tax Ordinance, 2001, the case of the bank has been selected for audit of income tax affairs relating to "tax year 2008".
The withholding tax deduction on account of profit earned on govt securities was claimed while corresponding income has not been shown. This aspect needs verification. The provisions for diminution in value of investment was claimed which needs examination with reference to admissibility of expenses under the law.
It said that huge expense under the head "Others" has been claimed. This expense needs verification and its admissibility under the law. Some amount has been reduced from income which needs verification and its admissibility under the law. The expense was claimed on account of penalties paid to SBP admissibility of which needs to be ascertained under the law.
It further said that the amount has been reduced on account of suspended interest on non-performing loans, which needs verification. Expenses have been claimed under the head "Mark-up/Interest expenses", whereas, in the withholding statements filed u/s 165 for fiscal 2008, total payment made under this head is comparatively less. This aspect needs verification, reconciliation and examination with reference to admissibility of the expense under the law.
In addition to the above any other defect, deficiency and discrepancy discovered during the process of audit shall also be taken into account for appropriate action under the law, the notice said.
The concerned taxation officer would conduct detailed audit by examining the relevant record along with other particulars as per declaration in return of income u/s 114(2)(b) of the Income Tax Ordinance 2001. The notice, however, assured that if nothing adverse was discovered during the course of audit proceedings, the same would be closed.