LAHORE: Taxpayers from sugar industry have challenged the power of Commissioner Inland Revenue (CIR) to make a random selection of sales tax returns for audit, terming it arbitrary as well as a roving and fishing inquiry into their tax affairs.

According to sources, the CIR had issued notices under Sales Tax Act Excise Act allegedly on the scrutiny of the returns filed under the self-assessment regime. In some cases, the department had not even conducted scrutiny of the returns and selected cases for the audit purposes.

The taxpayers were of the view that the Commissioner cannot issue notice without assigning reasons. They further contended that the notices were not only based on mala fide and arbitrary approach but also issued mechanically on or about the same time to all of them.

They further maintained that the CIR does not have power to make a random selection for audit and any such power vests only with the FBR. In some cases, they added, the CIR had selected returns for audit for a second time within a period of three years, which is prohibited by the law. In addition, the department had also proceeded to select returns for audit for consecutive tax years in one go, which is again not the spirit of the law.

The department, on the other hand, maintained that audit was the most effective tool to assess the veracity of the tax return filed under the self-assessment regime and the taxpayers are provided with remedies once adverse order is passed against them.

The department also dispelled the impression that notices were issued arbitrarily, saying that they were issued after examining the tax returns filed by the millers. Since sales tax, unlike income tax, is not out of the pocket of the sugar mills, therefore, no reason was requited to be assigned to the taxpayers for access to record or documents.

However, the relevant appellate forum maintained that the notices were of no legal effect because they were issued by the CIR while failing to disclose reasons for selecting the returns for audit.

Copyright Business Recorder, 2024