May 18, 2008	Sunday	Jamadi-ul-Awwal 12, 1429

KARACHI, May 17: The Regional Tax Office Karachi and the Income Tax Bar Association Karachi (ITBAK) have reached a broad-based understanding over issues relating to selection of tax cases for a detailed audit.

Lately, the RTO started issuing notices to taxpayers for a detailed audit of tax cases without fixing parameters and this developed contentious relationship with the tax bar.The tax bar had been of a strong view that under the spirit of Universal Self-Assessment Scheme, there should be a minimum contact between taxpayers and tax collectors and only limited number of cases could be picked up for a detailed audit and that too on certain rules.

It was agreed that cases will not be selected for audit unless the taxation officer on examination of wealth statement receives definite information that the taxpayer has escaped assessment, shown excessive income, or facts are wrongly declared in the statements.

The official team was headed by RTO Director-General Asrar Raouf and ITBAK by its president, Abdul Qadir Memon.

A four-page document was prepared, indicating seven issues, upon which both the sides were having a consensus and six were agreed upon after discussion.

It was agreed that only cases for tax year 2006 and 2007 would be selected for audit. However, taxation officer may amend the assessment under section 122(9) if any common legal issue is involved in the previous years.

In case the taxpayer has already been selected for audit for 2003, 2004 or 2005, the taxation officer may amend the assessment for 2006 and 2007 under Section 122(9) and also sort out any common legal issue involved in these years.

Both the sides also agreed that the taxation officer would have to verify facts from internal records available with the department.

On the request of taxation officer, taxpayer will have to submit details of liabilities only for Section 34(5) of the Income Tax Ordinance 2001.

According to the documents, it was also agreed that the taxpayer would have to submit depreciation schedule as and when required by the taxation officer.

If taxpayer has not claimed depreciation or an amortization in accordance with the law, the taxation officer may rectify the order under Section 221 of the Income Tax Ordinance 2001. Regarding applicability of withholding provision, it was agreed that the taxation officer would verify the same from the statements filed under Section 165.

About the rental income, it was agreed that the taxpayer would provide documentary evidence required by the taxation officer to ascertain the declared income.

It was agreed that on the request of taxation officer, taxpayer would submit computation of income and tax thereon. If the taxation officer found any excessive adjustment against income covered under the normal law, the same may be added to taxable income by invoking provision under Section 221 of the Income Tax Ordinance 2001.

The bar was of strong view that a person or a case may not be selected for audit unless there is a significant and abrupt decline in the rate of gross or net profit, and this was readily accepted by the DG.

The Bar’s demand that a person or a case may be selected for audit only where the claim appears to be grossly disproportionate to the turnover or department has any third-party information which is contrary to the facts declared by taxpayer was also agreed upon by the RTO.

In case Workers Welfare Fund has not been charged by the taxpayer, it would be taken into account after the issuance of notice for the same and may be rectified under Section 221 or the Ordinance.

It was also agreed that submission of books of accounts are not mandatory under the law for filing with the return and would not be made basis for selection of case for audit and deficiencies may be removed by calling the information under Section 120(3) of the Ordinance.