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CITs empowered to select cases for audit

KARACHI (June 15 2005): Commissioners of Income Tax (CITs) have been empowered to select a person for carrying out audit of his income tax affairs under Section 177 of the Finance Bill even after assessment under the Universal Self-Assessment Scheme (USAS) has been finalised. Under the USAS, introduced in Income Tax Ordinance 2000, all tax returns filed by taxpayers were accepted as assessment order.

However, 20 percent cases were selected through random ballot for audit. Cases, where the income was shown 20 percent less than the previous year or excess refund obtained, were also selected for audit.

According to tax consultants, this is first time that CITs have been given powers to select cases for audit. Earlier, the class of taxpayers chosen for audit went to the court and challenged the criteria for selection. Since the Section 120 sub-section (1A) of the Finance Bill would become a law passed by the Parliament it could not be challenged in the court.

The sources said that one of the important tax reform measures taken in recent years is the acceptance of return of income as filed, which is taken for all purposes of the Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished unless the same is incomplete or deficient. Under Section 177, the Central Board of Revenue is empowered to lay down criteria for selection of any person for an audit by the Commissioner.

They pointed out that additionally, sub-section (4) of the Section 177 also empowers the Commissioner to select a person for an audit of his income tax affairs based on the prescribed criteria. While the said provision appears to confer necessary empowerment to the Commissioner for the purposes of audit of a person selected by him based on the prescribed criteria, Section 120 seems to have suffered from a legal lacuna impeding the Commissioner to exercise his powers.

In order to overcome the apparent inadequacy of powers under Section 120 on the part of the Commissioner, the Bill proposes to insert a new sub-section (1A) in Section 120 which, read with Section 177, would fully empower the Commissioner to exercise his discretion judiciously to select a person for audit in line with the criteria laid down in the said section.

Meanwhile, the tax consultants further revealed that under Section 129, sub-section (1) the power of Commissioner (Appeals) to set aside assessment order has been withdrawn.

Explaining the provision the tax consultants said that while the Commissioner (Appeals) enjoys necessary legal powers to dispose of appeals in a definitive manner by making an order to confirm, modify or annul the assessment order, but in practice, however, numerous cases are cited where the Commissioner (Appeals) instead of disposing of the appeal merely sets aside the assessment order with a direction to make a new assessment order. Consequently, either the interest of the taxpayer is prejudiced by a delay in the dispensation of justice or a lack of definitive action on his part tends to be detrimental to the interest of the revenue.

In order to curb the above tendency, the tax consultants continued, the Bill proposes to substitute Clause (a) of sub-section (1) of Section 29 whereby the Commissioner (Appeals) would no longer be legally empowered to set aside an assessment order. The new provision would require him to make a definitive order to confirm, modify or annul the assessment order.

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