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Millions of rupees refunds overpaid by income tax officials

ISLAMABAD (January 15 2003) : The inadmissible payment of income tax refund to certain units of Corporate Region Karachi deprived the government of millions of rupees, says Directorate General of Inspection, Direct Taxes annual report (2001-2002).

The directorate has found procedural irregularities in the issuance of income tax refund to 17 units operating in Corporate Region, Karachi.

The examination of 54 refund cases of Rs 10 million and above detected misappropriations in 17 cases ie out of total amount, 30 percent refunds were wrongly issued.

The inspection team detected serious violation of Income Tax Ordinance 2001 committed by the regional income tax officials pertaining to the payment of refunds to such units.

The DG, Inspection has recommended immediate action under section 66A, 65 and section 122 of the Income Tax Ordinance 2001 including amendment of assessments to figure out the actual amount of refund.

According to details, the Directorate conducted special inspection of 54 units of Corporate Region Karachi where refunds amounting to Rs 10 million or above were issued in the preceding years.

The inspection authorities found that huge depreciation was wrongly and prematurely allowed even though plant (factory) was not put into operation.

The claim of 'management expenses' was permitted in excess of the prescribed limit, explanation given in the Insurance Act.

The source of accretion in 'Capital Reserve' was not examined and tax was not charged on claim of expense 'discount and agency commission' by the concerned officials.

It pointed out that reserve created for 'estimated liability' (in addition to reserves for un-expired risk) and the amount paid against direct business seemed to be 'additional reserve' inadmissible under the law.

The interest/profit declared was not in conformity with the rate of deduction at 30 percent under section 50(2) of the Ordinance 2001.

During record examination, it was detected that the effect of carried forward loss of assessment year 1993-94 was given in rectified assessment although earlier assessment did not show any loss to be B/F.

The exemptions were given under clause 78 of the Second Schedule with reference to private foreign account policy without obtaining mandatory certificate from the State Bank of Pakistan (SBP).

The income tax officials were also involved in erroneously giving retrospective effect of clause-A of Fourth Schedule of the repealed Income Tax Ordinance 1979.

The assessment for 1999-2000, finalised under Self-Assessment Scheme (SAS), was found erroneous because comparison of tax on income was made with tax u/s 80D of the previous year.

The provision of section 12(9A) of the ordinance was not invoked by the tax officials in a case where it was prima facie applicable.

Furthermore, extra shift depreciation was also allowed on BMR for full year against admissibility for about six months only.

The tax officials did not invoke provisions of section 12(18) of the ordinance where alleged loan/advance was not routed through banking channel.

The interest expense against loan taken from commercial bank, specifically to purchase shares to earn dividend/exempt/capital gain, was allowed against income of general insurance business.

The export expenses and mark-up on export finance allowed against local sale and provision of section 24(I) was not properly invoked to work out excess perquisites in a number of cases, the report added.

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