Federal Tax Ombudsman allows full audit in suppressed income case

ISLAMABAD (August 10 2003) : Full audit of a case has been allowed by the Federal Tax Ombudsman where a re-rolling steel mill, having no accounts, had shown lower net profit rate, excessive overheads and NP rate less in comparable cases.

The complainant, Fine Steel Re-Rolling Mills, Lahore, in its return for 2002-03 showed sales of over Rs 238 million with net income of Rs 1.1 million being net profit rate of around 0.5 percent.

The complainant held that his case was not picked up in computer ballot and the company did not maintain any accounts.

The Regional Commissioner of Income Tax had argued that the net profit rate was extremely low; in fact, lower than in comparable cases, and that excessive overhead expenses were claimed by the company.

The complainant's advocate pleaded that the company was engaged in manufacturing of girders which carries higher sale return than MS bars shown in comparable cases.

The Tax Ombudsman, however, agreed with the RCIT contention of obvious decline in business and reasons to believe that the true particulars of income had been suppressed.

The FTO noted that lower net profit, quantum-wise or percentage-wise, means decline in income.

This phenomenon, coupled with higher claim in respect of overhead expenses was clearly a justification for a prima facie view that true particulars of income were not disclosed.

Thus needing an audit. The FTO further noted that it is not to be lost sight of that in “in account' case as of the complainant, reason to believe has to be based on comparing results with more or less identical cases because no two cases can be exactly similar.

On this visualisation, there appears to be no discrimination or arbitrariness, which could be viewed as maladministration.

The FTO therefore found no merit in the complaint and filed it.

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