KARACHI: An old lady and a compliant taxpayer before Tax Ombudsman was burdened with multiple notices for audit for the tax year 2016. She was engaged in textile manufacturing business, final show cause notice for compliance was issued. However, complainant applied for extension which was rejected and ex-parte order was passed creating demand of Rs.2.7(M). However, all the relevant details of purchases and expenses were not only filed but also duly examined by the officer but the ex-parte order was passed without considering the details available on record.
The complainant being aggrieved, took up the matter with Federal Tax Ombudsman. In response, the chief commissioner–IR contended that the case of the complainant was selected under Section 214C of the Income Tax Ordinance, 2001. Subsequently, the ACIR issued notice to produce records for the purpose of audit but the taxpayer didn’t fulfill its statutory duty. However, in order to provide another opportunity to the taxpayer, show cause notice was issued. As the taxpayer failed to make any compliance, the order was passed under Section 121(1) on the basis of failure to provide explanation.
According to the findings of FTO, the issue was not assessment of income and determination of tax liability. Complaint was filed against unfair treatment meted out to complainant by passing harsh ex-parte order when the complainant was regularly making compliance to departmental notices issued for multiple years from time to time.
It was also pertinent to mention that Complainant’s case was selected for audit in 2018 and the order was passed on 28th June 2022, i.e. when the case was getting time barred on 30.6.2022. It was very unfortunate departmental practice to sleep over the audit cases till the last minute & summarily dispose them off when they are getting time barred,Tax Ombudsman further observed. This results not only in prolonged agony for Tax Payers but also did not result in any meaningful audit as these cases were disposed off mostly either ex-parte or without examining any details & documents.
Hon’ble Lahore High Court has already directed in another case to finalize the audit cases before 30th June of the year of selection which was later on relaxed to 31st December in ICAs 1263/2017. Subsequently the august Supreme Court of Pakistan in CPLA No. 2370-L filed by the department, Para 22 held,
Para 22 held,“we are also convinced that a general timeframe is necessary to be put in place in order to ensure that the tool of audit is not abused or misused to pester, torment or harass the Taxpayer on account of reasons not attributable to him. We, therefore find that the timeframe mentioned in the policy guidelines namely completion of the audit within the same financial year in which a taxpayer is selected for audit is fair and reasonable. It must as far as possible be adhered to. However, if delays are inevitable, beyond the control of the department and do not occur on account of any act or omission on the part of the taxation officers and happen on account of litigation and grant of stay orders, the Audit Officer may seek extension of time from the Federal Board of Revenue for completion of the audit after recording reasons in writing for seeking such extension explaining reasons for his inability to complete the audit within the stipulated time. The Board may on consideration of such reasons grant reasonable extension in order to enable completion of the audit. It is however emphasized that extension so granted should be supported by due application of mind and appropriate reasoning on the part of the Board. It should not be granted casually, repeatedly and as a matter of routine. Adherence to guidelines and time frames would enhance confidence of the taxpayers in the system and at the same time act as check on lethargy and inefficiency on the part of the departmental functionaries.”
FTO’s finding further stated that “It was unfortunate that neither the field formation are following the judgment of Hon’ble Supreme Court nor the guidelines issued by FBR. The instant complaint is a classic example of abuse, misuse and hardship pointed out by the Hon’ble Supreme Court of Pakistan”.The passing of harsh, arbitrary ex-parte order without considering the details provided by old age compliant taxpayer tantamount ot maladministration.
Tax ombudsman recommended FBR to direct the Commissioner-IR Audit-II, to revisit the order under Section 122A of the Income Tax Ordinance 2001 & pass fresh order after affording proper opportunity of hearing strictly in accordance with law and to report compliance within 45 days.