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  1. PRESENTATION ON RETURNS ASSESSMENTS AUDIT OF TAX AFFAIRS AMENDMENT OF ASSESSMEN At Summer Camp 2009 Organized By: PT BA Academy Of Taxation Pakistan Tax Bar Association (30th July 2009 to 2nd Day of August 2009) Presented by: RANA MUNIR HUSSAIN Advocate Supreme Court of Pakistan Senior Vice President Pakistan Tax Bar Association Ex-President Lahore Tax Bar Association

  2. CONTENTS RETURNS ASSESSMENTS AUDIT OF TAX AFFAIRS AMENDMENT OF ASSESSMENT

  3. 1. RETURNS

  4. WHAT IS A RETURN SECTION 114 (2)Return means “Return of Income” WHETHER CAN BE FILED ON SELF GENERATED FORM? No, to be filed on the form prescribed by FBR under Rule 34 of the Income Tax Rules, 2002 along with Annexure.

  5. WHAT KIND OF PARTICULARS ARE TO BE DISCLOSED? All the relevant particulars and information as specified in the return are to be disclosed. Declaration regarding maintenance of record is also to be given as provided u/s 114 (2) (b).

  6. WHO WILL SIGN THE RETURN?SECTION 114 (2)(C) Returnshall be signed by a person, being an individual or the person’s representative where Section 172 applies.

  7. WHO CAN BE REPRESENTATIVE OF ARESIDENT PERSON? Section 172 (1) (a) In case of legal disability of an individual the guardian or manager, who receives or elected to receive income his benefit. Section 172 (1) (b) In case of a company: the principle officer. Section 172 (1) (c) In case of a “Trust”: Any Trusty. Section 172 (1) (d) & (f) In case of Govt.: Any individual responsible for accounting, receipt money or refunds on behalf of Govt. Section 172 (1) (e) In case of AOP: Principle officer of AOP or partner of firm as the case may be.

  8. WHO CAN BE REPRESENTATIVE OF ANON-RESIDENTPERSON Section 172 (3) (a) Employee of non-resident Section 172 (3) (b) Having business connection with non-resident. Section 172 (3) (c) From or through whom non-resident is in receipt of any income whether directly or indirectly. Section 172 (3) (d) Who hold or controls the receipts or disposed money on behalf of non-resident. Section 172 (3) (e) Who is trustee of non-resident. Section 172 (3) (f) Who is declared by the Commissioner through an order in writing.

  9. WHETHER ADVISOR / CONSULTANT OF A PERSON CAN SIGN A RETURN? No, Only the person who has been declared “representative” u/s 172 of the Income Tax Ordinance, 2001. Advisor while acting as E-Intermediary is allowed to sign the return through digital signature under rule 73 of the Income Tax Rules, 2002.

  10. WHO IS OBLIGED TO FILE A RETURN SECTION 114 (1)? (a) Every company (ab) Every person whose income exceeds the threshold. (ac) Any N.P.O. as defined u/s 2 (36) (ad) Any welfare institution approved under Clause 58 of part 2 of the 2nd Schedule. (b) Any person not covered by Clause (a), (ab), (ac) or (ad) who,--- (i) has been charged to tax in respect of any of the two preceding tax years; (ii) claims a loss carried forward under this Ordinance for a tax year; (iii) owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a cantonment; or the Islamabad Capital Territory. (iv) owns immovable property with a land area of five hundred square yards or more located in a rating area; (v) owns a flat having covered area of thousand square feet or more located in a rating area; (vi) owns a motor vehicle having engine capacity above 1000CC; and (vii) has obtained National Tax Number.

  11. PERSONS NOT REQUIRED TO FURNISH A RETURN SECTION 115 (3) + (4) The following persons shall not be required to furnish a return of income for a tax year solely by reason of Sub-Clause (iii) of Clause (b) of Sub-Section (1) of Section 114— a) A widow; b) an orphan below the age of twenty five years; c) a disabled person; or d) in the case of ownership of immovable property, a non-resident person. Any person who is not obliged to furnish a return for a tax year because all the person’s income is subject to final taxation under section 5, 6, 7, 15, 113A, 113B, 148, Clauses (a), 9b) and (d) of Sub-Section (1) of Section 151, Section 152, Clauses (a) and (c) of Sub- Section (1) of Section 153, 154, 156, 156A, Sub-Section (3) of Section 233, Clause (a) and Clause (b) of Sub-Section (1) of Section 233A or of Sub-Section (5) of Section 234 of Sub-Section (3) of Section 234A shall furnish to the Commissioner a statement showing such particulars relating to the person’s income for the tax year in such form and verified in such manner as may be prescribed.

  12. KINDS OF RETURNS Original Section 114 (1) Suo Moto After Notice Section 114 (3) by Commissioner Revised Section 114 (6) within 5 years from the end of the financial year. In which original return was filed (with specified conditions). Previously it within 5 years from the date of filing of original return without presupposed conditions.

  13. MODE OF FILLING OF RETURN Companies Electronically A.O.P’s Electronically All persons registered under Electronically The Sales Tax Act, 1990. Salaried individual receiving salary Electronically at Rs. 500,000/- or above. Others Optional Please see Notification No. 684(1)/2009 dated 23 July 2009.

  14. DATES OF FILLING OF RETURNSECTION 118 TypeLast Date (a) In case of company having year 31st December Ending 1st January to June 30 Next following the end of Tax Year. (b) Any other case 30th September.

  15. EXTENTION IN FILLING OF RETURNSECTION 119 1. An application shall be made by due date for furnishing of return. 2. Commissioner may grant extension because of a- Absent from Pakistan b- Sickness or mis-adventure or c- Any other reasonable cause. 3. Extension upto 15 days. In exceptional cases longer extension can also be granted by the Commissioner.

  16. CONSEQUENCESFOR NON FILLING OF RETURN Ex-parte assessment order Section 121 Penalty Section 182

  17. 2. ASSESSMENT

  18. DEFINITION SECTION 2 (5) “Assessment” includes re-assessment and amended assessment and the cognate expression shall be construed accordingly.

  19. TYPES OF ASSESSMENT Deemed Assessment Sections 120(1), 69(3), 113A(3), 113B Best Judgment Assessment Section 121 Amended Assessment Section 122 Amended assessment on account of revision of return by the taxpayer. Section 122 (3) Amended assessment On the basis of definite information acquired from as audit or otherwise Section 122 (5) If the assessment order is considered as erroneous and prejudicial in the interest of revenue. Section 122 (5A) Provisional Assessment Section 123 Consequential Assessment Section 124 (1) New Assessment Section 124 (2) Modification Assessment Section 124A Assessment in case of disputed property Section 125

  20. DEEMED ASSESSMENTSection 120 (1) Original and complete return shall constitute an assessment order on the day the return is furnished. If the return is not complete, the Commissioner shall issue notice pointing out the deficiencies upto the end of financial year. Section 120 (3) In case of non compliance of the notice the return shall be treated as invalid Meaning thereby – no deemed order. Section 120 (4).

  21. BEST JUDGEMENT ASSESSMENTSection 121(1) In case of non-furnishing of return, in response to Notice u/s 114(3) or 114(4), non-furnishing of statement in compliance of notice u/s 115(5) or 143, 144 or 116 or failing to produce accounts, documents and records required to be maintaining u/s 174, the Commissioner may make assessment to the best of his judgment based on information or material on record. Limitation to make such order as provided u/s 121(3) is within five years after the end of the Tax Year or the income year to which it relates. For making best judgment:- a. History should be followed 2009 PTD 638 Trib b. There must be a speaking order 99 TAX 329 Trib c. Should not be passed for single default 29 TAX 192, 1987 PTD 39 default. d. Should be proper, fair and not dishonest 1959 PTD 180 H.C. e. In the presence of deemed order u/s 120(1) best judgment order can’t be passed 2005 PTD 1652 Trib.

  22. DEEMED ASSESSMENTSECTION 169 (3) If a taxpayer have no other income except the income on which is subject to final taxation, assessment shall be treated to have been made under Section 120

  23. DEEMED ASSESSMENMTSECTION 113A & 113B Deeming provisions of Sections 120 (1) and 169 (3) do not cover the provisions of Section 113A & 113B. But Section 113A (3) and 113B (6) categorized the retail tax as final tax. In my opinion provision of Section 122 can not be invoked where retail tax has been paid u/s 113A or 113B because of none mentioning of said Section in Section 122.

  24. PROVISIONAL ASSESSMENTSECTION 123 If any concealed assets which in the opinion of the Commissioner was acquired by a person from any income subject to Income Tax, the Commissioner before issuing order u/s 121 or 122 can finalize provisional assessment order. from the above it can be observed that provincial order be passed even if the order passed u/s 120 is already in field.

  25. CONSEQUENTIAL ORDER AFTER APPEALSECTION 124 (1) To give effect to the order passed by CIT (Appeal) Tribunal, High Court or Supreme Court. The Commissioner is bound to issue amended order within 2 years from the end of the financial year in which the said order was served on him. There is no fun to allow the period of 2 years just to give the effect of the appeal order

  26. NEW ASSESSMENT ORDERSECTION 124 (2) If against the remand order passed by CIT (Appeal), Tribunal or High Court if no further appeal has been filed the Commissioner is obliged to pass new order within one year from the end of the financial year in which such order was served.

  27. MODIFIED ORDERSECTION 124A In case any question of law has been decided in favor of the taxpayer by High Court or Tribunal the Commissioner may follow the said order irrespective of the fact that any further appeal or reference has been filed by the Commissioner against the said order. The said order shall be subjected to reversal if the question of law so decided is reversed or modified.

  28. ASSESSMENT IN CASE OF DISPUTED PROPERTY Section 125 If the property from which income derives is in dispute in any Civil Court in Pakistan, the amended assessment order is to be issued within one year from the decision of the Civil Court.

  29. 3.AUDIT OF TAX AFFAIRS

  30. HISTORICAL PERSPECTIVE • Income Tax Act, 1922 • Section 23 (1) • Section 23 (3) • Section 23 (4)

  31. Income Tax Ordinance, 1979Section 62 & 63 1979-80 to 2002-03 1. Detailed scrutiny through Pick & Choose. 2. Random ballot through Computer. 3. Total Audit. 4. Upto 5% of total returns filed.

  32. SELECTION FOR AUDITSection 177 • Amendments were made 17-06-2003 30-06-2004 01-07-2005.

  33. SELECTION FOR AUDITSection 177 (1), (2) & (3) • (1) The Board, may lay down criteria for selection of any person for an audit of person’s income tax affairs, by the Commissioner. • (2) The Commissioner shall select a person for audit in accordance with the criteria laid down by the [Board] under sub-section (1). • (3) The [Board] shall keep the criteria confidential.

  34. WHETHER ANY LAW CAN BE KEPT CONFIDENTIAL ? SCMR 2268 AND 1977 SCMR 1804 SUPREME COURT OF PAKISTAN “The seven instruments that is most useful in structuring of discretionary powers are open plans, open policy statements, open rules, open findings, open reasons, open precedents and fair formal procedure.” 1989 PTD and PLD 1969 S.C 14: The Law dose not mean the statue law onlybut includes the principal laid down by judicial pronouncements of the Superior Courts.

  35. SELECTION FOR AUDITSection 177 (4) • (4) In addition to the selection referred to in sub-section (2), the Commissionermay also select a person for an audit of the person’s income tax affairs having regard to - • (a) the person’s history of compliance or non-compliance with this Ordinance; • (b) the amount of tax payable by the person; • (c) the class of business conducted by the person; and • (d) any other matter which in the opinion of Commissioner is material for determination of correct income.

  36. “COMMISSIONER”REFER TO SUB-SECTION (2) • (13) “Commissioner” means a person appointed as a Commissioner of Income Tax under section 208, and includes a taxation officer vested with all or any of the powers and functions of the Commissioner;

  37. DELEGATION OF POWERS BY COMMISSIONERSection 210 • (1) The Commissioner [subject to sub-section (1A),] may, by an order in writing, delegate to any taxation officer all or any of the powers or functions conferred upon or assigned to the Commissioner under this Ordinance, other than the power of delegation. • (1A) The Commissioner shall not delegate the powers of amendment of assessment contained in sub-section (5A) of section 122 to a Taxation Officer below the rank of Additional Commissioner of Income Tax.] • (2) An order under sub-section (1) may be in respect of all or any of the persons, classes of persons or areas falling in the jurisdiction of the Commissioner.

  38. TAXATION OFFICERREFER TO SUB-SECTION 2(65) “TAXATION OFFICER” • (65) “taxation officer” means any Additional Commissioner of Income Tax, Deputy Commissioner of Income Tax, Assistant Commissioner of Income Tax, Income Tax Officer, Special Officer or any other officer however designated appointed by the Board for the purposes of this Ordinance;

  39. INCOME TAX AFFAIRS • Income Tax Affairs (only) Yes • Sales Tax affairs No • Central Excise affairs No • Custom affairs No • Love affairs No

  40. IN ADDITION According to Black’s Law Dictionary; “Addition: Implies physical contract, something added to another.”

  41. LAHORE HIGH COURT, LAHORE W.P 4630 of 2009 Mohsin Raza Vs. Chairman FBR The words “in addition to” mean moreover, additionally, also. In the context of section 177 of the Income Tax Ordinance, 2001 or otherwise these words convey that something is to be done moreover or additionally with reference to that thing which is being done prior thereto. These words have tilt towards something other than the usual. In these words there is a tinge of something which is relatively exceptional or which is in contradistinction to what is usually or generally to be accomplished in routine. To the contrary the Commissioner of Income Tax is not selecting cases for audit in addition to the selection referred to in sub-section (2) of section 177 but infact the Commissioner is selecting these cases as a matter of routine because scores of cases have been picked up by the Commissioner under clause (d) of sub-section 4 of section 177 but not a single case has been selected by him in terms of the selection referred to in sub-section (2) of section 177. the impugned selection of cases on this score alone is illegal.

  42. MAY SELECT PICK & CHOOSE DISCRETIONARY POWERS Exercise of discretion • PLD 2001 SC 1 General principles --- Discretionary decision is to be made according to rational reasons which means that there be findings of primary facts based on good evidence and decisions about the facts be made for reasons which serve the purposes of the statute in an intelligible and reasonable manner --Actions which do not meet theirs threshold requirements are arbitrary and might be considered as a misuse of powers.

  43. MAY SELECT • 1997 SCMR 1804 • The general principals that discretionary decisions should be made according to rational reasons means: • That there be findings of primary facts based on good evidence: and • That decisions about the facts be made for reasons which serve the purposes of the statute in an intellegible and reasonable manner. • The actions which do not meet these threshold requirements are arbitrary and may be considered misuse of powers.

  44. MAY SELECT • (2004) 90 TAX 81 HC Lahore • Discretionary decision has to be made according to rational reasons which means findings of primary facts, based on good evidence and that.

  45. OPINION AIR 1959 SC 914 • Opinion means something more than mere retailing of gossip or of hearsay; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question. 1974 PLD 274, PLD 1991 SC 63, PLD 1992 Lah 31 • Opinion. ---An opinion on the basis whereof a statutory authority is entitled or empowered to take any action or initiate any legal proceedings, may be accurate or erroneous, but it must be an honest opinion or conviction, based on tangible material capable or sustaining such opinion, and not a mala fide opinion or a colourable exercise of statutory power.

  46. OPINION AIR 1958 SC 207 In the opinion of Income tax Officer.— • The expression “in the opinion of the Income-tax Officer” in the proviso to Sec.13 of the Income Tax Act, 1922, does not confer a mere discretionary power; in the confer a mere discretionary power; in the context it imposes a statutory duty on the Income Tax Officer to examine in every case the method of accounting employed by the assessee and to see whether or not it has been regularly employed and determine whether the income, profits and gains of the assessee could properly be deducted therefrom.

  47. SHOW CAUSE NOTICEBEFORE SELECTION • Selection of the case u/s 177(4) is an order. • Before passing any order issuance of the show cause notice is mandatory even not provided in law under the principal of natural justice “Audi Alttram Pertem” is applicable.

  48. CASE LAWS • PLJ 2008 SC 1088 “Maxim audi altrem partem is always deemed to be embedded in every statue even there is no specification or express provision containing it.” • 2005 SCMR 678 “audi altrem partem” ( no one should be condemn unheard)…. Origin and validity --- violation of principal of natural justice enshrined in the maxim would be enough to vitiate even most solemn proceedings--- such principals originated from Islamic system of justice and would be read / considered as a part of every statue in the interest of justice --- principle know being made inbuilt in part of civil contracts would apply to all kinds of proceedings strictly and departure therefrom would be render subsequent actions illegal in eye of law.”

  49. CASE LAWS • PLD 2004 SC 441 “Principal of audi altram is applicable to judicial as well as non judicial proceedings and it is read in every statue as its part if right of hearing has not been specifically provided therein.” • 2007 SCMR 330 Principal of natural justice , unless prohibited by wording of statue, must be read in each and every statute. • 2005 SCMR 1814 “ right of personal hearing to a person against whom an adverse order is to be made is to be equated with fundamental right and an adverse order made without affording him an opportunity of personal hearing is to be treated as void order.”

  50. DISCRIMINATION • Article 24 of the constitution of Pakistan “EVERY CITIZEN IS EQUAL BEFORE LAW” • 1992 CLC 219 • The doctrine of equality before the law and equal protection is the anchor-sheet of constitution. Equal protection theory prevents discriminate treatment of individual or a group of individuals at the expense of other individuals or classes of the people similarly situated. Even handed, fair treatment or every citizen is ordained by the consultation.