DGI&I IR begins checking authenticity of declarations: remittances, agriculture income stated as sources

The Directorate General Intelligence and Investigation Inland Revenue (IR) Federal Board of Revenue (FBR) has started verification of cases where source of investment has been explained as foreign remittances and agricultural income to check authenticity of declarations made by rich people in their income tax returns.
Sources told Business Recorder here on Friday that the Directorate of Intelligence IR has issued instructions to the Chief Commissioners of the Regional Tax Offices (RTOs) to report all such cases where source of investment has been declared as foreign remittances or agricultural income through verification from the concerned provincial departments or banks. In cases of foreign remittances, the tax department would verify the genuineness of the foreign remittances certificates from the banks.
According to the FBR instructions, the RTOs should report all cases where sources have been explained through foreign remittances along with all necessary details to the Directorate of Intelligence IR. In cases where investment has been explained through agricultural income, it should be ensured whether agriculture income is also declared in the return or not. The quantum of agriculture income should be compared with the extent of the agricultural property to check whether the two are commensurate. List of all such cases should also be forwarded by the RTOs to the Directorate of Intelligence IR for information sharing with the Provincial Boards of Revenues, FBR's instructions added.
Under the Income Tax Ordinance 2001, the tax department is not empowered to ask source of investment where property has been purchased from foreign remittances. The tax exemption has been granted to foreign remittances under section 111 of the Income Tax Ordinance 2001. The investment made through foreign remittances cannot be probed into by the tax department. The amount may have been utilised for construction/purchase of luxurious bungalows in Pakistan. In cases where source of investment has been explained as foreign remittances in the income tax returns, the tax department can verify about the genuineness of the foreign remittances certificates from the concerned banks. The tax department can only carry out cross verifications of the foreign exchange encashment certificates from the concerned banks for checking the authenticity of the declarations made in the income tax returns. As per provisions of the Income Tax Ordinance 2001, the Directorate of Intelligence IR has full legal authority to verify the authenticity of the foreign remittances certificates from the concerned banks in cases where income has been declared through foreign remittances in the income tax returns. The directorate is rightly checking the genuineness of such certificates from banks to verify whether information declared in the return is correct or not.
For example, Regional Tax Office (RTO) Faisalabad has initiated income tax proceedings in a case under section 114 (4) of the Income Tax Ordinance 2001 on the basis of information of capital value tax (CVT) that a taxpayer purchased properties over Rs 115 million during the period relevant to Tax Year 2010. During the course of proceedings, the taxpayer submitted copy of the bank statement of his account wherein foreign remittances worth Rs 262 million have been received in the account during the period relevant to the Tax Years 2006 to 2009. The concerned tax officer of the Broadening of Tax Base (BTB) Unit of the RTO has also written a letter to the concerned bank for the verification of foreign exchange remittances in the case of the taxpayer and bank has also verified the genuineness of remittances.
It is important to mention that for the first time the FBR has taken this bold step to verify cases where source of investment has been explained as foreign remittances or agricultural income to check authenticity of declarations made in their income tax returns. As the agency is legally allowed to check declarations made in the return, this exercise would be able to detect any major case where fake foreign remittances certificate has been declared in the income tax return, if any.
At the same time, Directorate of Intelligence IR has communicated a comprehensive plan to the RTOs to check major cases where investors have declared agriculture income to justify their investment in properties, stocks/shares, luxurious vehicles, foreign travelling, etc.