Wrong interpretation of section 126F of IT Ordinance: field formations to examine possible revenue loss

The field formations of the Federal Board of Revenue would examine the possibility of any revenue loss on account of wrong interpretation of the FBR letters/clarifications issued regarding section 126F of the Income Tax Ordinance 2001 under which income tax exemption on profit and gain derived in war-affected areas was misused.
It has been reliably learnt here on Monday that the Board had superseded all income tax clarifications issued in the context of income tax exemption on profits and gains derived in Khyber Pakhtunkhwa (KPK), Federally Administered Tribal Areas (Fata) and the Provincially Administered Tribal Areas (Pata). The rationale behind issuance of circular number 14 of 2011 was to plug the loopholes in the existing procedure for obtaining exemption on profits and gains available to the business and trade. Due to wrong interpretation of clarifications/letters of the FBR on section 126F of the Ordinance 2001, some of the unscrupulous elements misuse the facility.
For example, the fake or dummy units might have got themselves registered in the areas of KP/Fata/Pata and imported goods material and machinery/equipment with zero-rated facility and ultimately consumed the same in the taxable areas like Karachi, Lahore and Islamabad.
These units obtained registration within the jurisdiction of KP/Fata/Pata merely to evade the authorities to obtain exemptions of fiscal relief package due to simplified procedure for genuine claimants. It is apprehended that the facility has been misused by certain unscrupulous elements who wrongly interpreted the relevant laws to obtain inadmissible exemptions.
In order to check such kind of misuse, the FBR has now empowered the Chief Commissioner Regional Tax Office (RTO) Peshawar to scrutinise each case on merit before granting such facility of income tax exemption on profits and gains derived in war-affected areas. Prior to issuance of circular 14 of 2011, there was no proper check on units availing exemption on profits and gains availed in the areas of KPK/Fata/Pata. Through circular 14 of 2011, the RTO Peshawar would decide each case on merit in the light of the FBR instructions upon filing of a claim in this regard by the taxpayer.
There is a possibility of revenue loss on account of wrong interpretation of letters/clarifications issued regarding section 126F of the Income Tax Ordinance 2001. However, it is premature to say unless or until the concerned RTO has ample evidence about the unit, which has wrongly interpreted the FBR clarifications/instructions in this regard.
To further make the system foolproof, the FBR has made those persons taxable where the taxpayer is located inside the specified areas, but his business is carried on outside the affected and moderately affected areas. Such persons have to carry our business activates within the affected areas for availing exemption of capital gains.
Sources said that the RTO Peshawar would also analyse the beneficiaries of the fiscal relief package available within the areas of KP/Fata/Pata. The tax department has to scrutinise the data of persons who have availed the income tax exemption on profits and gains derived in the said affected areas. Out of the list of the beneficiaries, the person who obtained wrong exemption would be identified on the basis of past track record of registered persons.
The income tax circular 14 of 2011 said that the clarifications, instructions, letters and notifications issued on clause 126F of the Income Tax Ordinance 2001 has created confusion due to different interpretations on the exemptions granted under the fiscal relief package.