Sales: tax practitioners point out major anomaly

LAHORE: Treating sales alone as income without considering purchases in order to establish suppression of sales is tantamount to invalid exercise on the part of tax department, said sources.

According to sources from tax practitioners, sales of goods invariably involves cost of sales and even gross business income is the difference of sales and cost of sales but the tax authorities carry out an invalid exercise despite having clear knowledge of sales as well as purchases declared by the taxpayer.

Obviously, they added, sales are made after having purchased the goods, therefore, treating sales alone as income without considering purchases is an illegal and baseless action as allegation of suppression of sales in the presence of purchases is not valid.

Generally, said the sources, the tax authorities carry out any such exercise after receiving a complaint that the taxpayer has underreported his sales, and thus the business income.

Accordingly, an inquiry is initiated with a conclusion that there was a definite information available to warrant amendment of the deemed assessment orders. It is followed by issuing a show-cause notice making reference to the definite information acquired by the department.

However, when the taxpayer seeks to produce evidence as regards to the costs incurred for the sales made for proper calculation of income chargeable to tax, the tax authority makes a decisive shift of terming the sale as income from other sources with the result that no deductions in relation to any other head of income is permissible in the computation of income.

This means that the costs and expenses incurred in making the concealed sales cannot be taken into account. The department, accordingly, brings the whole of the concealed income to tax at the end of the day.

Unfortunately, they said, most of the commissioner appeals also side with the department and dismiss the appeals in most of such cases. However, the tribunals carry out a deep analysis of the action and note that the tax authorities make a mistake in concluding that the costs and expenses incurred in respect of the concealed sales would not be taken into account while computing the amount that could be brought to tax.

Copyright Business Recorder, 2024