Companies, provincial government: IR Audit DG detects a plethora of tax laws violations

Some of the major cases detected by the Directorate General of Internal Audit Inland Revenue during 2009-10 included 'default of withholding tax provisions' by a provincial government, textile mill/polyester manufacturer along with inadmissible claims of exemption by a few petroleum companies, unexplained investment in fixed assets by an exchange company, and wrong claim of tax credit for investment by a cellular company.
According to the report of the DG Internal Audit, the directorate detected a plethora of the Income Tax Ordinance 2001 violations by different units for tax years TY 2000 to 2010, but the same were not checked by the concerned income tax officials. The cases have been clubbed in the report of the directorate for 2009-10.
In some cases, the directorate detected revenue loss of Rs 14.678 million for tax tear 2010 due to non-payment of advance tax instalments. Around 128 cases were detected in one city. These were defaulters of advance tax payment u/s 147 of the Income Tax Ordinance 2001.
The directorate had detected flouting of withholding tax provisions of the Income Tax Ordinance 2001 by Khyber Pakhtunkhwa (KP), involving an amount of Rs 25.904 million. The tax year pertaining to the default has not been mentioned in the report. It detected revenue loss of Rs 15.721 million for tax year 2000-01 due to default of withholding tax provision by an authority relating to roads, etc. The directorate detected revenue loss of Rs 12.214 million following default of withholding tax provisions by a textile unit. A manufacturer of polyester committed default of withholding tax provisions involving Rs 295.375 million for tax year (TY) 2008. These cases were in the jurisdiction of Northern Region, Islamabad.
The report said that the directorate detected revenue loss to the tune of Rs 4045.597 million from an oil exploration company for the tax year 2008. The company claimed wrong exemption and excess claim of depletion of oil well allowance. The directorate also detected suppression of gain on disposal of fixed assets. In another case, the directorate detected revenue loss of Rs 967.406 million. The company claimed wrong exemption, excess claim of depletion allowance and suppression of gain on disposal of fixed assets.
In the jurisdiction of Southern Region, Karachi, the directorate detected revenue loss of Rs 841.732 million for tax year 2008 in case of an exploration company due to wrong claim of amortisation on account of "working interest" acquired from non-resident oil exploration companies.
In case of another E &P company involving Rs 407.925 million for tax year 2008, there was suppression of tax liability (on account of applying tax rate of 50 percent against correct rate of 55 percent) and non-deduction of withholding tax u/s 151 of the Ordinance 2001 from payments made as "profit on debt".
In the jurisdiction of Central Region, Lahore, the directorate detected that the department had conducted audit of a unit u/s 177 of the Income Tax Ordinance 2001, but audit report was not prepared. The cost of sales was not verified despite specific directions of the Commissioner Inland Revenue (Audit-I).
In another case, the directorate detected revenue loss of Rs 89.062 million for tax years 2005-2008. The income taxable under the regime of final taxation declared in addition to business income taxable at normal rates but instead of claiming proportionate expenses, entire expenses were claimed against normal income (TY 2005 to 2007). The advertisement expenses were not amortised as required u/s 24 of the Ordinance 2001, which resulted in excess claim of expenses (TY 2005 to 2007). The audit also detected incorrect amortisation of deferred cost, resulting in excess claim of expenses (TY 2005 to 2007). The directorate also detected non-declaration of business income for tax year 2008.
The directorate detected revenue loss of Rs 70.182 million for tax year 2004-2006 in case of an exchange company. The unit made unexplained investment in fixed assets, unexplained creditors and default of withholding tax provisions.
The directorate detected revenue loss of Rs 15.220 million for tax year 2004 by an automobile/part manufacturer and assembler. It had claimed time-barred losses during tax year 2004, excess claim of depreciation, incorrect proration of expenses and commission income not offered to tax under the regime of final taxation u/s 233 of the Ordinance 2001.
In the jurisdiction of Northern Region, Multan, the directorate detected revenue loss of Rs 247.164 million for tax year 2007-2008. The case related to the unexplained investment of Rs 183.194 million in opening stock of raw materials and finished goods. In another case, the directorate detected revenue loss of Rs 119.294 million for tax year 2003 where a company claimed inadmissible depreciation allowance (Initial). A cellular company wrongly claimed tax credit for investment u/s 107AA of the repealed Income Tax Ordinance, 1979 pertaining to tax year 2003. Similarly, the directorate detected revenue loss of Rs 64.175 million for tax year 2004. A fertiliser company wrongly claimed unabsorbed depreciation and carryforward of the same for setting off against the declared income, the report added.