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ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to issue a circular to all the field formations, to follow the clarification of the State Bank of Pakistan (SBP) dated April 8th, 2019, on foreign remittances.

A leading tax expert, Asif S Kasbati, explained to Business Recorder here on Thursday that the FTO in complaint 3058 of 2020, in case of Muhammad Aslam vs Revenue Division, held that no addition under section 111 (unexplained asset /investment deemed to be income) of the Income Tax Ordinance 2001 for foreign currency received through exchange companies (ECs) as per the SBP letter, which states that, the remittances received through MSBs/ECs and MTOs also constitute to be “foreign exchange remitted from outside Pakistan through normal banking channels” as delineated in section 111(4) of the Income Tax Ordinance, 2001.

Moreover, the FTO recommended the FBR to issue circular to all the field formations to follow the clarification of the SBP and Order-in-Review (O-in-R) of the FTO in Complaint 1239 of 2018, duly upheld by the President of Pakistan in letter and spirit.

The FTO further recommended that the FBR should also direct the Commissioner-IR, Sialkot Zone to revisit the impugned order dated 25.9.20, in the light of clarification issued by the SBP and O-in-R dated 16.7.19 and pass fresh order, after affording opportunity of hearing to the complainant.

Kasbati, who is also ICAP Fiscal Laws Committee member, informed that the complainant e-filed his return of income under section 114(1) of the Income Tax Ordinance, along with his wealth and reconciliation statements, for the tax year 2015.

The complainant, subsequently, received a notice under section 111(1)(b) read with section 122(9) requiring him to provide documentary evidence regarding foreign remittance declared in the wealth statement amounting to Rs20 million.

In response, thereto, the reply was submitted along with supporting documentary evidence regarding foreign remittance as per the SBP clarification issued vide letter dated April 8, 2019 with the request to drop the proceedings.

Kasbati stated that the complaint was referred to the secretary, Revenue Division, for para-wise comments in terms of Section 10(4) of the FTO Ordinance read with Section 9(1) of the Federal Ombudsman Institutional Reforms Act, 2013.

In response, thereto, the Commissioner Inland Revenue (CIR) submitted para-wise comments vide letter dated 26.11.20.

At the outset, preliminary objection regarding the bar of jurisdiction in terms of Section 9(2)(b) of the FTO Ordinance, was raised on the ground that the matter pertained to the assessment of income and interpretation of law, which is beyond the scope of this forum.

The tax expert said that according to the tax department, the complainant declared in his Wealth Statement encashment of foreign remittance amounting to Rs20 million, without providing supporting documentary evidence regarding the channel through which it was remitted.

In response to notice issued under section 111(4) read with section 122(9), the complainant furnished Foreign Demand Drafts (FDDs) issued by the National Exchange Company (NEC), UAE where the amount was clearly mentioned in Pak rupee.

The same FDDs were deposited by the complainant in his bank account and received the amount in Pak rupees.

The complainant, however, failed to furnish Encashment Certificate as required under section 111(4)(a).

The reply furnished was duly examined and found un-satisfactory as the complainant neither received the foreign currency through proper banking channel nor its encashment in Pak rupee through the scheduled bank.

Thus, the criteria as laid down under section 111(4)(a) was not fulfilled.

As far as the O-in-R referred to above, the Zonal CIR was directed to consider the foreign remittance in the light of the SBP’s clarification as per law, which means that the department had to examine the clarification in the light of the IT Ordinance.

Accordingly, the department has acted as per law keeping in view the judgments of the ATIR in its Order ITA 794 of 2012 dated 10.10.13 and the LHC in case PTR 64 of 2014 (in case of Musadaq Farhan Chagatai vs CIR & others).

The clarification issued by the SBP was only to the extent of different channels used for remittances; however, scope of Section 111(4) had been clarified by the ATIR. The LHC in case PTR 64 of 2014 also elaborated the requirement of genuine foreign remittance.

Tax expert added that the complainant had received foreign remittance through National Exchange Commission Company, UAE according to the SBP’s clarification and as per the FTO order.

Copyright Business Recorder, 2021

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