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ISLAMABAD: The field formations of the Federal Board of Revenue (FBR) have issued assessment orders against 30-35 sugar mills, where mostly units failed to submit complete party-wise detail of sugarcane purchases including Computerised National Identity Card Numbers (CNICs) of the sellers; understated crushing/sugar production and reconciliation of banks statements to substantiate immunity claimed under Section 111 of the Income Tax Ordinance 2001.

Tax experts told Business Recorder Thursday that the Large Tax Offices (LTOs) of Karachi, Lahore, and Multan are dealing with the sugar mills falling under their respective tax jurisdiction.

Notices were issued to all 84 sugar mills, but the final assessment orders of income tax have been issued in case of 30-35 mills.

In many cases, the sugar mills have been given deadline of March 31, 2021, to respond to the queries raised in the assessment orders of the tax department.

Most of the mills have already challenged the assessment orders at the relevant appeal forum including Commissioner Appeals.

Last year, the FBR started audit of sugar mills in line with the directions of the Sugar Inquiry Commission (SIC) in 2020.

Following the SIC's recommendations, the FBR's field formations had launched composite audit of income tax and sales tax of sugar mills.

After completion of forensic audit of sugar mills, field formations of the FBR had issued notices of Rs404.2 billion to 61 sugar mills during the last two months.

They said that the audit teams have conducted scrutiny of declared total sugarcane purchase quantity against cane purchase values.

The units were requested to produce complete party-wise detail of purchases containing complete mailing addresses NTNs, CNICs of the parties.

However, no such information was produced/submitted.

The party-wise detail of purchases containing CNICs, complete addresses, detail of landholding, and evidence of payments was not filed.

In certain cases, the units have not facilitated audit teams with complete record of purchases and avoided to disclose complete particulars of growers, and thereby, tried to hamper to conduct third-party verification of declared version by directly contacting growers. The audit teams also found non-submission of complete particulars of growers has resulted in failure to ascertain the actual purchase price.

Keeping in view the fact that the sugar manufacturers are benefited to purchase sugarcane in cash, the said amount is most likely incurred on further purchase of sugar cane.

The company has not been able to explain utilisation of surplus amounts; the same is also treated to have been incurred on purchase of sugarcane @ Rs160/- per 40 kgs and subsequently, production and sales.

The units have not filed daily crushing reports and considering the fact that purchase rate and sale rate are not open to verification, the declared yield rate is also not acceptable in the absence of record.

The tax department intends to apply the same rate of sugar recovery i.e. 10.99 percent as other sugar mills of the area are declaring.

The audit teams also found that the suppressed sales are assessed and warrants addition into the income u/s 111(1)(d) of the Income Tax Ordinance, 2001, in the absence of documentary evidences in the form of date-wise and party-wise detail of purchases, copies of CPRs, names and addresses of the parties and evidence of compliance to provisions of Rule 12(a) of the Income Tax Rules, 2002.

The audit teams have also analysed the audited accounts of the sugar mills, and mostly the taxpayers have not provided complete bank statements.

The units are therefore, required to explain with verifiable documentary proof (reconciliation statement, complete bank statements along with closing balance and ledgers) in terms of Section 111(1)(b) of the Income Tax Ordinance, 2001.

In cases where there are outstanding government dues and withholding tax payable, the units need to provide CPRs of outstanding government dues within prescribed time, otherwise, recovery proceeds along with penalty provisions are applicable, if the taxpayer fails to discharge its due liabilities.

The taxpayer is required to provide payment proof during next financial year to avoid any adverse inference, they added.

The audited accounts have further revealed that the units have claimed raw material purchases; however, as per information available with the tax department, the taxpayer has purchased sugarcane from other than growers, which attract the Section 233 of the Income Tax Ordinance.

In certain cases, the analysis of the audited accounts revealed that the units have claimed expenses on account of Commission on sales and other expenses.

The units are required to provide detail of commission agents and others in support of his contention in term of Section 233 of the Income Tax Ordinance.

As per audited accounts, the taxpayers have declared gross sales, but as per available information, received from various schedule banks, credit entries have been found.

Copyright Business Recorder, 2021

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