Desk-audit of certain units, businesses: FBR detects major discrepancies in tax records

The Federal Board of Revenue has detected some major discrepancies in the tax records of certain corporate units and business entities during on-going composite audit of income tax and sales tax for Tax Year 2009, reflecting violations of the Universal Self Assessment (USAS) scheme.
Sources told Business Recorder here on Friday that the FBR has conducted audit on the basis of risk based criteria after detection of major discrepancies during the desk-audit of the record available with the department. On the basis of desk-audit, the FBR has conducted composite audit of the registered persons including companies and business individuals, and Association of Persons (AOPs).
The FBR has managed to successfully conduct audit of these cases, but the random balloting has not been done for selection of cases for audit. The risk-based criteria have been effectively drafted taking into account provisions of the Income Tax Ordinance 2001 and Sales Tax Act 1990.
The legal framework available under these laws has been thoroughly examined for drafting audit criteria. The computerised random based selection of cases for audit has not been done for the Tax year 2009 as the powers of random audit through computer balloting under section 177 of the Income Tax Ordinance 2001 was withdrawn, officials said.
Sources said that audit could be used as an effective tool for detection of unpaid amount of taxes. The accurate audit would be instrumental in detection of huge amount of taxes. For example, the desk-audit of income tax returns has helped in creation of income tax demands. The potential of detections through composite audit is much higher than the past performance of auditors. However, composite audit based on effective criteria could result in recovery of the unpaid amount.
When contacted, a legal expert said that the FBR is still legally empowered to conduct computer balloting for random selection of cases for audit. Under section 214C of the Income Tax Ordinance 2001, the Board may select persons or classes of persons for audit of Income Tax affairs through computer ballot which may be random or parametric as the Board may deem fit.
Audit of Income Tax affairs of persons selected shall be conducted as per procedure given in section 177 and all the provisions of the Ordinance, except the first proviso to sub-section (1) of section 177, shall apply accordingly. For the removal of doubt it is hereby declared that Board shall be deemed always to have had the power to select any persons or classes of persons for audit of Income Tax affairs, it added.