LAHORE: The Large Tax Office (LTO) Lahore has selected around 200 cases of income tax and 175 cases of sales tax in audit for tax years 2016–2020, said reliable sources.

They said the Federal Board of Revenue (FBR) had issued instructions to do so through video link conference (VLC) while issuing timelines for the tasks like desk audit and requisition for 3rd party information, selection for audit, issuance of audit reports, replies and rebuttals, assessment orders, and final report to the Board.

It may be noted that the Board was not authorized to select multiple years of a taxpayer for audit without tinkering the provisions of section 214-C of the Ordinance.

The Islamabad High Court has already declared any such selection ultra vires, saying that FBR is vested with no authority under section 206 read with sections 213 and 214 of the Ordinance of 2001 or any provision of the Sales Tax Act or the Federal Excise Act to issue a directive or circular to Commissioners to undertake sectoral audits or otherwise bind them in terms of how they are to exercise their discretionary authority under section 177(1) of the Ordinance of 2001 or section 25(1) of the Sales Tax Act or section 46 of the Federal Excise Act. Any such directive is devoid of justification and a nullity. Thus, an audit selection notice issued by the Commissioner under section 177(1) to an Oil Marketing Company on the basis of the sectoral audit directive issued by FBR is tantamount to a notice issued for extraneous reasons and is liable to be set-aside.

It has further stated that audit proceedings initiated on the basis of a directive issued by the FBR having been declared to be void would also be devoid of lawful authority and would cease. This would, however, not inhibit the Commissioner from independently exercising his/her authority under section 177 of the Ordinance of 2001 on the basis of reasons that satisfy the requirements of section 177.

Meanwhile, said the sources, taxpayers have also approached to the Lahore High Court with a similar contention. According to sources, requesting anonymity, the Board has instructed Commissioner Legal of the LTO to apprise the court of law that the deputy commissioners had taken the decision at their own for audit of cases for multiple years.

However, sources have confided that the Board had singled out sectors including auto four wheelers, tobacco, electronic goods, ceramics and tiles, auto two wheelers, beverages, and oil and ghee for tax audit for multiple years. A copy of the timelines set for audit of these sectors is available with Business Recorder.

Copyright Business Recorder, 2021