Income Tax Bar Association Karachi WORKSHOP ON INCOME TAX Hotel Sheraton, Karachi August, 2005

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August RETURNS, AUDIT, ASSESSMENT & APPEALS By: ALI A. RAHIM Director Mehmood Idrees Masood & Co.

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Returns, Audit, Assessment & Appeals  Returns  Statements  Assessments & Amendments  Appeals  ADR  Audit CONTENTS

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Ordinary Returns (Section-114) 1.Every company 2.Other than a company  Charged to tax in previous two years  Claims loss brought forward  Owns immovable property  With land area of 250 Sq. Yds. or more; or a flat within Municipal areas Cantonment or Islamabad Capital Territory (not applicable to widows, orphans below the age of 25, a disable person of non-residents) RETURNS

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Persons not Required to File Returns (Section 115) RETURNS (Contd…) 1. Salary - employer’s certificate will suffice 2. Others - falling under Presumptive Tax Regime

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Returns for Tax Year 2005 RETURNS (Contd…)

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August RETURNS (Contd…) Returns for Tax Year 2005

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August STATEMENTS

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August (Section 120 to 126) Normal Assessment All returns other than revised returns are deemed to be assessed on the day it is filed/received by the Commissioner (for complete returns only) Incomplete returns - commissioner to send notice for short documents/information (other than short payment of tax) within due date Time limit - one year ASSESSMENTS

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section 121- Best Judgment Assessment  Failure to comply with notice for filing return under section 114 (normal returns etc.)  Failure to furnish return under section 143 or 144 (non-resident ship owners or aircraft charters)  Failure to file wealth statement under section 116  Failure to produce books/documents required to be maintained under section 174 (refer Rules, 28 to Rule, 33) ASSESSMENTS (Contd…)

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section 122- Amendment of Assessment ASSESSMENTS (Contd…) 1.Assessments completed under section 120 or 121 of the Income Tax Ordinance, 2001 (or issued under section 59, 59A, 62, 63 or 65 of the Income Tax Ordinance, 1979) - after providing hearing opportunity to the taxpayer. 2.Time period - 5 years from original filing - no limit on number of times assessments can be amended. 3.Revised returns filed [under section 114(6)] also treated as amended assessment when received by commissioner. 4.Time limit for orders under section 65 of the Income Tax Ordinance, 1979 can not be extended or curtailed.

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section 122- Amendment of Assessment ASSESSMENTS (Contd…) 5. Basis of amendment - definite information.  Income has escaped assessment.  Income has been under assessed.  Income has been charged to lower rate of tax.  Any income has been misclassified. 6. Definite information – defined  Sale or purchase of goods  Receipts from services or other receipts  Acquisition, possession or disposal of money, asset, valuable article or investment  Expenditure

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section 122A - Revision By Commissioner ASSESSMENTS (Contd…) 1.Commissioner - SUO MOTU can call for records of orders passed by taxation officer 2.Make inquiries 3.Pass order - not prejudicial to the interest of the taxpayer 4.Restriction  Time for appeal before Commissioner of Income Tax (Appeals)/Income Tax Appellate Tribunal has not expired  Appeal is not pending before Commissioner of Income Tax (Appeals)/Income Tax Appellate Tribunal

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section Provisional Assessment ASSESSMENTS (Contd…)  Concealed assets impounded by any department or agency  Order (other than direct relief) of Commissioner of Income Tax (Appeals)/Income Tax Appellate Tribunal  Set aside order within one year from the end of financial year in which such order is received unless an appeal or reference is preferred to the Higher Authority.  Direct relief is allowed by Commissioner of Income Tax (Appeals) or Income Tax Appellate Tribunal within two months of such order.  Order where income is not taxable in one year or relate to another person, but taxable in another year or another taxpayer, such order shall be passed by the Commissioner. Section 124 – Assessment Giving Effect to

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section Assessment of Disputed Property ASSESSMENTS (Contd…) Section 124A – Power to Modify Assessment  Question of law to be followed by Commissioner compulsorily unless reversed by Higher Appeal Authority.  Limitation of time not applicable.  Assessment order to be passed within one year from the end of the financial year of any order passed by any Civil Court.

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August (Section 127 to 132) APPEALS

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August APPEALS (Contd…) New Changes [Commissioner of Income Tax (Appeals)] Financial Year 2005  Commissioner of Income Tax (Appeals) can only confirm, modify or annual the assessment order (not set aside)  Can now examine evidence. New Changes (Income Tax Appellate Tribunal) Financial Year 2005  Decide appeals within six months

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August Section 134A 1.Person aggrieved with the order of Commissioner of Income Tax/Income Tax Appellate Tribunal/Court may file application to Central Board of Revenue. 2.Central Board of Revenue after review shall forward application to ADR Committee. 3.ADR Committee to comprise of three person.  One person from department.  Two persons being Chartered Accountant or Cost and Management Accountants, Advocates, Income Tax Practitioner or Reputable Taxpayers. ALTERNATE DISPUTE RESOLUTION

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August ALTERNATE DISPUTE RESOLUTION (Contd…) 4.ADR will examine issue, conduct inquiry, seek expert opinion, conduct audit and make recommendation. 5.Central Board of Revenue, based on committee’s recommendations may pass such orders. 6.Order of Central Board of Revenue, if acceptable to the applicant is binding on department and taxpayer. 7.If, the order is not acceptable, applicant can continue to persue his legal remedies (if not time barred). Important: Time period for filing an appeal cannot be extended even if taxpayer has approached Central Board of Revenue for ADR.

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August (Section 177) AUDIT 1.Central Board of Revenue to lay down criteria for selection. 2.Commissioner to select cases based on the criteria. 3.Central Board of Revenue will keep criteria confidential. 4.Besides the Central Board of Revenue’s criteria, the Commissioner may also select cases for audit based on the following:  The person’s history of compliance or non- compliance.  The amount of tax payable by the person.  Class of business conducted by the person.  Any other matter, which the commissioner considers material to determine the correct income or tax.

Income Tax Bar Association Karachi Workshop on Income Tax Hotel Sheraton August