draft para no

8/11/2019 Draft Para No

1/47

Draft Para No. 13959-IT

Subject: Short payment of with holding tax of Rs. 36.784 million

According to section 161 (1) of Income Tax Ordinance 2001where any person (a) fails to collect tax

as required under Division II of this Part 1[or Chapter XII] or deduct tax from a payment as required

under Division III of this Part or Chapter XII] or as required under section 50 of the repealed

Ordinance or (b) having collected tax under Division II of this Part or Chapter XII or deducted tax

under Division III of this Part or Chapter XII fails to pay the tax to the Commissioner as required

under section 160, or having collected tax under section 50 of the repealed Ordinance pay to the

credit of the Federal Government as required under sub-section (8) of section 50 of the repealed

Ordinance, the person shall be personally liable to pay the amount of tax to the Commissioner who

may pass an order to that effect and proceed to recover the same.

During audit scrutiny of record of Income of Tax RTO, Multan, it was observed that three taxpayers

submitted Income Tax Return for the tax year 2012 but withholding tax was short deducted/paid on

local purchases as compared with withholding statement submitted u/s 165.The issue stands already

established vide Order u/s 161/205DCR NO.C-6/P41dated 31.2011 for the tax year 2010 in r/o M/s

A.F Steel Re- Rolling Mills NTN No.1280045-7 and Order in Appeal No.29 dated 28.5.2012 for thetax year 2009 in r/o M/s Chaudhary Steel Re- Rolling Mills (Pvt) Ltd NTN No.1856989. This

resulted into short payment of withholdingof Rs. 36.784 million

It was pointed out in July and August 2013, with the request that matter may be probed into and

government dues recovered along with penalty and default surcharge under intimation to Audit but

no reply has yet been received.

(Para # 07)

Director


2/47


Subject: Non payment of income tax of Rs.3.178 million

According to clause 92 of Part I of the second schedule to Income Tax Ordinance 2001 Aany income

of any university or other educational institution established for educational purposes and not for

purposes of profit shall be exempt from tax.

During audit scrutiny of income tax record of RTO, Multan, it was observed that M/S MULTAN

EDUCATIONAL TRUST (A Company) bearing NTN 2898158-8 deriving income from GENERAL

SECONDARY EDUCATION was earning profit which accumulated to Rs.117, 809,031 as evident

from Serial No.21 of Annex E-1 Statement of Assets & Liabilities. The organization was also not an

approved NPO or Trust. The company was therefore liable for tax but the tax was not paid which

resulted in nonpayment of income tax of Rs. 3.178 million during FY 2012 as detailed below:

Tax year ProfitEarned

WWF @ 2% Taxable Income Tax @ 25% Total Payable

2012 11,989,881 239798 11750083 2937521 3177719

It was pointed out in July and August 2013, with the request that matter may be investigated and

government dues recovered along with penalty and default surcharge under intimation to Audit but


(Para # 11/AO # 13/IT)

Director


3/47


Subject: Non payment of minimum income tax of Rs. 233.244 million

As per section 65B (1) of Income Tax Ordinance 2001 Where a taxpayer being a company

invests any amount in the purchase of plant and machinery, for the purposes of balancing,modernization and replacement of the plant and machinery, already installed therein, in an

industrial undertaking set up in Pakistan and owned by it, credit equal to ten per cent of the

amount so invested shall be allowed against the tax payable by it in the manner hereinafter

provided.

During audit scrutiny of income tax assessment record of RTO, Multan, it was observed that M/S

Fatima Fertilizer Company Ltd bearing NTN 1791532-5 deriving income from Manufacture of

fertilizers and nitrogen compounds submitted income tax return for the tax year 2012 and

claimed tax credit of Rs. 3,735,345,391 u/s 65B (1) i.e. 10 % of investment made in r/o

balancing, modernization and replacement of the plant and machinery vide Computation of tax

Liability sheet attached to Audited accounts.The taxpayer admitted in Annex A-1 of income tax

return that he had no plant and machinery already installed prior to the commencement of tax

year 2012 because he declared 0 opening balances of plant and machinery and made all

additions during tax year 2012.The Income tax return of tax year 2011 and Audited Accounts

submitted with the return of tax year 2011 also proved that out of total value of Plant and

Machinery of Rs.66827913000 declared in TY 2012 an amount of Rs. 64258204000 was in the

shape of Capital Work in Progress in the tax year 2011. The return of tax year 2011 revealed that

no manufacturing took place in the tax year 2011meaning thereby that installation of plant and

machinery was under process. Thus he was not entitled to the benefit in respect of uninstalledplant and machinery which resulted into nonpayment of minimum income tax u/s 113 to the tune

of Rs. 233.244 million.

The matter was pointed out in July and August 2013, with the request that matter may be

investigated and government dues recovered along with penalty and default surcharge and

balance adjustment of Rs. 3502101680 (3,735,345,391- 233,243,711) u/s 65B (5) may also be

stopped under intimation to Audit but no reply has yet been received.

(Para # 01/AO # 32/IT)

Director


4/47


Subject: Short payment of Income Tax of Rs. 41.699 million due to Unexplainedincome

As per section 111 of Income Tax Ordinance 2001, where any amount is credited in a persons

books of account or a person has made any investment or is the owner of any money or valuable

article or a person has incurred any expenditure, and the person offers no explanation about the

nature and source of the amount credited or the investment, money, valuable article, or funds

from which the expenditure was made or the explanation offered by the person is not, in the

Commissioners opinion, satisfactory, the amount credited, value of the investment, money,

value of the article, or amount of expenditure shall be included in the persons income

chargeable to tax under head Income from Other Sources to the extent it is not adequatelyexplained. The amount referred above shall be included in the persons income chargeable to tax

in the tax year to which such amount relates.

During the scrutiny of income tax record of RTO, Multan it was observed that M/s YOUSAF

OIL MILLS (PRIVATE) LIMITED, bearing NTN 3901049 deriving income from

manufacturing, submitted income tax return for the tax year 2012. The tax payer submitted nil

return for the tax year 2011 and declared no sales, no purchase no opening stocks and no closing

stocks. On the other hand, the tax payer declared opening stocks of Raw material of Rs.

32,642,326/- and of finished goods of Rs. 86,497,359 as on 01.07.2011 for the tax year2012.

This resulted into short payment of Income Tax of Rs. 41.699 million due to unexplained

income.

It was pointed out in July and August 2013, with the request that position may be justified or

amount may be recovered along with penalty and default surcharge under intimation to Audit but


(Para # 06/AO # 07/IT)

Director


5/47


Subject: Short realization of Income Tax amounting to Rs.1.314 million due to

incorrect apportionment between normal income and PTR income

According to section 67where an expenditure relates to the derivation of more than one head of

income or derivation of income comprising of taxable income and any class of income to which

sub-sections (4) and (5) of section 4 apply or the derivation of income chargeable to tax under a

head of income and to some other purpose, the expenditure shall be apportioned on any

reasonable basis taking account of the relative nature and size of the activities to which the

amount relates further rule 13 of Income Tax Rules, 2002 provides methodology of

apportionment of expenses between final tax regime and normal tax regime.

During the Scrutiny of income tax assessment record of M/s SHUJABAD WEAVING MILLS

LIMITED NTN 2700524-7 deriving income from weaving of textiles under the jurisdiction of

RTO Multan, it was noticed that the taxpayer derived income from exports and local sales under

fixed tax as well as normal regime during tax year 2012. The taxpayer miscalculated taxable

income between the normal tax regime and final tax regime for tax year 2012. The lapse resulted

in short realization of income tax amounting to Rs. 1.314 million.

It was pointed out in July and August 2013, with the request to justify the matter and take

corrective action under intimation to Audit but no reply has yet been received.

(Para # 12/AO # 43/IT)

Director


6/47


Subject: Nonrealizationof WWF amounting to Rs. 149.974 million

According to section 4 (1) of Workers Welfare Fund Ordinance 1971, every industrial

establishment the total income of which in any year of account is not less than five lakh of rupees

shall pay to the Fund in respect of that year a sum equal to two per cent of its total income (i)

where return is required, the profit before taxation or provision for taxation as per accounts or the

declared income as per the return of income, whichever is higher; and (ii) where Return of

Income is not required to be filed, the profit before taxation or provision for taxation as per

accounts or four per cent of the receipt as per the statement filed under section 115 of the

Ordinance, whichever is higher.

During audit scrutiny of Income Tax Record of Commissioner Zone-1, RTO, Multan it was

observed that certain taxpayers had declared net profit and submitted returns or the statement

under section 115 but Workers Welfare Fund was not charged and recovered which resulted into

non realization of Worker Welfare Fund amounting to Rs. 149.974 million.

It was pointed out in July and August 2013, with the request that government revenue may berecovered along with default surcharge and penalty under intimation to audit but no reply has yet

been received.

(Para # 03 & 09)

Director


7/47


Subject: Non recovery of Income Tax of Rs. 64.575 million








chargeable to tax under head Income from Other Sources to the extent it is not adequately

explained. The amount referred above shall be included in the persons income chargeable to tax

in the tax year to which such amount relates.

During the scrutiny of income tax record of RTO, Multan it was observed that certain taxpayers

submitted income tax return for the tax year 2012. They declared paid up capital which did not

match with their income. The source of investment was also not explained. This resulted in non

recovery of Income Tax of Rs. 64.575 million on un-explained investments.




(Para # 04)

Director


8/47


Subject:- Non realization of Income tax amounting to Rs.49.917 million

As per Rule 216 of Income Tax Rules 2002 An institution, fund, trust or society that has been

approved under rule 212 or whose approval has been renewed under rule 214 shall, by the 30th

of January each year, submit to the Commissioner, in respect of the preceding calendar year:- (a)

a copy of the statement of audited accounts, as mentioned in clause (a) of sub-rule (1) of rule

214; (b) a statement of income and donations received and moneys paid; (c) a list of donees and

beneficiaries with full addresses; and (d) a statement showing the money set apart or kept un-

utilized with reasons thereof.

During the Scrutiny of income tax assessment record of M/S MIAN MUKHTAR A SHEIKH

TRUST NTN 3351392-9 deriving income from providing services of SOCIAL WORK

ACTIVITIES WITHOUT ACCOMMODATION it was observed that above tax payer got

approval of NPO u/s 2 (36) w e f 13.05.2011. He submitted return for the tax year 2012 but did

not submit the documents as required by law. The taxpayer received donations and made

donations without any evidence. He was therefore not entitled to benefit of NPO. In the absence

of above documents he was liable to pay tax. This resulted in non realization of income taxamounting to Rs.49.917 million during TY 2012. As detailed below:

Donations made Rs. 142,619,102/-

Income Tax @ 35 % Rs.49, 916,686/-

It was pointed out in July and August 2013, with the request that government revenue may be

recovered along with default surcharge and penalty under intimation to audit but no reply has yet

been received.

(Para # 05/AO # 20/IT)

Director



9/47

Subject: Non recovery of Withholding tax of Rs. 11.988 million

As per section 153 of Income Tax Ordinance 2001, Every prescribed person making a payment

in full or part including a payment by way of advance to a resident person or permanent

establishment in Pakistan of a non-resident person for the sale of goods, for the rendering of or

providing of services; and on the execution of a contract, other than a contract for the sale of

goods or the rendering of or providing services, shall, at the time of making the payment, deduct

tax from the gross amount payable (including sales tax, if any) at the rate specified in Division

III of Part III of the First Schedule.

During the scrutiny of income tax record of RTO, Multan it was observed that M/s YOUSAF

OIL MILLS (PRIVATE) LIMITED, bearing NTN 3901049 deriving income from

manufacturing oil products, submitted income tax return for the tax year 2012. The tax payer

declared purchases of various items but with holding tax was not recovered and deposited as

required under the law. This resulted into non recovery of Withholding Tax of Rs. 11.988

million.




(Para # 08/AO # 08/IT)

Director


Subject: Non realization of Income tax amounting to Rs.1.045 million

According to Rule 217 (b) (vi)of Income Tax Rules 2002, The Commissioner may, at any time

withdraw approval granted under rule 212, if he is satisfied that the organization has failed to file the

return of income supported with (a) the statement of audited balance sheet and statement of accounts as

mentioned in clause (d) of sub-rule (2) of rule 211 (b) statement showing names and addresses of the

persons from whom donations, contributions, subscriptions etc exceeding Rs. 5,000/- have been received


10/47

during the tax year; (c) statement showing the names and addresses of donees and beneficiaries etc to

whom payments, services etc exceeding Rs. 5,000/- have been made during the tax year.

During the Scrutiny of income tax exemption record of M/S MADADGAR WELFARE SOCIETY

1744266-4 deriving income from services of OTHER SOCIAL WORK ACTIVITIES subject to final

tax it was observed that above tax payer got approval of NPO u/s 2 (36) for the period ending

31.12.2003. No further approval was granted. He was non filer since then till tax year 2010. The

taxpayer submitted income tax return for the tax year 2011 and 2012 but did not submit the documents

as required by law. He was therefore not entitled to benefit of NPO. In the absence of approval and

above documents he was liable to pay tax. This resulted in non realization of income tax amounting to

Rs. 1.045 million during TY 2012. As detailed below:

Tax year Declared Receipts Tax payable @ 6%2011 8,533,138 5119882012 8,886,2 52 533175

Total 1045163

It was pointed out in July and August 2013, with the request that matter may be investigated under the

law and government revenue recovered along with default surcharge and penalty under intimation to

audit but no reply was received till finalization of draft para.

(Para # 13/AO # 23/IT)

Deputy Director


11/47


Subject: Nonpayment of income tax Rs. 185.945 million

According to section 111 of Income Tax Ordinance 2001, Where any amount is credited in a

persons books of account or a person has made any investment or is the owner of anymoney or

valuable article or a person has incurred any expenditure, and the person offers no explanation

about the nature and source of the amount credited or the investment, money, valuable article, or

funds from which the expenditure was made or the explanation offered by the person is not, in

the Commissioners opinion, satisfactory, the amount credited, value of the investment, money,



explained. The amount referred above shall be included in the persons income chargeable to taxin the tax year to which such amount relates.

Contrary to the above, it was observed during scrutiny of the Income Tax Record in respect of

M/S Agri International bearing NTN No. 2222859-4 deriving income from manufacture of

pesticides and other agrochemical that the tax payer conducted sufficient business during the

year 2009 as per soft data of sales tax returns but he did not submit Income tax return. This

resulted in nonpayment of income tax of Rs. 185.945 million for FY 2008-09.

It was pointed out in July and August 2013, with the request that matter may be investigated as

per law and government dues recovered along with penalty and default surcharge under

intimation to Audit but no reply was received till finalization of draft para.

(Para # 02/AO # 26/IT)

Deputy Director


12/47


Subject: Inadmissible payment of refund of income tax Rs. 0.604 million

According to section 234A (3) and (4) of Income Tax Ordinance 2001, the tax collected under

this section shall be a final tax on the income of a CNG station arising from the consumption of

the gas referred to in sub-section (1) and the taxpayers shall not be entitled to claim any

adjustment of withholding tax collected or deducted under any other head, during the tax year.

Contrary to the above, it was observed during scrutiny of the refund of Income Tax Record of

Regional Tax Office, Multan that two taxpayers deriving income from running a CNG Pump

claimed refund of income tax for the tax year 2012. A refund sanctioning authority of RTO

Multan sanctioned refund order u/s 170(4) against the un-adjustable withholding taxes. Thisresulted in inadmissible payment of income tax refund of Rs.0.604 million

It was pointed out in July and August 2013, with the request that matter may be probed into and

government dues recovered along with penalty and default surcharge under intimation to Audit

but no reply was received till finalization of draft para.

(Para # 15)

Deputy Director


13/47


Subject: Short realization of Income tax amounting to Rs.3.388 million

As per section 113 (1) of Income Tax Ordinance, 2001, a company, an individual (having

turnover of fifty million rupees or above in the tax year 2009 or in any subsequent tax year) and

an association of persons (having turnover of fifty million rupees or above in the tax year 2007

or in any subsequent tax year) where, for any reason whatsoever allowed under this Ordinance,

including any other law for the time being in force (a) loss for the year; (b) the setting off of a

loss of an earlier year; (c) exemption from tax; (d) the application of credits or rebates; or (e) the

claiming of allowances or deductions (including depreciation and amortization deductions) no

tax is payable or paid by the person for a tax year or the tax payable or paid by the person for a

tax year is less than one percent of the amount representing the persons turnover from all

sources for that year, shall pay minimum tax accordingly

Contrary to the above provisions of law, scrutiny of income tax assessment record of certain

taxpayers falling under the jurisdiction of Regional Tax Office, Multan deriving income from

various categories submitted Income tax return for the tax year 2011, it was noticed that the

taxpayer paid tax on net profit which was less than one person of turnover. The lapse resulted in

to short realization of Income tax amounting to Rs. 3.388 million during tax year 2012.

The matter was pointed out during audit in July, August, 2013, with the request that government

revenue may be recovered along with default surcharge under intimation to audit. Reply was not

furnished by the department till finalization of the draft para

(Para # 10)

Deputy Director


14/47


Subject: - Loss of Govt revenue due to Inadmissible issuance of Exemption Certificates u/s

151/159 due to non withdrawal of Approval granted u/s 2 (36).

According to clause (b) (vi) & (vii) of Rule 217 (1) of Income Tax Rules 2002, The Commissionermay, at any time, withdraw approval granted under rule 212, if he is satisfied that the organization has

failed to file the return of income supported with following documents (a) the statement of audited

balance sheet and statement of accounts as mentioned in clause (d) of sub-rule (2) of rule 211; (b)

statement showing names and addresses of the persons from whom donations, contributions,

subscriptions etc exceeding Rs. 5,000/- have been received during the tax year; (c) statement showing

the names and addresses of donees and beneficiaries etc to whom payments, services etc exceeding Rs.

5,000/- have been made during the tax year; and (d) statement showing the money set apart or kept un-

utilized with reasons thereof; and failed to provide a detailed performance evaluation report in terms of

clause (g) of sub-rule (2) of rule 211, after every three years.

During the scrutiny of income tax exemption certificates file of M/S Munir Arshad Memorial Trus

NTN Nil (MAMT) non profit welfare Trust working for education and vocational training of poor

children in rural areas it was observed that above tax payer was approved NPO u/s 2 (36) of the Income

Tax Ordinance 2001as per RTO record. He had no NTN since 2008 as per documents placed in file. He

never submitted income tax returns supported by documents required under rule 217 of Income TaxRules. Thus he was not entitled to benefit of NPO u/s 2 (36) and liable to pay tax. This resulted in to loss

of Govt revenue due to inadmissible issuance of exemption certificates u/s 151/159 due to non

withdrawal of approval granted u/s 2 (36) during last many years.

It was pointed out in July and August 2013, with the request that matter may be investigated; exemption

certificates and approval of NPO may be withdrawn under the law and government revenue recovered

along with default surcharge and penalty under intimation to audit but no reply was received till the

finalization for draft para.

(Para # 19/AO # 24/IT)

Deputy Director


15/47


Subject: - Non e-filing of I T returns, audited accounts and statements u/s 165.

According to clause (b) (vi) & (vii) of Rule 217 (1) of Income Tax Rules 2002, The

Commissioner may, at any time, withdraw approval granted under rule 212, if he is satisfied that

the organization has failed to file the return of income supported with following documents (a)

the statement of audited balance sheet and statement of accounts as mentioned in clause (d) of

sub-rule (2) of rule 211; (b) statement showing names and addresses of the persons from whom

donations, contributions, subscriptions etc exceeding Rs. 5,000/- have been received during the

tax year; (c) statement showing the names and addresses of donees and beneficiaries etc to whom

payments, services etc exceeding Rs. 5,000/- have been made during the tax year; and (d)

statement showing the money set apart or kept un-utilized with reasons thereof; and failed to

provide a detailed performance evaluation report in terms of clause (g) of sub-rule (2) of rule

211, after every three years;

During the scrutiny of case file of Approvals of NPOs under jurisdiction of RTO certain

organizations it was observed that NPO approvals were granted u/s 2 (36) to certain

organizations during FY 2011. The NTN number was neither submitted by organizations nordemanded by commissioner at the time of approval. The organizations did not e-filed income tax

returns, audited accounts and monthly & annual statements u/s 165 for the tax year 2012.


approvals of NPO may be withdrawn under the law and government revenue assessed and

recovered along with default surcharge and penalty under intimation to audit but no reply was

received till finalization of draft para.

(Para # 21/AO # 34/IT)

Deputy Director


16/47


Subject: Short levy of Withholding Tax -Rs. 0.182 million

According to the section 234A of Income Tax Ordinance 2001, there shall be collected advance

tax at the rate of four percent of the amount of gas bill of a Compressed Natural Gas station. The

law is further explained by the FBR vide circular No. 01 of 2007 dated 02.07.2007, all gas

marketing companies shall collect advance tax at the rate of 4% of the amount of gas bill with

effect for first day of July 2007. The tax so collected will be final tax on the income of CNG

stations operators arising from sale of gas. Further, CNG station operators will not be entitled to

claim any adjustment of withholding tax collected or deducted under any other head during a tax

year. The provisions of this section shall be applicable from the year 2008.

During audit scrutiny of Income Tax Refund Record of RTO, Multan it was observed that M/s

Tuman Enterprises (Pvt) Ltd NTN 2821701-2 deriving income from running a CNG station short

paid 4% withholding income tax on gas bills amounts.


government revenue may be recovered along with default surcharge and penalty under intimation

to audit but no reply was received till finalization of draft para.

(Para # 18/AO # 15/IT)

Deputy Director


17/47


Subject: - Inadmissible grant of Approval of NPO

According to Rule 213 (1) of Income Tax Rules 2002, (1) the approval shall not be granted if the

constitution, memorandum and articles of association, trust deed, rules and regulations or bye-

laws, as the case may be, specifying the aims and objects of the organization do(es) not provide -

(a) for the audit of the annual accounts of the organization every year by a qualified accountant

as specified in clause (f) of sub-rule (2) of rule 211.

During the scrutiny of case file of Approval of Non profit Organization u/s 2 (36) of the Income

Tax Ordinance 2001 in r/o M/S Renewable Energy Society for Education, Awareness, Research

and Community Help bearing NTN 3776234 it was observed that no documents as requiredunder law was provided as envisaged from check list placed in file. An authority under RTO

Multan granted approval of NPO without verification vide Approval No.CIR/Zone-II/MN/1553

dated 22ndSeptember 2011. In the absence of documents the taxpayer was not entitled to benefit

of NPO and liable to pay tax. Further, the taxpayer has not e-filed income tax return and monthly

& annual statements u/s 165 for the tax year 2012. This resulted in to inadmissible grant

Approval of NPO during FY 2012-13.


approval of NPO may be withdrawn under the law and government revenue assessed and

recovered along with default surcharge and penalty under intimation to audit but no reply was

received finalization of draft para.

(Para # 20/AO # 33/IT)

Deputy Director


18/47


Subject: Short payment of income tax of Rs.0.348 million

As per section 153 (6) of Income Tax Ordinance 2001, the tax deducted under this section shall

be a final tax on the income of a resident person arising from transactions referred to in sub-

section (1) or (1A):Provided that sub-section (6) shall not apply to companies in respect of

transactions referred to in clause (b) of sub-section (1) Provided further that this sub-section shall

not apply to payments received on account of-(i) advertisement services, by owners of

newspapers and magazines;(ii) sale of goods and execution of contracts by a public company

listed on a registered stock exchange in Pakistan and (iii) the rendering of or providing of

services referred to in sub-clause (b) of sub-section (1): Provided that tax deducted under sub-

clause (b) of subsection (1) of section 153 shall be minimum tax.

During audit scrutiny of income tax record of RTO, Multan, it was observed that M/S

AABPARA PRIVATE LIMITED bearing NTN No. 3362037-7 deriving income from other

personal service activities n.e.c. adjusted final tax of Rs.204000 and Rs.144000 during the tax

year 2011 and 2012 respectivelyagainst tax payable as evident from Annex C. As the tax on

services was minimum tax, therefore, adjustment was unlawful which resulted into shortpayment of income tax of Rs.0.348million.


government dues recovered along with penalty and default surcharge under intimation to Audit

but no reply was received till finalization of draft para.

(Para # 16/AO # 04/IT)

Deputy Director


19/47


Subject: Short realization of I Tax amounting to Rs. 4.629 million

Under section 113 (1) (e) if after the claiming of allowances or deductions (including

depreciation and amortization deductions) no tax is payable or paid by the person for a tax yearor the tax payable or paid by the person for a tax year is less than one per cent of the amount

representing the persons turnover from all sources for that year, one half percent of the persons

turnover income tax shall be payable.

During the course of audit of income tax refund of R T O Multan it was observed that M/s Hi-

Tech Edible Oil Mills, (AOP) NTN. 2459120-3 deriving income from operation of solvent

extraction plant claimed refund for tax year 2007, 2008, 2009 & 2010. As per copy of income tax

returns submitted to RTO Multan for refund the returns had been filed to RTO Lahore. Further

the tax payer misstated its status (AOP) as he had got incorporation since 08.02.2002 and its

actual status was company according to Registration Application available on FBR website. He

was therefore liable for e-filing return since 2007. As per soft data the taxpayer e-filed for tax

year 2009, 2010, 2011 and 2012 by declaring status as company on main return. However, he

avoided writing (Pvt) Ltd on main page of returns but correctly declared (Pvt) Ltd on Annex- B

of returns. The difference in returns available in soft data and those submitted as hard copy for

refund reveals that tax payer has knowingly misstated to avoid minimum tax and overstate its

refund. A Refund sanctioning authority haphazardly sanctioned refund for the tax years 2007,

2008, 2009, and 2012 on27.3.2013, for tax year 2010 on 17.08 2012 and tax year 2011 on 14.01

2013. The above miss declarations and thereby non charging of minimum tax u/s 113 (1) (e)

resulted into excess payment of refund amounting to Rs. 4.629 million.

It was pointed out in October and November 2013, with the request that government revenue

may be recovered along with default surcharge and penalty besides fixing responsibility under

intimation to Audit but no reply received so far.

(Para # 11/AO # 29/IT )

Deputy Director


20/47


Subject: SHORT PAYMENT OF INCOME TAXOF RS. 2.706 MILLION

As per section 9 and 10 of The Income Tax Ordinance 2001, the taxable income of a person for a

tax year shall be the total income of the person for the year and the total income of a person for a

tax year shall be the sum of the persons income under each of the heads of income for the year.

During audit scrutiny of Income Tax Refund Record of RTO Multan, it was observed that M/S

Union Cotton & Pressing Factory Pakpattan Road Sahiwal, bearing NTN.2344707-9 deriving

income from other Manufacturing N.E.C. submitted Income tax return/statement for the tax year

2009 and 2010 under FTR but income tax was not charged on other source income. This resulted

into short payment of Income tax amounting to Rs.2.706 million.


may be recovered along with default surcharge and penalty under intimation to audit but no reply

received so far.

(Para # 14/AO #07/IT)

Deputy Director


21/47


Subject: Loss of government dues amounting to Rs. 76.244 million

As per section 111 of Income Tax Ordinance 2001, Where any amount is credited in a persons

books of account or a person has made any investment or is the owner of any money or

valuable article or a person has incurred any expenditure, and the person offers no explanation

about the nature and source of the amount cred1ctited or the investment, money, valuable

article, or funds from which the expenditure was made or the explanation offered by the person

is not, in the Commissioners opinion, satisfactory, the amount credited, value of the

investment, money, value of the article, or amount of expenditure shall be included in the

persons income chargeable to tax under head Income from Other Sources to the extent it is

not adequately explained. The amount referred above shall be included in the persons income

chargeable to tax in the tax year to which such amount relates.

During audit scrutiny of income tax record of RTO, Multan, in respect of certain registered

persons deriving income from manufacturing, the taxpayers had concealed its sales/purchase

etc to avoid the due income tax recoverable. This resulted in Loss of government dues

amounting to Rs. 76.244 million

It was pointed out in October and November 2013, with the request that matter may be probed

into and government dues recovered along with penalty and default surcharge under intimation

to Audit but no reply received so far.

(Para # 02, 04, 07, 15, 19 & 21)

Deputy Director


22/47


23/47


Subject: Un authorized payment of refund of income tax of Rs. 0.165 million

According to rule 73 (2E) of Income Tax Rules 2002, from tax year 2009 onward, wherever

refund of tax is claimed in a non-company case, income tax return shall be filed electronically,and in all cases, whether relating to a company or a non-company, electronic filing of refundapplication as prescribed in Part-IV of the First Schedule shall be mandatory.

During the course of audit of Regional Tax Office, Multan it was observed that income tax refund was sanctioned in respect of certain taxpayers filed refund applications electronically tothe Commissioner IT, other than RTO Multan. But the refund sanctioning authority of RTO,Multan misused its authority and sanctioned refund to the claimant (without having thejurisdiction of same) amounting to Rs. 0.165 million. The FBR spent millions of rupees onautomation in shape of TARP (US$ 149 million project) etc, but the refund payment system ofincome tax was still being operated through manual processing and refund payment orders

prepared and issued manually. No central monitoring system in Income Tax Refund was invogue as available in Sales tax Refunds such as STARR, which was being processed throughautomation since last ten years (through STARR) and cheques were issued after electronicgeneration of RPOs which minimized the chances of duplication and inadmissible payments ofSales Tax Refunds.

It was pointed out in October and November 2013, with the request that position may be justifiedor government revenue may be recovered along with default surcharge and penalty underintimation to Audit or concerned regularity RTO should be informed regarding this issue ofrefund but no reply received so far.

(Para # 22)

Deputy Director


24/47


Subject: Short payment of Income Tax-Rs.1.071 million due to Irregular reduction in

tax rate.

Under section 113 (1) (e) if after the claiming of allowances or deductions (includingdepreciation and amortization deductions) no tax is payable or paid by the person for a tax yearor the tax payable or paid by the person for a tax year is less than one per cent of the amountrepresenting the persons turnover from all sources for that year, one percent of the personsturnover income tax shall be payable. Read with clause 10 of Part-III of Second Schedule ofIncome Tax Ordinance 2001.

During the course of audit of record of Regional Tax Office, Multan it was observed thatMr. MUHAMMAD RAMZAN owner of M/s RUSTAM REHMAN FLOUR & G.MILL NTN0123958-9 deriving income from MANUFACTURE OF OTHER FOOD PRODUCTS N.E.C.,did not pay the minimum tax payable under section 113. In the disguise of flour mill the taxpayer

has claimed reduction of minimum tax liability, whereas he was doing the business of foodproducts. The taxpayer has claimed the business loss of Rs. -1,325,380/- for the Tax year 2010,Rs. -7,442,634 for the tax year 2011 and Rs. 595,762/- for the tax year 2012. On the other handhe was making fresh investment of Rs.1,000,000/- as a partner in AOP M/s MITHA MADNIRICE PROCESSING MILLS. Further investment of the taxpayer is clear evidence that he wasdoing business other than flour mills and concealing its sales and income to avoid the incometax. This resulted into short payment of income tax amounting to Rs. 1.071 million.

It was pointed out in October and November 2013, with the request that matter may beinvestigated through investigative audit from I&I and loss of government revenue may berecovered along with default surcharge and penalty under intimation to audit but no reply

received so far. (Para # 17/AO # 31/IT)

Deputy Director


25/47


Subject: Irregular payment of refund of income tax amounting to Rs. 0.461million

According to section 12 (2) (g) of Income Tax Ordinance 2001, salary means any amountreceived by an employee from any employment, whether, of revenue or capital nature including,

any amount chargeable to tax as Salary under section 14.

During audit scrutiny of Income Tax Record of Regional Tax Office, Multan it was observed that

certain taxpayers have received the compensation on reinstatementon its reinstatement as

management trainee in supernumerary post. The claimant was not received the amount as arrears

of pay nor the claimant had rendered the services against the same. This resulted into irregular

refund of income tax amounting to Rs.0.461 million

It was pointed out in October and November 2013, with the request that position may be justified

or government revenue may be recovered along with default surcharge and penalty under

intimation to audit but no reply received so far.

(Para # 20)

Deputy Director


26/47


Subject: Non levy of Workers Welfare Fund amounting to Rs. 10.876 million

According to section 4 (1) of Workers Welfare Fund Ordinance 1971, every industrialestablishment the total income of which in any year of account is not less than five lakh of rupees

shall pay to the Fund in respect of that year a sum equal to two per cent of its total income. As

per section 2 (i) and (ii) of above ordinance where return is required, the profit before taxation or

provision for taxation as per accounts or the declared income as per the return of income,

whichever is higher; and (ii) where Return of Income is not required to be filed, the profit before

taxation or provision for taxation as per accounts or four per cent of the receipt as per the

statement filed under section 115 of the Ordinance, whichever is higher.

During audit scrutiny of Income Tax Record of RTO Multan in respect of certain cotton ginners,

it was observed that taxpayer submitted income tax returns but Workers Welfare Fund was not

charged and recovered. This resulted into non levy of Worker Welfare Fund amounting to Rs.

10.876 million


may be recovered along with default surcharge and penalty under intimation to Audit but noreply received so far.

(Para # 08 & 18)

Deputy Director


27/47


Subject: Non recovery of Income Tax Rs. 3.459 million

As per rule 73(2C) of Income Tax Rules 2002, in case a person registered for sales tax,

electronic filing of income tax return shall be mandatory from the first day of July 2009 onwards.

Contrary to above, M/s Union Soap Factory (AOP) NTN 0459173 STRN 0410152200191, was

registered for Sales Tax but had not submitted its income tax returns electronically nor paid due

income tax. This resulted into non recovery of income tax of Rs. 3.459 million.

It was pointed out in October and November 2013, with the request that government dues may

be recovered along with penalty and default surcharge under intimation to Audit but no reply

received so far.

(Para # 13/AO # 39/IT)

Deputy Director


Subject: Non Recovery Of Income Tax Amounting To Rs. 19.011 Million

According to clause (l) of section 21of Income Tax Ordinance 2001,no deduction shall beallowed in computing the income of a person under the head Income from Business for anyexpenditure for a transaction, paid or payable under a single account head which, in aggregate,exceeds fifty thousand rupees, made other than by a crossed cheque drawn on a bank or bycrossed bank draft or crossed pay order or any other crossed banking instrument showing transferof amount from the business bank account of the taxpayer.

Contrary to the above, a tax payer M/s Kanzo AG NTN 2240324- falling under the jurisdictionof RTO, Multan declared purchase of seed of Rs. 76,044,192 during Tax Year 2012 under asingle account head vided D.C.R. No 4/41 order u/s 161/205 dated 15.02.2013 which, inaggregate, exceeded fifty thousand rupees The purchases were made other than by a crossedcheque drawn on a bank or by crossed bank draft or crossed pay order or any other crossedbanking instrument showing transfer of amount from the business bank account of the taxpayer.This resulted in non recovery of Income Tax amounting to Rs. 19.011 million (@25% ofRs.76,044,192/-)


28/47

The matter was pointed out in October and November 2013, with the request that record relatingto section 21 (l) of income tax ordinance 2001 and section 73 of sales tax act 1990 may beprovided to evaluate the correct sales and purchase or government dues may be recovered underintimation to Audit but no reply was received till finalization of DRAFT PARA.

. (Para # 14/AO # 59/IT)

Deputy Director


29/47


Subject: Non recovery of Income Tax Rs. 8.784 million

As per rule 73(2C) of Income Tax Rules 2002, in case a person registered for sales tax,

electronic filing of income tax return shall be mandatory from the first day of July 2009 onwards.

Contrary to the above, a tax payer Mr. Ch. Muhammad Rafiq proprietor of M/s Saleem SoapFactory NTN 0126694 STRN 0407152201882, falling under the jurisdiction of RTO, Multanwas registered for Sales Tax but he neither submitted income tax returns electronically nor paiddue income tax. This resulted into non recovery of income tax of Rs. 8,784,281/-.

The matter was pointed out in October and November 2013, with the request that governmentdues may be recovered along with penalty and default surcharge under intimation to Audit but noreply was received till finalization of DRAFT PARA..

(Para # 16/AO # 45/IT)

Deputy Director


30/47


Subject: Short levy of income tax of Rs. 3.037 million due to incorrect apportionment

of expenses between Normal and FTR sales

As per section 67 of Income Tax Ordinance where expenditure relates to the derivation of morethan one head of income the expenditure shall be apportioned on any reasonable basis takingaccount of the relative nature and size of the activities to which the amount relates. As persection Rule 13 (1) of Income Tax Rules 2002 (2) an expenditure that is incurred for a particularclass or classes of incomes hall be allocated to that class or classes as the case may be. FBRcircular No.12 of 1991 provides that manufacturing and P&L expenses be prorated in the ratio ofsales to determine taxable income.

Contrary to the above, that certain taxpayers falling under the jurisdiction of Regional TaxOffice, Multan had not apportioned expenses correctly between normal sales and FTR saleswhich resulted into short levy of income tax of Rs. 3.037 million

The matter was pointed out in October and November 2013,with the request that either positionmay be justified or government revenue recovered along with penalty and default surcharge under

intimation to Auditbut no reply was received till finalization of DRAFT PARA..

(Para # 23)

Deputy Director


31/47


Subject: Loss of government dues-Rs. 2,392.211 million due to unexplianed expenses









explained. The amount referred above shall be included in the persons income chargeable to taxin the tax year to which such amount relates.

Contrary to the above, certain taxpayers deriving income from various sources, falling under

jurisdiction of Regional Tax Office, Multan, incurred expenses on purchases, electricity and

telephone bills during different tax years. Their cash withdrawals were more than declared

expenses. Some taxpayers understated their sales in the income tax record, made investments

without declaring the source, or had unexplained stocks which resulted in loss of government

dues amounting to Rs. 2,392.211 million

The matter was pointed out in October and November 2013, with the request that government

dues may be recovered along with penalty and default surcharge under intimation to Audit but no

reply was received till finalization of DRAFT PARA.

(Para # 01,04,05,06,08,10,11,12,13&28)

Deputy Director


32/47


Subject: Illegal refund of I Tax and penalty amounting to Rs. 48.177 million

Under section 113 (1) (e) if after the claiming of allowances or deductions (including

depreciation and amortization deductions) no tax is payable or paid by the person for a tax yearor the tax payable or paid by the person for a tax year is less than one per cent of the amountrepresenting the persons turnover from all sources for that year, one half percent of the persons

turnover income tax shall be payable.

Contrary to the above, it was observed during the course of audit of income tax refund of RTO,Multan that M/s Hi-Tech Edible Oil Mills, (AOP) NTN. 2459120-3 deriving income fromoperation of solvent extraction plant claimed refund for income tax for tax year 2012. Theminimum tax rate of 0.50% was substituted in Finance bill budget 2012 which was notapplicable for the tax year 2012. The taxpayer knowingly/fraudulently claimed 50% reduction inminimum tax liability. A refund sanctioning authority calculated turnover tax @ 0.50% instead

of 1% vide refund order issued under section 170(4). The above miss declarations and un-authorized reduction in rate of minimum tax caused illegal refund of income tax amounting toRs. 10,839,086/- which also attracts 100% penalty u/s 182 (1) serial number 10 of the tableaggregating to Rs. 21.678 million.

During discussion a judgment of Commissioner (Appeal-I), Lahore Order No. 30 dated28.05.2013 in respect of M/s Poly Pack (Pvt) Ltd was referred in support of application of taxrate @0.50% which declared that changes in Finance Act will be implemented in the same taxyear which is not tenable in audit. If so not only the taxpayer failed to pay the minimum tax ofRs.26.499 million but also a large number of individuals and AOPs failed to pay the minimumtax of billions of rupee for the tax year 2010. Aggregating revenue involved for the tax year 2010

& 2012 comes to Rs. 48.177 million

It was pointed out in October and November 2013, with the request that government revenuemay be recovered along with default surcharge and penalty besides fixing responsibility underintimation to audit but no reply received till finalization of draft para.

(Para # 03&05/AO # 30/IT&40/IT)

Deputy Director


33/47


Subject: Inadmissible adjustment of input tax of RS.2.485 million due to irregular

application of reduced tax rate

According to clause (10) of Part III of Second Schedule to the Income Tax Ordinance 2001, forcases of flour mills the rate of minimum tax on the amount representing their annual turnoverunder section 113 shall be reduced by eighty percent.

Contrary to the above, a tax payer M/S LYLA IRSHAD FLOUR & GENERAL MILLS CHAHJAMU WALA, CHOWK, SHAH ABBAS, MULTAN CITY bearing NTN No. 3668002-8deriving income from other manufacturing n.e.c falling under the jurisdiction of RTO, Multanavailed facility of 80 % reduction in tax rate. As the taxpayer was a combined unit of flour &general mills therefore he was not entitled to above facility. This resulted into short payment ofIncome tax of Rs.2.485million during FY 2011 and 2012 as detailed below:

Tax due for TY 2011 Rs.1487855. Paid Rs.297571 Short paid Rs.1190284+15% surcharge 50075= Rs.1242359

Tax due for TY 2012 Rs.1507191 Tax paid Rs. 301438. Tax short paid = Rs.1205753Total = Rs.2484718

The matter was pointed out in October and November 2013, with the request that matter may beprobed into and government dues recovered along with penalty and default surcharge underintimation to Audit but no reply was received till finalization of draft para.

(Para # 24/AO # 03/IT)

Deputy Director


34/47


Subject: Short payment of Income Tax - Rs. 5.635 million

According to section 15 (1) of Income Tax Ordinance 2001, the rent received or receivable by a

person for a tax year, other than rent exempt from tax under this Ordinance, shall be chargeable

to tax in that year under the head Income from Property.

Contrary to the above, a tax payer M/s Reliance Commodities (Pvt.) Limited NTN 1334812-4

falling under the jurisdiction of RTO, Multan short paid the income tax on property income as

required under law. This resulted into Short payment of Income Tax - Rs. 5.635 million

The matter was pointed out in October and November 2013, with the request that matter may be

investigated through I&I to evaluate the correct income and report to Audit along with recovery

of government dues but no reply was received till finalization of DRAFT PARA.

(Para # 20/AO # 43/IT)

Deputy Director


35/47


Subject: Short payment of income tax of Rs. 0.818 million due to concealment of

export

According to Division IV, Part III of 1stSchedule to The Income Tax Ordinance 2001, the rate of

tax to be deducted under sub section (1), (3), (3A), (3B) or (3C) of section 154 shall be 1 % of

the proceeds of the export.

Contrary to the above, M/S MULTAN RICE MILLS MUNEER ABAD, BAHAWALPUR

ROAD, MULTAN CITY (AOP) bearing NTN No.2478053-7 deriving income from OTHER

MANUFACTURING N.E.C. falling under the jurisdiction of Regional Tax Office, Multan

submitted Income Tax Return for the tax year, 2011and declared total export Rs.113137720/-and paid 1% tax Rs.1131377/-. On the other hand, as per ITMS data the export sales was

Rs.194954260/-. This resulted into short payment of income tax of Rs.0.818 million, whereas

department had not taken any corrective measure required under the rules.


probed into and government dues recovered along with penalty and default surcharge under

intimation to Audit but no reply was received till finalization of draft para.

(Para # 27/AO # 30/IT)

Deputy Director


36/47


Subject: Inadmissible payment of refund of income tax Rs.0.233 million againstfinal tax

According to section 234A (3) and (4) of Income Tax Ordinance 2001, the tax collected underthis section shall be a final tax on the income of a CNG station arising from the consumption of

the gas referred to in sub-section (1) and the taxpayers shall not be entitled to claim any

adjustment of withholding tax collected or deducted under any other head, during the tax year.

Contrary to the above, a refund sanctioning authority of RTO Multan sanctioned refund of

Rs.233,294/- in respect of M/S KARMANWALAY CNG G T ROAD, MIAN CHANNU NTN

1140401 deriving income from running a CNG Pump vide Book No.400 dated 29.6.2012. This

resulted into inadmissible payment of income tax refund of Rs.0.233 million.


probed into and government dues recovered along with penalty and default surcharge and refund

claimed in the following tax years may be rejected under intimation to Audit but no reply was

received till finalization of draft para.

(Para # 29/AO # 34/IT)

Deputy Director


37/47


Subject: Un authorized payment of refund of income tax of Rs. 4.927 million dueto weak internal control

According to rule 73 (2E) of Income Tax Rules 2002, from tax year 2009 onward, whereverrefund of tax is claimed in a non-company case, income tax return shall be filed electronically,and in all cases, whether relating to a company or a non-company, electronic filing of refundapplication as prescribed in Part-IV of the First Schedule shall be mandatory.

Contrary to the above, income tax refund was sanctioned beyond jurisdiction by an authorityfalling under the jurisdiction of Regional Tax Office, Multan, in respect of certain taxpayers whofiled refund applications electronically to the Commissioners IR, other than RTO Multan. TheFBR spent millions of rupees on automation in shape of TARP (US$ 149 million project) etc, butthe refund processing and refund payment orders were prepared and issued manually. No centralmonitoring system in Income Tax Refund was in vogue as available in Sales tax Refunds such as

STARR, which was being processed through automation since last ten years (through STARR)and cheques were issued after electronic generation of RPOs which minimized the chances ofduplication and inadmissible payments of Sales Tax Refunds. This resulted in to unauthorizedpayment of refund of income tax of Rs. 4.927 million

The matter was pointed out in October and November 2013, with the request that position maybe justified or government revenue recovered along with default surcharge and penalty underintimation to Audit and concerned regularity RTO should be informed regarding this issue ofrefund but no reply was received till finalization of draft para.

(Para # 22)

Deputy Director


38/47


Subject: Short realization of I Tax amounting to Rs. 9.621 million due toirregular application of reduced tax rate

Under section 113 (1) (e) if after the claiming of allowances or deductions (includingdepreciation and amortization deductions) no tax is payable or paid by the person for a tax yearor the tax payable or paid by the person for a tax year is less than one per cent of the amountrepresenting the persons turnover from all sources for that year, one percent of the persons

turnover income tax shall be payable. According to the section 182 Sr. # 10 Income TaxOrdinance 2001, makes a false or misleading statement either in writing or orally orelectronically including a statement in an application, certificate, declaration, notification, return,objection or other document including books of accounts made, prepared, given, filed orfurnished under this Ordinance; furnishes or files a false or mis-leading information or documentor statement either in writing or orally or electronically; omits from a statement made orinformation furnished, any matter or thing without which the statement or the information is

false or misleading in a material particular. Such person shall pay a penalty of twenty fivethousand rupees or 100% of the amount of tax shortfall whichever is higher. As per section 205income tax ordinance 2001, A person who fails to pay any tax, any penalty, or any amountreferred to in section 140 or 141, on or before the due date for payment shall be liable for defaultsurcharge at a rate equal to 18 percent per annum on the tax, penalty or other amount unpaidcomputed for the period commencing on the date on which the tax, penalty or other amount wasdue and ending on the date on which it was paid.

Contrary to the above, a tax payer M/s Crystal Feed Industry, (AOP) NTN 1017310-2 fallingunder the jurisdiction of RTO Multan deriving income from other manufacturing n.e.c.irregularly claimed 80% reduction in minimum tax liability for tax year 2011 due to missdeclarations. This resulted in to short payment of income tax amounting to Rs. 9.621 million.

The matter was pointed out in October and November 2013, with the request that position maybe justified or government revenue recovered under intimation to audit but no reply was receivedtill finalization of draft para.

(Para # 15/AO # 14/IT)

Deputy Director


39/47


Subject: IRREGULAR REDUCTION AND SHORT PAYMENT OF INCOME TAX-

RS. 248.899 MILLION

Under section 113 (1) (e) if after the claiming of allowances or deductions (includingdepreciation and amortization deductions) no tax is payable or paid by the person for a tax yearor the tax payable or paid by the person for a tax year is less than one per cent of the amountrepresenting the persons turnover from all sources for that year, one percent of the persons

turnover income tax shall be payable. According to S.R.O. 1153(I)/79, dated 10.12.1979, in thecase of all persons carrying on the business of rice husking, income year in respect of income

from such business for the purposes of their assessment for the years commencing on or after the1st day of July, 1980 to be the period of twelve months commencing on the 1 stSeptember ofeach year and ending on the 31stAugust of the succeeding year.

Contrary to the above, certain taxpayers falling under the jurisdiction of Regional Tax Office,

Multan short paid the turnover tax. This resulted into short payment of income tax amounting toRs. 248.899 million.

The matter was pointed out in October and November 2013 with the request that governmentrevenue may be recovered along with default surcharge and penalty under intimation to audit noreply was received till finalization of draft para.

(Para # 03)

Deputy Director


40/47


Subject: Nonpayment of 2% income tax of RS. 5.078 million on local purchases

According to clause 13C of Part II of Second Schedule to the Income Tax Ordinance 2001, In

respect of manufacturers of cooking oil or vegetable ghee or both, the rate of income tax onpurchase of locally produced edible oil shall be 2 % of the purchase price.

Contrary to the above, a tax payer M/s Qadir Ghee Industries (Pvt) limited chowk bcg, vehariroad, Multan, bearing NTN No. 3032068-2 deriving income from other manufacturing n.e.c.falling under the jurisdiction of RTO, Multan had not paid two percent Income Tax on the localpurchases. This resulted into nonpayment of income tax of Rs.5.078 million on local purchases,whereas department had not taken any corrective measure required under the rules.

The matter was pointed out in October and November 2013, with the request that matter may beprobed into and government dues recovered along with penalty and default surcharge under

intimation to Audit but no reply was received till finalization of draft para.(Para # 21/AO # 68/IT)

Deputy Director


41/47


Subject: Non recovery of withholding income tax of Rs. 7.373 million

According to sub section 1 of section 153 of Income Tax Ordinance 2001, every prescribed

person making a payment in full or part including a payment by way of advance to a residentperson or permanent establishment in Pakistan of a non-resident person (a) for the sale of goods;(b) for the rendering of or providing of services; and (c) on the execution of a contract, other thana contract for the sale of goods or the rendering of or providing of services shall, at the time ofmaking the payment, deduct tax from the gross amount payable (including sales tax, if any). Asper sub section 3 the tax deducted under clauses (a) and (c) of sub-section (1) and under sub-section (2) of this section, on the income of a resident person or permanent establishment of anon-resident person, shall be final tax. As per Sr. (1) of sub-section 7 of section 153 of Incometax Ordinance 2001, an individual, having turnover of fifty million rupees or above in the taxyear 2009 or in any subsequent year shall be prescribed person for recovery of withholdingincome tax.

Contrary to the above, a tax payer Mr. Ch. Muhammad Rafiq proprietor of M/s Saleem SoapFactory NTN 0126694 STRN 0407152201882, falling under the jurisdiction of RTO, Multanwas a prescribed person from tax year 2011 and liable to recover and deposit the withholding taxfrom its suppliers but he failed to do so. This resulted into non recovery of withholding incometax of Rs. 7.373 million.

The matter was pointed out in October and November, 2013 with the request that governmentdues may be recovered along with penalty and default surcharge under intimation to Audit but noreply was received till finalization of draft para.

(Para # 19/AO # 46/IT)

Deputy Director


42/47


Subject: Non levy of Workers Welfare Fund amounting to Rs. 391.159 million

According to section 4 (1) of Workers Welfare Fund Ordinance 1971, every industrial

establishment the total income of which in any year of account is not less than five lakh of rupees

shall pay to the Fund in respect of that year a sum equal to two per cent of its total income (i)

where return is required, the profit before taxation or provision for taxation as per accounts or the

declared income as per the return of income, whichever is higher; and (ii) where Return of

Income is not required to be filed, the profit before taxation or provision for taxation as per

accounts or four per cent of the receipt as per the statement filed under section 115 of the

Ordinance, whichever is higher.

Contrary to the above, certain taxpayers falling under the jurisdiction of Regional Tax Office,

Multan were deriving income from manufacturing but Workers Welfare Fund was not charged

and recovered which resulted into non realization of Worker Welfare Fund amounting to Rs.

391.159 million, whereas department had not taken any corrective measure required under the

rules.

The matter was pointed out in October and November 2013, with the request that government

dues may be recovered along with penalty and default surcharge under intimation to Audit but no

reply was received till finalization of draft para.

(Para # 02&18)

Deputy Director


43/47


Subject: Short payment of Income Tax - Rs. 49.871 million due to irregular reduction

in tax rate at import stage

According to section 148 of Income Tax Ordinance 2001, The Collector of Customs shall collectadvance tax from every importer of goods on the value of the goods at the rate specified in PartII of the First Schedule. As per section 169 of Income Tax Ordinance 2001, tax deducted atimport stage from commercial importer shall be final tax on the import.

Contrary to the above, a tax payer Mr. Malik Faisal Azeem proprietor of M/s PETCO and M/sMalik Enterprises NTN 1552581-3 and STRN 0490999920491, falling under the jurisdiction ofRegional Tax Office, Multan was dealing in commercial import of Plastic MouldingCompound and taking benefit of reduced tax rate at import stage in disguise of manufacturerand selling it in same state to various registered persons. He was also not paying any tax at thetime of commercial sales of same goods. The facility of reduced tax rate at import stage was

available only for in-house consumption by the industrial under taking. Moreover taxpayer wasirregularly adjusting the same and getting refund against final tax. Minimum consumption ofelectricity and gas was 30% of value of Plastic Moulding Compound in manufacturing but taxpayer was using 1.5 to 2% which was clear evidence that he was a commercial importer and nota manufacturer. This resulted into short payment of income tax of Rs. 49.871 million.

The matter was pointed out in October and November 2013 with the request that matter may beinvestigated to evaluate the correct sales and report to Audit along with recovery of governmentdues but no reply was received till finalization of draft para.

(Para # 09/Audit Observation No.56/IT)

Deputy Director


44/47


Subject: Inadmissible payment of refund of income tax Rs. 8.250 million againstminimum tax liability

According to section 153 (6) of Income Tax Ordinance 2001 the tax deducted under this sectionshall be a final tax on the income of a resident person arising from transactions referred to in sub-section (1) or (1A): Provided that sub-section (6) shall not apply to companies in respect oftransactions referred to in clause (b) of sub-section (1) Provided that tax deducted under sub-clause (b) of subsection (1) of section 153 shall be minimum tax on transactions referred to inclause (b) of sub-section (1).

Contrary to the above, certain taxpayers falling under the jurisdiction of Regional Tax Office,Multan were deriving income fromservices but a refund sanctioning authority sanctioned refundagainst minimum tax liability. This resulted into inadmissible payment of income tax refund ofRs. 8.250 million.

The matter was pointed out in October and November 2013, with the request that matter may beprobed into and government dues recovered along with penalty and default surcharge and refundclaimed in the other tax years may be rejected under intimation to Audit but no reply wasreceived till finalization of draft para.

(Para # 17)

Deputy Director


45/47


Subject: Nonpayment of income tax of Rs. 1.146 million

According to sub section 1 of section 153 of Income Tax Ordinance 2001, every prescribed

person making a payment in full or part including a payment by way of advance to a residentperson or permanent establishment in Pakistan of a non-resident person (a) for the sale of goods;(b) for the rendering of or providing of services; and (c) on the execution of a contract, other thana contract for the sale of goods or the rendering of or providing of services shall, at the time ofmaking the payment, deduct tax from the gross amount payable (including sales tax, if any). Taxdeducted in this way shall be final tax incase of individuals and AOPs.

Contrary to the above, certain taxpayers falling under the jurisdiction of Regional Tax Office,Multan were deriving income from manufacturing. As per sales tax record they were makingsupplies to prescribed persons and were liable to pay withholding tax @ 1% and 3.5%, whichwas final tax. But the buyers failed to deduct the withholding tax. This resulted into nonpayment

of income tax of Rs.1.146 million, whereas department had not taken any corrective measurerequired under the rules.

The matter was pointed out in October and November 2013, with the request that governmentdues may be recovered along with penalty and default surcharge under intimation to Audit but noreply was received till finalization of draft para.

(Para # 26)

Deputy Director


46/47


Subject: Non-payment of sales tax due to Non Registration - Rs. 18.451 million

According to Rule 4 of the Sales Tax Rules, 2006 issued vide SRO 555(I)/2006 dated

05.06.2006, the following persons engaged in making of taxable supplies in Pakistan (including

zero-rated supplies) in the course or furtherance of any taxable activity carried on by them, if not

already registered, are required to be registered in the manner specified in this Chapter, namely

(a) a manufacturer not being a cottage industry; (5AB) cottage industry means a manufacturer

whose annual turnover from taxable supplies made in any tax period during the last twelve

months ending any tax period does not exceed five million rupees or whose annual utility

(electricity, gas and telephone) bills during the last twelve months ending any tax period do not

exceed seven hundred thousand rupees.

During the course of audit of Regional Tax Office, Multan it was observed that income tax

refund was sanctioned to four taxpayers deriving income from manufacturing. The taxpayer,

submitted Income Tax Returns for various tax years, and declared supplies/gross receipts

exceeded five million rupees. As per soft data of FBR taxpayers not registered in sales tax

regime. Therefore, they were liable for sales tax registration and pay sales tax at statutory rates

on supplies/ gross receipts. This resulted into nonpayment of sales tax of Rs.18.451 million.

The lapse was pointed out in October and November 2013, with the request that the taxpayers

may be got registered, government dues recovered along with penalty and default surcharge, and

supplies of the following years determined under intimation to Audit but no reply received so far.

(Para # 29 & 33)

Deputy Director


47/47


Subject: Inadmissible payment of income tax refund of Rs.0.988 million

According to section 153 (6) of Income Tax Ordinance 2001 the tax deducted under this section

shall be a final tax on the income of a resident person arising from transactions referred to in sub-

section (1) or (1A): Provided that sub-section (6) shall not apply to companies in respect of

transactions referred to in clause (b) of sub-section (1) Provided that tax deducted under sub-

clause (b) of subsection (1) of section 153 shall be minimum tax.

Contrary to the above law, M/s ERECTION ENGINEERS PVT LTD bearing NTN No.

3245529-1 was deriving income from rendering/providing services to various companies.

Withholding tax of Rs.1,496,198/- deducted on services was minimum tax for companies. A

refund sanctioning authority sanctioned income tax refund of Rs.987677/- for the tax year 2011

after making adjustments vide DCR No.01/29 dated15/2/2013. This resulted into inadmissible

payment of income tax refund of Rs.0.988 million.

The lapse was pointed out in July and August 2013, with the request that matter may be probed

into and government dues recovered along with penalty and default surcharge under intimationto Audit but no reply received till finalization of draft para.

(Para # 14/AO # 18/IT)

Deputy Director

draft para no

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