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Criteria for selection & conduct of income tax audit

The Federal Board of Revenue (FBR) has issued a criteria for selection and conduct of income tax audit under Section 214C of the Income Tax Ordinance, 2001. The criteria have been given under the updated Income Tax Rules, 2002.

Selection and performance of audit.-

(1) This rule deals with cases for audit by the FBR under section 214C of the Income Tax Ordinance, 2001 (XLIX of 2001).

(2) The following steps shall be followed for computer ballot selection of cases for audit on the basis of random and parametric selection methods:

(a) data of all tax returns (manually or e-filed) shall be considered as a basic data;

(b) the Board shall before the process of balloting and selection decide the taxpayers which will be excluded from audit selection and such exclusions shall be issued each year on FBR’s web-site.

(c) cases excluded from selection of audit shall not be included in the data to be used for balloting;

(d) remaining data of cases shall be used for balloting for audit selection;

(e) for each tax year cases for audit shall be selected in accordance with the predetermined percentage and it will also be issued on the FBR’s website for information.

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(f) after computer ballot of audit cases, the lists of selected case shall be issued and placed on the FBR’s web-site;

(g) audit selection shall be based only on the NTNs/ CNICs of the filers;

(h) the NTNs and CNICs of the cases selected for audit shall be communicated to relevant RTOs and LTUs according to their respective jurisdictions;

(i) In case of parametric basis selection, risk parameters for taxpayers used for balloting, wherever necessary, determined by the Board, as under:-

(A) risk parameters for persons or classes of persons used for balloting shall be determined by the Board;

(B) audit selection parameters may be based upon the following:-

(I) financial ratios for the year viz a viz the history of the case;

(II) financial ratios viz a viz industrial, sectoral or national ratios;

(III) industrial comparisons or bench marks;

(IV) quantum of losses or refunds beyond certain thresholds; or

(V) compliance history; and

(j) computer balloting process in both categories of selection for audit held in the presence of representatives from Chambers of Commerce and Industries and representatives of Tax Bar Associations.

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A d v e r t i s e m e n t

(3) The cases selected for audit by the Board and processed and the Commissioner Inland Revenue concerned shall issue intimation letter to the taxpayer about the selection of his case for audit with the following details:-

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(a) section under which selection made;

(b) tax year for which the case selected for audit;

(c) mode of selection whether random or parametric;

(d) compliance requirements on the part of taxpayer e.g.-

(i) provision of prescribed books of accounts;

(ii) supporting information and documents, etc;

(iii) computerized data, access to computerized data or provision of attested hard copies of computerized data.

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(4) after examination of books of accounts and related documents or information under this rule. Along with the discrepancies, if found. Informed to the taxpayer for obtaining taxpayers’ explanation, in the form of audit report, taking taxpayer’s explanation on these points.

(5) Explanations of the taxpayer, if found not satisfactory, a notice to the taxpayer. Under section 122(9) of the Income Tax Ordinance, 2001 about the amendment in assessment. Assessment order passed u/s 122 after giving opportunity of hearing to the taxpayer.

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