Stage first Letter from FBR regarding WHT Audits.

Transcription

1 Income Tax Notice (WHT) Stage first Letter from FBR regarding WHT Audits. Subject: NOTICE UNDER RULE 44(4) OF INCOME TAX RULES 2002 READ WITH SECTION 182 OF THE INCOME TAX ORDINANCE, 2001 TAX YEAR 2014 Please refer to the subject. 2. Your statements under section 165 of the Income Tax Ordinance, 2001 have been examined. It has been observed that you have not submitted reconciliation statement under Rule 44(4) of the Income Tax Rules, 2002 to reconcile the payments under various heads mentioned in the statements under section 165 and the expenses claimed in the return of income. Please not that by way of the subject statements under rule 44(4), you are obliged to disclose the opening balances under each head, expenses incurred during the tax year, payments made out of the total of the former two figures and the closing balances. You are requested to submit the reconciliation statements under rule 44(4) by , failing which the statements under section 165 will be held incompetent and unreliable for rejection thereof and imposition of penalties under section 182 of the Income Tax Ordinance, Your Attention is drawn towards another discrepancy that you have not made disclosure of particulars of the recipients of payments, their identification and the disclosures as required in columns No. (15) to (18) of the statements under section 165 in respect of the payments made where tax deduction was not made. Please note that you are obliged to make such disclosure under the provisions of section 165 read with Rule 44(4); the relevant columns of the prescribed statement under section 165 are reproduced for your convenience as a ready reference as under: Reasons if Tax Not Deducted Section of Law Exemption Certificate Issued By No. Date (15) (16) (17) (18) From columns No. (15) of the statement under section 165 (reproduced above), it is quite obvious that particulars of the recipients of payments are required to be disclosed in case non-deduction of tax is relied upon any statutory provision of law and similarly, columns (16) to (18) suggest that particulars of the recipients of payments are required to be disclosed in case non-deduction of tax is relied upon any exemption certificate. 4. Through this notice, one final opportunity is provided and you are requested to submit reconciliation under Rule 44(4), rectify the defects pointed out in the statements under section 165 on account of nondisclosure of essential particulars by way of submission of revised statements and substantiate your reply with supportive evidence. Besides, you are required to justify the failure to deduct tax as computed in the notice dated mentioned supra. Hearing of the case is now fixed on In case you fail to attend hearing and comply with the requirement of this notice, it shall be presumed that you have nothing to say in your defense and your statement under section 165 shall be rejected being illegal and in breach of the relevant provisions of law and you will be held responsible for non-deduction of tax as mentioned above for necessary recovery by way of order under section 161 together with charging of default surcharge under section 205 and imposition of penalty under section 182. Date of hearing is repeated to be

2 Second stage Letter from FBR regarding WHT Audits. Subject: SHOW CAUSE NOTICE U/S 161(1A)/205 OF THE INCOME TAX ORDINANCE, FOR THE TAX YEAR NTN: FINAL OPPORTUNITY Please refer to this office s notice under Rule 44(4) of the Income Tax Rules, 2002 vide dated on the subject cited above. 2. You are aware that consequent upon non-deduction of tax under various provisions of the Income Tax Ordinance, 2001 and non-submission of reconciliation statements under Rule 44(4) and due to failure to disclose particulars of recipients and reasons of nondeduction of tax, the subject proceedings are underway. Unfortunately, despite having provided ample opportunity of hearing, you have not been able to justify the factum of non-deduction of tax. In this regard following notice /reminders have been issued earlier: Date of issuance of notice Hearing date Remarks/How Complied /Reminder/Adjournment With Application Non attended Adjournment sought However, you have failed to avail the opportunities of hearing and submit the revised statements under section 165 to make the lacking disclosure and disclose the reasons of nondeduction of tax in columns (15) to (18) of the statements. Similarly, you have failed to submit reconciliation statements under rule 44(4) of the Income Tax Rules, In this connection, one final opportunity is provided through this notice; you are requested to justify the factum of non-deduction of tax which is once again communicated by way of the instant notice, as under: Sr. No. Description of payment Cost Of Sales Value of tax deduction Tax deduction Schedule rate Tax deductible as per scheduled rates Tax deduct ion made Shortfall for action u/s 161(1)(a) 1 Local and Imported raw material/ Components as per FBR e portal Rs.0 Rs.1, 254,381,332 Minus import. Rs. 0 Balance taxable purchase. Rs. 1,254,381,332/- 4% 50,175,253 50,175,253

3 2 Salaries. Wages 17,503,019 5% 875, ,151 3 Power 59,838,332 Govt. dues provided bills 4 Gas 5,239,645 Govt. dues provided bills 5 Coal / oil 20,136,373 6 Unloading / carriage 735,936 7 Other Expenses 637,942 Admin & Selling& Financial Expenses 4% 805, ,455 2% 14,719 14,719 10% 63,794 63,794 1 Salaries wages & Benefits 1,500,000 5% 75,000 75,000 2 Travelling/ Conveyance % 8,216 8,216 Electricity/ Water/ Gas 3,149,386 Govt. dues provided bills 3 Communication Charges 4 Repair & Maintenance 5 Stationery office supplier 6 Advertisement/ Publicity/ Promotion 7 Entertainment 7 Professional Charges Profits on Debts 8 Carriage 9 Others 83,484 Govt. dues provided bills 475,904 6% 28,554 28,554 52,937 4% 2,117 2,117 18,332 10% 1,833 1, ,950 6% 8,697 8, ,000 10% 12,000 12,000 9,080,260 10% 908, , ,442 2% 6,949 6, ,931 10% 93,993 93,939 53,079,703 53,079,703 Total default under section 161 As per newly inserted section 236G & 236H of the Income Tax Ordinance, 2001 (through Finance Act 2013), being a manufacturer of Foam products, you are liable to collect advance tax on the sales made to distributors, dealer, wholesaler and retailers. The relevant sections are re-produced for ready reference:- 236G Advance tax on sales to distributers, dealers and wholesalers

4 (1) Every manufacturer or commercial importers of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, at the time of sale to distributors, dealers and wholesalers shall collect advance tax at the rate specified in Division XIV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made. 236H Advance tax on sales to retailers (1) Every manufacturer, distributor, dealer, wholesaler or commercial Importer of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, at the time of sale to retailers, shall collect advance tax at the rate specified in Division XV of Part IV of the First Schedule, from the aforesaid person to who such sales have been made. Most of your sales are to registered distributors, dealer, wholesaler and retailers from whom you were laible to collect advance tax u/s 236G & 236H. However, as per monthly statements filed by you u/s 165 for the months of July 2013 to June, 2014 that no tax has been collected/deposited under section 236G & 236H. You are therefore required to furnish following information for the months of July 2013 to June 2014:- Name, NTN/CNIC of purchasers Total sales Sales to distributors, dealers and wholesaler s U/S 236G Sales to retailers Tax Tax collected/ deposited (Provide proof) Through this notice, opportunity is provided and you are requested to submit reconciliation under Rule 44(4), rectify the defects pointed out in the statement under section 165 on account of non-disclosure of essential particular sand substantiate your reply with supportive evidence. Hearing of the case is now fixed on in Room 310 of RTO Lahore. In case, you fail to attend hearing and comply with the requirement of this notice, it shall be presumed that you have nothing to say in your defense and your statement under section 165 shall be rejected being illegal and in breach of the relevant provisions of law and you will be held responsible for non-deduction of tax as mentioned above for necessary recovery by way of order under section 161 together with charging of default surcharge under section 205.

5 3rd Letter from FBR regarding WHT Audit, (Judgment) 01 Tax Year National Tax Number 03 Name & Address 04 Status AOP 05 Section of Assessment 161/205 of INCOME TAX ORDINANCE DCR Number 07 Date of Order ORDER UNDER SECTION 161/205 OF THE INCOME TAX ORDINANCE, 2001 The taxpayers engaged in the business of manufacturing of steel items. Return for above mentioned tax year was e-filed. The taxpayer is a withholding agent being a prescribed person in terms of section 153(7) of the Income Tax Ordinance, 2001 (read with sub section (9) of section 153 as existed during the relevant period). The taxpayer, therefore, was liable to e-file monthly and annual statements under section 165 of the Income Tax Ordinance, Under the provisions of sub section (2) of section 165 of the Income Tax Ordinance, 2001, the taxpayer was obliged to submit separate statements as per Division-II of Part-V [or Chapter XII] in respect of payments made under the head Salary where tax deduction is required under Section 149. Similarly, separate statement under Division-II of Part-V [or Chapter XII] was required in respect of payments other than salary. Withholding statements under section 165 of the Income Tax Ordinance, 2001 for tax year 2013were filed which were examined and the following discrepancies were observed; a. The taxpayer company was obliged to reconcile the payments made (reflected in the statements of tax deduction) with the expenses claimed in the return, under Rule 44 of the Income Tax Rules, 2002 but no such reconciliation statement under rule 44(4) has been filed. b. A complete disclosure of reasons of non-deduction of tax has not been made in columns (15) to (18) of the statements under section 165. The taxpayer company has failed to disclose particulars of the recipients of payment in the said statement of the persons from whom tax was not deducted. c. From the perusal of Income Tax return and the statements under section 165, it has been observed that the taxpayer has failed to deduct tax properly while making payments on account of various heads; chunk of the payments were made without tax deduction and hence, failure to deduct tax within the meaning of section 161(1)(a) was found quite evident. d. In view of the reasons recorded above, the statements under section 165 were considered as not reliable, incomplete and in not in conformity of the legal requirements. In view of the reasons recorded above, the statements under section 165 were considered as not reliable, incomplete and in not in conformity with the requirements of section 165 read with rule 44(4). It is important to mention that it is the duty of the withholding agent to record complete particulars of the recipients of payments, their identification and the disclosures as required in columns No. (15) to (18) of the statements under section 165 prescribed for payments other than under the head salary, in respect of the payments made where tax deduction was not made. The taxpayer was, therefore, obliged to make such disclosure under the provisions of section 165 read with Rule 44(4); the relevant columns of the prescribed statement under section 165 are reproduced for convenience as a ready reference as under:

6 Reasons if Tax Not Deducted Section of Exemption Certificate Law Issued By No. Date (15) (16) (17) (18) From columns No. (15) of the statement under section 165 (reproduced above), it is quite obvious that particulars of the recipients of payments are required to be disclosed in case non-deduction of tax is relied upon any statutory provision of law and similarly, columns (16) to (18) suggest that particulars of the recipients of payments are required to be disclosed in case non-deduction of tax is relied upon any exemption certificate. It is further important to state that tax deduction by a withholding agent is an obligation assigned under the withholding tax provisions of the Income Tax Ordinance, 2001 and performance as a withholding agent does not entail tax liability of the withholding agent; rather, tax is required to be deducted from the payments made to other persons who have supplied goods and services or executed contracts for the withholding agent. A withholding agent must not be adamant and repulsive in conduct to enforce the withholding tax provisions of law. In case a situation arises where tax deduction is not attracted, the withholding agent is duty-bound to record complete particulars and make disclosure in the statement under section 165. In non-doing so, no bonafide may be attached to the conduct of the withholding agent. The Honorable Apex Court of Pakistan, in a case Re: Bilz (Pvt) Ltd. Vs DCIT Multan (2002 PTD 1 (S.C. Pak)) has ruled out that it is the duty of the withholding agent to produce necessary records to justify discharge of its legal obligation and hence, failure to disclose file party-wise details, records of tax deduction, reconciliation and reasons along with documentary evidence to justify failure to deduct tax is extra-ordinary and without reasonable cause in order to invoke the provisions of section 161(1)(a) and 205 of the Income Tax Ordinance, OPPORTUNITIES OF RECONCILIATION &HEARING PROVIDED S Notice/ Remarks regarding status of Reminder compliance. # Date of issue of notice/ reminder Date of complianc e 1 Reconciliatio Case adjourned for n 44(4) Case adjourned for Partially reply received 4 SCN Adjournment sought 161(1A) 5 Reminder Non attended 6 Reminder Non attende 7 Reminder Case adjourned for Partially reply received case adjourned for

7 Details reply received As is evident from above discussion, the taxpayer was afforded ample opportunity to justify non/short deduction of tax as required under the relevant provisions of law and the taxpayer partially provided documentary evidence in support of non/short deduction of tax. Hence, the proceedings are concluded in the order as per the following manner: Raw Material Purchase: The taxpayer was confronted Rs.76, 772,605/- under this head as the total purchases were of Rs.697, 024,580/ where imports shown on ITMS were of Rs.620, 301,975/-. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that import purchases were actually of Rs.688, 168,310/- and in supporting documents GDs were shown. Further claimed that local purchase of rs.8, 856,270/- were made from M/S PAKISTAN STEEL MILLS which enjoys exemption. The exemption certificates were duly produced. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order, therefore no adverse inference is drawn. Salaries and Wages: The taxpayer was confronted Rs.4, 476,250/- under this head. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that all the wages and salaries paid were below the tax limit. The taxpayer showed ledger to support his stance bearing CNIC numbers. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Electricity: The taxpayer was confronted Rs.1, 037,439/- under this head. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that all the dues were paid to government and withholding provisions don t apply on purchase of electricity. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Gas: The taxpayer was confronted Rs.312, 380/- under this head. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that all the dues were paid to government and withholding provisions don t apply on purchase of gas. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Repair and Maintenance: The taxpayer was confronted Rs.421, 246/- under this head. The taxpayer was provided ample paid were below the tax limit for machinery repair and generator repair. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order; therefor no adverse inference is drawn. Other Expense: The taxpayer was confronted Rs.19, 479,517/- under this head. The taxpayer was provided ample

8 paid were for the fuel charges, carriage inward, carriage forward, miscellaneous production expense, oil and lubricant and depreciation, and all the expenses are either below the taxable limit or don t attract withholding provisions under SRO 586 of The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order except for the purchases of Rs. Rs.1, 184,772/-, therefore the same so charged to tax as under: 1,184,772 x 3.5% = 41,467 Rent, Rate and Taxes: The taxpayer was confronted Rs.188, 479/- under this head. The taxpayer was provided ample paid were below the tax limit and made to Government of Azad Kashmir against rent of the land. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Salaries and Wages: The taxpayer was confronted Rs.652, 480/- under this head. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that all the wages and salaries paid were below the tax limit. The taxpayer showed ledger to support his stance bearing CNIC numbers. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Travelling and Conveyance: The taxpayer was confronted Rs.795, 138/- under this head. The taxpayer was provided ample paid were below the tax limit for travelling. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order except for the amount of Rs. 265,455/, therefore the same is charged to tax as under: 265,455 x 2% = 5,309 Repair and Maintenance: The taxpayer was confronted Rs.543, 900/- under this head. The taxpayer was provided ample paid were below the tax limit for travelling. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order except for the amount of Rs. 125,441/, therefore the same is charged to tax as under: 125,441 x 3.5% = 4,390 Communication: The taxpayer was confronted Rs.71, 451/- under this head. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that all the dues were paid to government and withholding provisions don t apply on purchase from PTCL etc. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Stationary: The taxpayer was confronted Rs.48, 672/- under this head. The taxpayer was provided ample paid were below the tax limit for stationary and office supply. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn.

9 Legal and Professional Charges: The taxpayer was confronted Rs.14, 000/- under this head. The taxpayer was provided ample paid were below the tax limit for professional charges. The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Profit on Debt: The taxpayer was confronted Rs.12, 658,443/- under this head. The taxpayer was provided ample opportunities to explain his position regarding this expense. The taxpayer claimed that all the dues were paid to bank as markups and withholding provisions don t apply on this expense. The documents were examined and returned. The stance of the taxpayer was found in order; therefore no adverse inference is drawn. Other Expense (management): The taxpayer was confronted Rs.1, 726,436/- under this head. The taxpayer was provided ample paid were for the postage and telegram, fee and subscription, newspapers, staff welfare, entertainment, misc. expense, medical allowance, overtime charges, loading charges and freight charges, and all the expenses were either below the taxable limit or don t attract withholding provisions under SRO 586 of The taxpayer showed ledger to support his stance. The documents were examined and returned. The stance of the taxpayer was found in order except for the purchases of Rs. Rs.834, 772/-, therefore the same so charged to tax as under: 634,772 x 3.5% = 22,217 HEAD AMOUNT Other Expense Travelling 5309 Repair and Maintenance 4390 Other Expense (management) TOTAL Default Hence, total default u/s 161 of the Ordinance is established at Rs.73,383/-. The taxpayer is held liable to pay the above worked out tax of Rs. 73,383/- on account of failure to deduct tax under section 161(1)(a) by way of this order. Default Surcharge under section 205 As discussed above, the taxpayer failed to deduct tax of Rs. 73,383/- and pay within 07 days of deduction. The taxpayer is, therefore, held liable to pay default surcharge under the provisions of section 205 of the Income Tax Ordinance, In the absence of disclosure of payments and other particulars as is prescribed under section 165, the due date of payment is taken from 1 st January, 2013 (the middle of the tax year)(1095-days). Default Surcharge is charged from above

10 said date till the date of this order, at the rate of KIBOR plus 3% (i-e 15%+3% = 18%) which works out to Rs.39,626/- and is charged by way of this order. Tax under section 161(1)(a)(b) 73,383 Default Surcharge under section ,626 Total 113,009 Hence, total default u/s 161 of the Ordinance is established at Rs.113,009/-. The taxpayer company is held liable to pay the above worked out tax on account of failure to deduct tax under section 161(1)(a) by way of this order. The taxpayer company may file appeal against this order under section 127 before the CIR (Appeals) having jurisdiction upon payment of appeal fee of Rs. 1,000/ - in the prescribed manner. Issue order and demand notice accordingly. This order contains (five) pages and each page bears my official stamp.

11 4th Letter Regarding WHT Audit from FBR. (Notice of Recovery regarding Judgment in 1 st Stage) This may be treated as integral part 01 Tax Year National Tax Number 03 Name & Address 04 Status 05 Section of Assessment 161/205 of INCOME TAX ORDINANCE DCR Number 07 Date of Order NOTICE OF DEMAND UNDER SECTION 137 OF THE INCOME TAX ORDINANCE, ) As a result of order passed under section 161/205 in your case for the above mentioned tax year, whereby your income tax has been determined to be payable as specified below: Tax under section 161(1)(a)(b) 73,383 Default Surcharge under section ,626 Total 113,009 2) You are requested to make payment of the above amount within-15 days from the date of issue of this order in the State Bank of Pakistan/National Bank of Pakistan/Treasury Office. 3) If you intend to appeal the order/assessment, you may file an appeal under Section 127 of the said Ordinance to the Commissioner Inland Revenue (Appeals), Lahore within thirty days of the receipt of this notice. 4) Please note that by timely payment of your tax liability, you can avoid. a. Mandatory levy of default surcharge under Section 205; b. Penalty under section 183 c. Proceedings under section 138(2); 5) Copy of the order on which demand is based is enclosed.

12 5th Letter Regarding WHT Audit from FBR. (Notice of Recovery regarding Judgment in 2 nd Stage) Sub: NOTICE U/S 138(1) OF THE INCOME TAX ORDINANCE, Please refer to the subject cited above. As per record of this office, your following updated tax demand is outstanding in your case: S.No. Tax Year Under/Section Amount Rs. Further scrutiny of record shows that despite issuance of notice you have not submitted any written response. It leads to the inference that the tax demand already conveyed to you is genuine and you do not have any objection to the figures communicated. Before resorting to measures provided under the law for recovery, another opportunity is hereby extended through notice u/s 138(1) to file objection (if any) against the tax demand. In the event of no response by , this office hall be constrained to take appropriate measures provided under the law as warranted by facts of the case for the recovery of tax. It shall be helpful if you personally attend the office of the under singed and get your record reconciled with the arrear outstanding as per the record of this office. How can we answer these above notices? We will pay Zero Taxation; and will successfully handle the WHT audit. What kind of SRO s and Sections we will use in this regard for playing the tricks in WHT Audits? Now look at the Answer Sheet for Answers with tricks and without tricks Sheets: Source of Document: Tax Training by FBR (DOT) dgtrdt.gov.pk/