Sources told Business Recorder here on Saturday that the agency has detected serious discrepancies in income tax returns filed by a taxpayer engaged in providing specialised services to its corporate clients through professional managers who are trained to judge and gauge various aspects of storage and warehousing, detection of stacking concealment, counting, sampling and stock assessment in an efficient and effective manner. The expert team which analysed data, investigated the case and effectively detected the case included Amir Abbas Khan, Additional Director, Intelligence & Investigation (IR), Lahore; Saad Waqas, Deputy Director, Intelligence & Investigation (IR), Lahore; and Muhammad Junaid, IR Intelligence & Investigation (IR), Lahore.
The modus operandi adopted by the service provider revealed that it claimed major chunk of expense under the head by concealing proper strength of employed staff and avoiding legal/permissible mode of payment under the law to sabotage proper withholding of tax against the actual taxable salaries. Interestingly, the company has not filed the audited accounts under Companies Ordinance and only single page sheets of receipt and expenditure were filed which are dubious in their sanctity in the absence of balance sheets.
The discreet information gathering to determine the possible loss of revenue, under reporting, tax evasion and revenue leakage on the part of taxpayer divulges that the taxpayer got itself registered with the department for Income Tax and Sales Tax on 12/04/1997 and 24/08/2000 respectively, in the category of "Company" ''Principal Business Activity'' has been declared as "Other Personal Service Activities N.e.c ." possessing ''Activity Code'': 960900, with ''Business Nature'' "Service Provider." As per ''taxpayer registration profile,'' the current jurisdiction over the case of the taxpayer rests with Corporate RTO, Lahore. Available information on FBR''s web-portal transpires that at the time of registration the company comprised three directors and their respective share ratio and capital deployed in the business depict clear picture.
The particulars of taxpayer retrieved from FBR''s web-portal indicate that taxpayer has filed its income tax returns for tax years 2011 to 2015 declaring results. Through intelligence gathering, the directorate has congregated definite information from the website of the company that it provides a wide range of services including Muccadum, valuations, evaluation and authentications of un-built properties, evaluation of earth moving and port handling equipment, customs clearing & forwarding, searches and charge registration from Securities & Exchange Commission of Pakistan, multinational companies representation, physical address verification for credit cards & car leasing companies, car appraisals and stock inspections.
However, as per returns filed for tax years 2013 to 2015, the taxpayer has shown source of revenue from services ie Muccadum services, valuations services, evaluation services and customs clearing & forwarding services. Perusal of declared version of the tax payer in context to data available on FBR''s web-portal revealed that taxpayer has claimed huge expense under the heads ''salaries'' for all the years under consideration. The analysis of said expense vis-à-vis declared ''gross receipts'' in the respective tax years depict the picture.
The examination of ''withholding statements'' of the taxpayer under section 149 of the Ordinance available on FBR''s web-portal has been made, which shows that the taxable salaries paid during the above tabulated period are scanty in comparison to the total claim under the head. Further perusal of ''withholding statements'' transpires that the number of employees (inclusive three directors) against whom the tax was withheld u/s 149 were 21, 19, 13, 15 and 16 for the tax year 2011 to 2015. The rate of tax deduction against the salaries paid to the directors ranges from 5 percent to 7.5 percent, whereas in case of employees it varies from 0.25 percent to 5 percent.
It is explicit and unambiguous that the taxpayer is engaged in the business of provision of specialised services to its corporate clients through professional managers who are trained to judge and gauge various aspects of storage and warehousing, detection of stacking concealment, counting, sampling and stock assessment in an efficient and effective manner. It is manifested that these services could not be provided without permanently employed skilled staff, thus it rules out the element of hiring of daily wage workers of such competence for execution of such job. This scenario is vital indicator that the taxpayer has managed to claim the major chunk of expense under the head by concealing proper strength of employed staff and avoiding legal/permissible mode of payment under the law to sabotage proper withholding of tax against the actual taxable salaries. Moreover, as precautionary measure, perusal of statements filed by the taxpayer under section 165 of the Ordinance available on FBR''s web-portal shows that no tax deduction has been shown against any payment for acquiring of any kind of outsourced services. This warrants action under sections 21 and 174 of the Ordinance with regard to admissibility, authenticity and genuineness of the expense claimed under the head.
The taxpayer has claimed considerable expenses under the heads ''rent'' and ''business commission/professional charges'' in all the years under consideration. Sources said that no tax withholding has been shown in statements filed for the respective tax years under section 165 of the Ordinance against payment of above expenses. This warrants action under sections 21 and 174 with regard to their admissibility and genuineness besides, under section 161/205 for failure to collect and pay tax.
A considerable amount of tax deduction on cash withdrawals under section 231A and failure on the part of the taxpayer to collect and pay tax on said payments also warrant action under section 161/205 of the Ordinance. The information congregated by the directorate and scrutiny of tax deduction claimed in the returns are evident of huge clientage of the taxpayer. The declared receipts of the taxpayer are seemingly very scanty considering its clientage. This aspect needs proper deliberation and enquiries while making amendment of assessments.
As per scheme of taxation, the receipts against contract under section 153(1)(c) fall in the ambit of final taxation being full and final discharge of tax liability within the meaning of section 153(1)(c) read with section 169 of the Ordinance. This aspect needs thorough probe for correct implication of the provisions of law and to curtail the refund claimed by the taxpayer in returns filed for respective tax years.
As per requirement of Companies Law, the taxpayer has to file audited accounts for all the years under consideration. Perusal of information available on portal reveals that the needful has not done as single page sheets of receipt and expenditure have been filed which are dubious in their sanctity in the absence of balance sheets. It is notable that the paid-up capital of the company since its inception is Rs 1,000,000 which is seemingly scanty to run the smooth operations of the company.
Copyright Business Recorder, 2017