According to the FBR's circular 6 of 2018 issued here on Wednesday, the section 214D of the Income Tax Ordinance, 2001 provided for automatic selection for audit if a person had not filed return of income within the date it was required to be filed under section 118 of the Ordinance or within the time extended by the Board under section 214A of the Ordinance or further extended by the Commissioner under section 119 of the Ordinance or if the person had not paid the tax payable along with return under sub-section (1) of section 137 of the Ordinance. Section 214D was omitted through the Finance Act, 2018 i.e. with effect from 01.07.2018. As such the cases which were selected for audit under section 2140 prior to 01.07.2018 are still pending. Through the Finance Supplementary (Amendment) Act, 2018, a new section 214E has been inserted in the Income Tax Ordinance, 2001 which provides an option to taxpayers for conclusion of their pending audits automatically selected under section 214D of the Ordinance upon the fulfilment of certain conditions which are clarified as under:-
Firstly, the taxpayer was selected for audit under sub-section (1) of the omitted section 214D.
Secondly, notice under section 122 has not been issued till 07.10.2018 as the said Act No. XXXVIII of 2018 was published in the Gazette of Pakistan, Extraordinary, Part-I on 08.10.2018. Thirdly, the taxpayer revises return voluntarily, by 31.12.2018 along with payment of higher tax which is as follows:-
a. 25% higher tax than the tax paid with return on the basis of taxable income; or b. Where no tax is payable, 2% of the turnover. Turnover shall have the same meaning as defined in sub-section (4) of section 113.
c. Where no turnover is declared, penalty under entry at Serial No.1 of sub-section (1) of section 182 of the Ordinance.
The FBR said that the taxpayer shall apply to the Commissioner on the IRIS system for revision of return selected for audit under section 214D stating the reason for revision as availing option under section 214E of the Ordinance. The Commissioner shall grant permission within 3 working days of receipt of application for revision after ensuring that the conditions enumerated above have been fulfilled. In case there is no reply from the Commissioner, the iris system shall automatically accept the application for revision on the 4th working day and it shall be deemed that the Commissioner has accepted the application for revision. The IRIS system will accept the application for revision from the date on which the application for revision has been filed. Hence, the IRIS system will accept the applications for revisions filed on 31.12.2018 with effect from 31.12.2018 even if the approval has been granted by the Commissioner within the next 3 working days from 31.12.2018. However, the IRIS system will automatically check whether notice under section 122 has not been issued till 07.10.2018 and whether 25% higher tax as compared to the tax paid along with return on the basis of taxable income or 2% of the turnover or penalty under entry at Serial No. 1 of sub-section (1) of section 182 as the case may be, has been paid before applying for revision. In case tax has not been paid or notice under section 122 was issued till 07.10.2018, the IRIS system will not accept the application for revision.
However, the condition of revision of return or payment of 25% higher tax or 2% of the turnover shall not apply if the taxable income of the taxpayer includes salary income and income subject to final taxation under sub-section (1) of section 169 or subject to taxation under section(s) 5, 5M, 6, 7, 7A or 7B of the Ordinance e.g. if the income of a person includes, say, 40% salary, 30% dividend and 30% profit on debt the condition shall not apply. However, even if 1% of the income includes, say, business income, the above conditions shall apply. In such a situation, if no notice under section 122 has been issued by 07.10.2018, the taxpayer shall pay penalty under entry at Serial No. 1 of sub-section (1) of section 182 and the audit shall stand closed.
An explanation has also been added in section 214E which clarifies that section 214E shall not apply to audits selected separately by the Commissioner under section 177 or by the Board under section 214C of the Ordinance, the FBR added.