FBR directs auditors to record all bank accounts of taxpayer

Islamabad :The Audit Wing of the Federal Board of Revenue (FBR) has directed the chief commissioners of large tax payers unit and regional taxpayers unit that while conducting audit of any company all bank account numbers of taxpayer should be recorded in the order sheet as well as in the office note of the amended assessment order.

The chief commissioners have been directed to carry out this practice invariably in all audit cases. It said in case of failure a serious view should be taken which should also include disciplinary proceedings.

The Audit Wing letter said in many cases auditors don’t bother to obtain the taxpayer’s bank statement during audit, but now they should obtain the bank statement (credit and debit) and should be totaled and matched with credit and debit sides of manufacturing, trading and profit and loss account.

Similarly, if there is a capital expenditure made by a taxpayer in a year and is reflected in the fixed assets, the same should also be verified from the bank statement and cash flow statement of final accounts.

The News is in possession of a letter which reads that with the enlargement of scope of Section 21, particularly Section 21(1) of the Income Tax Ordinance, 2001, Section 73 of the Sales Tax Act, 1990 and Section (2) of Federal Excise Act, 1995 the determination of the nature of transactions manufacturing/trading and profit loss account expenses including purchases (whether these have been made through banking channel, cross cheque, pay order or cash) has assumed a vital and pivotal importance in the audit proceedings.

Further that no audit can be completed without examination of the bank statements of taxpayer. Where the credit side of the bank statement is to be matched with the receipts/turnover of the taxpayer, at the same time debit side of the bank statement has to be matched with the purchases made and both direct and indirect expenses incurred by the taxpayer.

The audit officers have been directed to not only obtain bank statements during the initial stage of audit proceedings, but also incorporate a paragraph in the audit report as well as in the amended assessment order to the effect that examination of bank statement was made, credit entries were matched with the turnover and debit entries were matched with all kind of expenses incurred in the manufacturing, trading as well as profit and loss accounts, adverse inference was drawn and in case of no adverse inference is drawn, reason  should be recorded therein.

It has also been directed that adverse inference shall be drawn wherever the total of credit entries of the bank statement exceeds the declared turnover of the taxpayer and no plausible explanation is offered by the taxpayer or where the amount of expenditure including purchases have been made through cash, bearer cheque Section 21(1) of the Income Tax Ordinance 2001, Section 73 of Sales Tax Act, 1990 and Section 6 of FE Act 1995 should be invoked. The counter foils of cheques issued during the year also need to be examined to verify the nature of transaction and persons to whom these payments have been made. 

Further that the nature of job and business relationship of the person with the taxpayer should be established in case there is no business relationship, the amount should be disallowed being non-business in nature.