Bogus tax refunds: FTO orders action against FBR’s top four officers

ISLAMABAD: The federal tax ombudsman (FTO) has ordered initiation of criminal and disciplinary proceedings against FBR’s top four officers for sanctioning bogus tax refunds worth millions of rupees.

According to an official announcement made here on Friday, the FTO in pursuance of Own Motion (OM) investigation initiated while exercising powers conferred under Section 9 (1) of the Federal Tax Ombudsman Ordinance 2000 to investigate irregularities committed by the FBR's field formations in processing and sanctioning of bogus sales tax refund has ordered initiation of criminal proceedings against the senior officers of the Inland Revenue Service of the FBR.

The directorate general I&I-IR, FBR, had issued the "red alerts" in such cases to the field formations concerned but neither any action was initiated against the fake claimants of income tax refund and their connivers in the Department, who were involved in bogus registration, processing and sanctioning of fraudulent income tax refund and issuance of refund cheques, nor was any action proposed against the officials of bank branches concerned and the PRAL management.

In the case of M/s China National Electric Wire & Cable Import & Export Corporation, an AOP registered vide NTN 2789363-2 with principle activity of electrical installation refund for the tax year 2012 amounting to Rs 26.119 million was claimed. In terms of Sub-section (3), tax deducted on the income of a resident person or the non-resident person under clauses (a) and (c) of Sub-section (2) 153 of the Income Tax Ordinance 2001 should be final. Thus, the income tax refund claimed by the RP, non-resident PE, for the tax year 2012 was inadmissible.

Furthermore, after conducting post-refund audit (PRA) of the RP for the tax years 2007, 2008, 2009 and 2011, the director l&I Lahore also issued an investigation report to the chief commissioner-lR RTO Lahore. As per the report, the RP claimed refund for the tax years 2007, 2008, 2009, 2010 and 2011, amounting to Rs 26.778, Rs 25.264, Rs 71.151 and Rs 0.170 million respectively. The Deptt had however already issued refund for the tax years 2007, 2008, 2009 and 2011, aggregating to Rs 123.364 million.

In order to retrieve the loss of revenue, the Directorate l&I also proposed initiation of action for the tax years 2007 to 2011 under Section 122 (5A) of the Ordinance. Evidently, no action whatsoever was taken by the Deptt on the above-mentioned red alert and PRA investigation report. Thus, the failure of the Deptt to take timely action on such an important anti-tax evasion exercise carried out by 1&1-IR led to serious instances of maladministration on account of certain acts of omission and commission, reflecting improper motives, jeopardizing good governance and transparency in tax administration.

The federal tax ombudsman while finally disposing of the case has directed the FBR to initiate proceedings for the recovery of tax demand created for the tax years 2007, 2008 & 2009 vide consolidated order dated 05.06.2013, as per law and remove the officers involved from field postings and initiate disciplinary and criminal action against Ch Muhammad Tariq, the then additional CIR, and Ashfaq Ahmad, the then DCIR. Further, the federal tax ombudsman has also ordered disciplinary proceedings against Dr Sarmad Qureshi, the then commissioner CRTO Lahore and Syed Nadeem Hussain Rizvi, the then chief commissioner CRTO Lahore in the same scam.