FBR Closes Cases without Audit

The Federal Board of Revenue (FBR) has started disposing of approximately 310,000 cases that has remained pending for since 2014, which could cause losses to the exchequer.

About 310,000 audit cases had remained pending for the last three to six years due to lack of human resources capacity. In order to clear this backlog, the FBR decided to close all the cases on the basis of certain parameters instead of conducting a comprehensive audit. In April this year, the Pakistan Tehreek-e-Insaf (PTI) government had decided to close over 310,000 tax audit cases that had been automatically selected from 2014 to 2017 due to the failure of taxpayers to timely file tax returns and pay due taxes.

An April 2020 notification stated, “If all values in the parameters, as per the system, are matched with the declaration in income tax returns and/or wealth statement or otherwise, their values are returned nil and the field office does not have any third-party information that audit may be concluded by accepting the declared version.”

These audit cases had automatically been selected under Section 214D of the Income Tax Ordinance 2001. In 2015, the Pakistan Muslim League-Nawaz (PML-N) government had introduced Section 214D in the ordinance to automatically select those persons and companies for audit that did not file income tax returns within due or extended dates or did not pay taxes. However, the then government did not build the FBR’s capacity, resulting in hundreds of thousands of pending cases. Subsequently, the government abolished Section 214D through the Finance Act 2018.

Only those cases are supposed to be closed where there are no withholding tax transactions, no purchase of properties, vehicles, utility expenses, rent expenses, and no bank information is available. But FBR could still reopen the closed cases by invoking Section 122(5), if it found any evidence.

Some of the taxpayers had challenged the FBR’s decision to conduct their audit under Section 214D in the Lahore High Court. The petitioners questioned the FBR’s decision to send them audit notices after deletion of Section 214D of the law. The LHC single-judge bench, in its November 13 judgement, wrote that “no notices subsequent to the date of repeal of Section 214D of the Ordinance 2001 could have been issued to the petitioner since no such power vested in the officer who has issued the notices”. More importantly, the FBR’s lawyer did not contest this in the court, which was evident from the court judgement.