(a) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 59(1), 59(1‑A) & 62‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑C.B.R. Circular No.7 of 2002, dated 15‑6‑2002 Para. 10 (Self‑Assessment Scheme) ‑‑‑Self -assessment‑‑‑Total audit‑‑‑Selection of case for total audit through computer ballot ‑‑‑Assessee contended that return filed under S.59 of the Income Tax Ordinance, 1979 could be selected under S.59(1‑A) of the Income Tax Ordinance, 1979 for the purposes of assessment under S.62 of the Income Tax Ordinance, 1979 and not for total audit as S. 59(1‑A) of the Income Tax Ordinance, 1979 did not permit framing of scheme for total audit but permit only to frame assessment under S.62 of the Income Tax Ordinance 1979 without total audit or detailed scrutiny‑‑‑Validity‑ Moot point was whether during such assessment the assessee's accounts and record could be subjected to audit‑‑‑Object of para. 10 of the Self -Assessment Scheme was to scrutinize the return in detail including field audit by departmental officers or by professional auditors authorized under S.4‑A, of the Income Tax Ordinance, 1979‑‑‑Information collected from investigation and audit shall be utilized for determining income of the taxpayer and tax payable thereon‑‑‑After audit and scrutiny the material made available could be utilized by the Assessing Officer to frame assessment under. S.62 of the Income Tax Ordinance, 1979‑‑‑If audit and scrutiny did not reveal anything adverse to the assessee the Assessing Officer will frame assessment as provided by S.62 of the Income Tax Ordinance, 1979‑‑‑No maladministration having been proved the case was closed by the Federal Tax Ombudsman.

(b) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑Ss. 59(1), 61 & 7‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.2(3)‑‑‑C.B.R. Circular No.7 of 2002, dated 15‑6‑2002, para. 10 [Self‑Assessment Scheme]‑‑ Self‑assessment‑‑‑Total audit‑‑‑Selection of case for total audit through computer ballot‑‑‑Assessee contended that process of total audit as provided by para. 10 of the Self‑Assessment Scheme deprives the Assessing Officer of its independence as the investigation and assessment proceedings shall be monitored and completed under guidance of supervisory officers within the meaning of S.7 of the Income Tax Ordinance, 1979 and assessment had to be made by the Assessing Officer independently and without any interference in exercise of his powers and function in making assessment‑‑‑Validity‑‑‑Guidance, supervision or consultation had to be made in terms of S.7 of the Income Tax Ordinance, 1979‑‑‑Para. 10 of the Self‑Assessment Scheme did not travel beyond the Income Tax Ordinance, 1979‑‑‑No maladministration having been proved, the case was closed by the Federal Tax Ombudsman.

Waseem Ahmad Siddiqui, FCA for the Complainants.

Manzoor Ahmad, DCIT with Khushnoodul Hassan, ACIT for Respondent.

Qaser Iqbal, IAC, Range‑II.

FINDINGS/DECISION

In all these complaints common questions of law and facts arise and are disposed of by this decision. The complainants have challenged selection of their case for total audit under the Self‑Assessment Scheme, 2002. The complainants filed return of income for the assessment year 2002‑2003 under the SAS promulgated by Circular No.7 of 2002, dated 15‑6‑2002. The complainants were served with a letter by the Taxation Officer intimating that their income tax return was selected for total audit through computer ballot. The complainants received notice under section 61, 58(1) of the Income Tax Ordinance, 1979 alongwith a detailed letter from the Taxation Officer requiring them to submit books of accounts and other details. The complainants replied the said letter and raised objection to the selection of the cases for total audit and challenged the legality of the notice and the letter issued by the Taxation Officer. It was stated that the return filed under section 59 of the Income Tax Ordinance, 1979 (hereinafter referred as repealed Ordinance) can be selected under section 59(1‑A) for the purposes of assessment under section 62 of the said Ordinance and not for total audit. It was further stated that the return cannot be ousted from the Self‑Assessment Scheme (SAS) for total audit. The Taxation Officer issued another notice under section 61 of the repealed Ordinance, but did not advert to the objection raised by the complainant These acts of the Taxation Officer have been challenged as illegal, arbitrary, mala fide, perverse, unjust, unreasonable and against the provisions of law and the Constitution.

2. The department in its reply has admitted the facts relating to filing of return, selection for total audit and issuance of notices. It has denied the averment of the complainant that a case set apart from the Self Assessment Scheme cannot be subjected to total audit or detailed scrutiny. It has been pleaded that notice under section 62 of the repealed Ordinance was issued to confront the complainants with discrepancies arising out of the details and documents produced by them. The department has justified its action as legal, proper and according to law.

3. Mr. Waseem Ahmad Siddiqui, C.A. the learned representative for the complainants has contended that paras.9 and 10 of the Self‑Assessment Scheme are illegal, contrary to the provisions of main statute i.e. sections 59, 59A 61, 62 and 63 of the repealed Ordinance. It has further been contended that actions taken on the basis of such selection and total audit are illegal and contrary to law. The learned representative has contended that C.B.R. or any authority may select the case from amongst the returns filed under the Self‑Assessment Scheme for assessment under section 62 and not for total audit.

4. In order to appreciate the contention of the learned representative of the complainants it is necessary to have a look at the provisions of law particularly sections 59, 59A, 61 and 62. On introduction of Self‑Assessment Scheme it was found necessary to have random selection of returns filed under the Scheme for purposes of scrutiny and assessment under section 62. For this reason it was provided under para. 7 of the Scheme that all returns selected for total audit will not be eligible for acceptance and shall be automatically subjected to total audit. The method of selection of case for total audit has been prescribed in para 9 of the scheme. Para. 10 provides that case shall be scrutinized in detail including field audit by departmental officers or by professional auditors authorized Under section 4A of the repealed Ordinance. It further provides that investigation and assessment proceedings shall be monitored and, completed under guidance of supervisory officers within the meaning of section 7 of the repealed Ordinance. Information collected from available sources shall be utilized for determining income of the taxpayer and tax payable thereon. According to learned representative section 59(1‑A) does not permit framing of scheme for total audit but permits only to frame assessment under section 62 without total audit or detailed scrutiny. It has been contended that the total audit is process of harassment to the assessee and denial of the available rights. There seems to be controversy about word 'total audit'. This term has not been defined in the repealed Ordinance or the Scheme. The ,dictionary meaning of audit is "official examination of books and record of the entity" (Oxford Dictionary). The learned representative for the complainants has produced copy of KPMG UK services in which it has been stated as follows:‑

"The Total Audit concept (TAC) is a process by which internal and external audit co‑ordinate their work to increase the depth and breadth of assurance provided. Both audits are performed at the same time with smaller teams. Internal and external audit co‑ordinate their risk analysis, planning and execution to ensure that resources are allocated in the most effective way.

Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Throughout the world, internal auditing is performed in diverse environments and within organizations that vary in purpose, size, and structure."

The audit therefore, seems to be an examination of books or records of a party, entity or company. The audits may be of different nature e.g. internal audit and external audit or total audit. It can be for the purposes of reconciliation, examination and even assessment as well. In audit the authorized officer is required to examine in detail the books of accounts and all relevant documents which are found necessary to ascertain that'"" the books and required records have been properly maintained by the party so audited. It is correct that the term total audit has not been defined but its meaning is clear as explained above. In para. 9 it is provided that 20 % of returns are selected for total audit which means that full and proper checking of the record shall be carried out for the purposes of making and framing the assessment. Total audit is merely a method to carry out a detailed enquiry for assessment as provided by section 62. There a various types of audit including, external audit, internal audit, corporate audit, sales tax audit and assessment audit. The concept of audit in tax administration is getting currency particularly since the introduction of Self‑Assessment Scheme. In fact in this system audit for purposes of detailed assessment is essential for its successful operation. The basis of this system is trust and truthful declaration, in which returns stands accepted except in those cases which are selected for assessment after detailed scrutiny.

5. The learned representative has referred to subsection (IA) of section 59 to contend that under this provision the selection can be made only for assessment under section 62 and not for purposes of total audit. The Self‑Assessment Scheme was framed under section 59(1) of the repealed Ordinance which provides for total audit and regular assessment. Subsection (IA) of section 59 empowers the C.B.R. to select any case out of the returns filed under the Self‑Assessment Scheme for assessment under section 62. There is no cavil with the contention that the cases so selected have to undergo process of regular assessment under section 62 or 63 as the case may be. The moot point is whether during such assessment the assessee's accounts and record can be subjected to audit. The object of para. 10 of the scheme as provided is to scrutinize the return in detail including field audit by departmental-officers or by professional auditors authorized under section 4A of the repealed Ordinance. The information collected from investigation and audit shall be utilized for determining income of the taxpayer and tax payable thereon. It may be noted that after audit and scrutiny the material made available can be utilized by the Taxation Officer to frame assessment under section 62. If the audit and scrutiny do not reveal anything adverse to the assessee the Taxation Officer will frame assessment as provided by section 62.

6. It has been contended that the process as provided by para. 10 deprives the Assessing Officer of its independence as the investigation and assessment proceedings shall be monitored and completed under guidance of supervisory officers within the meaning of section 7 of the repealed Ordinance. The assessment has to be made by the Assessing Officer independently and without any, interference in the exercise of his powers and functions in making assessment. The guidance supervision or consultation has to be made in terms of section 7 of the repealed Ordinance. Thus para. 10 of the Scheme does not travel beyond the repealed Ordinance. As no maladministration has been proved the case is closed.

C.M.A./1039/FTO Order accordingly.