Audit U/S 177

Bilal Hassan
Additional Commissioner (IR)
CTO, Lahore
1) The Commissioner may call for any record or
documents including books of accounts maintained
under:
 this Ordinance or
 any other law for the time being in force

for conducting audit of the income tax affairs of the

person
record or documents either in the form of electronic
data or hard copies
Provided that:
(a) the Commissioner may, after recording reasons in
writing call for record or documents including books of
accounts of the taxpayer; and
(b) the reasons shall be communicated to the taxpayer
Provided further that:
the Commissioner shall not call for record or documents of
the taxpayer after expiry of 6 years from the end of the
tax year to which they relate.
For example, Commissioner cannot call for record or
documents for tax year 2015 on 31 January 2021.
What about Special tax year?
(2) After obtaining the record of a person or where
necessary record is not maintained, the Commissioner
shall conduct an audit of the income tax affairs
including:
 examination of accounts and records;
 enquiry into expenditure, assets and liabilities

of that person or any other person and may call for

such other information and documents as he may
deem appropriate
U/s 175
u/s 175A
u/s 176
(2A) the Commissioner may conduct audit proceedings
electronically through video links, or any other facility
as prescribed by the Board.
(2AA) Where a taxpayer:
(a) has not furnished record or documents including
books of accounts;
(b) has furnished incomplete record or books of
accounts; or
(c) is unable provide sufficient explanation regarding
the defects in records, documents or books of
accounts,
it shall be construed that taxable income has not been
correctly declared and the Commissioner shall
determine taxable income on the basis of sectoral
benchmark ratios prescribed by the Board.
sectoral benchmark ratios” means standard business
sector ratios notified by the Board on the basis of
comparative cases and includes:
 financial ratios,
 production ratios,
 gross profit ratio,
 not profit ratio,
 recovery ratio,
 wastage ratio and
 such other ratios in respect of such sectors as may be
prescribed
(6) After compilation of the audit, the Commissioner
shall, after obtaining taxpayer’s explanation on all
the issues raised in the audit, issue an audit report
containing audit observations and finding.

(6A) After issuing the audit report, the Commissioner

may, if considered necessary, amend the assessment
under section 122(1) or 122(4), as the case may be,
after providing an opportunity of being heard to the
taxpayer under section 122(9).
(income escaped taxation, total income under assessed,
income subject to excessive relief)
 If proceeded on the basis of audit, no need for
definite information.

 DEFINITE INFORMATION
LHC:
Beyond any iota of doubt
Crisp and dried
Supreme court (FBR vs Khan CNG)
Decided in favor of department
 Section 175
Power to enter and search premises
(1) In order to enforce any provision of this
Ordinance (including for the purpose of making
an audit of a taxpayer or a survey of persons
liable to tax), the Commissioner or any officer
authorized in writing by the Commissioner for
the purposes of this section:
(a) shall, at all times and without prior notice,
have full and free access including real-time
electronic access to any premises, place,
accounts, documents or computer;
(b) may stamp, or make an extract or copy of any
accounts, documents or computer-stored information to
which access is obtained under clause (a);
(c) may impound any accounts or documents and retain
them for so long as may be necessary for examination or
for the purposes of prosecution;
(d) may, where a hard copy or computer disk of
information stored on a computer is not made available,
impound and retain the computer for as long as is
necessary to copy the information required; and
(e) may make an inventory of any articles found in any
premises or place to which access is obtained under clause
(a).
(2) The Commissioner may authorize any valuer or
expert to enter any premises and perform any task
assigned to him by the Commissioner.
(3) The occupier of any premises or place to which access
is sought under sub-section (1) shall provide all reasonable
facilities and assistance for the effective exercise of the
right of access.
(4) Any accounts, documents or computer impounded and
retained under sub-section (1) shall be signed for by the
Commissioner or an authorized officer.
(5) A person whose accounts, documents or computer have
been impounded and retained under sub-section (1) may
examine them and make
extracts or copies from them during regular office hours
under such supervision as the Commissioner may
determine.
(6) Where any accounts, documents or computer
impounded and retained under sub-section (1) are lost or
destroyed while in the possession of the Commissioner,
the Commissioner shall make reasonable compensation to
the owner of the accounts, documents or computer for the
loss or destruction.
(7) This section shall have effect notwithstanding any
rule of law relating to privilege or the public interest in
relation to access to premises or places, or the production
of accounts, documents or computer-stored information.
 Entry in houses, religious places
 Access to places where Secrecy Act applies.
 Section 175A
Real-time access to information and databases
(1) Notwithstanding anything contained in any law
for the time being in force, including but not limited
to the National Database and Registration Authority
Ordinance, 2000 and the Emigration Ordinance,
1979, arrangements shall be made to provide real-
time access of information and database to the Board
in the prescribed form and manner by:
(a) the National Database and Registration Authority with
respect to information pertaining to NIC, Pakistan
Origin Card, Overseas Identity Card, Alien Registration
Card, and other particulars contained in the Citizen
Database.
(b) the Federal Investigation Agency and the Bureau of
Emigration and Overseas Employment with respect to
details of international travel;
(c) the Federal Investigation Agency and the Bureau of
Emigration and Overseas Employment with respect to
details of international entry and exit of all persons and
information pertaining to work permits, employment
visas and immigration visas;;
(d) the Islamabad Capital Territory and provincial and
local land record and development authorities with
respect to record-of-rights including digitized edition
of record-of-rights, periodic record, record of
mutations and report of acquisition of right;
(e) the Islamabad Capital Territory and provincial
Excise and Taxation Departments with respect to
information regarding registration of vehicles, transfer
of ownership and other associated record;
(f) All electricity suppliers and gas transmission and
distribution companies with respect to particulars of a
consumer, the units consumed and the amount of bill
charged or paid
 Section 176
Notice to obtain information or evidence
Using powers conferred under section 176 of the Income
Tax Ordinance, 2001 (Ordinance), the Commissioner has
been authorized to:
  Call for an information which is relevant for the levy of
tax under the Ordinance. The Commissioner can call for
information from any person, notwithstanding the fact
that he is liable to tax under the Ordinance. The purpose
is to verify the veracity of existing records of the
taxpayer and to seek information to conduct audit for
reassessing income and to oversee the compliance of tax
laws where necessary.
The information required can be furnished by the
concerned person either electronically or in the form of
documents.
  Force attendance of a person for testifying on oath
regarding the tax affairs and to provide accounts,
documents or computer stored information;
  Obtain any information, and production of records for
the purpose of carrying out an audit through a firm of
Chartered Accountants;
  Impound accounts or documents in order to have
access for the purpose of audit.
 
 The said provisions also conferred powers of
investigation along with audit to Commissioner in
respect of persons who are taxable and submit
their tax returns. The purpose is to verify whether
or not records have been maintained properly and
compliance of tax laws has been made fully.
 The provisions contained in chapter VIII of the
ordinance follow a sequence:
 Section 174 is providing for maintenance of
records;
 section 175 is providing for making search; and
 Section 176 is authorizing the Commissioner to
call for information.
 Civil Court powers
In order to carry out functions under chapter 8 of the
ordinance, presence of a number events are
necessary, that is, the search is carried out to
investigate whether or not tax payer is maintaining
proper records, and where necessary to carry out
investigation and to take appropriate measures to
conduct audit to ensure compliance of the provisions
of Ordinance. In absence of these conditions, powers
under section 174 cannot be exercised. And if any
information is called for in absence of pending
proceedings, the action would amount to a roving or
fishing inquiry
In order to call for an information, the notice must
state the object and purpose including the details of
suspicion and allegations and the same must be
intimated or disclosed to the tax payer to enable him
to have an opportunity to produce relevant
documents, and where notice.
served on a party fails to disclose reasons and motive
of such notice including the objectives, purpose and
reasons for suspicion to conduct inquiry, the inquiry
would be roving and fishing and not authorized by
law
Where these powers are exercised by an authority
that has been designated as Commissioner, the
requirements and limitations discussed above shall
ipso facto apply. And any deviation from the said
requirements will make such proceedings ab initio
illegal and void.