SHC nullifies corporate audit by ICAP members

KARACHI: The Sindh High Court (SHC) has quashed the entire exercise of
composite audit of corporate taxpayers conducted by the members of the
Institute of Chartered Accountants of Pakistan (ICAP) on behalf of the Federal
Board of Revenue (FBR), sources said on Saturday.

The SHC declared the selection of corporate taxpayers through a computer ballot
by the revenue body for composite income and sales tax audit and outsourcing
of the audit to ICAP members, nullified and held all proceedings there under
without lawful authority.

Shahnawaz (Pvt) Limited had approached the SHC that the selection of corporate
taxpayers by the FBR through a random ballot for composite audit was without
jurisdiction and discriminatory.

In the petition, it prayed before the court that in December 2009, the FBR had
selected 921 corporate entities and associations of persons through
computerised random balloting for audit of income tax, sales tax and federal
excise duty for the tax year 2008, the sources said.

Following selection of these entities, the revenue body issued them orders
intimating that their cases had been selected for composite audit for the tax year
2008 and appointed private chartered accountant for the audit.

The petition maintained that the FBR order regarding selection for composite
audit was beyond the pale of Income Tax Ordinance (ITO) 2001, Sales Taxes Act
(STA) 1990 and Federal Excise Act (FEA) 2005 and there was no provision in the
law for selection through random computer ballot.

Besides, there is no provision in ITO 2001 or STA 1990 for conducting a

composite audit.

The term composite audit is alien to the tax laws, which is also recognised by the
FBR in its order, saying that the audit was being conducted as per the policy as
opposed to statutory provision.

It also said that the selection of an entity for random composite audit without
giving specific particulars was contrary to the Articles of Constitution and in
violation of the principles of law enunciated by the Supreme Court, the sources
said.

Justice Munib Akhtar granted the petition, quashing the entire exercise of
composite audit of corporate taxpayers conducted by the members of the
Institute of Chartered Accountants of Pakistan (ICAP) on behalf of the Federal
Board of Revenue (FBR).