Audit under section 177 and 214C of the Ordinance to be conducted once in three years [Clause (105), Part IV of the Second Schedule
Audit under section 177 and 214C: The Federal Board of Revenue is empowered to select persons for audit of their Income Tax affairs through random or parametric computer ballot under section 214C of the Income Tax Ordinance, 2001.
Commissioners also have the mandate to select taxpayers for audit of their Income Tax Affairs under section 177 of the Income Tax Ordinance, 2001 after recording reasons in writing for the same.
Moreover, the powers of a Commissioner to select taxpayers for audit of their Income Tax Affairs under section 177 of the Ordinance are independent of the powers exercised by the Federal Board of Revenue with respect to selection of taxpayers for audit of their Income Tax affairs through random or parametric computer ballot under section 214C of the Income Tax Ordinance, 2001.
Prior to the Finance Act, 2018 a person could be selected for audit of its Income Tax affairs repetitively under section 177 and 214C of the Income Tax Ordinance, 2001 i.e. the audit of the Income Tax Affairs of a person under section 177 or section 214C of the Ordinance could be conducted in successive Tax Years.
However, in order to facilitate taxpayers who may be subjected to audit repetitively and to mitigate the ensuing hardship of such taxpayers, amendment has been through the Finance Act, 2018 whereby the powers of the Board and the Commissioner to select a person for audit of its income tax affairs repetitively i.e. for successive Tax Years has been curtailed.
Therefore, consequent to the passage of the Finance Act, 2018 selection of a person for audit of its Income Tax Affairs cannot be made if a person has been selected for audit in any of the preceding three Tax Years.
However, the Commissioner can still select a person for audit under section 177 even if the person was selected for audit in any of the preceding three tax years but in such a situation the selection by the Commissioner is subject to prior approval of the Board.
Therefore, a person may be subjected to audit of its Income Tax Affairs more than once in three Tax Years under section 177 of the Income Tax Ordinance, 2001 if the Commissioner has the approval of the Federal Board of Revenue in this respect
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