MASTER

CAF-2 TX & CAF-7 CL

BY SIR TARIQ TUNIO
CAF 2 TAX PRACTICES MASTER SHEETS BY SIR TARIQ TUNIO SHEET

03322130867
RECORD KEEPING & AUDIT 13
TOPIC 1► RECORD §174 TOPIC 2► PRESCRIBED BOOKS OF ACCOUNTS (Rules 28 to 33)
Maintaining Prescribed Record TYPE OF TYPE OF TAXPAYER RECORD TO BE KEPT
RECORD TO BE KEPT Manufacturers Serially numbered and dated cash-memo / invoice /receipt for each transaction of
TAXPAYER §
§ Every taxpayer shall maintain in Pakistan prescribed accounts, Income From Every taxpayer deriving IFB shall maintain proper books of account, documents (with turnover sale or receipt containing the following
documents and records. Business and records (BDR) with respect to all: 0exceeding Rs. 2.5
million): ([30(4)] - taxpayer’s name or the name of his business address, national tax number or
Disallowance of Deduction if Proof Not Provided (Note: These are § sums of money received/expended & matters related to receipt and CNIC and sales tax registration number, if any
expenditure. - the description, quantity and, value of goods sold
General § sales and purchases of goods & services
§ CIR may disallow or reduce claim for deduction if taxpayer is unable to Requirements) - whereasingletransactionexceedsRs.10,000 with the name and address of the
§ assets & liabilities customer
provide proof in the form of receipt, other record, evidence of
§ all items of cost relating to utilization of materials, labour and other inputs
transaction or circumstances giving rise to claim of deduction. in case taxpayer is engaged in assembly, production, processing,
manufacturing, mining or like activities § Cash book and/or bank book
§ ‘Deduction’ means any amount debited to trading account, § Sales day book and sales ledger (where applicable)
manufacturing account, receipts & expenses account or P&L account. § BDR shall be maintained for 6 yrs after end of TY to which they relate. § Purchases day book and purchase ledger (where applicable)
§ Pending proceedings – taxpayer shall maintain record till final decision of § General ledger
Maintaining Record for Six Years (or More) the proceedings. § Vouchers of purchases and expenses and where a single transaction exceeds Rs.
Taxpayers (other Taxpayers with business income of upto Rs. 500,000 and new taxpayers 10,000 with the name and address of the payee;
§ Accounts & documents shall be maintained for 6 years after end of TY than Companies) deriving income from business shall maintain: § Stock register of stock-in-trade (major raw materials and finished goods) supported
to which they relate. with IFB exceeding by gate in-ward and outward records and quarterly inventory of all items of stock-
Rs. 500,000 § Serially numbered and dated cash-memo / invoice / receipt for each in-trade including work-in-process showing description, quantity and value.
and wholesalers, transaction of sale or receipt containing the following: Every taxpayer Salary
§ If proceeding is pending before authority or court, record shall be
maintained till final decision of proceedings. distributors, deriving income
dealers and - taxpayer’s name or name of his business, address, NTN or CNIC and chargeable under § Salary certificate indicating the amount of salary and tax deducted there from.
commission agents STRN the head income
‘Pending proceedings’ include proceedings for assessment or - description, quantity and value of goods sold or services rendered Income from property
amendment of assessment, appeal, revision, reference, petition or from salary,
- wholesaler, distributor, dealer and commission agent, where a single property, capital Tenancy agreement, if executed
prosecution and any proceedings before an Alternative Dispute (Note: These are §
transaction exceeds Rs. 10,000 the name and address of the customer gains or other § Tenancy termination agreement, if executed
Resolution Committee. Particular - Where each transaction does not exceed Rs.100, one or more cash- sources § Receipt for amount of rent received
Requirements) memos per day for all such transactions may be maintained § Evidence of deductions claimed in respect of premium paid to insure the building,
§ Time limit of 6 years is not applicable in/c/of FS income, assets, local rate, tax, charge or cess, ground rent, profit/interest or share in rent on
expenses etc. and taxpayer is required to maintain record for indefinite § Cash book and/or bank book or daily record of receipts, sales, payments,
purchases and expenses; money borrowed, expenditure on collecting the rent, legal services and unpaid
period of time. rent.
§ a single entry in respect of daily receipts, sales, purchases and different
Electronic Tax Register heads of expenses will suffice. Capital gain
§ General ledger or annual summary of receipts, sales, payments, purchases
§ CIR may require any person to install and use prescribed Electronic Tax and expenses under distinctive heads. § Evidence of cost of acquiring the capital asset
Register for the purpose of storing and accessing information regarding § Vouchers of purchases and expenses and where a single transaction § Evidence of deduction for any other costs claimed
any transaction that has bearing on tax liability of the person. exceeds Rs. 10,000 with the name and address of the payee; and § Evidence in respect of consideration received on disposal of the capital asset.
§ Where the taxpayer deals in purchase and sale of goods, quarterly
inventory of stock-in-trade showing description, quantity and value. Income from other sources Dividends
Electronic Record (Definition)
Professionals like § Serially numbered and dated patient-slip / invoice /receipt for each § Dividend warrants Royalty
§ “Electronic Record” includes contents of communications, transactions medical transaction of sale or receipt containing the following § Royalty agreement. Profit on debt
practitioners, legal § Evidence and detail of profit yielding debt
practitioners, - taxpayer’s name or the name of his business or profession, address,
and procedures under this Ordinance, including attachments, annexes, § Evidence of profit on debt and tax deducted thereon, like certificate in the
accountants, NTN or CNIC and STRN
- description, quantity and value of medicines supplied or details of prescribed form or bank account statement; and
enclosures, accounts, returns, statements, certificates, applications, auditors,
treatment/ case/ services rendered (confidential details are not § Evidence of Zakat deducted, if any.
architects, Ground rent, rent from the sub-lease of land or building, income from the lease of
forms, receipts, acknowledgements, notices, orders, judgments, required) and amount charged §
engineers etc. any building together with plant or machinery and consideration for vacating the
- name and address of the patient/client
approvals, notifications, circulars, rulings, documents and any other possession of a building or part thereof (a) Lease agreement (b) Lease termination
§ Condition of recording address of patient on patient slip shall not apply to agreement.
information associated with such communications, transactions and
general medical practitioners § Annuity or Pension – Evidence of amount received.
procedures, created, sent, forwarded, replied to, transmitted, § Prize money on bond, winning from a raffle, lottery or cross word puzzle
§ Daily appointment and engagement diary in respect of clients and patients Evidence of income and tax deducted thereon, like certificate in the prescribed
distributed, broadcast, stored, held, copied, downloaded, displayed, (Not aapplicable to general medical practitioners) form.
`
Daily record of receipts, sales, payments, purchases and expenses; a single § Provision, use or exploitation of property— Agreement.
viewed, read, or printed, by one or several electronic resources and any §
entry in respect of daily receipts, sales, purchases and different heads of § Loan, advance, deposit or gift— Evidence of mode of receipt of a loan, advance,
other information in electronic form. expenses will suffice Vouchers of purchases and expenses deposit or gift i.e., by a crossed cheque or through a banking channel.
§ General – Evidence of deduction for any other expenditure claimed.

TOPIC 3► BOOKS OF ACCOUNTS, DOCUMENTS AND RECORDS TO BE KEPT AT SPECIFIED PLACE

Income From Books of accounts, documents and records required to be maintained by a Income Where a person derives income from sources other than from Place to be The place or places where the books of accounts, documents and
Business taxpayer shall be kept at the place where the taxpayer is carrying on the From Other business, the books of accounts, documents and records shall be clearly records are kept shall be clearly stated on the tax return form in the
business or, where the business is carried on in more places than one, at the Sources kept at the person’s place of residence or such other place as may stated on column requiring the details of the records maintained.
principal place of business or at each of such places if separate books of tax returns
be so declared by such person.
accounts are maintained in respect of each place.
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 AUDIT

TOPIC 4► NATIONAL DATABASE AND

REGISTRATION AUTHORITY (§ 175B)
TOPIC 5: TAX AUDIT PROCESS IN FLOW CHART TOPIC 8: TAX AUDIT BY FIRM OF CA/CMA
§ NADRA shall, on its own motion or upon application
§ Board [by outsourcing tax audit] may appoint a firm of CA or CMA to by Board, share its records and any information
conduct audit of income tax affairs of any person or classes of persons.
available or held by it, with Board, for broadening of
DESK AUDIT BY OIR SELECTION FOR AUDIT SELECTION tax base.
FILING OF RETURN § Scope of such audit is determined by Board or CIR on a case-to-case basis.
(AC/DCIR) AUDIT BY CIR NOTICE TO TXPAYER
§ Where a person § NADRA may identify in relation to any person,
(whether a taxpayer or not) income, receipts, assets,
- fails to produce properties, liabilities, expenditures, or transactions
RECORD PROVIDED BY CALLING OF RECORD CASE ASSIGNED TO
OIR CONDUCTS AUDIT o before CIR or firm of CA/CMA appointed by Board or CIR to that have escaped assessment or are under-assessed
TAXPAYER TO OIR BY OIR OIR BY CIR
conduct audit of a taxpayer’s income tax affairs or have been assessed at a low rate, or have been
subjected to excessive relief or refund or have been
- accounts, documents and records, required to be maintained under
misdeclared or misclassified under a particular head
PREPARING AUDIT ITO 2001 or any other relevant document, electronically kept record,
IF DISCREPANCES AMENDED of income.
SHOW CAUSE NOTICE electronic machine or any other evidence
REPORT BY OIR FOUND DURING AUDIT ASSESSMENT ORDER
- that may be required by CIR or the firm of CA/CMA for the purposes § Board may use and utilize any information
of tax audit or determination of income and tax due communicated to it by NADRA and forward such
information to an income tax authority having
DISCREPANCES NOT AUDIT CLOSED - CIR may proceed to make best judgment assessment and
jurisdiction.
FOUND DURING AUDIT WITHOU ANY SCN
- Assessment treated to have been made on the basis of return or
revised return filed shall be of no legal effect. § NADRA may compute indicative income and tax
liability of anyone mentioned above by use of artificial
intelligence, mathematical or statistical modelling or
any other modern device or calculation method.
TOPIC 7: AUDIT ON THE BASIS OF
TOPIC 6: AUDIT §177 [GENERAL POINTS] TOPIC 9: AUDIT BY SPECIAL AUDIT PANEL (SAP) § Indicative income and tax liability computed by
SECTORAL BENCHMARK RATIOS
NADRA shall be notified by the Board to the person in
§ CIR may call for record, documents & books of accounts § Board may appoint Special Audit Panels to conduct audit, including forensic audit, of
§ Where a taxpayer respect of whom such indicative income and tax
maintained under ITO 2001 or any other law for conducting income tax affairs of any person or classes of persons.
liability has been determined, who shall have the
audit of income tax affairs of the person. (a) has not furnished record, documents option to pay the determined amount on such terms,
§ Scope of such audit shall be determined by Board or CIR on case-to-case basis.
or books of accounts (RDA) conditions, instalments, discounts, reprieves
§ If record/documents are kept on electronic data, access § SAP shall comprise of any two or more members from: pertaining to penalty and default surcharge, and time
shall be allowed to CIR or officer authorized to use the (b) has furnished incomplete RDA
- officer of Inland Revenue limits that may be prescribed by the Board.
machine/ software and access to the required information.
(c) is unable to provide sufficient - firm of CA/CMA § In case the person against whom a liability has been
§ CIR shall not call for record/documents after expiry of six explanation regarding defects in RDA - any other person as directed by the Board determined, does not pay such liability within the
years from end of TY to which the record relates.
time prescribed, Board shall take action under ITO-
§ SAP shall be headed by a Chairman who shall be an officer of Inland Revenue.
§ CIR may conduct audit proceedings electronically through it shall be construed that 2001, upon the basis of tax liability computed above.
video links, or any other facility as prescribed by the Board. § Powers under § 175 [“Power to Enter and Search Premise”] and powers under § 176
- taxable income has not been § If the person against whom the liability has been
correctly declared and [“Notice to Obtain Information or Evidence”] for the purpose of conducting audit by SAP determined pays such liability, such payment shall be
§ After obtaining the record of a person, CIR shall conduct
shall only be exercised by OIR(s) who is/are member of SAP and authorized by CIR. construed to be an amended assessment order u/§
audit of income tax affairs.
- CIR shall determine taxable income 120 or ss (1) of § 122 or ss (4) of § 122.
§ After completion of audit CIR, after obtaining taxpayer‘s on the basis of sectoral benchmark § Where person fails to produce before CIR or SAP accounts, documents and records, or
explanation on all issues raised in audit, issue an audit report ratios prescribed by Board. any other relevant document, electronically kept record, electronic machine or any
containing audit observations and findings. other evidence that may be required by CIR or SAP for the purpose of audit or
TOPIC 10: SELECTION FOR AUDIT BY CIR VS BOARD
§ “Sectoral Benchmark Ratios” means determination of income and tax due, CIR may proceed to make best judgment
§ After issuing the audit report, CIR may amend the assessment and assessment treated to have been made on the basis of return or revised
standard business sector ratios notified by § Power of the Commissioner
assessment after providing an opportunity of being heard return shall be of no legal effect.
to the taxpayer. the Board on the basis of comparative - under section 177 is independent of
§ If member of SAP, not being Chairman, is absent from conducting audit, proceedings
§ While selecting a case for audit cases and includes financial ratios, may continue and audit conducted by SAT shall not be invalid or be called into question - powers of Board under section 214C
production ratios, gross profit ratio, net merely on account of such absence.
- CIR must not select a person § Nothing contained in section 214C
- whose income tax affairs have been audited in any of profit ratio, recovery ratio, wastage ratio § Functions performed by OIR(s) as member of SAP to conduct audit shall be treated as
preceding 4 tax years. having been performed by the special audit panel. - restricts the power of the Commissioner
and such other ratios in respect of such
Such person may be selected for audit by CIR only with the - to call for the record or documents including
§ sectors as may be prescribed.” § Board may prescribe mode and manner of constitution, procedure and working of the
approval of the Board. books of accounts of a taxpayer for audit and
special audit panel.
- to conduct audit under this section.
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