FTO Orders FBR to Constitute High-Power Committee For Refund Scam

The Federal Tax Ombudsman (FTO), while deciding on an Own Motion investigation on April 28, 2022, has directed FBR to constitute a high-powered inquiry committee in a blatant and eye-opening income tax refund scam worth Rs. 123.364 million.

As per details, while investigating the issuance of bogus refund amounting to Rs. 123.364 million for Tax Year 2007 to 2009 & 2011 in an earlier own motion case (0200/OM/2019) some additional irregularities were unearthed warranting authorization of instant investigation.

Moreover, in order to ascertain whether the irregularities committed earlier continued in the cases of M/s China National Electric Wire & Cable Import & Export Corporation and its associates (M/s Sinotec Co. and the main shareholder of AOP) in the subsequent years, this motion investigation was initiated under Section 9(1) of the Federal Tax Ombudsman Ordinance, 2000.

During earlier proceedings, it was revealed that M/s China National Electric Wire & Cable Import & Export Corporation did not file returns for Tax Year 2013 and onwards. Instead, a sister AOP namely M/s Sinotec Co. was registered on the FBR portal on 01.11.2011, with the main shareholder (common member in both AOPs), holding a 99% share.

The instant investigations have identified glaring discrepancies/maladministration on part of FBR in cases of these companies. Action u/s 182,184 & 187 for Tax Years 2007 to 2009 & 2011 & 2012 could not be taken earlier and has been taken now raising demand of Rs. 569.989 million that, however, is still to be recovered. Although the main shareholder, main partner of M/s China National Electric Wire & Cable Import & Export Corporation & M/s Sinotec Co was available in Pakistan till 2019, no demand notice was served upon him.

Similarly, arrear registers in respect of demand raised in the years 2007 to 2009, 2011& 2012  u/s 122(5A) of the Ordinance could not be traced. Furthermore, counterfoils of refund vouchers are not traceable. M/s Sino-Tec Co filed returns for various years declaring the status of Non-Resident in contrast to the status of Resident as per registration profile in ITMS.

Returns filed by M/s Sino-Tec Co revealed that although it is declared that payments were received against certain contracts and tax was deducted, it is not clear that in whose name the contract was accorded, assessment and tax deduction was made and credit of tax was given. Also, the nature of receipt and rate/section of tax deduction is not available on record. It was reported that recovery could not be affected by the main shareholder, a Member of AOP because he left Pakistan long ago and the matter was reportedly taken up with Govt. of China for recovery due to the non-traceability of the said person.

In view of the above, the Federal tax ombudsman has directed FBR to constitute a high-powered committee to identify the responsible officers/officials for the above-referred irregularities, fix the respective responsibilities and take remedial action on the above-highlighted issues in 90 days.

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