This blog is written by Mr. Hussain Mehmood Asif, Manager Taxation and Corporate Advisory services. This blog is perfect testimony of the immensely sound grip of Hussain Sahib over the subject of Taxation especially their litigation aspect. We request our valued readers to please read this blog and also please forward / share to more avenues.
This is in furtherance to the article of Sir Sharif ud Din Khilji providing guidance for response to a typical notice issued u/s 161 of the Income Tax Ordinance (ITO), 2001.
Usually during the assessment proceedings, a tax officer would initially issue notice to collect information u/s 161 and a reconciliation under Rule 44(4).
This article seeks to bring the attention towards the requirements of Rule 44(4). The said rule is reproduced hereunder for ease of understanding:
Quote: “A person required to furnish the statement under sub-rule (2) shall, whenever required by the Commissioner, furnish a reconciliation of the amounts mentioned in the aforesaid monthly statements with the amounts mentioned in the return of income, statements, related annexes and other documents submitted from time to time”. Unquote emphasis supplied
It may be observed from emphasized text that the taxpayer is required to reconcile the figures mentioned in the withholding statements with the figures in the return of income (including other documents like financial statements) i-e the taxpayer has to explain that the figures mentioned in the withholding statements are duly reflected in the return of income and/or financial statements.
In view of the above, the appropriate reconciliation methodology is to pick the figures from the monthly withholding statements filed by the taxpayer and explain availability of said figures with the amounts mentioned in the tax return/ financial statements. This is perfectly logical because tax return & financial statements contain a number of figures which are notional/ payable/ accrual and/or not subject to withholding tax. Accordingly, the law in its wisdom has very correctly required the taxpayer to provide reconciliation of figures whereby withholding statements are to be taken as a starting point and reconciled with the financial statements.
Contrary to the above, the notice received by the taxpayer usually requires amounts mentioned in income tax return/ financial statements to be reconciled with the ones mentioned in the withholding statements i-e entirely opposite to the requirements of law. Accordingly, the reconciliation required by the notice is usually not in line with the legal provisions of rule 44(4) of the Income Tax Rules, 2002.
Therefore, it would be appropriate to request the taxation officer to withdraw the subject notice requiring an incorrect reconciliation and issue a notice requiring reconciliation in accordance with the Rule 44(4) i-e the amounts reported in the withholding statements and reconcile the same with the tax return/financial statements.
Hussain Mehmood Asif