APPELLATE TRIBUNAL INLAND REVENUE,
SPECIAL BENCH, LAHORE
ITA
No.665/LB/26
(Tax
Year 2022)
&
ITA
No.665/LB/26
(Tax
Year 2023)
M/s
DHA Dolmen Lahore (Pvt) Ltd.
Plot # 158, Sector A, DHA, Phase VI, Lahore.
Registration
No:5298402 …Appellant
The CIR, LTO, Lahore. …Respondent
Appellant
by: Mr. Burhan Ahmed, FCA
Respondent by: Barrister Ahtisham Mukhtar (LA) assisted by
Mr. Waqas Tarar, Commissioner IR,
Mr. Naveed Akhtar (Add CIR),
Mr. Ali Imam, DR
Date of
hearing: 16.03.2026
Date of order: 18.03.2026
O
R D E R
M.
M. AKRAM (Judicial Member):
The titled appeals have been instituted by the
appellant–taxpayer against the impugned orders, both dated 26.02.2026,
passed by the learned Commissioner
Inland Revenue (Appeals‑VIII), Lahore (“CIR(A)”),
whereby the amended orders, both dated 03.09.2025,
passed by the learned Additional
Commissioner Inland Revenue (“Add. CIR”)
for the tax years 2022 and 2023
were upheld. As the facts of both cases are largely identical and the principal
issues involved are common, both appeals are being disposed of through this
consolidated order.
FACTS
OF THE CASE
2. The
brief facts, as gathered from the record, are that the appellant–taxpayer, a
private limited company, filed its returns of income for the tax
years 2022 and 2023, which were treated as
deemed assessment orders under section 120(1)(b)
of the Income Tax Ordinance,
2001 (“the Ordinance”). Subsequently, upon
examination of the record, the learned Add. CIR observed that the deemed
assessment orders were erroneous insofar as they were prejudicial to the
interest of revenue. Accordingly, proceedings were initiated by simultaneously
invoking the provisions of section 111
and section
122(5A) read with section
122(9) of the Ordinance for each tax year
independently. After considering the reply filed by the appellant, the learned
Add. CIR first passed orders under section
111 and, consequently, issued the final amended
orders under section 122(5A)
of the Ordinance for both tax years, each dated 03.09.2025.
3. Feeling aggrieved by the treatment
accorded by the learned Add. CIR, the appellant preferred appeals before the
learned CIR(A), who, through separate orders for both tax years, upheld the
actions of the Add. CIR vide impugned orders dated 26.02.2026.
Still dissatisfied, the appellant has assailed both impugned orders before this
Tribunal on various grounds.
4. The matter came up for hearing on
several dates and was ultimately concluded on 16.03.2026. On each of the
scheduled hearings, this Bench confined itself to recording and considering the
submissions of the parties strictly on the fundamental jurisdictional objection
raised by the learned Authorized Representative (AR) on behalf of the
appellant. Since the said objection strikes at the very root of the competence
of the proceedings, the Bench deemed it appropriate to address the issue as a
preliminary matter before entering into the merits of the controversy.
4.1 In order to ensure a fair,
comprehensive, and fully informed adjudication of the jurisdictional question,
and with a view to obtaining proper assistance from the departmental
authorities, this Bench considered it necessary to call for the complete jurisdictional
record. Accordingly, specific directions were issued to the concerned
Commissioner Inland Revenue (CIR) to appear before the Bench in person
along with the relevant record, particularly the jurisdictional orders and any
documents relating to the conferment or delegation of powers under the
applicable provisions of the Income Tax Ordinance, 2001.
4.2 In compliance with the said directions,
the learned Commissioner Inland Revenue appeared before the Bench. He was
accompanied by the learned Additional Commissioner Inland Revenue (Addl. CIR)
concerned, as well as the departmental Legal Advisor. The record as directed
was also produced for the perusal of the Bench. Both sides were afforded full
opportunity to advance their respective arguments and clarify their positions
on the jurisdictional aspect.
4.3 For the sake of clarity and convenience,
the precise submissions and contentions advanced by the learned AR for the
appellant, as well as by the DR, are summarized hereunder.
SUBMISSIONS
OF THE APPELLANT
5. The learned AR for the appellant at the
very outset of the proceedings, inter alia, vehemently contended that the
proceedings initiated by the learned Addl CIR by invoking the provisions of
section 111 read with section 122(5A) of the Ordinance are patently illegal,
void ab initio, and
without lawful authority or jurisdiction. Elaborating on his submissions, the
learned AR invited attention to the jurisdictional order dated 19.07.2024
issued by the Commissioner Inland Revenue, Zone-V, Corporate Tax Office (CTO),
Lahore. It was pointed out that through the said jurisdictional order, the
powers under various provisions of the Ordinance, including the provisions of
section 111, were specifically conferred upon the Inland Revenue Officer
(IRO)/Deputy Commissioner Inland Revenue (DCIR). According to the learned AR,
the said jurisdictional order does not extend or confer the powers under
section 111 upon the Add CIR. Consequently, it was argued that the assumption
of jurisdiction and initiation of proceedings by the Addl. CIR under section
111 of the Ordinance is contrary to, and in violation of, the express mandate
contained in the aforementioned jurisdictional order.
5.1. The learned AR further submitted that
although section 210 of the Ordinance empowers the Commissioner Inland Revenue
to delegate certain statutory powers and functions to the officers subordinate
to him, such delegation is required to be exercised in a lawful, transparent,
and structured manner. According to the learned AR, any delegation made under
the said provision must be explicit, specific, and in strict conformity with
the statutory scheme of the Ordinance so that the scope of authority vested in
each officer remains clearly defined and free from ambiguity. It was further
forcefully argued that the power of delegation under section 210 cannot be
exercised in a manner that creates overlapping or parallel jurisdictions with
respect to the same subject matter or cause of action. In particular, the
learned AR emphasized that proceedings relating to section 111 of the
Ordinance, which deal with unexplained income or assets, require a clearly
identified jurisdictional authority. Therefore, the same power, in respect of
the same cause and proceedings, cannot simultaneously be exercised by two
different officers, namely the IRO/DCIR and the Addl. CIR, unless the law
specifically authorizes such concurrent jurisdiction through an unequivocal and
properly issued order. The learned AR contended that permitting such concurrent
or overlapping exercise of powers would create uncertainty in the
administration of tax laws and may result in conflicting proceedings, thereby
undermining the principles of orderly tax administration and due process of
law.
5.2 Furthermore, the learned AR submitted
that, even otherwise, in the facts and circumstances of the present case, no
such concurrent delegation or authorization is available on record. The
jurisdictional order presently on record confers the relevant powers only upon
the IRO/DCIR and does not extend the same authority to the Addl CIR in respect
of proceedings under section 111 of the Ordinance. Consequently, it was
contended that the initiation and conduct of proceedings by the Addl CIR under
the said provision is wholly without lawful authority. On this premise, the
learned AR maintained that the assumption of jurisdiction by the Addl. CIR is
fundamentally flawed and contrary to the governing jurisdictional framework,
thereby rendering the entire proceedings legally unsustainable. He therefore
prayed that the proceedings so initiated be declared without jurisdiction, void
ab initio, and of no legal effect. In support of his contention, the learned AR
placed reliance upon the judgment of the Lahore High Court titled Commissioner
Inland Revenue v. Sajid Hussain Gondal and Others
(ITR No. 10 of 2024, order dated 03.02.2026).
5.3 Notwithstanding the aforesaid
submissions, the learned AR further contended that after the amendment made in
section 122(5A) of the Ordinance through the Finance Act, 2021, the Addl. CIR,
even otherwise, does not possess jurisdiction to invoke the provisions of
section 122(5A) for the purpose of conducting roving and fishing enquiries. In
this regard, reliance was placed on the reported judgment cited as 2022
PTD 1411. On merits, the learned AR also placed
on record various documents compiled in the form of a booklet, which were duly
taken on record for consideration.
DEPARTMENT
SUBMISSIONS
6. The learned Legal Advisor (LA)
appeared on behalf of the department and was assisted by the Addl. CIR as well
as the Commissioner Inland Revenue (CIR). At the outset of his
submissions, the learned LA placed on record a jurisdictional order dated
19.07.2025 issued by the Commissioner Inland Revenue in exercise of the powers
conferred under section 210 of the Income Tax Ordinance, 2001. Through the said
order, inter alia, the powers relating to the amendment of assessment under
section 122(5A) of the Ordinance were delegated to the Addl. CIR.
6.1 Elaborating upon the said jurisdictional
order, the learned LA submitted that the order not only confers the specific
power to amend an assessment under section 122(5A) of the Ordinance but also
expressly includes the phrase “along with all incidental statutory
powers thereof.” According to the learned LA, the said expression
is of wide amplitude and is intended to encompass all ancillary, incidental,
and consequential powers that may be required for the effective exercise of the
principal jurisdiction conferred under section 122(5A) of the Ordinance. He
argued that such wording cannot be interpreted in a narrow or restrictive
manner. Rather, it must be construed purposively so as to enable the officer
exercising the delegated authority to effectively perform the functions
contemplated under the principal provision.
6.2 In this context, the learned LA
contended that the power to examine unexplained income or assets under section
111 of the Ordinance constitutes an incidental or ancillary power in the course
of exercising jurisdiction under section 122(5A). According to him, where,
during the course of amendment proceedings under section 122(5A), the officer
encounters issues relating to unexplained investments, assets, or expenditures,
the invocation of section 111 becomes a necessary and integral part of the
enquiry. Therefore, the authority to exercise powers under section 111, in such
circumstances, flows from and forms part of the incidental statutory powers
attached to the delegated authority under section 122(5A).
6.3 The learned LA further submitted that
the Add CIR, while exercising jurisdiction under section 122(5A), is legally
competent to conduct further inquiry and investigation into matters that come
to his notice during the course of the proceedings. According to him, such an inquiry
cannot be curtailed merely on the ground that the jurisdictional order
specifically mentions section 122(5A) but does not expressly enumerate every
ancillary provision of the Ordinance that may become relevant during the course
of the proceedings. He argued that to hold otherwise would defeat the purpose
of the delegation itself and would unnecessarily restrict the lawful exercise
of statutory powers vested in the departmental authorities.
6.4 The learned LA therefore maintained that
the action of the Addl. CIR in examining the matter, including issues related
to section 111 of the Ordinance, in the course of proceedings initiated under
section 122(5A), falls squarely within the scope of the powers delegated
through the jurisdictional order dated 19.07.2025. According to him, the
proceedings initiated by the Addl. CIR are therefore fully lawful and within
jurisdiction. In support of his submissions, the learned LA placed reliance
upon the reported judgments cited as 2024
PTD 619, 2016
PTD 596, and 2023
PTD 1166, wherein, according to him, the superior
courts have recognized that while exercising statutory jurisdiction, the
concerned officer is also vested with such incidental and ancillary powers as
may be necessary to effectively carry out the functions entrusted under the
law.
6.5 While concluding his submissions, the
learned LA
vehemently contended that there exists no statutory prohibition under the
Ordinance which restrains the tax authorities from invoking the provisions of
section 111 in conjunction with the provisions of section 122(5A) of the
Ordinance. It was argued that both provisions operate within their respective
statutory spheres and nothing in the legislative framework precludes their
simultaneous application in appropriate circumstances. In order to fortify his
stance, the learned LA placed reliance upon the judgment reported as Millat
Tractors Limited v. Federation of Pakistan
(2024 SCMR 700), contending that the said pronouncement of the Hon’ble Supreme
Court recognises the permissibility of invoking section 111 alongside the
amendment proceedings contemplated under section 122(5A) of the Ordinance.
According to him, the ratio of the said judgment lends support to the
proposition that the assessing authority is not legally barred from examining
unexplained income or assets under section 111 while exercising powers of
amendment under section 122(5A).
FINDINGS
7. We have heard the learned
representatives of both parties at considerable length and with due attention.
The submissions advanced by the learned AR on behalf of the appellant, as well
as those put forth by the departmental representatives, have been carefully
examined and thoughtfully considered. In addition thereto, the Bench has also
minutely perused the entire record made available before it, including the
relevant documents, jurisdictional orders, and other material produced during
the course of proceedings.
7.1 Since the appellant has raised a
fundamental objection relating to the jurisdiction and competence of the
authority initiating and exercising the impugned proceedings, the Bench
considers it appropriate to first address and determine the said jurisdictional
question before entering into the merits of the case. The determination of such
a preliminary issue is essential, as it goes to the very root of the legality
and sustainability of the proceedings undertaken by the department.
7.3 In view of the rival submissions of the
parties, the material placed on record, and the jurisdictional objection so
raised by the appellant, the following questions arise for our consideration
and determination:
1. Whether
the Addl. CIR could lawfully initiate proceedings under section 111 of the
Ordinance in light of a jurisdiction order under section 210 conferring such
powers exclusively on the IRO/DCIR, or whether any such action would be without
lawful authority and void ab initio?
2.
Whether the Commissioner
Inland Revenue, in exercise of the powers vested in him under the Ordinance,
can validly delegate his powers and functions concurrently to more than one
Officer of Inland Revenue subordinate to him?
3.
Whether the expression “all
incidental statutory powers thereof,”
as employed in the jurisdictional order issued under section 210 of the
Ordinance in favour of the Additional Commissioner Inland Revenue (Addl. CIR),
can be interpreted so as to authorize him to invoke provisions such as sections
108, 108A, 109, 111, etc., particularly in circumstances where such provisions
could not otherwise be invoked in the course of proceedings initiated under
section 122(5A) of the Ordinance?
4. Whether
proceedings under section 111 of the Ordinance can be lawfully initiated by
invoking the revisionary powers under section 122(5A), or whether the statutory
framework mandates that such proceedings must proceed exclusively through the
reassessment mechanism under section 122(5)?
8. Before embarking upon the adjudication
of the substantive controversy involved in the present matter, it is considered
both appropriate and necessary to clearly delineate the statutory scope,
legislative intent, and jurisdictional contours of sections 122(5), 122(5A),
and 111 of the Ordinance. Although these provisions form part of the same
statutory framework dealing with the amendment of assessments, they operate in
distinct legal spheres and are intended to serve separate and independent
purposes within the broader scheme of the assessment and post-assessment
regime, particularly in matters relating to unexplained income or assets. A
proper and contextual understanding of the respective fields of operation of
these provisions is therefore essential before proceeding to examine whether
the actions taken by the tax authorities in the present case fall within the
lawful limits and parameters prescribed under the Ordinance.
9. A. Scope and Purpose of Section 122(5)
9.1 Section
122(5) of the Ordinance provides a specific statutory mechanism whereby the
Commissioner Inland Revenue is empowered to amend an existing assessment order
in circumstances where it subsequently becomes apparent that the original
assessment suffers from certain legally recognized deficiencies which
materially affect the accurate determination of the taxpayer’s taxable income.
9.2 The exercise of jurisdiction under this
provision is not discretionary in an unfettered sense, but is conditioned upon
the Commissioner forming a bona fide satisfaction, based upon audit
observations or definite information, that the assessment order previously
passed does not correctly reflect the taxpayer’s true tax liability under the
law. In other words, the power conferred under section 122(5) is triggered by
the emergence of objective material demonstrating that the assessment has
resulted in an incorrect computation of taxable income.
9.3 The provision essentially addresses
circumstances where the assessment has been rendered defective due to
identifiable factual or legal inaccuracies, including but not limited to the
following situations:
i. Escapement of income, where income
chargeable to tax has not been brought to tax because it was either omitted,
concealed, or otherwise remained undiscovered at the time of the original
assessment proceedings;
ii. Under-assessment of income, where the
total income has been assessed at an amount lower than what ought to have been
assessed in accordance with the law, thereby resulting in an understatement of
the taxpayer’s tax liability;
iii. Application of an incorrect rate of tax,
where the income has been subjected to taxation at a rate lower than that
prescribed under the applicable provisions of the law;
iv. Excessive allowance of relief or refund,
where the taxpayer has been granted relief, deduction, allowance, exemption, or
refund in excess of what was legally admissible, thereby conferring an
unintended fiscal advantage;
v. Misclassification of income, where income
has been placed under an incorrect head or category, which consequently
distorts the proper tax treatment applicable to such income under the statutory
scheme.
Thus,
the legislative design of section 122(5) clearly indicates that the provision
is intended to remedy situations where the assessment is demonstrably
inconsistent with the correct application of tax law or with the facts of the
case.
9.4 Information-Driven and Fact-Based
Nature of the Provision
The jurisdiction contemplated under
section 122(5) is fundamentally information-based and fact-oriented. The
Commissioner cannot invoke this provision merely on the basis of suspicion or
conjecture. Rather, the exercise of such power must be founded upon tangible
material, typically emerging from an audit conducted under the Ordinance or
from other definite and credible sources of information, indicating that the
assessment previously finalized does not correctly determine the taxable income
of the taxpayer.
9.5 The term “definite information”, as
judicially interpreted in numerous tax jurisdictions, implies the existence of
specific and reliable material capable of objectively demonstrating that an
error has occurred in the assessment. It has also been defined in section
122(8) of the Ordinance as well. Therefore, the jurisdiction under section
122(5) is not intended to facilitate a mere change of opinion, nor does it
permit the Commissioner to reopen assessments on speculative grounds.
9.6 Instead, the provision operates where
newly discovered facts, audit findings, or other credible information reveal
that the assessment suffers from a defect which has resulted in loss of
legitimate revenue or inaccurate determination of tax liability.
9.7 Legislative Objective and
Functional Role
Viewed in its proper statutory
context, section 122(5) serves as an important corrective instrument within the
tax administration framework. Its primary objective is to safeguard the
integrity and accuracy of the assessment process by empowering the revenue
authorities to rectify assessments that have been rendered incorrect due to
factual omissions, computational errors, misclassification of income, or other
legally cognizable defects.
9.8 The provision thus performs a protective
function for the revenue, ensuring that where concrete information subsequently
emerges demonstrating that the taxable income was not properly determined, the
authorities are not rendered powerless to correct the assessment. At the same
time, the requirement of audit findings or definite information acts as a
safeguard against arbitrary reopening of assessments, thereby maintaining a
balance between the interests of the revenue and the rights of the taxpayer.
9.9 In essence, section 122(5) operates as a
statutory corrective mechanism, enabling the tax administration to bring to tax
income that has escaped assessment or has been inaccurately assessed due to
factual, computational, or technical deficiencies, while ensuring that such
corrective action remains firmly grounded in objective information and legally
recognized parameters.
10. B. Scope and Purpose of Section 122(5A)
Section
122(5A) of the Ordinance embodies a distinct and supervisory jurisdiction
vested in the Commissioner Inland Revenue, enabling him to amend, or further
amend, an assessment order where such order is found to be erroneous in so far
as it is prejudicial to the interests of the revenue. Unlike the corrective
jurisdiction exercised upon the discovery of escaped income, the power
conferred under section 122(5A) is essentially revisional in nature, designed
to ensure that assessment orders passed by subordinate authorities conform to
the correct application of law and the proper interpretation of the statutory
provisions governing taxation.
10.1 The legislative purpose underlying this
provision is to protect the public exchequer from loss arising out of erroneous
assessment orders which, due to legal misinterpretation, incorrect application
of statutory provisions, or failure to properly appreciate the material
available on record, result in an undue fiscal advantage to the taxpayer. In
this sense, section 122(5A) functions as an administrative supervisory
mechanism, empowering the Commissioner to intervene where an assessment order
is demonstrably inconsistent with the law and consequently detrimental to the
legitimate revenue interests of the State.
10.2 Thus, the jurisdiction contemplated under
section 122(5A) is not directed towards discovering new taxable income; rather,
it is aimed at correcting errors embedded within the assessment order itself,
where such errors have led to an improper determination of tax liability.
10.3 Distinction from Section 122(5):
Absence of Requirement of Definite Information
A significant distinguishing feature
of section 122(5A) lies in the absence of any requirement for audit findings or
definite information as a condition precedent for the exercise of jurisdiction.
Unlike section 122(5), which is triggered by the emergence of new material
indicating escapement or under-assessment of income, the power under section
122(5A) is exercised on the basis of the assessment record already available
before the Commissioner.
10.4 Under this provision, the Commissioner
undertakes an evaluative review of the assessment order to determine whether
the order suffers from an error in law or in its application to the facts
already on record, and whether such error has resulted in prejudice to the
interests of the revenue. The inquiry, therefore, remains confined to the
correctness and legality of the order itself, rather than extending to the
discovery of additional facts or new sources of income.
10.5 Consequently, the jurisdiction under
section 122(5A) is record-based and supervisory, focusing on whether the
assessment officer has properly applied the law to the material that was
already available at the time of passing the original assessment order.
10.6 Statutory Limitations and
Jurisdictional Boundaries
While section 122(5A) confers an
important supervisory authority upon the Commissioner, the exercise of such
power is not unbounded and is circumscribed by well-defined statutory
limitations. The Commissioner must strictly confine the examination to the material
forming part of the original assessment record, and the alleged error must be
discernible from that record itself.
10.7 In other words, the Commissioner cannot
invoke section 122(5A) to conduct a fresh fact-finding exercise, nor can the
provision be utilized as a mechanism for reopening the assessment on the basis
of subsequent discoveries, additional evidence, or newly obtained information
which was not part of the original proceedings.
10.8 The statutory scheme clearly indicates
that the error sought to be corrected must be identifiable from the existing
record, such as:
i. incorrect
interpretation or application of a statutory provision;
ii. failure
to apply a mandatory provision of law;
iii. allowance
of deduction, exemption, or relief contrary to the legal framework; or
iv. misapplication
of the law to the admitted or recorded facts of the case.
Therefore,
the jurisdiction under section 122(5A) remains confined to correcting
demonstrable legal or procedural errors within the four corners of the
assessment record, and cannot be extended to situations where the revenue seeks
to introduce new factual material to justify an amendment of the assessment.
10.9 Nature of the Power: Corrective
Rather than Investigative
It necessarily follows that section
122(5A) does not authorize the initiation of investigative or exploratory
proceedings for the purpose of uncovering new sources of taxable income. The
Commissioner, while exercising this jurisdiction, does not function as an
assessing authority conducting a de novo inquiry into the taxpayer’s affairs.
Rather, his role is corrective and supervisory, limited to ensuring that the
assessment order previously passed is legally sound and consistent with the
statutory framework.
10.10 The provision is therefore intended to
address situations where the assessment order is demonstrably erroneous on the
face of the record and where such error has caused prejudice to the interests
of the revenue. In such circumstances, the Commissioner may intervene to
rectify the order so as to align it with the correct legal position.
11 C. Jurisdictional Distinction Between the Two Provisions
From the foregoing discussion, it
becomes evident that although both sections 122(5) and 122(5A) of the Ordinance
empower the tax authorities to amend assessment orders, the jurisdictional
foundation and operational scope of the two provisions are fundamentally
different.
11.1 Section 122(5) operates in circumstances
where new information, audit observations, or definite material comes to light
indicating that the assessment suffers from factual deficiencies, such as
escapement or under-assessment of income. The provision, therefore, facilitates
a reassessment based upon newly discovered information, enabling the revenue
authorities to correct assessments that fail to capture the true taxable income
of the taxpayer.
11.2 In contrast, section 122(5A) is invoked
where the assessment order itself, upon examination of the existing record, is
found to be legally erroneous and prejudicial to the interests of the revenue.
The jurisdiction under this provision is thus revisional and supervisory,
limited strictly to correcting errors apparent from the record without
embarking upon any fresh investigation or factual inquiry.
11.3 The statutory scheme of the Ordinance
therefore reflects a clear and deliberate legislative intent to maintain a
principled distinction between:
i. reassessment
based on definite information (section 122(5)); and
ii. revision
of an erroneous order based on the existing record (section 122(5A)).
This
deliberate separation of jurisdictions serves an important structural purpose
within the assessment framework. It ensures that each power is exercised within
its respective legal domain, thereby preventing overlap or misuse of authority
and maintaining the certainty, fairness, and finality of tax assessments while
simultaneously safeguarding the legitimate interests of the revenue.
12. For better clarity and ease of
reference, the scope, purpose, and jurisdictional limits of sections 122(5) and
122(5A) of the Ordinance may be summarized in the following tabulated form:
|
Aspect |
Section 122(5) |
Section 122(5A) |
|
Nature
of Power |
Reassessment
power to amend an assessment where taxable income has not been correctly
determined. |
Supervisory/revisionary
power to correct an assessment order that is erroneous and prejudicial to the
interest of revenue. |
|
Primary
Purpose |
To
bring to tax income that has escaped assessment or has been incorrectly
assessed due to factual or technical errors. |
To
correct errors in an assessment order which are apparent from the record and
which cause a loss to the revenue. |
|
Trigger
for Invocation |
Requires
audit findings or definite information leading the
Commissioner to believe that an assessment error exists. |
Can
be invoked where the Commissioner considers the assessment order erroneous
and prejudicial to the interest of revenue. |
|
Nature
of Error Addressed |
Specific
statutory errors such as escaped income, under-assessment, assessment at too
low a rate, excessive relief/refund, or misclassification of income. |
Broader
errors in the assessment order, including misapplication of law or incorrect
conclusions, provided such error is evident from the record. |
|
Source
of Information |
Based
on new material, audit findings, or definite information
obtained after the original assessment. |
Confined
strictly to the existing assessment record available at
the time the original order was passed. |
|
Scope
of Inquiry |
Permits
examination of new facts or information discovered after assessment in order
to determine escaped or incorrectly assessed income. |
Does
not permit investigation or discovery of new facts; the
Commissioner must rely only on the material already available on record. |
|
Requirement
of Investigation |
May
involve factual verification and inquiry to establish escaped income or
incorrect assessment. |
No
detailed inquiry or investigation is contemplated; jurisdiction is limited to
correcting errors visible from the record. |
|
Nature
of Jurisdiction |
Information-based
reassessment jurisdiction. |
Record-based
supervisory jurisdiction. |
|
Objective
in Tax Administration |
Ensures
that all taxable income is properly brought to tax where it was omitted or
wrongly assessed earlier. |
Ensures
that assessment orders are legally correct and do not prejudice the revenue
due to errors in the application of law or facts already on record. |
In essence, section 122(5)
operates where new information reveals deficiencies in the assessment, whereas
section 122(5A) functions as a corrective mechanism confined to the existing
record, ensuring that erroneous assessment orders prejudicial to the revenue
are amended/rectified without initiating a fresh investigative exercise.
13. Nature
and Object of Section 111
Section 111 of the Ordinance deals
with unexplained income or assets of a taxpayer and constitutes one of the most
significant anti-tax-evasion provisions within the statutory framework. The
provision authorizes the Commissioner Inland Revenue to treat certain amounts
as income chargeable to tax where the taxpayer fails to satisfactorily explain
the nature and source of particular financial items reflected in his affairs.
13.1 Broadly speaking, the provision covers
circumstances where a taxpayer is unable to satisfactorily explain:
i. any amount credited in the books of
account maintained by the taxpayer;
ii. any investment made or asset acquired by
the taxpayer;
iii. the ownership of money, bullion, jewellery,
or other valuable articles;
iv. expenditure incurred which appears
disproportionate to the declared sources of income; or
v. any money or valuable article possessed by
the taxpayer for which the source cannot be explained.
13.2 The essential characteristic of section
111 lies in the fact that its application necessarily involves a factual
determination regarding the existence of unexplained financial resources. The
Commissioner must first identify a transaction, asset, investment, or
expenditure that appears inconsistent with the taxpayer’s declared income and
then evaluate whether the explanation offered by the taxpayer is satisfactory.
13.3 In practice, proceedings under section 111
rarely originate merely from the existing assessment record. Instead, they
typically arise after the revenue authorities obtain new information or
material suggesting that the taxpayer possesses financial resources not
reflected in the declared income.
13.4 Such information commonly emerges through
sources such as:
a. discovery of new material during
departmental investigation;
b. third-party information obtained from
financial institutions or other persons;
c. audit findings pointing toward unexplained
transactions;
d. banking data indicating deposits
inconsistent with declared income;
e. wealth reconciliation discrepancies
revealed through comparison of wealth statements; or
f. information received from other
governmental or regulatory agencies.
13.5 Thus, the very structure of section 111
presupposes the existence of fresh material, investigation, or definite
information indicating unexplained financial transactions. Only after such
material is brought to light does the Commissioner initiate proceedings, call
for an explanation from the taxpayer, and determine whether the amount in
question represents income chargeable to tax that has not been previously
explained or assessed.
13.6 Consequently, proceedings under section
111 inevitably lead to the conclusion that income chargeable to tax has escaped
assessment.
14. In light of the statutory scheme
governing sections 122(5), 122(5A), and 111 of the Income Tax Ordinance, 2001,
when read in conjunction with section 210 of the said Ordinance, as well as the
jurisdictional orders issued thereunder by the Commissioner Inland Revenue,
Zone-V, Corporate Tax Office, Lahore, the questions raised in the present
matter require examination through the well-established principles of delegated
jurisdiction, statutory interpretation, and administrative law. These
provisions, though forming part of the same legislative framework relating to
assessment and amendment of assessments, operate within clearly defined and
distinct legal spheres. Their proper application must therefore be understood
not merely in isolation but within the broader statutory structure governing
the allocation and exercise of powers by different tax authorities. In
particular, section 210 empowers the Commissioner Inland Revenue to allocate
jurisdiction and assign functions to subordinate officers, thereby determining
the specific authorities competent to exercise powers under various provisions
of the Ordinance. Consequently, the validity of any proceedings initiated or
actions taken under sections 122(5), 122(5A), or 111 must necessarily be
examined in the context of such jurisdictional assignments and the scope of
authority conferred upon the respective officers. The issues arising in the
present case thus fall to be analyzed in the light of the principles governing
delegated statutory powers, including the doctrine that where a statute confers
authority upon a particular officer, and the Commissioner subsequently
allocates such authority through a formal jurisdictional order, the exercise of
that power must strictly conform to the limits of the delegation so made. Any
action undertaken by an officer lacking the requisite jurisdiction, or acting
beyond the scope of authority specifically conferred, would prima facie raise
questions regarding the legality and validity of the proceedings so initiated.
For convenience and proper
appreciation of the controversy involved in the instant case, the relevant part
of the jurisdictional orders issued by the CIR under section 210 of the
Ordinance are reproduced below:
“Federal Board of Revenue, Government of Pakistan
Commissioner Inland Revenue, Zone-V, Corporate Tax
Office, Lahore
No.
66/Admin Dated. 19-07-2024
SUBJECT: JURISDICTION OF OFFICERS OF INLAND
REVENUE OTHER THAN THE ADDITIONAL COMMISSIONERS, IN RESPECT OF ZONE-V,
CORPORATE TAX OFFICE, LAHORE.
In supersession of the earlier jurisdiction order
dated 07-04-2023 and in pursuance of CCIR Jurisdiction order No.CC
CTO/JUD-IAC/SO-V/275 dated 11-07-2024 and in exercise of the powers conferred
under sub-section (1) of section 210 of the Income Tax Ordinance 2001, sub-section
(1) of section 30 and section 31 of the Sales Tax Act. 1990, sub-section (1) of
29 of the Federal Excise Act, 2005, the Commissioner Inland Revenue Zone-V
Corporate Tax, Lahore, is pleased to direct that the Officers Inland Revenue. Zone-V
Corporate Tax Office. Lahore read in column (2) shall exercise the powers and
functions specified in column (3) in respect of the is or classes of persons or
cases or classes of cases as specified in column (4) of the Table below:
This notification shall take effect from 22.07.2024.
TABLE-I
|
Sr
no. |
Officer
of Inland Revenue |
Powers
and Function |
Jurisdiction |
|
(1) |
(2) |
(3) |
(4) |
|
01 |
Officer of Inland Revenue, Unit-01, Zone-V,
Corporate Tax Office, Lahore. |
Income
Tax The
officer of Inland Revenue shall exercise powers and perform functions
assigned in: a) Income
Tax Ordinance, 2001, and Rules thereunder, (except u/s 170 of the Income Tax
Ordinance, 2001) ……………….. ……………….. |
All cases of persons whose jurisdiction is
assigned to Officers Inland Revenue, of Units 01, 02, 03 & 04 of Zone-V,
Corporate Tax Office, Lahore. |
TABLE-11
Powers/
functions not delegated to the Officers of Inland Revenue, Zone-V, CTO, Lahore;
INCOME
TAX
(i)
Power of delegation:
(ii)
Selection of cases for audit under section 177 of the Income Tax Ordinance,
2001.
(iii)
Revision of assessment under section 122A of the Income Tax Ordinance, 2001.
(iv)
Amendment of assessment under section 122(5A) and 161(3) of the Income Tax Ordinance, 2001.
(v)
To grant approval for revision of return of income and wealth statement.
(vi)
Obtain information from Banks without approval of CIR
(vii)
Issuance of exemption certificate/lower rate certificates.
(viii)
Revision of order/ assessment under section 122A of the Income Tax Ordinance,
2001.
(ix)
Grant of extension in filing of returns/statements.
(x)
Institute/filing of appeal/reference before the Honourable Supreme Court of
Pakistan, High Courts and Appellate Tribunal Inland Revenue under Part-III of
Chapter-X of the Income Tax Ordinance, 2001.
(xi)
Defending prosecution cases under section 203 of the Income Tax Ordinance,
2001, and represent the department in the process of liquidation.
(xii)
Appoint Legal Advisors and assign cases, wherever required, for representation
before appellate fora.
(xiii)
Grant of approval of recognition of Provident Funds, approve Superannuation
Funds and Gratuity Funds under the Sixth Schedule and exercise all the powers
under said schedule to the Income Tax Ordinance, 2001.
(xiv)
Grant of approval to pension schemes for the purposes of Clause 12 of Part-I of
Second Schedule to the Income Tax Ordinance, 2001.
(xv)
Grant of approval to gratuity schemes for the purposes of Clause 13 of Part-1
of Second Schedule to the Income Tax Ordinance, 2001.
(xvi)
Grant of approval to a benevolent fund or group insurance scheme for the
purposes of Clause 57 of Part-1 of Second Schedule to the Income Tax Ordinance,
2001.
(xviii) Grant of approval to a non-profit
Organization under section 2(36) of the Income Tax Ordinance, 2001.”
“Federal Board of Revenue, Government of Pakistan
Commissioner Inland Revenue, Zone-V, Corporate Tax
Office, Lahore
No.66-A/Admn Dated. 19-07-2024
SUBJECT: JURISDICTION OF ADDITIONAL
COMMISSIONERS INLAND REVENUE IN RESPECT OF ZONE-V, CORPORATE TAX OFFICE,
LAHORE-
In supersession of all previous jurisdiction orders
issued by this office and in pursuance of the Chief Commissioner Inland
Revenue, Corporate Tax Office, Lahore's Order No. CC/CTO/Jud-IAC/SO-V/275 dated
11.07.2024 and Commissioner Inland Revenue, Zone-V, CTO, Lahore's office order
No.66/Admin dated 19.07.2024 and in exercise of powers conferred under
sub-section (1) of Section 210 of the Income Tax Ordinance, 2001, sub-section
(2B) of Section 30 of the Sales Tax Act, 1990, sub-section (IAB) of section 29
of the Federal Excise Act, 2005, para (c) of sub-section (1) of Section 10 of
the Wealth Tax Act, 1963, it is directed that the Officers of Inland Revenue
mentioned in Column No. (2) of the Table-I below, shall exercise the powers and
functions as stated in Column No. (3) of the Table-l, in respect of cases or
classes of cases as specified in Column No. (4) of the Table-1, against their
respective entries.
TABLE-I
|
Sr
no. |
Officer
of Inland Revenue |
Powers
and Function |
Jurisdiction |
|
(1) |
(2) |
(3) |
(4) |
|
01 |
Additional Commissioner
Inland Revenue, Range-1, Zone-V, Corporate Tax Office, Lahore |
Income
Tax 1) Amendment of assessment under section
122(5A) of the Income Tax Ordinance, 2001 and all incidental statutory
powers thereof. 2) Amend or further amend under sub-section (3)
of Section 161 an order of recovery under sub-section (1) of Section 161 of
the Income Tax Ordinance, 2001 and all incidental statutory powers thereof. 3) Appeal effect under section 124 of the Income Tax
Ordinance, 2001, on appellate orders passed by the Appellate For a/Courts in
Appeals/references on orders passed by the Additional Commissioner Inland
Revenue. 4) Rectification of mistakes under section 221 of the Income
Tax Ordinance in orders passed by Additional Commissioner Inland Revenue. ……………………. ……………………” |
All cases of persons whose jurisdiction is
assigned to Officers Inland Revenue, of Units 01, 02, 03 & 04 of Zone-V,
Corporate Tax Office, Lahore. |
15. Determination
of the Questions Framed in Paragraph 7.3
Having examined the statutory
framework of the relevant provisions of the Income Tax Ordinance, 2001,
together with the jurisdictional orders issued under section 210 by the
Commissioner Inland Revenue, Zone-V, Corporate Tax Office, Lahore, the
questions formulated in paragraph 14 are determined as follows:
1. Whether
the Addl. CIR could lawfully initiate proceedings under section 111 of the
Income Tax Ordinance, 2001, in light of a jurisdiction order under section 210
conferring such powers exclusively on the IRO/DCIR, or whether any such action
would be without lawful authority and void ab initio?
15.1 A careful reading of the jurisdictional
orders issued under section 210 clearly indicates that the IRO/DCIR
have been conferred the powers to exercise the functions assigned under the Ordinance,
including assessment-related provisions. The jurisdictional order expressly
provides that such officers shall exercise the powers and perform the functions
assigned under the Ordinance in respect of the cases falling within their
territorial and functional jurisdiction.
15.2 In contrast, the jurisdiction order relating
to the Additional Commissioner Inland Revenue
confers a limited and specific set of powers,
primarily supervisory or revisionary in nature. The powers specifically
assigned to the Addl. CIR include:
i.
amendment of assessment under
section 122(5A)
and incidental powers thereto;
ii.
amendment of recovery orders
under section 161(3);
iii.
passing appeal
effect orders under section 124 in
respect of orders passed by the Additional Commissioner; and
iv.
rectification under section 221
of orders passed by the Additional Commissioner.
The express
delegation of power to proceed against the appellant under section 111 of the
Ordinance is missing in the said order. The
Add CIR could only proceed under the law after an express delegation of powers
of the authority from the competent officer, the Commissioner. This express and
requisite authority is missing in the instant case. Reliance may be placed on
the judgment titled Commissioner Inland Revenue Zone-II, RTO, Peshawar Vs M/s
Saydon Pharmaceutical Industries (Pvt.) Ltd,
(2015 PTD 374). In the said judgment, the
power was delegated by the Commissioner under section 210 to the Audit Officer
only for conducting and completing an audit of the taxpayer, but the Audit
Officer passed the order under section 122 of the Ordinance. In the reference
application, the Hon'ble Peshawar High Court declared the proceedings illegal
and void ab-initio. The Honourable Supreme Court of Pakistan has held in the
case titled The Registrar of Trade Marks and other Vs Walter Rau Neussor OI UND
FATT AG (1993 SCMR 1503) that the delegation of power should be
specific and in the absence thereof, the delegation order is a nullity in the
eyes of law.
15.3 Notably, the jurisdiction order does
not confer any independent authority upon the Additional Commissioner to
initiate proceedings under section 111 of
the Ordinance. The delegation of power under one section will not automatically
delegate the ancillary power under a different section, which has to be
specifically delegated; reliance is placed on the case of Mian Jamal
Shah V. The Member Collection Commissioner, Government of Pakistan, Lahore and
others, [PLD 1966 SC 1].
15.4 Section 111, as discussed above, is an investigative
and fact-finding provision
relating to unexplained income, investments, or assets. Its invocation
necessarily involves the identification of unexplained financial transactions
and calling for explanation from the taxpayer after examination of factual
material or definite information.
15.5 Such proceedings fall squarely within the assessment
or reassessment domain, which under the
jurisdictional order stands allocated to the IRO/DCIR.
15.6 In administrative law, it is a settled
principle that where statutory powers are allocated to a
specific officer through a valid jurisdictional order, such powers must be
exercised only by that officer unless expressly delegated otherwise.
Any assumption of jurisdiction by another officer without lawful delegation
renders the proceedings without lawful authority and void ab
initio.
15.7 Accordingly, in the presence of a
jurisdiction order under section 210 conferring assessment-related powers upon
the IRO/DCIR, the
Additional Commissioner Inland Revenue
could not independently initiate proceedings under section 111.
Any such action would exceed the jurisdiction conferred upon him and would
therefore be legally unsustainable.
16. Whether the Commissioner Inland
Revenue, in exercise of the powers vested in him under the Ordinance, can
validly delegate his powers and functions concurrently to more than one Officer
of Inland Revenue subordinate to him?
16.1 Section 210 of the Ordinance empowers the
Commissioner Inland Revenue to allocate
jurisdiction and assign functions to officers subordinate to him.
The provision grants wide administrative discretion to determine the manner in
which statutory powers are distributed among officers of Inland Revenue.
16.2 Nothing in the statutory scheme of section
210 prohibits the Commissioner from conferring
concurrent jurisdiction upon more than one officer,
provided that such delegation is clearly
expressed in the jurisdiction order. In
administrative practice, concurrent jurisdiction is sometimes granted to ensure
administrative convenience and supervisory control.
16.3 In taxation administration, concurrent
jurisdiction may arise where more than
one officer is legally competent to exercise the same statutory power. However,
the exercise of such power must still be regulated through clear
administrative allocation of cases in
order to prevent duplication of proceedings. If the Commissioner were to confer
powers under section 111
upon both the Addl. CIR and the DCIR, without specifying their respective
spheres of authority, may potentially lead to:
i. overlapping
proceedings,
ii. conflicting
orders, and
iii. uncertainty
regarding the proper authority.
Therefore, although the
statute may not expressly prohibit concurrent delegation, sound
administrative practice requires that jurisdiction be clearly defined.
16.4 However, the existence of such concurrent
authority must be explicitly stated in the jurisdiction
order itself. Courts have consistently
held that jurisdiction cannot be presumed or
implied; it must emanate directly from the
statute or from a valid order issued under statutory authority.
16.5 If two officers are simultaneously empowered
to reopen the same assessment under the same provisions, the possibility of parallel
proceedings cannot be ruled out. Such a situation
would be contrary to the principles of:
i. legal
certainty,
ii. orderly
administration of tax laws, and
iii. avoidance
of conflicting exercise of authority.
Therefore, even if concurrent
delegation is legally permissible in theory, it must be structured
and regulated so that only one officer
actually exercises jurisdiction in a given case.
16.6 In the present case, the jurisdictional
orders demonstrate a structured allocation of powers,
whereby:
i. assessment-related functions are vested in IRO/DCIR,
and
ii. revisionary powers under section
122(5A) are vested in the Additional
Commissioner.
16.7 The orders do not indicate that the powers
under section 111
have been concurrently delegated
to the Additional Commissioner. Consequently, the assumption of such concurrent
jurisdiction cannot be inferred.
16.8 It
is further necessary to clarify that even where the statute permits the
administrative conferral of powers upon more than one officer, such concurrent
jurisdiction cannot legitimately be exercised in
respect of the same cause of action and against the same taxpayer
simultaneously. The rationale underlying
this limitation flows from well-established principles of administrative law
and orderly tax administration.
16.9 If two officers of Inland Revenue were
authorised to initiate and conduct proceedings under the same statutory
provision against the same person in relation to the same subject matter, it
would inevitably give rise to serious legal and administrative complications,
including:
i. duplication of proceedings,
ii. conflicting or inconsistent determinations, and
iii. uncertainty regarding the
competent authority lawfully seized of the matter.
Such a situation would
undermine the principles of legal certainty,
procedural fairness, and orderly exercise of statutory power,
which are fundamental to the administration of fiscal statutes.
16.10 Therefore, while the Commissioner Inland
Revenue may, in administrative terms, distribute functions among more than one
subordinate officer, the concept of concurrent jurisdiction
cannot extend to permitting multiple officers to exercise the same power
against the same taxpayer in relation to the same cause at the same time.
Jurisdiction must, in practice, vest in one
identifiable authority that alone is competent to
initiate and complete the proceedings.
16.11 Accordingly, any jurisdiction order that
purports to authorise parallel exercise of the same statutory power by
different officers in respect of the same matter would be contrary to the
principles governing lawful delegation of authority and would create avoidable
jurisdictional conflict. The statutory scheme, therefore, necessarily requires
that, even where powers are distributed among several officers, their
spheres of operation must remain clearly demarcated and mutually exclusive in
relation to a particular case.
17. Whether the expression “all
incidental statutory powers thereof,”
as employed in the jurisdictional order issued under section 210 of the
Ordinance in favour of the Addl CIR, can be interpreted so as to authorize him
to invoke provisions such as sections 108, 109, 111, etc., particularly in
circumstances where such provisions could not otherwise be invoked in the
course of proceedings initiated under section 122(5A) of the Ordinance?
17.1. The
jurisdictional order relied upon by the department confers upon the Additional
Commissioner Inland Revenue the power to exercise jurisdiction under section
122(5A) of the Income Tax Ordinance, 2001, along with the expression “and
all incidental statutory powers thereof.” The
precise scope and legal import of the expression “incidental
statutory powers” therefore require careful examination.
17.2 In
administrative law, an incidental power is understood to be a power that is ancillary,
auxiliary, or reasonably necessary for the effective exercise of the principal
statutory authority. Such powers do not exist
independently; rather, they facilitate the implementation of the primary
jurisdiction already conferred. Incidental powers ordinarily relate to
procedural or facilitative acts, such as calling for information, issuing
notices, granting an opportunity of hearing, examining records, or conducting verification
necessary to determine matters falling within the principal jurisdiction. The
settled rule is that incidental powers cannot enlarge, create,
or substitute the substantive jurisdiction itself.
17.3 This
principle has been consistently recognised by the superior courts. In Messrs Elahi Cotton Mills Ltd. v.
Federation of Pakistan
(1997 PTD 1555), the Honourable Supreme
Court held that where a statute confers a particular jurisdiction upon an
authority, such authority must exercise the power strictly within the limits
prescribed by the statute and cannot enlarge its
jurisdiction by implication or administrative interpretation.
Similarly, in Collector
of Customs v. Messrs Sheikh Spinning Mills Ltd (1999 SCMR 1402),
the Supreme Court reiterated that where powers are delegated to a statutory
authority, the scope of delegation must be strictly
construed, and the delegate cannot assume powers
beyond those expressly conferred. The same principle was emphasised in Messrs Mustafa Impex v. Government of
Pakistan (PTCL 2017 CL 456), wherein
the Supreme Court held that when a statute confers powers upon a particular
authority, those powers must be exercised strictly
in accordance with the statutory framework and cannot be expanded through
executive or administrative interpretation.
17.4 Viewed
in the above legal context, the expression “all
incidental statutory powers thereof”
appearing in the jurisdiction order can only mean those powers which are procedurally
necessary for effectively exercising the authority under section 122(5A).
Such powers may include:
i. issuance
of statutory notices,
ii. calling
for books of accounts or information,
iii. examination
of records,
iv. granting
the opportunity of hearing, and
v. conducting
verification relevant to the amendment of the assessment.
These acts merely facilitate
the exercise of the primary jurisdiction under section 122(5A) and therefore
fall within the permissible scope of incidental authority.
17.5 However,
provisions such as sections 108, 108A, 109, and 111
of the Ordinance constitute independent substantive
jurisdictions. Each of these provisions
creates a separate statutory mechanism involving distinct preconditions,
procedural safeguards, and investigative powers. Particularly, section 111 of
the Ordinance deals with the taxation of unexplained
income or assets, which requires a separate
inquiry into the sources of investment, expenditure, or acquisition of assets.
Such proceedings are investigative and substantive in nature,
and they cannot be regarded as merely procedural or ancillary to proceedings
under section 122(5A).
17.6 The
courts have repeatedly held that where a statute creates distinct
heads of jurisdiction, the exercise of one
jurisdiction cannot automatically authorise the exercise of another unless the
statute expressly provides so. Consequently, interpreting the phrase “all
incidental statutory powers thereof” so
broadly as to authorize invocation of sections 108, 108A, 109, or 111, etc.,
would effectively permit the officer to expand
the jurisdiction granted under the delegation order,
thereby conferring upon himself substantive statutory powers which were never
expressly delegated. Such an interpretation would offend the well-established
doctrine that delegated jurisdiction must be strictly
construed and cannot be enlarged by implication.
17.7 Therefore,
the phrase “all incidental statutory powers thereof”
appearing in the jurisdiction order cannot be interpreted to authorize the
Additional Commissioner Inland Revenue to invoke independent provisions of the
Ordinance, such as sections 108, 108A, 109, or 111, etc., particularly where
those provisions involve separate investigative jurisdiction not expressly
conferred by the jurisdiction order.
17.8 Any
contrary interpretation would effectively allow an officer to enlarge his
jurisdiction beyond the limits prescribed in the delegation order, which is
impermissible under the settled principles governing statutory delegation and
administrative law.
18. Whether proceedings under section 111 of
the Ordinance can be lawfully initiated by invoking the revisionary powers
under section 122(5A), or whether the statutory framework mandates that such
proceedings must proceed exclusively through the reassessment mechanism under
section 122(5)?
18.1 The determination of this question
necessarily depends upon a careful examination of the nature of proceedings
contemplated under section 111 and the jurisdictional character of powers
conferred under sections 122(5) and 122(5A) respectively. In view of the
detailed discussion already undertaken in the preceding paragraphs, it may
briefly be reiterated that section 111
of the Ordinance is an anti-tax-evasion provision aimed at bringing to tax unexplained
income, assets, investments, or expenditures of a
taxpayer where the taxpayer fails to satisfactorily establish their nature and
source. The application of this provision inherently involves factual
inquiry and evaluation of explanations, and
it is generally triggered by new or definite
information, such as audit findings, banking data,
third-party information, or discrepancies revealed during investigation. The
inevitable consequence of proceedings under section 111 is the determination
that income chargeable to tax has escaped
assessment.
18.2 Given this consequence, the statutory
mechanism for incorporating such unexplained amounts into an assessment is
provided under section 122(5)
of the Ordinance, which authorizes the amendment of an assessment where income
chargeable to tax has escaped assessment or has been
under-assessed on the basis of audit
findings or definite information. Accordingly, additions made under section 111
ordinarily fall within the ambit of reassessment
proceedings under section 122(5).
18.3 In contrast, section
122(5A) confers a limited
supervisory or revisionary jurisdiction upon
the Commissioner to correct an assessment order that is erroneous
and prejudicial to the interests of the revenue,
but only on the basis of the existing
assessment record. The provision does
not permit fresh investigation, discovery of new
income, or fact-finding inquiries, and
is confined to correcting errors apparent from the record. Consequently, the
jurisdiction under section 122(5A) remains corrective
and record-based, and cannot be invoked for
initiating proceedings that require factual investigation, such as those
contemplated under section 111.
18.4 Fundamental
Incompatibility Between Section 111 and Section 122(5A)
When the statutory framework is
examined in its entirety, it becomes evident that proceedings under section 111
cannot logically or legally be initiated through section 122(5A). This
conclusion emerges from several interrelated considerations.
(a)
Section 111
Necessarily Involves Investigation
Before
invoking section 111, the Commissioner must undertake a process involving:
i. dentification of unexplained
assets, investments, or expenditures;
ii. issuance of notices seeking
explanation from the taxpayer;
iii. evaluation of documentary
evidence produced by the taxpayer;
iv. determination of whether the
explanation offered is satisfactory or otherwise.
This
entire exercise necessarily involves fact-finding and investigative inquiry.
Such investigative activity falls outside the limited supervisory jurisdiction
contemplated under section 122(5A).
(b)
Section 122(5A) Is Restricted to the
Existing Record
A
Commissioner exercising powers under section 122(5A) must confine himself
strictly to the material that was already part of the original assessment
proceedings. In contrast, proceedings under section 111 generally arise from
information obtained subsequent to the original assessment, such as:
i. Banking
transactions are revealed through financial data.
ii. Property purchases discovered through land
records.
iii. third-party
information received from financial institutions;
iv. audit
observations highlighting unexplained investments or
v. discrepancies
detected in wealth reconciliation statements.
These
matters ordinarily do not form part of the original assessment record and
therefore cannot constitute the basis for invoking section 122(5A). Such
circumstances clearly fall within the concept of escaped income, which is
governed by section 122(5) rather than section 122(5A).
(c)
Section 111 Requires Explanation from
the Taxpayer
Another
essential feature of section 111 is the requirement that the taxpayer be called
upon to explain the nature and source of the amount in question. This process
necessarily involves:
i.
issuance of statutory
notices;
ii.
calling for explanations and
documentary evidence;
iii.
examination and evaluation of
supporting material.
Section
122(5A) does not contemplate calling for fresh explanations or new documentary
evidence. Its exercise must remain confined to the existing assessment record.
Consequently, initiating proceedings under section 111 through section 122(5A)
would compel the Commissioner to travel beyond the record, which the statute
clearly prohibits.
(d) Separate Statutory Mechanisms under
the Ordinance
The
legislative scheme of the Ordinance establishes two distinct mechanisms for the
amendment of assessments:
i. Section 122(5), reassessment
based on audit findings or definite information indicating escaped income.
ii. Section 122(5A), revision of
an erroneous assessment order based solely on the existing record.
Permitting
section 111 proceedings to be initiated through section 122(5A) would
effectively circumvent the statutory safeguards built into section 122(5),
particularly the requirement that reassessment be based upon audit findings or
definite information. Such an interpretation would distort the legislative
framework and impermissibly enlarge the scope of revisionary jurisdiction.
18.5 Doctrine
Against Colourable Exercise of Power
If
section 111 were to be invoked under the guise of section 122(5A), the action
would amount to a colourable exercise of statutory power. It is a well-settled
principle of law that where the legislature provides distinct statutory
mechanisms, one provision cannot be used as a device to circumvent the
procedural safeguards embedded in another. The Revenue cannot bypass the statutory scheme. In CIT,
Zone-A, Lahore v. Sohaib Nisar (PTCL 2001 CL 405), it was held
that in the presence of a specific provision of law applicable to the
situation, the Assessing Officer could not resort to any other provision of
law. Similar principles were affirmed in CIT v. D.P. Sandu Bros.
Chembur (P.) Ltd. [(2005) 273 ITR 1 (SC)] and in East
India Housing and Land Development Trust Ltd. v. CIT [1961] 42
ITR 49 (SC).
Under
the present statutory scheme:
i.
Section 122(5) governs
reassessment based on definite information regarding escaped income.
ii.
Section 122(5A) governs
correction of erroneous orders based solely on the existing record.
Allowing
section 111 to be invoked through section 122(5A) would effectively bypass the
statutory requirement of definite information, thereby undermining the
legislative scheme.
18.6 Judicial
Support for Limited Scope of Revisionary Jurisdiction
The
courts have consistently emphasized that revisionary powers analogous to
section 122(5A) cannot be employed for conducting fresh inquiries or
discovering new taxable income. The principles laid down in the following cases
clearly support this proposition:
i. Glaxo Laboratories Limited v.
Inspecting Assistant Commissioner of Income Tax (1992 PTD
932)
ii. M/s S.N.H. Industries (Pvt.) Ltd. v.
Income Tax Department (2004 PTD 330)
iii Commissioner Inland Revenue v. MCB
Bank Limited (2021 PTD 1367)
iv. Commissioner
Inland Revenue v. Sajid Hussain Gondal and Others
(ITR No. 10 of 2024, order dated 03.02.2026).
v. The Commissioner Inland Revenue,
Multan Zone, v. Muhammad Iqbal Rind sons D. G Khan, (2022 PTD 1411)
These
authorities make it abundantly clear that revisionary jurisdiction is confined
to correcting errors apparent from the record and cannot be converted into an
investigative proceeding.
18.7 Since
proceedings under section 111 inherently involve an investigation into
unexplained assets or income, they necessarily fall outside the scope of
section 122(5A).
18.8 Practical
Illustration
The
distinction between the two provisions may be understood through practical
examples.
Example 1 —
Proper Case for Section 122(5)
During
an audit, the department discovers that a taxpayer purchased property worth Rs.
50 million, whereas the declared income does not justify such an investment.
The Commissioner calls for an explanation, finds the explanation
unsatisfactory, and treats the amount as an unexplained investment under
section 111. Since the addition arises from new information revealing escaped
income, the amendment must be made through section 122(5).
Example 2 —
Proper Case for Section 122(5A)
An
assessment order allows depreciation at 25% despite the law prescribing 15%,
although all relevant facts were already on record during the original
assessment. This constitutes a clear legal error apparent from the record,
prejudicial to the revenue, which may be corrected under section 122(5A).
18.9. Legal
Conclusion
In
light of the statutory scheme of the Ordinance and the principles discussed
above, the legal position may be summarized as follows:
i.
Proceedings under section 111
involve the determination of unexplained income, which necessarily requires
investigation and factual inquiry.
ii.
Section 122(5A) is confined
to correcting errors apparent from the existing assessment record and does not
authorize discovery of new income.
iii.
Invocation of section 111
inevitably results in a finding that income chargeable to tax has escaped
assessment, which falls squarely within section 122(5).
iv.
Consequently, section 111
cannot be invoked in the garb of section 122(5A).
v.
Any attempt to do so would
constitute an impermissible expansion of revisionary jurisdiction and a
colourable exercise of power.
19. Conclusion
In
view of the foregoing discussion, the questions framed in paragraph 7.3 are
answered as follows:
i.
The Additional Commissioner Inland
Revenue could not lawfully initiate proceedings under section 111,
as the jurisdiction order under section 210 confers such assessment-related
powers upon the IRO/DCIR. Any such action by the Additional Commissioner would
therefore be without lawful authority and void ab
initio.
ii.
The Commissioner Inland Revenue may
delegate powers concurrently to more than one officer,
but such concurrent delegation must be clearly
and expressly provided in the jurisdiction order.
In the present case, no such concurrent delegation exists.
iii.
The phrase “all
incidental statutory powers thereof”
refers only to ancillary procedural powers necessary to
exercise the principal jurisdiction under section 122(5A)
and cannot be interpreted to include
substantive powers under sections 108, 108A, 109, or 111,
etc.
iv.
Proceedings under section 111 cannot be
initiated through section 122(5A), as
the latter is a record-based revisionary power,
whereas section 111 involves investigative
fact-finding that falls within the reassessment framework of section 122(5).
Accordingly, the appeals filed by the appellant are accepted, and the orders passed by the lower authorities are annulled. Since the appeals have been decided on the basis of the fundamental jurisdictional issues, it is neither necessary nor appropriate to dilate upon the merits of the case.
-SD-
(M. M. AKRAM)
Judicial
Member
-SD-
(ABDUL BARI RASHID)
Member
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