THE APPELLATE TRIBUNAL INLAND REVENUE, KARACHI,
SPECIAL DIVISION BENCH, QUETTA
Present: MR. M M AKRAM, JUDICIAL MEMBER
MR. M ABDULLAH KHAN KAKAR,
MEMBER
ITA NO.849/KB-2023
Tax Year: 2018
ITA NO.850/KB-2023
Tax Year: 2019
&
ITA
NO.851/KB-2023
Tax Year: 2020
U/s122(5A)
Mr.
Lal Muhammad
Flat
No. 02, Badezai Plaza,
Chuharmal
Road, Quetta. …………..…Appellant
V E R S U S
The
Commissioner-IR,
Zone-I,
RTO, Quetta. …………..Respondent
Appellant By :
Mr. Amjad Ali Siddiqui, (ITP)
:
Mr. Musawar Sajjad, Advocate
: Mr.
Junaid Saleem, Advocate
Respondent By : Mr. Muhammad Aslam, (DR)
:
Mr. Usama Zaheer, Advocate/LA
Date of Hearing : 10.08.2026
Date of Order : 10.08.2026
O R D E R
M.
M. AKRAM (Judicial Member): The titled appeals
have been instituted by the appellant-taxpayer against the respective impugned
orders, all dated 01.03.2023, passed for the Tax Years 2018, 2019 and 2020
(hereinafter collectively referred to as the “Impugned Orders”)
by the learned Commissioner (Appeals) Inland Revenue, RTO Quetta [hereinafter
referred to as the “CIR(A)”]
under section 129(1) of the Income Tax Ordinance, 2001 (hereinafter referred to
as the “Ordinance”).
Since all the appeals arise out of an identical factual matrix and involve
common questions of law and facts, they are being disposed of through this
consolidated common order.
2. Briefly stated, the
facts, as culled out from the record, are that the appellant-taxpayer is an
individual engaged in the business of supply of goods and services, including
wholesale and retail trade. For the Tax Years 2018, 2019 and 2020, the
appellant electronically filed his returns of income declaring turnover of Rs.9,375,000/-,
Rs.1,305,000/- and Rs.1,325,000/-, respectively, and discharged
minimum tax thereon at the rate of 0.2% under the relevant provisions of the
Ordinance. The returns were treated as assessment orders in terms of section
120(1) of the Ordinance. Subsequently, the aforesaid deemed assessment orders
were considered erroneous insofar as prejudicial to the interest of revenue on
the basis of information purportedly received from the Directorate of
Intelligence & Investigation (Inland Revenue), Faisalabad,
indicating credit entries in the appellant's bank account amounting to Rs.76,963,132/-,
Rs.84,574,873/- and Rs.53,920,765/- for the Tax Years 2018,
2019 and 2020, respectively. On the basis of such information, show-cause
notices under section 122(9) read with section 122(5A) of the Ordinance were
issued on 31.05.2022, requiring compliance by 15.06.2022.
3. The appellant allegedly failed to furnish any response to the
notices. The assessing authority thereafter issued reminders requiring
compliance; however, according to the record, no effective response was
furnished by the appellant. The assessing authority consequently proceeded to
amend the deemed assessments under section 122(5A) of the Ordinance and made
additions representing the differential amounts between the declared turnover
and the amounts reflected through the bank credits. Consequently, tax demands
of Rs.22,875,346/-,
Rs.23,531,163/- and Rs.17,782,268/- were created for the Tax
Years 2018, 2019 and 2020, respectively.
4. Aggrieved by the aforesaid amendments, the appellant preferred
appeals before the learned CIR(A), who, through the Impugned Orders, maintained
the treatment accorded by the assessing authority. Still aggrieved, the
appellant has approached this Tribunal through the instant appeals, challenging
the legality and validity of the Impugned Orders on the grounds set forth in
the respective memoranda of appeal.
5. The appeals came up for hearing before us on 10.08.2026.
The learned Authorized Representative (“AR”)
for the appellant assailed the Impugned Orders primarily on jurisdictional
grounds. He contended that the proceedings were admittedly initiated on the
basis of information received from the Directorate of Intelligence &
Investigation regarding bank credits allegedly representing
suppressed/concealed sales. According to the learned AR, once the Department
purported to possess definite information suggesting escaped or under-assessed
income, the appropriate statutory provision was section 122(5), read with section
122(9), rather than section 122(5A) of the Ordinance.
The
learned AR further contended that the Finance Act, 2021 materially amended
section 122(5A) by deleting the words “after
making or causing to be made such enquiries as he deems necessary”.
According to him, after the said amendment, the jurisdiction under section
122(5A) became confined to correction of an error which was already
demonstrable from the assessment record and could not be invoked for
undertaking an inquiry into third-party information, including bank
transactions, for the purpose of discovering or establishing suppressed sales.
He therefore submitted that the impugned amendments were without lawful
authority and jurisdiction.
6. Conversely, the learned Departmental Representative (“DR”) supported the
Impugned Orders and contended that the learned CIR(A) had passed well-reasoned
and speaking orders after examining the relevant record. He maintained that the
bank credits constituted sufficient material to justify the amendments and prayed
for dismissal of the appeals.
7. We have heard the learned representatives of the parties and have
carefully examined the available record, the Impugned Orders and the relevant
provisions of law. The controversy before us essentially revolves around the
legality of invoking section 122(5A) of the Ordinance for making additions on
the basis of bank credit entries allegedly representing suppressed business
receipts. The issue assumes significance because the notices were admittedly
issued after the amendment brought to section 122(5A) through the Finance Act,
2021. It is an established principle that the jurisdiction to amend an
assessment is a creature of statute and must be exercised strictly within the
parameters prescribed by the relevant statutory provision. Section 122(5) and
section 122(5A), although both form part of the statutory mechanism for
amendment of an assessment, operate in materially different fields. Section
122(5) is attracted where, on the basis of audit or definite information, the
Commissioner is satisfied that the assessment suffers from escaped income,
under-assessment, assessment at an incorrect rate, excessive relief or refund,
or misclassification. Section 122(5A), on the other hand, confers revisional
jurisdiction where the assessment order itself is erroneous insofar as it is
prejudicial to the interest of revenue.
8. The distinction is substantive and cannot be rendered meaningless
by treating both provisions as interchangeable. The existence of prejudice to
revenue alone does not confer unrestricted jurisdiction under section 122(5A).
The statutory precondition is that the assessment order must first be shown to
be “erroneous”,
and the error must be such as is prejudicial to the interest of revenue. The
two conditions are conjunctive. A mere possibility of additional tax, a
subsequent discovery of a transaction, or information requiring further factual
examination cannot, without more, be equated with an error apparent from the
assessment order.
9. The distinction has acquired greater significance after the
Finance Act, 2021. Prior to the amendment, section 122(5A) expressly empowered
the Commissioner, “after
making or causing to be made such enquiries as he deems necessary”,
to amend an assessment order where the statutory conditions were fulfilled.
Those words were consciously omitted by the legislature. The omission cannot be
treated as surplusage. It demonstrates a legislative intention to restrict the
revisional jurisdiction and to prevent section 122(5A) from being employed as a
substitute for an audit, investigation or roving inquiry. Consequently, after
the Finance Act, 2021, the authority exercising jurisdiction under section
122(5A) cannot embark upon an inquiry for the purpose of discovering whether an
item appearing in third-party information actually constitutes taxable income, unless
the alleged error is already demonstrable from the material forming part of the
assessment record. Where the proposed amendment depends upon investigation,
verification, reconciliation, explanation of bank transactions or determination
of the true character of receipts, the matter falls within the substantive
reassessment jurisdiction contemplated by section 122(5), subject of course to
fulfilment of its statutory requirements.
10. In the present case, the genesis of the proceedings is not any
error apparent from the appellant's returns or the assessment record. Rather,
the proceedings were initiated on the basis of information received from the
Directorate of Intelligence & Investigation regarding credit entries in the
appellant's bank accounts. The Department thereafter treated the difference
between such bank credits and the turnover declared in the returns as
suppressed business receipts. Thus, the alleged error in the deemed assessment
was not self-evident from the assessment record. It was sought to be
established by reference to material emanating from an external source and by
drawing a further inference that the bank credits represented business
turnover.
11. This distinction is critical. A bank credit is a financial event;
it is not, merely by virtue of its appearance in a bank statement, synonymous
with taxable income or business turnover. Its tax character may depend upon its
source and nature. A credit may represent sale proceeds, but it may equally
represent a loan, capital introduced by the taxpayer, transfer from another
account, repayment of an advance, realization of a receivable, refund,
inter-account transfer, or some other receipt which cannot automatically be
brought to tax as business turnover. Therefore, the transition from “bank credit”
to “suppressed
sales” necessarily involves factual examination and a legally
sustainable determination.
12. The Hon'ble Supreme Court, in CIR (Special Zone for Builders and
Developers), RTO Islamabad v. M/s Khudadad Heights, Islamabad, Civil Petition
No.862 of 2024, decided on 27.02.2025 (2025 SCMR 716), considered
the question of definite information in the context of bank statements. The
Court maintained the distinction between mere transactional data and
information which, by itself and without further analysis, conclusively
establishes taxable income. The judgment underscores that bank entries, without
a demonstrated nexus with taxable income, cannot automatically constitute the
requisite definite information.
13.
The aforesaid principle is particularly relevant here because the Department
did not merely identify bank credits; it went a step further and characterized
the credits as suppressed business turnover. That characterization required
factual determination. The mere numerical difference between declared turnover
and bank credits does not, without establishing the nature of the credits, ipso
facto establish concealed sales.
14. The Department may, undoubtedly, take appropriate action where
credible information indicates that income chargeable to tax has escaped
assessment. Indeed, the statutory scheme of section 122(5) specifically
contemplates action on the basis of audit or definite information. However, the
existence of such information does not enlarge the scope of section 122(5A).
The remedy provided by one statutory provision cannot be substituted for
another merely because the latter appears procedurally convenient.
15. We are also conscious that the Hon'ble Supreme Court has
recognized that credit entries appearing in a bank account can, in an
appropriate factual setting, constitute definite information for purposes of
section 111/122. The decision titled CIR Multan v. Muhammad Amin Arshad (2021 SCMR 437) is
an authority to that effect. However, that proposition cannot be read to mean
that every bank credit, without examination of its nature and nexus with
taxable income, automatically constitutes conclusive proof of suppressed
turnover. The subsequent judgment in Khudadad
Heights makes it clear that the quality, specificity and
evidentiary character of the information must be examined.
16. In the instant case, the Department's own case demonstrates that
further determination was required. The information merely disclosed aggregate
credit entries of Rs.76,963,132/-, Rs.84,574,873/- and Rs.53,920,765/-.
The Department then compared these figures with the turnover declared by the
appellant and treated the differential amounts as suppressed sales. There is
nothing on record, at least in the material placed before us, demonstrating
that the entire bank credits were independently established as sale proceeds or
receipts from the appellant's business.
17. The subsequent conduct of the appellant in allegedly failing to
comply with the notices does not cure a defect in the assumption of
jurisdiction. The failure of a taxpayer to respond may have consequences in
proceedings validly initiated under the law, but it cannot confer jurisdiction
upon an authority where the statutory conditions for exercising that
jurisdiction are otherwise absent. Jurisdiction must exist before the
consequences of non-compliance can validly follow.
18. We also find considerable force in the appellant's contention
concerning the deletion of the words relating to making or causing to be made
enquiries under section 122(5A). The legislative omission is significant. The
amended provision no longer authorizes the Commissioner, while exercising
section 122(5A) jurisdiction, to conduct such enquiries as he deems necessary
in order to discover an error. The jurisdiction is therefore revisional and
corrective in character rather than investigative or exploratory. This
interpretation is consistent with the recent judicial approach to section
122(5A), under which the provision cannot be employed as a vehicle for roving
or fishing inquiries. The Lahore High Court has recently reiterated that the
revisional jurisdiction under section 122(5A) is confined by the twin
requirements that the assessment be erroneous and prejudicial to the interest
of revenue, and that the provision cannot be treated as an unrestricted power
to revisit an assessment merely because the Department subsequently identifies
a discrepancy. It is also well established that error and prejudice must be
clearly evident from the show cause notice, with no room for roving inquiries
or fishing expeditions. Judgments in the cases of Commissioner Inland
Revenue, Zone-I, LTU v. MCB Bank Limited, (2021 PTD 1367); Honda
Atlas Cars (Pakistan) Limited v. Appellate Tribunal Customs, Excise and Sales
Tax, (2021 PTD 1806); and Caretex v. Collector of Sales
Tax and Federal Excise, (2013 PTD 1536) support this position.
19. We, therefore, find that the present case is not one where the
assessing authority merely corrected an obvious or demonstrable error already
embedded in the deemed assessments. Rather, the assessing authority relied upon
information received from an external agency, treated bank credits as business
receipts, presumed the differential amount to represent suppressed turnover and
consequently amended the deemed assessments. Such exercise essentially involved
discovery and determination of allegedly escaped income and, therefore, falls
within the domain of section 122(5), subject to fulfilment of the statutory
requirements thereof, rather than section 122(5A).
20. The learned CIR(A), while confirming the action of the assessing
authority, did not adequately address this fundamental jurisdictional
objection. The Impugned Orders proceed on the premise that the existence of
bank credits exceeding declared turnover was sufficient to sustain action under
section 122(5A). In doing so, the learned first appellate authority failed to
appreciate the material distinction between an error apparent from the
assessment record and an alleged escaped item of income discovered from
information obtained after the deemed assessment.
21. It is also material that the deemed assessments under section
120(1) were not based upon any affirmative finding by the assessing authority
regarding the nature of the appellant's bank transactions. The Department's
subsequent information, therefore, did not merely expose an error committed in
the original assessment; it introduced an altogether new factual matter
requiring determination. Such a matter could not legitimately be converted into
a revisional error under section 122(5A) after the Finance Act, 2021 amendment.
22. We are, therefore, of the considered view that the assessing
authority exceeded the statutory scope of section 122(5A) by using that
provision to investigate and determine alleged suppressed turnover on the basis
of third-party bank information. The assumption of jurisdiction under section
122(5A) was consequently not sustainable in law. Once the very assumption of
jurisdiction is found defective, the additions made pursuant thereto and the
consequential tax demands cannot survive.
23. For the foregoing reasons, we hold that the Impugned Orders passed
under section 122(5A) of the Ordinance, as affirmed by the learned CIR(A),
suffer from a jurisdictional defect and are not sustainable in law. The same
are accordingly annulled. Consequently, the appeals filed
by the appellant-taxpayer for the Tax Years 2018, 2019 and 2020 are
allowed.
24. Before parting, we clarify that this order is confined to the
legality of the particular proceedings initiated under section 122(5A) and does
not amount to a declaration that information concerning unexplained or
suppressed receipts can never form the basis of proceedings under the
Ordinance. The Department remains at liberty to exercise any lawful
jurisdiction available to it, subject strictly to the statutory conditions,
limitations and procedural safeguards prescribed by the Ordinance. No opinion
is expressed on the ultimate taxability or otherwise of the impugned bank
credits on the merits.
-SD-
(M M AKRAM)
-SD- JUDICIAL MEMBER
(M ABDULLAH KHAN KAKAR)
MEMBER
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