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2024 P T D 1112
[Lahore High Court (Rawalpindi Bench)]
Before Mirza Viqas Rauf and Jawad Hassan, JJ
ZUBAIR KHAN
Versus
COMMISSIONER INLAND REVENUE JHELUM ZONE and others
Income Tax Reference No.03 of 2023, heard on 2nd April, 2024.
(a) Income Tax Ordinance (XLIX of 2001)---
----Ss.111, 2(29), 122 & 133---Income chargeable to tax---Inclusion of unexplained
income/assets---Proceedings under S.122 of Income Tax Ordinance, 2001,
conducting of---Issuance of separate notice under S.111 of Income Tax Ordinance,
2001---Mandatory requirement---Question was whether or not, before invoking the
provisions of S. 122 of Income Tax Ordinance, 2001 ('the Ordinance, 2001'), a
separate notice to the taxpayer in terms of S. 111 of the Ordinance, 2001 was a pre-
requisite to include unexplained income/assets in income chargeable to tax or / and
whether or not, a notice under S. 122(9) of the Ordinance, 2001 is enough to
initiate proceedings for amendment of the assessment ?---Show-Cause Notice under
S. 122(9) of the Ordinance, 2001 was issued against the taxpayer on the basis of
definite information that he purchased property during the relevant year but did not
disclose its source, and subsequently an Assessment Order was passed following
proceedings---Applicant (taxpayer) filed Reference Application as an Assessment
Order passed against him was maintained up to Appellant Tribunal Inland Revenue-
--Case of the applicant was that the Respondents/Department was required to issue
a separate notice under S. 111 of the Ordinance, 2001---Stance of the
Respondents/Department was that there was no need to issue a separate notice
under the aforesaid section for proceeding under S. 122 of the Ordinance, 2001---
Held, that the issuance of a separate notice under S.111 of the Ordinance, 2001 is
mandatory for the purpose of addition on account of unexplained income or assets--
-Prior separate notice under S. 111 of the Ordinance, 2001 to confront the taxpayer
for explaining his unexplained income and assets has to be issued prior to making
of addition of income for tax purposes---High Court answered the proposed
question in affirmative i.e. against the Respondents/Department and in favour of
the applicant/taxpayer---Consequently the impugned judgments were set-aside---
Reference Application, filed by the taxpayer, was allowed, in circumstances.
Commissioner Inland Revenue, T.R.O., Faisalabad v. Faqir Hussain and another
2019 PTD 1828; Commissioner Inland Revenue, Multan Zone v. Falah ud Din
Qureshi 2021 PTD 192 and Civil Petition No.2447-L of 2022 ref.
(b) Income Tax Ordinance (XLIX of 2001)---
----Ss.111, 2(29), 122 & 133---Constitution of Pakistan, Art. 189---Income
chargeable to tax---Inclusion of unexplained income/assets---Proceedings under S.
122 of Income Tax Ordinance, 2001, conducting of---Issuance of notice under S.

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111 of Income Tax Ordinance, 2001---Expression "definite information"---

Connotation---Expression "definite information" will include factual information as
well as information about the existence of a binding judgement of a competent
Court of law/forum for the purposes of S.65 of the Ordinance, 2001, but any
interpretation of a provision of law by a functionary which has not been entrusted
with the functions to interpret such provision judicially, cannot be treated as a
"definite information"---Expression definite information certainly meant much
more than mere material so as to cause a reasonable belief or even such evidence
which may lead to a definite belief---Unless there is definite direct information and
there is no further need to put the said definite information to trial by putting in
further supporting material the process of self-assessment could not be reopened---
"Definite information" does not mean a re-analysis of existing information or an
analyses of further information that was previously accessible but had not been
taken into account---High Court answered to the proposed question in affirmative
i.e. against the Respondents/Department and in favour of the applicant/taxpayer---
Consequently the impugned judgments were set-aside---Reference Application,
filed by the taxpayer, was allowed, in circumstances.
(Civil Petition No.2447-L of 2022); Messrs Central Insurance Co. and others v.
The Central Board of Revenue, Islamabad and others 1993 SCMR 1232; "Income
Tax Officer and another v. M/s Chappal Builders 1993 PTD 1108 and Chief
Commissioner Inland Revenue, RTO, Peshawar v. Messrs Sabrina Tent Services
2019 SCMR 1639 ref.
(c) Income Tax Ordinance (XLIX of 2001)---
----Ss.111, 2(29), 122 & 133---Income chargeable to tax---Inclusion of unexplained
income/assets---Proceedings under S. 122 of Income Tax Ordinance, 2001,
conducting of---Issuance of notice under S. 111 of Income Tax Ordinance, 2001---
Expression "definite information"---Revenue Officers, powers of---Federal Board
of Revenue Inland Revenue, Revenue Division, Government of Pakistan had
already issued instructions through Notification No. 2(22)Rev. Bud/2020 dated 25th
May 2021 to the Chief Commissioners Inland Revenue , LTOs, MTOs, CTOs,
RTOs, against recklessly issuing notices under S. 122(5) read with S. 122(9) of the
Ordinance 2001, whereby purportedly the threshold of "definite information " as
defined under S. 122(8) of the Ordinance, 2001 was not met---In the present case,
instructions contained in the Notification No. 2(22)Rev. Bud/2020 dated 25th May
2021 had also been brushed aside while passing the impugned orders from
Assessing Officer till the Appellate Tribunal Inland Revenue---High Court
answered the proposed question in affirmative i.e. against the
Respondents/Department and in favour of the applicant/taxpayer, consequently the
impugned judgments were set-aside---Reference Application , filed by the taxpayer,
was allowed, in circumstances.
Malik Hamzah Sarwar for Applicant.
Malik Itaat Hussain Awan for Respondents.
Date of hearing: 2nd April, 2024.
JUDGMENT

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JAWAD HASSAN, J.----This Reference Application under Section 133 of the

Income Tax Ordinance, 2001 (the "Ordinance") has been filed by the Applicant,
being dissatisfied by the order dated 02.03.2023 passed by the Appellate Tribunal
Inland Revenue, Division Bench-I, Islamabad, (the "Appellate Tribunal") in
I.T.A.No.372/IB/2023 (Tax Year 2018). The following questions of law are said to
arise out of the impugned order.-
QUESTIONS OF LAW
1). "Whether under the facts and circumstances of the case the learned ATIR was
justified in upholding the orders of both the authorities below?
2). "Whether under the facts and circumstances of the case the order of learned
ATIR is a speaking order and is maintainable in the eye of law?
3). "Whether under the facts and circumstances of the case the learned ATIR was
not justified by not considering that order passed by Respondent No.5 has
without issuing mandatory separate/independent notice for making the
additional under section 111 of Ordinance?
4). "Whether under the facts and circumstances of the case the learned ATIR has
misdirect himself by not considering that addition under section 111(1)(b)
can be made only after confronting by separate notice under section 111(1)
(b)?
5). "Whether under the facts and circumstances of the case the learned ATIR be
read in isolation without making reference to Sections 122(1), 122(5) and
122(9) of the Ordinance?
2. Brief facts of the case are that a show-cause notice dated 14.12.2021 under
Section 122(9) of the "Ordinance" for the tax year 2018 was issued against the
applicant on the basis of definite information that he purchased property during
aforesaid year but did not disclose its source. Reply to said show-cause notice was
filed but the Respondent No.5, being dissatisfied, passed assessment order on
05.03.2022, which was appealed before the Respondent No.3/Commissioner Inland
Revenue (III), Rawalpindi. The said appeal was rejected vide order dated
22.12.2022. Being dissatisfied, the applicant assailed aforesaid order before the
"Appellant Tribunal" that met with the same fate vide order dated 02.03.2023.
Hence, instant reference application.
3. Learned counsel for the applicant inter alia submitted that the impugned order
is illegal and contrary to the law and facts of the case; that compliance of
mandatory provisions of Section 111 of the "Ordinance" was not made; that the
proceedings under Section 122(5) of the "Ordinance" can only be initiated if there
is "definite information" because the information provided under Section 111 of the
"Ordinance" is not "definite information" rather is mere information; that the
"Appellate Tribunal" has not passed the above referred order in accordance with
law and has fallen into error by dismissing appeal of the applicant.
4. On the other side, learned counsel for the Respondents submitted that the
impugned order has been passed strictly in accordance with law and does not
require any interference by this Court. He justified the decision merited towards the

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applicant and stated that no prejudice to the applicant has been made as substantial
compliance of said provisions of law was in place and further submitted that as
notice under Section 122(9) of the "Ordinance" was issued, therefore, there was no
need to issue separate notice under Section 111 of the "Ordinance".
5. Arguments heard. Record perused.
6. This case pertains to the issue of mandatory requirement for the issuance of
separate notice under Section 111 of the "Ordinance" while conducting proceedings
under show cause notice dated 14.12.2021 issued under Section 122(9) of the
"Ordinance", pursuant thereto, the Respondents Department concluded the
proceeding against the applicant on the basis that he had purchased immoveable
properties worth Rs.6,694,036/- but failed to declare its actual value and that he
received a loan from individuals to the tune of Rs.12,500,000/- during the tax year
2018. It is evident from show cause notice dated 14.12.2021 that it was issued
under Section 122(9) of the "Ordinance" requiring the applicant to file reply and
explain the sources, failing which, it would be added into income defined under
Section 2(29) of the "Ordinance" and assessment would be amended in terms of
Section 122(1) read with Section 111 of the "Ordinance". The question that looms
large before us is whether before invoking the provisions of Section 122 of the
"Ordinance", a separate notice to the taxpayer in terms of Section 111 of the
"Ordinance" is pre-requisite to include unexplained income/assets in income
chargeable to tax and without such notice substantial compliance of said provisions
of law could be made or not and whether a notice under Section 122(9) of the
"Ordinance" is enough to initiate proceedings for amendment of the assessment on
the grounds mentioned in Section 111 of the "Ordinance"? The case of the applicant
is that the Respondent-department was required to issue a separate notice under
Section 111 of the "Ordinance" while the stance of the Respondents-department is
that there is no need to issue a sperate notice under the aforesaid section for
proceeding under Section 122 of the "Ordinance". The issuance of a separate notice
under Section 111 of the "Ordinance" has been held as mandatory for the purpose
of addition on account of unexplained income or assets by learned Division Bench
of this Court in "Commissioner Inland Revenue, T.R.O., Faisalabad v. Faqir
Hussain and another" (2019 PTD 1828) wherein it has held as under:
"8. Perusal of the provisions of Section 111 of the Ordinance of 2001 shows that
if the instances / categories of unexplained income and assets, mentioned
therein, come to the knowledge of the Commissioner, he is not obliged to
form an opinion on the basis of information so gathered rather is required to
issue notice to the taxpayer seeking explanation, confronting the information
collected that its case comes within the head(s) specified in subsection (1).
Though word "notice" is not specifically mentioned in the said provisions of
law but words "... the person offers no explanation..." and "or the
explanation offered by the person is not, in the Commissioner's opinion,
satisfactory..." clearly suggest that for an explanation to be offered by the
person, he must have been issued a notice. After said notice and failure on
the part of taxpayer to offer satisfactory explanation, such addition can be
made in the income of the taxpayer. For an explanation to be offered by a
registered person, he must have been issued a notice without which no

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explanation could be offered, within the contemplation of Section 111 of the

Ordinance of 2001. Reference can be made to the cases of Messrs Ranipur
CNG Station and Muhammad Shafique supra."
"10. Non-issuance of separate notice under Section 111 has caused prejudice to
respondent-taxpayer as substantial compliance of said provisions of law has
not been made. The ordinary meanings of "Notice" as referred to by learned
Legal Advisors, with reference to various dictionaries, are not applicable to
the issue in hand. Non-issuance of proper notice in order to invoke
provisions of Section 111 cannot be taken lightly and its non-compliance
may lead to render the proceedings not in conformity with or according to
the intent and purpose of law. In the instant case, neither notice under
Section 111 of the Ordinance of 2001 has been issued to the taxpayer nor
was the taxpayer specifically confronted with such proposed addition so that
the taxpayer could have advanced some explanation in this regard. Thus,
impugned addition appears to be without any lawful authority."

This view was further fortified by one of us in "Commissioner Inland Revenue,

Multan Zone v. Falah ud Din Qureshi" (2021 PTD 192) holding the issuance of
notice under Section 111 of the "Ordinance" as mandatory and observed that "prior
separate notice under Section 111 of the Ordinance, 2001 to confront the
respondent for explaining his unexplained income and assets has not been issued
prior to making of addition of income for tax purpose". It is noted that the decision
given by learned Division Bench in the case of "Faqir Hussain and another" supra,
was challenged before the Supreme Court of Pakistan through Civil Petition
No.2447-L of 2022 which has recently been decided on 01.02.2024. The relevant
paras Nos.9 and 10 of the said judgment are given as under:
"9. Therefore, pursuant to Section 122(5) of the Ordinance, the terminus a quo
for initiation of proceedings under Section 122 is when the Commissioner,
on the basis of definite information acquired from an audit or otherwise, is
of the opinion that any of the grounds mentioned in Section 122(5)(i), (ii) or
(iii) is applicable. Thereafter, a notice under Section 122(9) of the
Ordinance, specifying the above ground(s), is sent to the taxpayer. If the
taxpayer satisfactorily responds to the notice sent under Section 122(9), the
proceedings can be dropped. Where, however, the response is not
satisfactory, and the Commissioner is satisfied that any of the grounds in
Section 122(5) are applicable, the Commissioner can amend the assessment
order under Section 122(1) or further amend an amended assessment under
Section 122(4) read with Section 122(5). As such, for initiation of
proceedings under Section 122, the Commissioner must assess if any of the
grounds under Section 122(5) are applicable, and such an assessment is to
be based on definite information acquired from an audit or otherwise, which
is the prerequisite to attract the provisions of Section 122(5) of the
Ordinance.
10. It is in this sequence of proceedings that the initiation and culmination of
proceedings under Section 111 of the Ordinance becomes necessary before
action can be taken under Section 122 to amend assessments on the basis of

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proceedings undertaken under Section 111. As noted above, the information

available with the department under Section 111(1) is mere information. It is
only after the taxpayer is confronted with this information through a
separate notice by calling for an explanation, and when no explanation is
offered or the explanation is not satisfactory in the opinion of the
Commissioner under Section 111(1), that it transforms or crystallizes into
"definite information" for the purposes of action under Section 122(5) for
amendment of assessment under Section 122. The taxpayer will then be
confronted with the grounds applicable under Section 122(5) through a
notice under Section 122(9) of the Ordinance. As such, where the
Commissioner has formed an opinion against the taxpayer as to the
fulfilment of one of the grounds mentioned in Section 111(1)(a) to (d) of the
Ordinance, and is of the view that any of the grounds in Section 122(5) is
applicable, the process under Section 122 is to be initiated to amend
assessments through a notice under Section 122(9). Thus, unless the
proceedings under Section 111(1) are initiated and completed, Section
122(5) cannot be given effect to and no notice under Section 122(9) can be
issued for the purposes of amending an assessment through an addition
contemplated under Section 111. It is to be noted that the present cases are
related to tax years up till 2020. After the amendment introduced in Section
122(5) of the Ordinance through the Finance Act, 2020, the words "definite
information acquired from an audit or otherwise" have been substituted with
"audit or on the basis of definite information". Therefore, the interpretation
rendered above as to the applicability of Section 122(5) may not be
applicable to cases post 2020 and the effect of the substituted expression
will have to be determined in an appropriate case in the future.
7. So far as the question what becomes "definite information", has also been
decided in above referred Civil Petition No.2447-L of 2022. Relevant part thereof
reads as under:
"Before an assessment can be amended under Section 122 on the basis of
Section 111, the proceedings under Section 111(1) are to be initiated, the
taxpayer is to be confronted with the information and the grounds applicable
under Section 111(1) through a separate notice under the said provision, and
then the proceedings are to be culminated through an appropriate order in
the shape of an opinion of the Commissioner. This then becomes definite
information for the purposes of Section 122(5), provided the grounds
mentioned in Section 122(5) are applicable. The taxpayer is then to be
confronted with these grounds through a notice under Section 122(9) and
only then can an assessment be amended under Section 122.9 This view has
also been recently taken by this Court in Bashir Ahmed wherein it has also
been held that a notice under Section 111 can be simultaneously issued with
a notice under Section 122(9), however, proceedings under Section 111 have
to be finalized first in terms of an opinion of the Commissioner so as to
constitute definite information, as is required under Section 122(5) of the
Ordinance".
Emphasis supplied

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8. Since the issue regarding "definite information" has already been elaborated
and interpreted by the Supreme Court of Pakistan from time to time firstly in
"Messrs Central Insurance Co. and others v. The Central Board of Revenue,
Islamabad and others" (1993 SCMR 1232) whereby it was held that "We are
inclined to hold that the expression "definite information" will include factual
information as well as information about the existence of a binding judgment of a
competent Court of law/forum for the purposes of section 65 of the Ordinance, but
any interpretation of a provision of law by a functionary which has not been
entrusted with the functions to interpret such provision judicially, cannot be treated
as a "definite information". Secondly, in "Income Tax Officer and another v. M/s
Chappal Builders" (1993 PTD 1108) wherein it has held that "The expression
"definite Information", and similar other expressions used in the above-noticed
provisions or other related provisions certainly meant much more than mere
material so as to cause a reasonable belief or even such evidence which might lead
to a definite belief. Unless there is definite direct information and there is no
further need to put the said definite information to trial by putting in further
supporting material the process of self-assessment could not be reopened. In this
case in order to establish through so-called `definite information', the department
had to rely upon further reasoning in order to clothe their information with
credibility what to talk of definiteness". Thirdly, in "Chief Commissioner Inland
Revenue, RTO, Peshawar v. Messrs Sabrina Tent Services" (2019 SCMR 1639)
holding that "Definite information" does not mean a reanalysis of existing
information or an analysis of further information that was previously accessible but
had not been taken into account" and fourthly, in Civil Petition No.2447-L of 2022,
referred above. While examining Sections 122 and 111 of the "Ordinance" in the
perspective of "definite information", the principles enunciated in above-referred
judgments by the Supreme Court of Pakistan has been followed which are binding
under Article 189 of the Constitution of Islamic Republic of Pakistan, 1973.
9. Furthermore, the Federal Board of Revenue Inland Revenue, Revenue
Division, Government of Pakistan has already issued instructions through
Notification No.2(22)Rev.Bud./2020 dated 25th May, 2021 to the Chief
Commissioners Inland Revenue, LTOs, MTO, CTOs, RTOs in the following
manner:

'Representations have been received in the Board suggesting that field officers
are recklessly issuing notices under section 122(5) read with Section 122(9)
of Income Tax Ordinance, 2001 (hereinafter "the Ordinance") where
purportedly the threshold of "definite information" as defined under section
122(8) is not met. It goes without saying that amendment proceedings under
section 122(5) of the Ordinance, merely on the basis of audit suspicion
picked from within the declarations lodged by the taxpayers themselves, is
an enforcement travesty and need to abate. The scheme of law warrants that
a taxpayer must be dealt with precisely as per principles of justice and fair
play".
10. Needless to add that above instructions have also been brushed aside while
passing the impugned orders from Assessing Officer till the "Appellate Tribunal".

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11. In view of law laid down in aforementioned judgments, our answer to the
proposed questions is in affirmative i.e. against the Respondents-Department and in
favour of the applicant.
12. Office shall send a copy of this order under seal of the Court to the
"Appellate Tribunal" as per Section 133(5) of the "Ordinance".
MQ/Z-7/L Reference allowed.

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;

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