Citation(s): 2021 SLD 1308 = 2021 PTD 1182 = (2021) 124 TAX 84 = 2021 SCMR 1290
Supreme Court of Pakistan
Civil Appeal No. 1125 of 2020, decision & hearing Date : 28th January, 2021. (On
appeal from the Order Dated 21.02.2017 of the Lahore High Court, Bahawalpur
Bench passed in P.T.R. No. 04 of 2014)
AUTHOR(S): UMAR ATA BANDIAL, JUSTICE, SAJJAD ALI SHAH, JUSTICE, MUNIB
AKHTAR, JUSTICE
COMMISSIONER INLAND REVENUE ZONE BAHAWALPUR, REGIONAL TAX OFFICE,
BAHAWALPUR
VS
MESSRS BASHIR AHMED (DECEASED) THROUGH LRS
Sarfraz Ahmed Cheema, Advocate Supreme Court for Appellant (via video-Link,
Lahore).
Javed Iqbal Qazi, Advocate Supreme Court for Respondent.
Law: Income Tax Ordinance, 2001
Section: 111,111(1)(b),122,122(1),122(5),122(9)
(a) Income Tax Ordinance (XLIX of 2001) Ss. 111(1)(b), 122(1), 122(5) 122(9)
Amendment of deemed assessment order Definite information ”Scope Tax return filed by
the respondent (deemed assessment order) was scrutinized, and it was found that the
respondent had only declared agricultural income of Rs.500,000/, whereas the department
(as claimed by it) had definite information that the latter had acquired immoveable property
in the sum of Rs.56,00,000. ”On such basis a notice (the first notice) was issued under S.
122(1) of the Income Tac Ordinance, 2001 (the 2001 Ordinance) read with subsections (5)
(9) thereof, requiring the respondent to show cause as to why the deemed assessment
order should not be suitably amended ”Subsequently another notice (second notice), under
S. 111(1)(b) of the 2001 Ordinance was also issued in respect of the said property
”Legality” First notice purported to state that the department is in possession of definite
information regarding the investment allegedly made in immoveable property. ”Such claim
was repeated in the second notice under S. 111 of the 2001 Ordinance. Respondent was not
given an opportunity, as was mandatorily required by S. 111, to satisfy the tax authorities
as to the source etc. of the funds by which the immoveable property was acquired Rather,
the department from inception, and throughout, proceeded on the basis that it already had
definite information with it in this regard, such as was sufficient to allow the amendment of
the deemed assessment order ”However, that could not be so until first the proceedings
under S. 111 of the 2001 Ordinance had culminated in an appropriate order” Such an order
could have constituted the definite information as would allow the amendment of the
deemed assessment order. Proceedings under S. 111 were, as it were, short circuited
altogether since the department began with the (incorrect) premise that it already had
definite information available with it, and the concerned officer proceeded accordingly
”Department did not have definite information available with it within the contemplation of
the 2001 Ordinance Appeal was dismissed.
Commissioner of Inland Revenue-Zone I v. Khan CNG Filling Station 2017 SCMR 1717
distinguished.
(b) Income Tax Ordinance (XLIX of 2001) Ss. 111(1)(b), 122(1), 122(5) 122(9)
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Amendment of deemed assessment order on basis of definite information ”Scope” Finding
under S. 111 of the Income Tax Ordinance, 2001 (the 2001 Ordinance) and the amendment
of the deemed assessment order could be done together, and the notice under S. 111 could
also be issued along with the notice to amend. However, in such a case, the proceedings
and notice(s) must expressly so state on the face of it.
JUDGMENT
MUNIB AKHTAR, JUSTICE:---.---
At the conclusion of the hearing it was announced that the appeal stood dismissed. The
following are the reasons for that decision.
2. The matter arises out of the Income Tax Ordinance, 2001 and relates to the tax year
2010. The department sought to amend the deemed assessment order for that year for
reasons shortly to be stated. The respondent taxpayer won in appeal before the Appellate
Tribunal and the reference filed in the High Court by the department was dismissed by
means of the impugned judgment. Leave to appeal was granted in this Court vide order
dated 10.11.2020.
3. When the return filed by the respondent (deemed assessment order) was scrutinized, it
was found that the respondent had only declared agricultural income of Rs.500,000/,
whereas the department (as claimed by it) had definite information that the latter had
acquired immoveable property on or about 10.02.2010 in the sum of Rs.56,00,000/-. On
such basis a notice dated 24.09.2011 was issued under section 122(1) read with
subsections (5) and (9) thereof, requiring the respondent to show cause as to why the
deemed assessment order should not be suitably amended. It appears that later, on
07.12.2011, another notice, this time under section 111(1)(b) was also issued in respect of
the aforesaid property.
4. The taxpayer was proceeded against ex parte but contested the matter thereafter by way
of appeal and, as noted, won relief before the learned Tribunal. The Tribunal concluded (see
para 9 of its order) that the notice dated 24.09.2011 suffered from procedural defects that
went to the root of the matter inasmuch as the notice did not specify which clause of
section 122(5) was sought to be applied, and that separate notices ought to have been
issued, one under subsection (9) and then another under subsection (5). Finally, it was held
(also in the said para) that there was, in fact, no definite information available with the
department and that the concerned tax officer was merely trying to fish out the material
from the Taxpayer. in the impugned judgment, the learned High Court agreed with the
Tribunal that there was no definite information within the meaning of law and that since the
latter forum was the final finder of fact, its decision could not be challenged in tax
reference. It was also held that the findings of the Tribunal were not shown to be perverse,
contrary to the record or suffering from any other legal infirmity or impropriety as would
warrant interference by the High Court. The tax reference was accordingly dismissed.
5. Leave to appeal was granted to consider whether the findings and conclusions, especially
as regards definite information were consistent with the law laid down by this Court in
Commissioner of Inland Revenue-Zone I v. Khan CNG Filling Station 2017 SCMR 1717 (Khan
CNG). Before us, learned counsel for the department pressed his case on the authority of
this decision. Learned counsel for the respondent submitted that both the High Court and
the Tribunal had reached the correct conclusions of law and fact and that the appeal ought
to be dismissed.
6. Insofar as Khan CNG is concerned, the facts of that case were far removed from those at
hand. The precise question was whether a formula for natural gas consumption developed
by OGRA, and the results obtained from an application of that formula, could constitute
definite information with the meaning of law. To this a negative answer was given by the
High Court, which was reversed by this Court in the cited decision. Therefore, with respect,
this decision does not, as such, have any direct bearing on, or relevance for, the appeal at
hand.
7. Now, subsection (8) of section 122 contains an inclusive definition of “definite
information, which provides in material part that such information includes information ...
on the acquisition, possession or disposal of any money, asset, valuable article or
investment made or expenditure incurred by the taxpayer. At the relevant time, subsection
(5) required that the deemed assessment order could only be amended “where, on the
basis of definite information acquired from an audit or otherwise the Commissioner was
satisfied that any one of three clauses of the subsection was applicable. in the present case,
there was of course no audit involved, and therefore the definite information could only
have been otherwise acquired. Now, one manner in which the information can be so
acquired is by proceedings under section 111. This provided, at the relevant time and as
presently material, in subsection (1) that if any of its clauses was found to apply, and the
person concerned.
“offers no explanation about the nature and source of the amount credited or the
investment, money, valuable article, or funds from which the expenditure was made ... or
the explanation offered by the person is not, in the Commissioners opinion, satisfactory-
(a) the amount credited, value of the investment, money, value of the article or amount of
expenditure ... shall be included in the persons income chargeable to tax under head
Income from Other Sources to the extent it is not adequately explained...
8. As noted above, a notice under section 111 was issued to the respondent. However, the
sequence of the notices was crucial. The notice under section 122, subsections (1), (5) and
(9) was issued first, on 24.09.2011 and it was only later, on 07.12.2011, that the notice
under section 111 was issued. Now, and this is crucial and determinative for present
purposes, the first notice purported to state that the department is in possession of definite
information regarding the investment allegedly made in immoveable property. That claim
was repeated in the notice under section 111. in other words, the respondent was not given
an opportunity, as is mandatorily required by section 111, to satisfy the tax authorities as to
the source etc. of the funds by which the immoveable property was acquired. Rather, the
department from inception, and throughout, proceeded on the basis that it already had
definite information with it in this regard, such as was sufficient to allow the amendment of
the deemed assessment order. However, that could not be so until first the proceedings
under section 111 had culminated in an appropriate order. That order could have
constituted the definite information as would allow the amendment of the deemed
assessment order, and indeed, subsection (2) of section 111 contains elaborate statutory
instructions as to which is the tax year in which the concealed income is to be added. It is
possible for both steps, i.e., the finding under section 111 and the amendment of the
deemed assessment order to be done together, and for the notice under section 111 to be
issued along with the notice to amend. However, in such a case, the proceedings and
notice(s) must expressly so state on the face of it. Here, the proceedings under section 111
were, as it were, “short circuited altogether since the department began with the premise
that it already had definite information available with it, and the concerned officer
proceeded accordingly. That, in law, could not be so. Therefore, in our view, there was no
definite information available within the contemplation of the statute. The conclusions
arrived at by the learned Tribunal and learned High Court were correct and did not warrant
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interference by this Court.
9. For the foregoing reasons, the appeal stood dismissed and it was so announced at the
conclusion of the hearing.
