2024 PLP 1584 (PTD)

MUHAMMAD HASHIM KHAN KAKAR, C.J.- This Income Tax Reference Application has been filed under section 133 of the Income Tax Ordinance, 2001 (hereinafter referred to as "the Ordinance") as amended by the Tax Laws (Amendment) Act, 2024 ("Amendment Act") against the order passed by the learned Appellate Tribunal Inland Revenue Quetta Bench Quetta ('ATIR'). The learned ATIR has upheld appellate order of the learned Commissioner (Appeals) Quetta ('CIRA') and the order passed by the Officer Inland Revenue, Zone-1, Quetta ('OIR'). The questions of law and mixed questions of law and fact emanating from the order of the ATIR may be summarized as under: "

1. Whether on the facts and in circumstances of the case, the Learned ATIR was justified to uphold addition of bank credit entries as unexplained amount treating the same as definite information?

2. Whether on the facts and in circumstances of the case, the Learned ATIR was justified to uphold addition of entire bank credit entries as concealed income without establishing nexus between business income and bank credit entries?

3. Whether on the facts and in circumstances of the case, the Learned ATIR was justified to uphold addition for Tax Year 2015 made under section 111(1)(b) read with section 122(5) of the Ordinance as amended though Finance Act, 2020?

4. Whether on the facts and in circumstances of the case, the Learned ATIR was justified to uphold addition of bank credit entries for Tax Year 2015 in pursuance of combined notice under section 122(5) read with section 111(1)(b) of the Ordinance when separate notice was mandatory prior to insertion of Explanation to section 111(5) through Finance Act, 2021?"

2. Brief facts leading to file the instant reference application are that the applicant is a business man and filed return of income for tax year 2015, declaring income at PKR 380,000/-. The case of taxpayer was selected for audit under section 214D of the Ordinance, 2001 due to late filing of return of income, but the audit proceedings were closed on 10.12.2020, because section 214D was not attracted for tax year 2015. Later on, the learned OIR, on the basis of data of 06 bank accounts issued a show-cause notice on 03.03.2021 for addition of PKR 35,654,139/- as concealed income in terms of section 111(1)(b) read with section 122(5) of the Ordinance. In response, the applicant pointed out that aggregate amount of bank credit entries in the said bank accounts is PKR 10,544,681/- and not PKR 35,654,139/- and contended that bank credit entries do not constitute definite information in terms of section 122(5) of the Ordinance. The OIR then issued a revised notice under sections 122(1), 122(5), 122(9) read with 111(1)(b) of the Ordinance and passed an amendment order dated 24-06-2021 under sections 122(1), 122(5) read with section 111(1)(b) of the Ordinance wherein tax liability of the taxpayer was worked out at PKR 3,046,138/- by making addition of said bank credit entries of PKR 10,544,681/- to the declared income as concealed income. Being aggrieved with the order passed by the OIR the applicant filed appeal before the learned CIRA who vide order dated 25-11-2021 confirmed the order of the OIR. The applicant then challenged the order of the CIRA before the ATIR. The learned ATIR agreed with the CIRA's findings and confirmed the orders of the OIR and CIRA.

3. Against the order of the learned ATIR the applicant has now come to this Court for consideration of questions as above.

4. Mr. Usama Zaheer, learned counsel for the applicant assailed the orders of the learned ATIR, the learned CIRA and the learned OIR. The learned counsel stated that the applicant is a commission agent earning nominal commission income from sales and purchases of fruits and coal from local market of Dukki Tehsil. The applicant for the Tax Year 2015 declared commission income at PKR 380,000/- earned from sales and purchases of fruit and coal from local market of Dukki Tehsil. The learned counsel further stated that in response to show-cause notice the bank credit entries of PKR10,544,681/- were duly explained to the OIR which was rejected by the OIR without any plausible reasons. The learned counsel contended that the learned OIR was not justified to treat bank credit entries as 'definite information' and invoke sections 122(5) and 111(1)(b) of the Ordinance. The learned counsel also contended that the learned OIR did not establish nexus between bank credit entries and business income of the applicant. The learned counsel also contended that the learned OIR failed to issue separate notice under section 111 of the Ordinance which was mandatory prior to insertion of Explanation to section 111(5) of the Ordinance through Finance Act, 2021. The learned counsel further contended that the learned CIRA and the learned ATIR were was not justified to confirm order of the learned OIR in view of said mistakes of law and facts. The learned counsel for the applicant finally prayed that the orders of the learned ATIR, learned CIRA and learned OIR may be vacated and deemed order passed under section 120 of the Ordinance may be restored.

5. Messrs Iftikhar Raza and Munawar Kasi, learned counsel for the respondent supported the orders of the learned ATIR, learned CIRA and learned OIR. The learned counsel contended that the applicant failed to satisfactorily explain the sources of bank credit entries of PKR10,544,681/- hence the learned OIR was justified to add the same to declared income of the applicant. The learned counsel also contended that the 'definite information' regarding bank credit entries was based on facts and attracted provisions of sections 122(5) and 111(1)(b) of the Ordinance. The learned counsel for the respondent finally prayed for dismissal of Reference Application filed by the applicant.

6. We have given anxious hearing to arguments from both the parties, gone through the relevant provisions of law, perused the orders of the learned OIR, the learned CIRA and the learned ATIR and examined the available record. We have also carefully considered the relevant provisions of law as interpreted by the courts. The learned ATIR has agreed with the findings of the learned CIRA who has upheld the order passed by the learned OIR wherein bank credit entries are treated as 'definite information' in terms of section 122(5) of the Ordinance and added to declared income of the applicant as concealed income.

7. First we deem it appropriate to examine whether there was 'definite information' in the possession of the learned OIR or not. The term "definite information" has been explained by the Apex Court in a number of decisions. In case of Messrs E.F.U. General Insurance Co. Limited v. The Federation of Pakistan and others reported as PLD 1997 SC 700 the Full Bench comprising of five Judges of the Apex Court has observed: "The words 'definite information' are the key words for the purpose of justifying action under subsection (1) of section 65 and as the said words have not been defined in the Ordinance, they will carry their literary meanings. Every information cannot be treated as the basis for reopening of the assessment but the information should be of the nature which should qualify so 'definite information' and that the information 'definite information' could not be given a universal meaning but it will have to be construed in each case. Where an assessee discloses all the material facts without any concealment and the assessment had been consciously completed by the Income Tax Officer, in such a case in the absence of the discovery of any new facts which can be treated as 'definite information', there cannot be any scope for re-opening of assessment under section

65. Any change of opinion on the basis of the same material by Income Tax Officer will not warrant pressing into the said provision. A Circular from the Board of Revenue interpreting any provision of law was not a 'definite information' for re-opening assessment by any Income Tax Officer. 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 function to interpret such provision judicially cannot be treated as a 'definite information'."

8. Further the Apex Court in the case reported as 2019 PTD 2001 SCP held 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. Reliance in this respect is placed Central Insurance Co. v. Central Board of Revenue (1993 SCMR 1232), Inspecting Assistant Commissioner v. Pakistan Herald Ltd. (1997 SCMR 1256) and Income-tax Officer v. Chappal Builders (1993 PTD 1108)."

9. The 'definite information' thus means information which is complete and does not require further processing. Reliance with advantage is also placed on the Honorable Lahore High Court decision reported as 2013 PTD 884 wherein it has been held that: "

12. The term "definite information" in section 122(5) of the Ordinance is not just any information but definite enough to satisfy the concerned officer that income chargeable to tax of an assessee has escaped assessment or total income of an assessee has been underassessed, etc. "Definite" means indisputable, known for certain, explicitly precise, clearly defined, leaving nothing to implication, established beyond doubt and cut and dried. Definite information is, therefore, that select information which falls within the restrictive meaning of the word "definite" explained above."

10. The bank credit entries or bank deposits in itself do not constitute 'definite information' as it requires further processing to relate it to net income of a taxpayer chargeable to tax. Only that part of the credit entries or bank deposits is chargeable to tax which can be termed as net profit or income. Whole of the credit entries or bank deposits in a bank account run by a businessman can never be his net profit or income chargeable to tax. Instead such credit entries or bank deposits may at best represent gross business receipts which after deduction of expenses will constitute net income or profit liable to tax. Thus the action of the learned OIR treating entire credit entries or bank deposits as amount liable to tax is neither lawful nor logical.

11. The OIR has invoked section 122(5) of the Ordinance to make addition of said bank credit entries of PKR 10,544,681/- to the declared income as concealed income. We deem it appropriate to reproduce said section 122(5) applicable to Tax Year 2015 as under: "Section 122: Amendment of assessments.- (5) An assessment order in respect of tax year, or an assessment year, shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that- (i) any income chargeable to tax has escaped assessment; (ii) or total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or (iii) any amount under a head of income has been mis-classified."

12. The above provision of law lays down that only such 'definite information' is relevant which is obtained through audit or through a process similar to audit. In the instant case the learned OIR has not conducted any audit in the case of applicant hence the so called 'definite information' regarding bank credit entries cannot be made a basis for invoking section 122(5) of the Ordinance. In this regard we are enlightened by the decision of the Apex Court in the case reported as 2023 SCMR 534 wherein it was held that: "Firstly, in section 122(5), for the words "definite information acquired from an audit or otherwise" the words "audit or on the basis of definite information" were substituted by the Finance Act, 2020. That change does not apply in relation to the tax years in question in the facts and circumstances of the case before us but also, in our view, does not in any case have any material bearing on the analysis and reasoning given herein."

13. From the above findings of the Apex Court it is clear that the learned OIR has incorrectly applied amended provisions of section 122(5) of the Ordinance for Tax Year 2015 which were brought on the statute through Finance Act, 2020.

14. The learned OIR has issued a combined notice under sections 122(5), 122(9) and 111(1)(b) of the Ordinance. Prior to insertion of Explanation to section 111(5) of the Ordinance separate notice under section 111 of the Ordinance was mandatory. Our view is supported by the recent decision of the Apex Court reported as 2024 SCMR 700 wherein it is held as under: "

11. Therefore, to answer the first question, and as applicable to the matters at hand, 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. 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."

15. The above findings of the Apex Court clearly lays down that the learned OIR was duty bound to issue separate notice under section 111 of the Ordinance for the instant Tax Year 2015 hence the proceedings conducted are unlawful.

16. In the light of above discussion the orders passed by the learned OIR, the learned CIRA and the learned ATIR cannot be allowed to sustain. For the above discussed reasons, this reference is concluded and the questions of law and mixed questions of law and facts emanating from the orders of the said authorities are answered in the negative in favour of the applicant and against the Department. The reference application is disposed of accordingly. MQ/122/Bal. Application allowed.