2025 PLP (Trib (PTD)

DR. SHAH KHAN, ACCOUNTANT MEMBER.

The titled appeal has been filed at the instance of the appellant taxpayer against the impugned order dated 14.09.2023 passed by Learned Commissioner Inland Revenue (Appeals), Peshawar, whereby appeal of the appellant taxpayer was rejected.

2. Briefly stated facts of the case are that the appellant taxpayer is an individual, deriving income from running a business under the name and style of 'Tobacco Dealer', who filed return of income tax for tax year 2017 by declaring net income from business at Rs.539,500/-. The return so filed constituted deemed assessment order in terms of section 120 of the Income Tax Ordinance, 2001 ("the Ordinance"). However, on examination of the said declaration it was observed that the appellant taxpayer had unjustified accretion in wealth by declaring liability at Rs.17,500,000/-. Statutory notices were issued to the appellant for compliance of furnishing of receipt of the liability through banking channel. In response, the appellant taxpayer submitted its replies on different dates, which were found unsatisfactory. Resultantly, the proceedings culminated in passing of amended assessment order under section 122(1) read with section 122(5) of the Ordinance, wherein the Assessing Officer was made addition under section 39(3) of the Ordinance at Rs.17,500,000/- and total income of the appellant taxpayer for the tax year under appeal was assessed at Rs.18,039,500/-. Being dissatisfied with the above treatment, the appellant taxpayer filed appeal before the L/CIR (Appeals), Peshawar, who vide impugned order, rejected the appeal of the appellant taxpayer and confirmed the order of Assessing Officer. Feeling aggrieved, the appellant taxpayer has filed the instant appeal before this Tribunal on the grounds mentioned in the memo. of appeal.

3. This appeal was fixed for hearing today on 30.01.2024. On due date, Mr. Danish Ali Qazi, Advocate/AR appeared on behalf of the appellant taxpayer and argued his case, while Ms. Fouzia Iqbal, DR appeared to represent the Tax Department and defended the order passed by learned CIR(A), Peshawar.

4. Reiterating the grounds of appeal, the LA/R contended that the impugned order passed under section 122 read with sections 39(3) and 111 of the Ordinance is a nullity in the eyes of law because it was not based on any definite information that the appellant has obtained any loan from the family members during the tax year and that is why the appellant first issued a notice under section 176 to the appellant taxpayer. It was Asserted that issuance of notice under section 176 to the appellant taxpayer amounted to fishing and roving inquiries which also indicate that the Assessing officer had no definite information in his possession before proceeding under section 122 of the Ordinance. He contended that the Assessing Officer has not brought anything on record in support of his allegation that the liability declared in the wealth statement was any loan acquired during the tax year. He explained that the declared liability was in fact amounts payable to brothers and sisters of the appellant in terms of the family settlement deed regarding distribution of inherited property among the brothers against a commercial property of 45 marla that was given to the appellant taxpayer. It was stated that if the case would have been subjected for audit under section 177, the documents including the family settlement deed would have been filed to dispel the misunderstanding on the part of the Assessing officer about the nature of the liability declared in the wealth statement and the Assessing Officer would have been able to avoid getting misdirected towards the provision of section 39(3) in the case. It was contended that the Assessing Officer had issued to the appellant taxpayer notice under section 176 of the Ordinance without approval from the Commissioner IR which was in violation of law and settled principle in the matter. Based on the above, the L/AR pleaded for vacation of the impugned orders passed by the two forums below.

5. The L/DR, on the other hand, defended the impugned orders by contending that the loan claimed to be payable to the brothers of the appellant taxpayer has not been declared as such by the brother and hence the appellant was obliged to prove that the said loan has been received through banking channel as require under section 39(3) of the Ordinance. It was further asserted that the Assessing Officer was legally justified to inquire about the loan and its nature and mode of receipt through notice issued to the taxpayer. Based on the above, the LD/R pleaded for rejection of the appeal and confirmation of the impugned orders.

6. We have given anxious commiseration to the arguments of the L/AR and the L/DR and have also perused record. Record transpires that before issuance of a notice under section 122(9) in the case for the year, the Assessing Officer has issued to the appellant taxpayer a notice under section 176(1) of the Ordinance requiring him to provide proof of receipt of the loan through banking channel and in response to the said notice, the appellant taxpayer explained and clarified that the declared liability is not loan acquired but a liability owed to brothers as result of the family settlement about the distribution of inherited property. Record transpires that the said reply was found an unsatisfactory and this was made the basis of issuance of notice under section 122(9) show-causing the appellant taxpayer about the intended addition of the declared liability in case the appellant taxpayer fails to prove receipt of the liability through banking channel as required under section 39(3) of the Ordinance.

7. The only factor which has been made the basis of the amendment is the fact of the non-declaration of the said liability as 'receivables' by the brother of the appellant in his wealth statement for the year. We have found that the amendment order passed under section 122 read with sections 39(3)/111 is defective on a number of legal and factual counts. Firstly, it is dear that before issuance of notice under section 176(1) to the appellant taxpayer, the Assessing Officer was not certain and clear in his mind that the liability has been incurred by way of receipt of any loan during the tax year. That is exactly why he felt the need to verify this though notice under section 176 issued to the appellant taxpayer. Had he been in possession of definite information about the receipt of loan otherwise through bank, he would have not felt the need to issue notice under section 176 and seek clarification and proof from the appellant taxpayer in this regard. We thus find that the notice under section 176 was meant to engage in fishing inquiries from the taxpayer which is not allowed in the law and settled principle in the matter. Secondly, when the appellant taxpayer informed the Assessing Officer through his reply to notice under section 176 that the said liability was in fact a liability having arisen as a result of family settlement about distribution of inherited property among brothers, then it would have been in the fitness of things to subject this claim of the appellant taxpayer through verification by conducting audit under section 177 in the case. That was, however, not done and the Assessing Officer then proceeded under section 122 read with section 39(3) before further verifying or rebutting the claim of the appellant taxpayer. We find that, in the circumstances, no definite information had come into possession of the Assessing Officer within the meaning of section 122(5) after the reply of the appellant to the notice under section 176 in the case and that the notice under section 122(9) was, therefore, not in accordance with the law and settled principle about what constitutes 'definite information'. Thirdly, before asking the appellant taxpayer to provide proof receipt of the liability through banking channel, the Assessing Officer has brought noting on record to the effect that the said liability was amount of loan actually received during the year and not a liability having arisen as result of family settlement about distribution of inherited property. When it is so, how could he ask the appellant to prove payment of the receipt through bank when the actual receipt of liability has not been proved by the Assessing Officer nor declared by the appellant taxpayer as such? The fact that the brother of the appellant has not declared the liability as receivable in his return does not prove the stance of the Assessing Officer either because the same altogether negates the existence of any liability owing to him, what to talk of receipt of the same through banking channel. That aspect thus negates the finding and treatment of the Assessing Officer if, at all, it has any implication rather than supporting his stance. From the above, we have found that the Assessing Officer had no definite information within the meaning of section 122(5) read with section 39(3) and the notice under section 122(9) and amendment order under sections 122/39(3)/111 were without any lawful jurisdiction and cause.

8. For what has been discussed above, we find the orders passed under sections 122/39(3)/111 of the Ordinance in the case for the years to be void in law and on facts and thus not sustainable. We therefore vacate the impugned orders passed by the two forums below.

9. Appeal accepted as above.

10. This order consists of (06) pages and each pages bears my signature. MQ/35/TAX(TRIB) Appeal allowed.