ISLAMABAD: The Supreme Court held that the bank account and transactions do not necessarily form “definite income” of the assessee/taxpayer.

The effect of “definite information” is to be noticed on a case-to-case basis and the source of information would then consequently decide as to the information being definite or otherwise. All transactions, therein, not necessarily demonstrate the income of the taxpayer/assessee hence unless it is established that these statements and/or entries therein disclose information of income which is “definite”, the subject instrument cannot be applied as being one having “definite information”.

A two-judge bench, comprising Chief Justice Yahya Afridi and Justice Muhammad Shafi Siddiqui declined leave to appeal and consequently dismissed the petition of Commissioner Inland Revenue, (Special Zone for Builders and Developers) Regional Tax Office, Islamabad.

The judgment authored by Justice Shafi stated that in the regime of 2001 Ordinance the “definite information” was either left to the audit analysis which may allow Commissioner to adjudge the following, i.e., (i) any income chargeable to tax has escaped assessment; or (ii) 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. Certainly there is no audit claim and even no notice under Section 111 of the Ordinance is issued and similarly statement of account alone cannot be a basis to form any of the three routes provided in the later part of Section 122(5).

The court noted that the judgment in Khan CNG Station, which was also relied by the IHC, is based on the volume of natural gas which was ascertainable, as based on mathematical formula which was applied in the case, whereas, on the contrary, the statement of account on the basis of which the show cause notice was issued could not form a “definite information” about the income of taxpayer as demonstrated by the Commissioner in its order dated 28.12.2011. The judgment observed that neither the Commissioner nor the Tribunal and the learned High Court were of the view that all credit entries in the statement of account disclosed the income of the assessee and hence it does not constitute “definite information”. Indeed, the Tribunal is the last fact finding forum which question could neither be raised in the reference jurisdiction nor before the apex court.

The minutiae of the case show that a notice under subsections 1, 5 and 9 of Section 122 of the Ordinance, 2001 was issued to the respondent (M/s Khudadad Heights, Islamabad) for the tax year 2006. The proceeding against the respondent commenced on the basis of the bank statement.

The explanation provided by the taxpayer was found unsatisfactory and the assessing officer re-assessed the net income of the taxpayer. Being aggrieved of such treatment, the taxpayer filed an appeal before the Commissioner Inland Revenue (Appeals-I), Islamabad and was able to successfully established his response to some extent. The Commissioner decided the appeal on 28.12.2011.

Both, the department and the taxpayer found themselves aggrieved of the order of the Commissioner filed appeal/cross-appeal before the Appellate Tribunal Inland Revenue Islamabad Bench-I, Islamabad.

The Tribunal accepted the taxpayer’s appeal and rejected the appeal of the department, where therefore filed reference before the Islamabad High Court (IHC).

The reference was decided based on judgments including Commissioner Inland Revenue Zone-I RTO, Rawalpindi v Messrs Khan CNG Filling Station, Rawalpindi and Commissioner Inland Revenue, RTO, Bahawalpur v M/s Bashir Ahmed.

The IHC judgment discussed the effects of Section 65 of the Income Tax Ordinance, 1979 as well as the effect of Section 122(5) of the Ordinance.—TERENCE J SIGAMONY