Law: Income Tax Ordinance, 2001

Section: 39(3),111,122,122(1),122(5),122(9),176,176(1),177

 Summary ;Case Overview: The appellant, a businessman operating as "Tobacco Dealer", filed a return for Tax Year 2017 declaring an income of Rs. 539,500. However, a liability of Rs. 17.5 million was also declared, raising suspicion. The Assessing Officer (AO) initiated proceedings and treated the liability as unexplained, adding it to the taxable income under Sections 39(3) and 122 of the Income Tax Ordinance, 2001.Key Proceedings and Arguments:The AO issued a notice under Section 176 seeking proof of receipt of the liability via banking channel.The appellant replied, stating the liability stemmed from a family settlement related to inherited property, not a loan.The AO found the reply unsatisfactory and passed an amended assessment under Sections 122(1), 122(5), and 39(3), increasing taxable income to Rs. 18,039,500.The appeal to the Commissioner Inland Revenue (Appeals), Peshawar, was dismissed.Tribunal's Observations and Findings:Lack of Definite Information:The AO lacked definite information prior to issuing the notice under Section 176, indicating a fishing inquiry, which is not legally permissible.Inappropriate Use of Section 39(3):The AO incorrectly assumed the liability was a loan without substantiating it or proving it was received during the tax year.Failure to Conduct Proper Audit:Rather than verifying the family settlement through an audit under Section 177, the AO directly moved to reassessment under Section 122.No Evidence from AO:The AO failed to show that the amount declared was received as a loan or that it was not related to a family property settlement. The brother’s failure to show it as receivable did not validate the AO’s claim.Conclusion: The Tribunal found the entire reassessment process unlawful and baseless, and the amended order void in law and fact. As such, the appeal was accepted, and the orders of the AO and the Commissioner (Appeals) were vacated.ORDER: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…