Law: Income Tax Ordinance, 2001

Section: 111(1)(d), 122(5A), 111, 122

Core summary The Tribunal dismissed the department’s appeal and upheld the CIR(A)’s order deleting the addition. Main points The case involved a difference between stock-in-trade shown in sales tax returns and income tax returns. The OIR made an addition under section 122(5A)122(5A) of the Income Tax Ordinance, 2001. The CIR(A) deleted the addition on the ground that: no proper legal basis was shown for the addition, such addition, if any, would require proceedings under section 111(1)(d)111(1)(d), a specific notice was mandatory, sales tax and income tax declarations are under different statutes and cannot be mechanically compared. Tribunal’s reasoning Section 122(5A)122(5A) can only be used if the original assessment is both: erroneous, and prejudicial to the revenue. A mere difference between sales tax and income tax stock figures is not enough by itself. Such discrepancy may only raise a query; it does not automatically prove unexplained investment or concealed income. The department did not bring independent evidence, reconciliation, or proper inquiry to establish actual unexplained stock. The Tribunal also noted that the difference could arise due to timing, valuation methods, exempt/zero-rated supplies, or other accounting factors. If the case was really about unexplained investment, a specific notice under section 111111 was required, which was not properly done. Core holding The department failed to validly assume jurisdiction under section 122(5A)122(5A), and the addition based only on comparison of sales tax and income tax stock declarations was unsustainable. Result Appeal dismissed; CIR(A)’s deletion of the addition upheld.         O r d e r Nasir Mahmud (Member): This appeal has been preferred against the order dated 07.04.2021 passed By the Commissioner Inland Revenue (Appeals), “CIR(A)”. 2.    The learned CIR(A) who was seized of an appeal against an order dated 25.04.2018 passes u/s 122(5A) of the Income Tax Ordinance, 2001 “ Ordinance”  took into consideration the averments, evidence produced before him and concluded…