Law: Income Tax Ordinance, 2001

Section: 111(1)(b), 111(1)(d), 122(5A), 122(9)

  Brief Facts Introduction and Nature of Appeal The titled appeal was filed by the Department against Order No.49 dated 20.12.2017 passed by the Commissioner Inland Revenue (Appeals-III), Lahore, relating to Tax Year 2014. Through the impugned order, the learned CIR(A) annulled additions made by the assessing officer under section 122(5A) read with section 111 of the Income Tax Ordinance, 2001, prompting the Department to challenge the appellate relief. Facts and Assessment Proceedings The respondent-taxpayer, registered as an Association of Persons (AOP) engaged in the manufacturing and sale of rubber products, filed its return for Tax Year 2014 declaring a net loss of Rs.5,805,011. The Officer Inland Revenue considered the deemed assessment to be erroneous and prejudicial to revenue and initiated proceedings under section 122(5A) after issuing notice under section 122(9). An amended assessment order was passed making additions under section 111(1)(d) for alleged difference in purchases between Income Tax and Sales Tax returns, and under section 111(1)(b) on account of alleged unexplained closing stock. Order of the CIR(A) The taxpayer challenged the amended assessment before the CIR(A). After examining the facts and record, the learned CIR(A) annulled both additions made under sections 111(1)(d) and 111(1)(b). This relief granted by the first appellate authority led the Department to file the present appeal before the Tribunal. Addition on Account of Difference in Purchases Regarding the addition under section 111(1)(d), the Tribunal observed that Income Tax and Sales Tax returns are prepared under different accounting and statutory conventions. Certain costs such as electricity are included in purchases for sales tax purposes but are separately recorded as power and fuel expenses in income tax accounts. Conversely, ancillary expenses like freight and transportation are included in purchases under income tax accounting but excluded from sales tax purchases. These differences naturally cause variation in figures. The CIR(A) relied upon settled judicial precedents to delete the addition, and the Department failed to rebut these findings or challenge the…