Law: Income Tax Ordinance, 2001

Section: 161, 205, 161(1A), 165

Law: Income Tax Rules, 2002

Section: 44(4)

Brief Facts Introduction The income tax appeal for the tax year 2020 was filed by the taxpayer challenging the appellate order dated December 14, 2023, issued by the Commissioner of Inland Revenue (CIR) Appeals II, Lahore. Background The case originated when the Officer Inland Revenue (OIR) observed that the taxpayer was a "prescribed person" under the Income Tax Ordinance, 2001, and was required to deduct tax on payments made under various heads and submit statements under Section 165. The OIR issued a notice under Rule 44(4) of the Income Tax Rules, 2002, and Section 161(1A) of the Ordinance, followed by reminders, asking the taxpayer to reconcile payments and tax deductions. The taxpayer did not respond, leading the OIR to finalize the proceedings under Sections 161/205, creating a tax demand of Rs. 3,659,339/- on September 22, 2023. Appeal to CIR(A) The taxpayer, dissatisfied with the OIR's order, appealed to the CIR(A), who partially allowed the appeal by modifying the original order. This modified order was then challenged by the taxpayer before the tribunal on specific grounds. Arguments Mr. Naveed ur Rehman, Advocate, represented the taxpayer and argued in support of the appeal. Ms. Saman, the departmental representative, defended the CIR(A)'s order. The tribunal reviewed the appeal grounds and the records from the previous authorities. Tribunal's Observations on Purchases The primary issue was the alleged default under Section 161 concerning purchases and various profit and loss (P&L) expenses. The tribunal examined the details provided by the taxpayer, which included commercial import undertakings and Annex-A of the Sales Tax return. Certain Computerized Payment Receipts (CPRs) were also submitted as proof of tax deductions under Section 153 for some purchases and expenses. Tribunal's Observations on P&L Expenses Regarding P&L expenses, the tribunal found that both the OIR and CIR(A) had charged the taxpayer with default without identifying specific instances or evidence. After reviewing the case and documents, the tribunal noted that the matter required verification of documents that had either not been provided…