Law: Income Tax Ordinance, 2001

Section: 111, 120(1), 122(5A), 122(9), 129(1), 5, 32, 37A, 113C

  Brief Facts 1. Background of the Appeal M/s Nova Frontiers, Ltd. (the taxpayer) filed an appeal before the Appellate Tribunal Inland Revenue, Karachi, against the impugned order dated 12.03.2026 passed by the Commissioner Inland Revenue (Appeals), RTO, Quetta (CIR(A)), who confirmed the order dated 01.12.2025 passed by the Additional Commissioner Inland Revenue (ADCIR) under Section 122(5A) of the Income Tax Ordinance, 2001, creating additions totaling Rs. 1,035,772,110. 2. Initial Assessment and Proceedings The taxpayer, a public limited company engaged in investment in shares, bonds, mutual funds, and other securities, filed its return for Tax Year 2024, which was deemed assessed under Section 120(1). The ADCIR assumed revisionary jurisdiction under Section 122(5A) and issued a notice dated 17.09.2025. The taxpayer submitted detailed replies on 01.11.2025, 12.11.2025, and 24.11.2025. The ADCIR passed the order dated 01.12.2025, making two additions: (i) Rs. 793,436,072 under Section 111 on account of the taxpayer's share of profit in its associate, Gatron (Industries) Limited, recognized under the equity method pursuant to IAS-28; and (ii) Rs. 242,336,038 treated as unexplained/exempt income and taxed at 29%, representing the difference between the capital gain reflected in financial statements under IFRS-9 and the capital gain determined under the tax regime certified by NCCPL. A third issue was dropped by the ADCIR on the ground that an addition under Section 111 was beyond the scope of Section 122(5A). 3. Taxpayer's Defense The taxpayer's Authorized Representative (AR) assailed the impugned orders on the grounds that: (i) the assumption of jurisdiction under Section 122(5A) was unlawful as the notice was vague and did not establish that the assessment was erroneous and prejudicial to revenue; (ii) the proceedings amounted to a fishing and roving inquiry; (iii) the addition of Rs. 793,436,072 represented notional income under IAS-28 and was not taxable, as it did not constitute actual receipt or realization of income; (iv) no separate mandatory notice under Section 111 was issued; (v) the addition of Rs. 242,336,038 was made without…