Law: Income Tax Ordinance, 1979

Section: 13(1)(a)

(a) Income-tax--- ----- "Intangible addition" ---Concept. An "intangible addition" may be described as the difference between the declared and assessed gross profits. It is the estimate made by the Revenue as against the returned trading results. The term is neither that of art nor it finds mention in the Income Tax Ordinance, 1979 or for that matter any other similar legislation previous or current. It is a convenient way to state the "forced profits" which the Revenue assumes an assessee to have earned and, therefore, requires him to pay tax thereupon. Besides being a moot point for appellate forums if an addition in the facts of a case could be made, its effect on income computed for the same year or in subsequent years has given rise to varying judicial pronouncements. The all important question being whether the income which is evolved from the gross profit declared and gross profit worked out is real or notional? If it is real income then all the incidents of real income must accompany it. The principle underlying and the rationale behind giving credit for an intangible addition made in the same or an earlier year is that an amount once taxed in the hands of an assessee should not be taxed again. It is neither a rule of law nor an accounting standard. It is a rule of prudence and propriety. Although a kind of concensus appears to have evolved that an intangible addition is real income of an assessee yet the manner and extent of its benefit in the same or subsequent years is not settled. All the more so when a set-off is sought against one or more kinds of additions made under the provisions of section 13 of the Income Tax Ordinance, 1979. The ever changing policy of C.B.R. has also been, to a large extent, responsible for the uncertainty. That an intangible addition is real income and, therefore, available to an assessee like other book profits is now a foregone conclusion. (b) Income Tax Ordinance (XXXI of 1979)----S.13(1)(a)---Deemed income---Assessing Officer is authorised to deem any sum found credited in the books of an assessee as his income if the assessee offers no explanation or the explanation offered is not satisfactory as the nature and source…

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