Law: Income Tax Ordinance, 2001

Section: 2(27A), 111, 111(1)(b), 39, 120

Core Point

The Tribunal resolved the difference in favour of the taxpayer: investments of Rs. 317.618 million made in Tax Year 2016 as share capital/share application money for expansion of plant, machinery and building were protected by Clause 86, Part IV, Second Schedule of the Income Tax Ordinance, 2001; therefore, section 111(1)(b)/39 could not be invoked, and the addition was deleted.

Issue

Whether investments made by an individual in industrial undertakings—through capital addition/share application money used for expansion—qualified for Clause 86 protection, making section 111 inapplicable.

Tribunal’s Reasoning

• Clause 86 expressly covered expansion projects. For purposes of that clause, “Greenfield industrial undertaking shall include expansion projects”; therefore, an existing undertaking’s expansion could not be excluded merely because it was not a wholly new undertaking.

• The 2019 definition was not applicable. Section 2(27A), which defines “greenfield industrial undertaking” narrowly—excluding expansion projects and requiring new technology/EDB approval—was inserted by the Tax Laws (Second Amendment) Ordinance, 2019 and expressly applies only from 1 July 2019 onwards. It could not be applied retrospectively to a Tax Year 2016 investment.download1.fbr.gov+1

• Two different “greenfield” regimes. Clause 86 protected the investor by excluding section 111 for qualifying investments, whereas section 2(27A) and Clause 126O introduced a later, narrower regime for a five-year tax holiday for genuinely new, EDB-certified greenfield undertakings. The Tribunal held that the later regime could not restrict the earlier Clause 86 concession.download1.fbr.gov+1

• Evidence was sufficient. The taxpayer relied not merely on the wealth statement but on bank statements, cheques, recipient companies’ returns, audited accounts, Forms A/29, and assessment orders. The Tribunal held that an accounting label such as “Loan Director” could not, by itself, override the actual documentary nature of the transaction.

• Burden shifted where evidence exists. Once the taxpayer produced contemporaneous evidence of the nature and source of the funds, the Department had to dislodge it with a reasoned finding; section 111 could not be sustained merely on an abstract dissatisfaction with the explanation.

Outcome

The third Member agreed with the dissenting Member and held that the investments fell within Clause 86 throughout its operative period, i.e., from 20 December 2013 to 30 June 2021. Accordingly, the CIR(A)’s confirmation of the Rs. 317.618 million addition was set aside and the addition was deleted.