Citation(s): 2022 SLD 18 = 2022 PTD 187 = (2024) 129 TAX 195

Appellate Tribunal Inland Revenue, Lahore

I.T.A. No. 1015/LB of 2021, decided on 22nd June, 2021, date of hearing: 10th
June, 2021

SHAHID MASOOD MANZAR, CHAIRMAN, JUSTICE, DR. MUHAMMAD NAEEM,

ACCOUNTANT MEMBER

MESSRS SHAHPOSH GARMENTS, GUJRANWALA

VS

THE CIR Zone-II, RTO, GUJRANWALA

Petitioner(s) by: Abuzar Hussain

Respondent(s) by: Mrs. Kiran Maqsood, D.R.

Law: Income Tax Ordinance, 2001
Section: 18,20,111,111(1)(d),111(1)(d)(i),120(A),122(1),122(5)(ii),129(1)
Law: Constitution of Pakistan, 1973
Section: 13
Law: Income Tax Ordinance, 1979
Section: 13(1)(a),13(1)(b),13(1)(c),13(1)(d),13(1)(e)

Unexplained income or assets

Appeal was allowed.
Appellant assailed order passed by department as well as Commissioner (Appeals) whereby
the amount of gross sales was held to be its income and was taxed accordingly.
Appellant had rightly availed Amnesty Scheme under the Voluntary Declaration of Domestic
Assets Ordinance, 2018, whereunder, its S.10 at its Serial No. 1, had declared Undisclosed
Income after deducting all sort of business expenditures permissible under law and had
correctly discharged its liability as such, no interference was called for in the declaration.
Impugned liability was raised by taxing the total gross sales instead of imposing tax on net
profits earned from the business after defraying all such business expenditures incurred
thereon as permissible under law, act on the part of Inland Revenue Officer was illegal,
unlawful and unfounded particularly when the expenses were duly documented for which
books of accounts were maintained as per requisitions of law.
Impugned notices and consequent orders were vacated.
Messrs Al-Hilal Motors Stores and others case 2004 PTD 868 ref.
Messrs Nawab Karyana Store, Gujrat v. The Commissioner Inland Revenue, Sialkot 2021
PTD 1223 rel.
Income from business--Deductions in computing income chargeable under the head income
from business--Scope-- Liability as to tax on income from business must be created on the
mechanism as enshrined in the Part-IV, Division-I and Division-II of the Income Tax
Ordinance, 2001, thereunder, Ss.18 20 of the Income Tax Ordinance, 2001, when read in
conjunction with each other facilities deductions of business expenditures incurred on
income earned and it is the net profit which has to be taxed and not the gross sales
deeming them as undisclosed income.
Protection against double punishment and self-incrimination.
Issuance of a notice regarding the same taxed amounts tantamount to double jeopardy
which cannot be given legal credence but also offends and defies the fundamental rights set
out in Art. 13 of the Constitution, which provides that no person shall be prosecuted and
punished for the same offence more than once--Doctrine of double jeopardy which
corresponds to the principle of Autre Fois Acquit and Autre Fois Convict always prohibits the
duplicate trial and duplicate punishment for the same offence.
Scope--Term undisclosed income means any income which was chargeable to tax but was
not so-charged.
Unexplained income or assets--Scope--Scope of S.111(1)(d) of the Income Tax Ordinance,
2001, is very definite for the persons allegedly concealing income or furnishing inaccurate
particulars of income that is (i) suppression of any production, sales or any amount
chargeable to tax or (ii) the suppression any items of receipts liable to tax as a whole or in
part--Production and sales are the particulars of income bat not income by itself and which
if found inaccurate cannot be taxed as income--Provisions of said section never offer
suppressed sales to be treated as undisclosed income instead income from business does
allow deductions of all business expenditures incurred on its carry taxing net profits instead
of total gross sales.
Income from business--Deductions in computing income chargeable under the head income
from business--Scope-- Gross sales of a person cannot be treated as total income
chargeable to tax instead it is the net profit earned from the business which has to be
taxed.
2015 PTD 1839; 2017 SCMR 1006 and PLD 2005 SC 605 ref.
Messrs Seven-up Bottling Company (Pvt.) Ltd. v. Lahore Development Authority (L.D.A.)
Lahore through Managing Director 2003 CLC 513 rel.

JUDGMENT:
SHAHID MASOOD MANZAR, CHAIRMAN:---.---

The titled appeal filed at the instance of taxpayer calling in question impugned Order passed
under section 129(1) dated 17-03-2021 by the learned Commissioner Inland Revenue of
Appeal, R.T.O, Gujranwala on the following grounds:-

“1. The order under sections 122(1)/122(5) (ii) of the Ordinance, 2001 passed by Inland
Revenue Officer is illegal and unlawful as it is contrary to law and the facts of the case
proceeded ex parte without providing any opportunity of being heard to the appellant.

2. Primarily, a notice dated 12-07-2018 titled as “Notice under section 111(1)(b) of The
Income Tax Ordinance, 2001 - Tax Year 2014” having mention in its body, the provisions of
section 111(1)(d)(i) as well on the basis of which the additions are having eventually been
made which is not only baseless and unjustified but also illegal and unlawful against the
facts of the case. It appears that the assessing officer is vacillating between double opinions
as to whether the case is to be made on the basis of unexplained assets or it is the case of
unexplained income.

3. The order passed under sections 122(1)/122(5)(ii) of the Ordinance, 2001 is based on
mere presumption, surmises and guess work hence; not maintainable in the eyes of law
and is without any reason or basis.

4. It is worth to mention here that the appellant has already availed Amnesty Scheme titled
as Voluntary Declaration of Domestic Assets Ordinance, 2018 whereunder; its section 10 at
its Serial No. 1 has declared Undisclosed Income worth Rs. 122,075,313 belonging to tax
year-2014 out of composite aggregate figure of Rs. 492,875,000 for tax years 2013 to
2017. This amount is calculated in the table given as under:--
Tax Years 2013 2014 2015 2016 2017
 Undeclared
1,233,872,561 1,382,367,343 1,315,147,064 1,519,643,097 1,101,840,851
sales
Cost of sales 804,917,370 887,331,144 860,323,062 994,579,387 719,307,796
Selling expenses 71,396,047 78,854,162 76,513,252 87,239,899 62,935,228
General and
269,972,911 294,106,724 285,115,770 329,028,512 238,374,652
admin expenses
Undisclosed
87,586,233 122,075,313 93,194,980 108,795,299 81,223,175
income
Tout
87,586,233 122,075,313 93,194,980 108,796,299 81,223,175
492,875,000
5. In view of above, total undisclosed income worth Rs. 492,875,000/- is declared in above
said amnesty scheme as envisaged in appellant’s declaration dated 30-06-2018 (Copy
annexed as “D”). Since, the appellant has disclosed his true sales, cost of sales and all of
expenditures incurred in its respect and has faithfully worked out undisclosed income on its
basis therefore, no more tax liability could be imposed on him. As such, assessment and
taxation of amnesty declared income is unwarranted, illegal and merits to be deleted on this
score alone.

6. The amnesty declaration made by appellant has been used as evidence against him for
the purpose of proceedings relating to imposition of income tax liability under the
Ordinance, 2001. This act has been done against the provisions of section 12 of the
Voluntary Declaration of Domestic Assets Ordinance, 2018. Further, confidentiality has been
sabotaged by the Inland Revenue Officers themselves including the Officers of Directorate
of Intelligence and Investigation Inland Revenue, Lahore, the Officers of Inland Revenue,
Regional Tax Office, Gujranwala and at the last, the Office of Learned Commissioner of
Appeals which is against the confidence given in section 11 of the Voluntary Declaration of
Domestic Assets Ordinance, 2018.

7. Learned Commissioner of Appeals has differentiated “Undisclosed Income” from

“Unexplained Deemed Income” and based on this assertion, has erred to maintain that tax
has to be charged on unexplained deemed income worth Rs. 1,382,367,343/- as confronted
to the appellant for the tax year, 2014 instead of undisclosed income worth Rs.
122,075,313/- as shown by appellant in his declaration made under the amnesty scheme
titled as Voluntary Declaration of Domestic Assets Ordinance, 2018.

8. Admittedly, the word, “undisclosed income” has neither found any definition given in the
Voluntary Declaration of Domestic Assets Ordinance, 2018 nor it has been defined
elsewhere at any place in the Income Tax Ordinance, 2001 however, its reference could
have been found from the provisions of section 120(A) of the Ordinance, 2001 which though
omitted through Finance Act, 2013 yet one is left with the definition of “undisclosed income”
in its subsection (4) in the way given hereunder:--

Subsection (4) of omitted section 120A: For the purpose of this section.--(i) “undisclosed
income” means any income, including any investment to be deemed as income under
section 111 or any other deemed income, for any year or years, which was chargeable to
tax but was not so charged.

9. In view of above, it is clear beyond any shadow of doubt that the very concerned
terminology of “undisclosed income” is and means any income which was chargeable to tax
but was not so- charged. The concept of “deemed income “ as given in section 13 of the
Income Tax Ordinance, 1979 has been abolished with the repeal of old Income Tax
Ordinance, 1979 and it is belter to say that learned Commissioner of Appeals has attempted
to re-enforce it in the name of a new terminology, “unexplained deemed income” to tax the
gross sales of appellant instead of his income in terms of provisions of section 111(1)(d) of
the Ordinance, 2001. After repeal of section 13 of the Ordinance, 1979 and after omission
of section 120A of the Ordinance, 2001, the concept of “deemed income” is no more existed
on the statutes book and cannot be re-enforced under section 111(1)(d) of the Ordinance,
2001 as done by learned Commissioner of Appeals.

10. The scope of section 111(1) (d) of the Ordinance, 2001 is very specific for the persons
who has concealed income or has furnished inaccurate particulars of income including (i)
suppression of any production, sales or any amount chargeable to tax or (ii) the
suppression of any items of receipts liable to tax are whole or in part. The production and
sales are the particulars of income but not income by itself and which if found inaccurate
cannot be taxed as income. The provisions of this section never encapsulates that
suppressed gross sales as worked out from sales ledgers and bank credit entries are to be
treated as concealed income or better to say undisclosed income instead income from
business does allow deductions of all business expenditures incurred on its carry and has
taxed net profits instead of gross sales. Cross sales of a person cannot be treated his
income to create tax liability against him instead it is his net profit in its business which has
always to be taxed.

11. Learned Commissioner of Appeals has introduced chargeability of income tax on

unexplained deemed income as this very concept has become obsolete as given in the
clauses (a) to (e) of subsection (1) of section 13 of the Income Tax Ordinance, 1979 which
is now repealed instead of taxing unexplained income or unexplained assets as provided in
clauses (a) to (e) of sub-section (1) of section 111 of the Income Tax Ordinance, 2001
which is currently operative. The version of unexplained deemed income is re-enforced
unjustly to tax gross sales of appellant instead of his income in the form of net profits.

12. Learned Commissioner of Appeals, likewise the Assessing Officer in this case, appears to
be confused as to whether tax liability is to be created on the basis of unexplained income
which according to him is unexplained deemed income or on the basis of unexplained
assets. If it is a case of unexplained assets then the amount credited, value of the
investment, money, value of the article, or amount of expenditure not adequately explained
shall be included in the person’s income chargeable to tax under the head “Income from
Other Sources”. Conversely, in case of any suppressed amount of production, sales or any
amount chargeable to tax or of any item receipts liable to tax shall be included in the
person’s income chargeable to tax under the head “income from business” to the extent, it
is not adequately explained.

13. Since, in the case at hand, addition under section lll(l)(d)(i) is made under the head
“income from business” therefore, tax liability has to be calculated in terms of Part-IV,
Division-1 and Division-II of the Ordinance, 2001 whereunder, section 18 and section 20 it
is provided as under:--
PART-IV
DIVISION-I

18. Income from business.--(1) The following incomes of a person for a tax year, other than
income exempt from tax under this Ordinance, shall be chargeable to tax under the head
“Income from business”--

(a) the profits and gains of any business carried on by a person at any time in the year;
(b) any income derived by any trade, professional or similar association from the sale of
goods or provisions of services to its member;
(c) any income from the hire or lease of tangible moveable property;
(d) the fair market value of any benefit or perquisite, whether convertible into money or
not, derived by a person in the course of, or by virtue of, a past, present, or prospective
business relationship [.]

[Explanation-- J

(e) any management fee drive by management company (including a modaraba

[management company]).

(2) ………………………………………………………………………………
(3) ………………………………………………………………………………
(4) ………………………………………………………………………………

DIVISION-II
Deduction: General Principles

20. Deduction in computing income chargeable under the head “Income from business”.--
(1) Subject to this Ordinance, in computing the income of a person chargeable to tax under
the head “Income from business” for a tax year, a deduction shall be allowed for any
expenditure incurred by the person in the year [wholly and exclusively for the purpose of
business]

[(1A) ……………………………………………………………………………
(2) ………………………………………………………………………………
(3) ………………………………………………………………………………

14. The Inland Revenue has charged tax on total sales as per sales ledgers vis-a-vis bank
credits of Rs. 1,382,367,343/- and addition of Rs. 1,260,292,030/- made in appellant’s
taxable income on this account under section 111(1)(d)(i) of the Ordinance, 2001 for the
tax year-2014 is not only illegal and unlawful but also unjustified and ill-founded not
tenable in the eyes of law. It is also found contrary to the scheme of levy of income tax as
provided under section 18 and section 20 of the Ordinance, 2001 wherein computing
income of a person chargeable to tax under the head “income from business” for a tax year,
a deduction shall be allowed for any expenditure incurred by the person in the year for the
purpose of business. Reliance in this regard is placed on the judgment of the Hon’ble
Appellate Tribunal Inland Revenue (Headquarter) Bench, Islamabad in case of Messrs
Nawab Karyana Store, Gujrat v. The Commissioner Inland Revenue, Sialkot through its
I.T.A. No.55HB12019 and I.T.A No. 56/IB/2019 dated 21-04-2020 [2021 PTD 1223].

The relevant extract is reproduced herein below:-

“We have held in a number of cases that clause (d) of subsection (1) of section 111(ibid)
does not warrant taxation of the whole of the credit entries/deposits in a bank account
maintained by a respondent taxpayer treating the same to be “net income” chargeable to
tax. Only that part of the “bank deposits/credit entries” is chargeable to tax, which can be
termed as “total income”. Whole of the “credit entries/deposits” in a bank account run by a
businessman can never be his “total income”.

Instead the credit entries represent the “SALES”, which, after defraying the “COST OF
SALES” i.e. [Opening Stock plus Purchases minus Closing Stock] give rise to the “GROSS
PROFIT”, which, after deductions of Profit and Loss Account Expenses, yield the “NET
PROFIT”. It is “NET PROFIT” which according to the above reproduced sub-clause (ii) of
clause (d) of subsection (1) of section 111 of the Income Tax Ordinance, 2001 is the “item
of receipt liable to tax in whole or in part”.

15. Nevertheless, the taxation of already declared and taxed amounts is unlawful,
unjustified and ab initio void because this bad intension falls within the ambit of the
principle of DOUBLE JEOPARDY always to be deprecated particularly in fiscal matters.
Reliance is placed on the judgments reported as [2015 PTD 1839], [2017 SCMR 1006] and
[PLD 2005 SC 605]. Reliance is further placed on the judgment of Hon’ble Lahore High
Court, Lahore in case of Messrs Seven-up Bottling Company (Pvt.) Limited v. Lahore
Development Authority (L.D.A) Lahore through managing director reported as [2003 CLC
513] wherein “Provisions of a statue must be read as a whole--No tax or fee to be levied
twice on same goods as per golden rule of interpretation of fiscal statute”.

16. There is no denying to the fact that issuance of show-cause notice regarding the same
taxed amounts tantamount to double jeopardy which could not be given legal credence but
also offends and defies the fundamental rights set out in Article 13 of Constitution of Islamic
Republic of Pakistan, 1973 which provides that no person shall be prosecuted and punished
for the same offence more than once. The doctrine of “double jeopardy” which corresponds
to the principle of “Autre Fois Acquit and Autre Fois Convict” always prohibits the duplicate
trial and duplicate punishment for the same offence.

17. The last but not the least, discovering certain credit entries in appellant’s banks without
having any nexus to sales and supplies cannot be treated as income derived from business
and is therefore; not liable to tax. For the purpose of levy of tax, it would be necessary to
show existence of some material to indicate that acquisition of money is resulted from
unexplained sources. In absence of any corroborating material evidence correlating receipts
of money from unexplained resources, no tax can be levied merely on some assumption
and presumptions, whims and conjectures and if any tax liability is created otherwise than
in these manners, it would remain unsubstantiated in thin air like a building without any
pedestal of it cemented into the Earth. Reliance is placed on the judgment of Hon’ble Sindh
High Court, Karachi in case of “Messrs Al-Hilal Motors Stores and others reported as 2004
PTD 868”

2. Brief facts are that the income tax return for the tax Year-2014 was filed by declaring net
income of Rs. 2,668,235/- as against declared sales of Rs.30,214,798/-Assessment stood
finalized under section 120 of the Ordinance, 2001. Later on, “definite information” was
received from the Directorate of Intelligence and Investigation IR, Lahore through its letter
C.No. DD-IV/2-376/2018/2544 dated 14-05-2018 in the shape of gross sales, bank and
cash ledgers, etc which were verified by Mr. Abdul Ghaffar (Owner/Member of Association of
Persons registered in the name of M/s. Shahposh Garments the appellant who duly singed
and placed thumb impression thereon. During the course of investigation, has allegedly
surfaced on record that appellant is involved in suppression of sales.

The comparison of sales as per gross sales ledgers via-vis sales proceeds confirmed from
bank credit entries with that of sales declared in respective income tax returns has revealed
that appellant is purportedly involved in suppression of sales worth Rs.6,552,870,916/- for
the tax years 2013, 2014, 2015, 2016 and 2017 (07-2016 to 02-2017). The detailed
statistics of suppression of sales are given as follows:-
Sr. Tax Actual sales as per Gross Declared Suppressed
No. year sales ledgers Sales Sales
 1 2013 1,268,121,710 34,249,149 1,233,872,561
2 2014 1,412,582,141 30,214,798 1,382,367,343
3 2015 1,391,499,841 76,352,777 1,315,147,064
4 2016 1,599,281,842 79,638,745 1,519,643,097
5 2017 1,190,425,959 88,585,108 1,101,840,851
Total 6,861,911,493 309,040,577 6,552,870,916

The charges of suppression of sales have said to be corroborated from various bank receipts
confirming actual sales proceeds made during the period in question.

Based on above, appellant was called upon vide notice dated 21-06-2018 under section
122(9) of the Ordinance, 2001 as to why income tax (including Worker Welfare Fund-WWF)
worth Rs. 501,990,415/- may not be assessed under section 122(1)(5)(ii) of the Ordinance,
2001 and as to why additions on account of undisclosed income worth Rs. 1,357,334,866/-
may not be made in appellant’s income under section 111(1) (d)(i) for the tax Year-2014.
The assessment order treated as having issued under section 120 of the Ordinance, 2001
may not be amended in the light of definite information received in the form of gross sales
ledgers vis-a-vis bank credit entries under sections 122(5)(ii) and 111(1)(d)(i) of the
Ordinance, 2001 as followed by reminders issued on 10-06-2020 and 23-06-2020 under
section 122(9) of the Ordinance, 2001.

Upon culmination of adjudication, Assistant/Deputy Commissioner IR has adversely

adjudged income tax liabilities that appellant confronted an amount of Rs.
1,3822,367,343/- as difference between actual sales and sales declared in return furnished
for the year in question out of which amnesty was availed on undisclosed income of Rs.
122,075,313/- leaving behind a difference of Rs. 1,260,292,030/- as unexplained income
attracting income tax of Rs.457,287,517/ - is added in the total income under section
111(1)(d) and amendment to this effect in the assessment was made by him under section
122(1)(5) of the Ordinance, 2001 through his Assessment Order dated 10-12-2020.

Feeling aggrieved, the first appeal was preferred before the learned Commissioner IR of
Appeals, Gujranwala who has upheld impugned liability through its Order dated 17-03-
2021. Feeling aggrieved by the said treatment, the appellant has come up in appeal before
this Tribunal.

3. Learned counsel of appellant has contested impugned notices on the ground that a notice
dated 12-07-2018 titled “Notice under Section lll(l)(b) of The Income Tax Ordinance, 2001--
Tax Year 2014” having mention in its body, the provisions of section lll(l)(d)(i) as well on the
basis of which the additions have eventually been made, is not only baseless and unjustified
but also illegal and unlawful against the facts of the case. He contended that the assessing
officer was vacillating between double opinions as to whether the case is to be made on the
basis of unexplained assets or it is the case of unexplained income.

He contended that the appellant has already availed Amnesty Scheme Voluntary Declaration
of Domestic Assets Ordinance, 2018 under; its section 10 at its Serial No. 1 has declared
Undisclosed Income worth Rs. 122,075,313 belonging to tax year-2014 out of composite
aggregate figure of Rs. 492,875,000 for tax years 2013 to 2017. The calculations, is
tabulated in the statistics given as under:--
Tax Years 2013 2014 2015 2016 2017
Undeclared
1,233,872,561 1,382,367,343 1,315,147,064 1,519,643,097 1,101,840,851
sales
Costs of sales 804,917,370 887,331,144 866,323,062 994,579,387 719,307,796
Selling expenses 71,396,047 78,854,162 76,513,252 87,239,899 62,935,228
General and
269,972,911 294,106,724 285,115,770 329,628,512 238,374,652
admin expenses
Undisclosed
87,586,233 122,075,313 93,194,980 108,795,299 81,223,175
income
Total
87,586,233 122,075,313 93,194,980 108,795,299 81,223,175
492,875,000
According to him in view of above table, total alleged undisclosed income worth Rs.
492,875,000/- is declared in above said amnesty scheme as envisaged in appellant’s
declaration dated 30-06-2018 and Copy of amnesty scheme declaration is placed on record.
Since, appellant has disclosed his true sales, cost of sales and all of expenditures incurred in
respect and has faithfully worked out undisclosed income on its basis therefore; no more
tax liability could be imposed on him. As such, assessment and taxation of amnesty
declared income is unwarranted, illegal and merits to be deleted on this score alone.
The learned A.R argued that amnesty declaration made by appellant has been used as
evidence against him for the purpose of proceedings relating to imposition of income tax
liability under the Ordinance, 2001. This act has been done against the provisions of section
12 of the Voluntary Declaration of Domestic Assets Ordinance, 2018 as confidentiality has
been sabotaged by the Inland Revenue Officers themselves including the Officers of
Directorate of Intelligence and Investigation Inland Revenue, Lahore, the Officers of Inland
Revenue, Regional Tax Office, Gujranwala and at the last, the Office of Learned
Commissioner of Appeals which is against the confidence given in section 11 of the
Voluntary Declaration of Domestic Assets Ordinance, 2018.

He contended that learned CIR(A) has differentiated “Undisclosed Income” from

“Unexplained Deemed Income” and based on this assertion, he has erred to charge the
appellant with unexplained deemed income to the effect of amount as confronted the
impugned notice for the tax year, 2014 instead of the undisclosed income as shown by
appellant in his declaration made under the amnesty scheme titled as Voluntary Declaration
of Domestic Assets Ordinance, 2018.
It is contended that admittedly, the word, “undisclosed income” has neither found any
definition given in the Voluntary Declaration of Domestic Assets Ordinance, 2018 nor it is
defined elsewhere at any place in the Income Tax Ordinance, 2001 however, its reference
could have been found from the provisions of section 120(A) of the Ordinance, 2001 which
though omitted through Finance Act, 2013 yet one is left with the definition of “undisclosed
income” in its subsection (4) in the way given hereunder

Subsection (4) of omitted section 120A: For the purpose of this section.-- (i) “undisclosed
income” means any income, including any investment to be deemed as income under
section 111 or any other deemed income, for any year or years, which was chargeable to
tax but was not so charged.
The learned counsel assailed that the very concerned terminology of “undisclosed income”
means any income which was chargeable to tax but was not so-charged. The concept of
“deemed income” as given in section 13 of the Income Tax Ordinance, 1979 has been
abolished with the repeal of old Income Tax Ordinance, 1979 and learned Commissioner
Appeals has attempted to re-enforce it in the name of a new terminology, “unexplained
deemed income” to tax the gross sales of appellant instead of his income in terms of
provisions of section 111(1)(d)(i) of the Ordinance, 2001. After repeal of section 13 of the
Ordinance, 1979 and after omission of section 120A of the Ordinance, 2001, the concept of
“deemed income” is done away and is no more existed on the statutes book and cannot be
re-enforced under section 111(1)(d)(i) of the Ordinance, 2001 as made applicable by
learned Commissioner Appeals.
He has opposed learned Commissioner of Appeals introducing chargeability of income tax
on unexplained deemed income as this very concept has become obsolete as given in the
clauses (a) to (e) of subsection (1) of section 13 of the Income Tax Ordinance, 1979 which
is now repealed instead of taxing unexplained income or unexplained assets as provided in
clauses (a) to (e) of subsection (1) of section 111 of the Income Tax Ordinance, 2001 which
is currently operative. The version of unexplained deemed income is re-enforced unjustly to
tax gross sales of appellant instead of his income in the form of net profits.
He argued that learned Commissioner Appeals, and the Assessing Officer in this case,
appears to be confused as to whether tax liability is to be created on the basis of
unexplained income which according to him is unexplained deemed income or on the basis
of unexplained assets. If it is a case of unexplained assets then the amount credited, value
of the investment, money, value of the article, or amount of expenditure not adequately
explained shall be included in the person’s income chargeable to tax under the head
“Income from Other Sources”. Conversely, in case of any suppressed amount of production,
sales or any amount chargeable to tax or of any item receipts liable to tax shall be included
in the person’s income chargeable to tax under the head “income from business” to the
extent, it is not adequately explained.
It is pertinent to mention here that the scope of section 111(1)(d) of the Ordinance, 2001 is
very specific for the persons who has concealed income or has furnished inaccurate
particulars of income including (i) suppression of any production, sales or any amount
Chargeable to tax or (ii) the suppression of any items of receipts liable to tax are whole or
in part. The production and sales are the particulars of income but not income by itself and
which if found inaccurate cannot be taxed as income. The provisions of this section never
encapsulates that suppressed gross sales as worked out from sales ledgers and bank credit
entries are to be treated as concealed income or better to say undisclosed income instead
income from business does allow deductions of all business expenditures incurred on its
carry and has taxed net profits instead of gross sales. Gross sales of a person cannot be
treated his income to create tax liability against him instead it is his net profit of his
business which has always to be taxed.
The Officer has charged tax on total sales as per sales ledgers vis-a-vis bank credits entries
by adding it in appellant’s taxable income under section 111(1)(d)(i) of the Ordinance, 2001
for the tax year-2014 is not only illegal and unlawful but also unjustified and ill-founded not
tenable id the eyes of law. It is also contrary to the scheme of levy of income tax as
provided under section 18 and section 20 of the Ordinance, 2001 wherein computing
income of a person chargeable to tax under the head “income from business” for a tax year,
a deduction shall be allowed for any expenditure incurred by the person in the year for the
purpose of business. Learned counsel of appellant has relied on the judgment of this
Tribunal in case of Messrs Nawab Karyana Store, Gujrat v. The Commissioner Inland
Revenue, Sialkot through its I.T.A. No. 55/IB/2019 and I.T.A No. 56/IB/2019 dated 21-04-
2020 [2021 PTD 1223].
It is argued that taxation of already declared and taxed amounts is unlawful, unjustified and
ab initio void because this bad intension falls within the ambit of DOUBLE JEOPARDY always
to be deprecated particularly in fiscal matters. Reliance, he has placed on the judgments
reported at [2015 PTD 1839], [2017 SCMR 1006] and [PLD 2005 SC 605], Reliance is
further placed on the judgment of Hon’ble Lahore High Court, Lahore in case of M/s. Seven-
up Bottling Company (Pvt.) Limited v. Lahore Development Authority (L.D.A) Lahore
through Managing Director reported as [2003 CLC 513] wherein it is held that “Provisions of
a statue must be read as a whole--No tax or fee to be levied twice on same goods as per
golden rule of interpretation of fiscal statute”.
Learned AR contended that discovering certain credit entries in appellant’s banks without
having any nexus to sales and supplies cannot be treated as income derived from business
and is therefore; not liable to tax. For the purpose of levy of tax, it would be necessary to
show existence of some material to indicate that acquisition of money is resulted from
unexplained sources. In absence of any corroborating material evidence correlating receipts
of money from unexplained resources, no tax can be levied merely on some assumption
and presumptions, whims and conjectures and if any tax liability is created otherwise than
in these manners, it would remain unsubstantiated in thin air like a building without any
pedestal of it cemented into the Earth. The appellant has relied upon the judgment of
Hon’ble Sindh High Court, Karachi in case of M/s. Al-Hilal Motors Stores and others reported
as [2004 PTD 868], On the basis of these arguments learned AR requested to vacate the
impugned orders of the officers below.
4. On the other hand, departmental representative supported impugned orders on similar
grounds on the basis of the charges as levelled earlier in impugned notice as well as
adjudged in consequent orders. She has strongly opposed the contention of appellant that
expenditures whether directly or indirectly incurred thereon may be allowed for deductions
against total gross sales. She has proposed to confirm chargeability of tax on gross sales as
total income of the appellant instead of net profits earned by him out of his business. She
asserted for disallowance of all direct and indirect expenses incurred on such gross sales as
concealed by the appellant for the tax year in question. She has requested to uphold the
impugned orders of the officers below and to reject the appeal.
5. We have examined the relevant case record and have heard cross arguments of the rival
parties. The learned counsel of the appellant has assailed the very basic notice issued under
section 111(1)(b) of The Ordinance, 2001 by arguing that it appears to be redundant as in
its body, the provisions of section 111(1)(d)(i) are found invoked, on the basis of which the
additions have eventually been made. The case is made out on account of unexplained
income under section 111(1)(d)(i) and not for unexplained assets under section 111(1)(b)
of The Ordinance, 2001. Since in the instant case, additions are made under section 111(1)
(d)(i) of the Ordinance, 2001 under the head “income from business” and not under the
head of “income from other sources” therefore; tax liability in this case has to be calculated
in terms of Part-IV, Division-I and Division-II of the Ordinance, 2001 whereunder, section 18
and section 20 of the Ordinance, 2001 specifically provides as under:-
“Section 18. Income from business.- (1) The following incomes of a person for a tax year,
other than income exempt from tax under this Ordinance, shall be chargeable to tax under
the head “Income from business”-
(a) the profits and gains of any business carried on by a person at any time in the year;
(b) any income derived by any trade, professional or similar association from the sale of
goods or provisions of services to its member;
(c) any income from the hire or lease of tangible moveable property;
(d) the fair market value of any benefit or perquisite, whether convertible into money or
not, derived by a person in the course of, or by virtue of, a past, present, or prospective
business relationship [.]
[Explanation-
…………………………………………………………….]
(e) any management fee drive by management company (including a Modaraba
[management company]).
(2) ……………………………………………………..
(3) ……………………………………………………..
(4) ……………………………………………………..
DIVISION-II
Deduction: General Principles
20. Deduction in computing income chargeable under the head “Income from business”.-
(1) Subject to this Ordinance, in computing the income of a person chargeable to tax under
the head “Income from business” for a tax year, a deduction shall be allowed for any
expenditure incurred by the person in the year [wholly and exclusively for the purpose of
business]”
Based on above mentioned provisions, it is established that deductions shall always be
allowed for any expenditure incurred by the person in the year wholly and exclusively for
the purpose of business carried out in that very year. Contrarily, the Inland Revenue Officer
has imposed tax on gross sales as ascertained from sales ledgers vis-k-vis bank credit
entries of the appellant instead of charging tax on net profits earned from the business. We
have found this act contrary to the scheme of levy of income tax as provided under section
18 and section 20 of the Ordinance, 2001 wherein computing income of a person
chargeable to tax under the head “income from business” for a tax year, a deduction shall
be allowed for any expenditure incurred by the person in that year for the purpose of
business. Learned counsel of appellant has rightly relied upon the judgment of this Tribunal
in case of Messrs Nawab Karyana Store, Gujrat v. The Commissioner Inland Revenue,
Sialkot in I.T.A. No. 55/IB/2019 and I.T.A No. 56/IB/2019 dated 21-04-2020 [2021 PTD
1223] on the subject matter. The relevant extract is reproduced herein below:-
“We have held in a number of cases that clause (d) of subsection (1) of section 111(ibid)
does not warrant taxation of the whole of the credit entries/deposits in a bank account
maintained by a respondent taxpayer treating the same to be “net income” chargeable to
tax. Only that part of the “bank deposits/credit entries” is chargeable to tax, which can be
termed as “total income”. Whole of the “credit entries/deposits” in a bank account run by a
businessman can never be his “total income”.
Instead the credit entries represent the “SALES”, which, after defraying the “COST OF
SALES” i.e. [Opening Stock plus Purchases minus Closing Stock] give rise to the “GROSS
PROFIT”, which, after deductions of Profit and Loss Account Expenses, yield the “NET
PROFIT”. It is “NET PROFIT” which according to the above reproduced sub-clause (ii) of
clause (1) of subsection (1) of section 111 of the Income Tax Ordinance, 2001 is the “item
of receipt liable to tax in whole or in part”.
Liability as to tax on income from business must be created on the mechanism as enshrined
in the Part-IV, Division-I and Division-II of the Ordinance, 2001 where under, section 18 and
section 20 of the Ordinance, 2001 when read in conjunction with each other, facilitates
deductions of business expenditures incurred on income earned and it is the net profit
which has to be taxed and not the gross sales deeming them as undisclosed income. The
learned Commissioner of Appeals has wrongly upheld tax on gross sales as unexplained
deemed income instead of undisclosed income declared by the appellant under the amnesty
scheme titled as Voluntary Declaration of Domestic Assets Ordinance, 2018. The word,
“undisclosed income” has neither defined in the Voluntary Declaration of Domestic Assets
Ordinance, 2018 nor it has elsewhere; found at any place in the Ordinance, 2001 however,
its reference could have been made from the provisions of section 120(A) of the Ordinance,
2001 which though omitted through Finance Act, 2013 yet one is left with the definition of
“undisclosed income” in its subsection (4) ibid as it is already reproduced above.
As such, the term “undisclosed income” means any income which was chargeable to tax but
was not so-charged. The concept of “deemed income” as given in section 13 repealed of the
Income Tax Ordinance, 1979 has been abolished. Learned Commissioner Appeals has
attempted to re-enforce this concept in the name of, “unexplained deemed income” to tax
the gross sales of appellant instead of his income in terms of provisions of section 111(1)
(d) (i) of the Ordinance, 2001. After repeal of section 13 of the Ordinance, 1979 and after
omission of section 120A of the Ordinance, 2001, the concept of “deemed income” is no
more existed on the statutes book and cannot be re-enforced under the garb of the
provisions of section 111(1) (d) (i) of the Ordinance, 2001 as done by learned
Commissioner of Appeals in this case.

The scope of section 111(1)(d) of the Ordinance, 2001 is very definite for the persons
allegedly concealing income or furnishing inaccurate particulars of income that is (i)
suppression of any production, sales or any amount chargeable to tax or (ii) the
suppression of any items of receipts liable to tax as a whole or in part. The counsel has
rightly pointed for the production and sales are the particulars of income but not income by
itself and which if found inaccurate cannot be taxed as income. The provisions of this
section never offer suppressed sales to be treated as undisclosed income instead income
from business does allow deductions of all business expenditures incurred on its carry
taxing net profits instead of total gross sales. We agree with the contention of appellant that
gross sales of a person cannot be treated his total income chargeable to tax instead it is the
net profits earned from the business which has to be taxed.
It is therefore; confirmed that the appellant has rightly availed Amnesty Scheme under the
Voluntary Declaration of Domestic Assets Ordinance, 2018 where under; its section 10 at its
Serial No. 1; he has declared Undisclosed Income after deducting all sort of business
expenditures permissible under law and has correctly discharged his liability as such; no
interference is called for in the declaration made by him under this amnesty scheme.
There is no denying to the fact that issuance of a notice regarding the same taxed amounts
tantamount to double jeopardy which could not be given legal credence but also offends
and defies the fundamental rights set out in Article 13 of Constitution of Islamic Republic of
Pakistan, 1973 which provides that no person shall be prosecuted and punished for the
same offence more than once. The doctrine of “double jeopardy” which corresponds to the
principle of “Autre Fois Acquit and Autre Fois Convict” always prohibits the duplicate trial
and duplicate punishment for the same offence.
Based on above premises, we have found that impugned liability is raised by taxing the
total gross sales instead of imposing tax on net profits earned from the business after
defraying all such business expenditures incurred thereon as permissible under law, this act
on the part of Inland Revenue Officer is declared to be illegal, unlawful and unfounded
particularly when these expenses are duly documented for which books of accounts are
maintained as per requisitions of law. Since, the appellant has already discharged his
liabilities as of income tax through his declaration made under the tax amnesty scheme
given by the Federal Government therefore; impugned notices and consequent orders are
hereby vacated on the single ground as dilated upon in the above paragraphs therefore; no
needs remain left behind to make more deliberations on other factual and legal grounds
taken at the bar.
6. The appeal is decided in the manner cited supra.