MUHAMMAD ASHRAF Versus COMMISSIONER INLAND REVENUE, RTO, MULTAN

ORDER

ZAHID SIKANDAR, MEMBER--- The titled appeal is directed against assessment order dated 27.06.2025 framed by AC/DCIR Unit-III, Layyah, DG Khan Zone, RTO Multan in appellant's case for tax year 2019 whereby tax liability of Rs.152,391,829/- was created against the taxpayer by the taxation officer.

2.It is the case of the department that, as per definite information received, the appellant taxpayer besides running a petrol pump under the name and style of 'Ashraf Filling Station' is also involved in the business of 'Other service activities/Services/GOS and was maintaining various accounts in different banks. As per assessment order the taxpayer was maintaining 15 bank accounts out of which 11 were un-declared. Details gathered is reproduced below:

Entries (RS)

UBL, Layyah A/c#.2448360254

Rs.12,191,101/-

Bank Al-Habib Ltd., Layyah A/c#.01910081001450017

Rs.52,42,322/-

Bank Al-Habib Ltd., Layyah A/c#.01910981001450016

Rs.3,433,300/-

Meezan Bank Ltd., Layyah A/c#.102927405

Rs.11,101,600/-

NBP, Layyah A/c#.6147018371

Rs.8,980,692/-

NBP, Layyah A/c#.6156352993

Rs.3,350/-

Bank Al-Fatah Ltd. Layyah A/c#.1006078905

Rs.32,320,250/-

MCB Bank Ltd. Layyah A/c#.04054134310013

Rs.118,067,313/-

Habib Bank Ltd. Kot Sultan A/C#.0276001438203

Rs.52,503,527/-

Habib Bank Ltd. Kot Sultan A/c#.02767900778903

Rs.1,9997518/-

Habib Bank Ltd. Kot Sultan A/c#.4000332303, 4000535303

Rs.68,765,076/-

Habib Bank Ltd. Kot Sultan A/c#.02767900712401

Rs.14,748,739/-

Habib Bank Ltd. Kot Sultan A/c#.02767900695003

Rs.150,861,522/-

Suppressed Sales

Rs.527,438,310/-

3.Since credit entries as quoted above did not commensurate with the declared version therefore through notice under section 111 the taxpayer was required to explain the undeclared credit entries/investment by the OIR with the intention to treat the same as concealed income and add it in taxpayer's income for the said tax year. Allegedly, no reply/explanation was furnished in response therefore show-cause notice under section 122(9) dated 14.11.2024 was issued to the taxpayer for compliance which is reproduced as under:

Thanks for filing your Income Tax Return for the Tax Year 2019 in which the following results were declared Pak. Rupees.

Income from Business Rs.1,276,000/-

Total Income declared Rs.3,528,000/-

Business capital declared Rs. 16,164,000/-

You, in the status of an individual, have filed your Income Tax Return for the tax year 2019 and deemed assessment under section 120(1) (b) of the Income Tax Ordinance, 2001 stands completed which needs to be amended in terms of section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 due to the following reasons:-

Declared Bank Accounts:-

2. Bank Al-Habib Ltd. Layyah Account No.0191-0081-001450-01-7.

3. Meezan Bank Limited, Layyah Account No.102927405.

4.MCB Limited Layyah Account No.040541343100013

Un-declared Bank Accounts:-

2. NBP, Layyah, Account No. 6138765456.

3. NBP, Layyah, Account No. 6147018371

4. NBA Layyah, Account No. 6156352993

5.Bank Al-Falah Limited, Layyah Account No. 1006078905

6.HBL, Kot Sultan, Layyah Account No. 0276-00143820-3

7.HBL Kot Sultan, Layyah Account No. 0276-790077890-3

8.HBL Kot Sultan, Layyah Account No. 0276-400033230-3

9.HBL, Kot Sultan, Layyah Account No. 0276-40005353-03

10.HBL Kot Sultan, Layyah Account No. 0276-7900712401

11.HBL, Kot Sultan, Layyah Account No. 0276-7900695003

Total credit entries during the year 2019 ..Rs.527,438,310/-

Less Revenue Declared In return of Income .Rs.(2,596,210)

Suppressed sales under section 111(1)(d).. .Rs.524,892,100/-

It is clear from the above that you have suppressed true particulars of sales without any justification, in the absence of proper explanation, the undersigned intends to treat the said un-declared sales as suppressed/concealed sales under section 111(1)(d) of the Income Tax Ordinance, 2001 and the same will be included in your Taxable Income under the head Income from Business.

You are, therefore, required to please show-cause under section 122(9) as to why said amendment under section 122(1) of the Income Tax Ordinance, 2001 may not be made. You are, therefore, requested to submit your written reply/explanation along with documents/record on which you want to rely on or before the date 29-11-2024 at my office situated at Churhatta Road near Educational Board, Dera Ghazi Khan, Layyah. Please note, in case of no/ insufficient reply, action will be taken as per law.

4. Again, neither the taxpayer joined the adjudication proceedings nor any reply was furnished therefore, consequently the OIR vide ex-parte order dated 27.06.2025 amended the self-assessment order of taxpayer by making addition under section 111(1)(d) in the following manner:

Total credit entries during the year 2019 Rs.527,438,310/-

Less Revenue Declared in return of income . Rs. (2,546,210)

Add. Unexplained source of investment discussed in notice under section 111(1)(d) . .Rs.524,892,100/-

TOTAL ASSESSED INCOME .. Rs.528,420,100/-

5. Aggrieved by the aforesaid treatment, the taxpayer has filed the instant appeal before the tribunal.

6. Besides agitating against the ex-parte order in violation of principles of natural justice the primary argument presented by the learned AR for the appellant is that impugned proceedings were carried out on the basis of some 'definite information' in relation to maintaining certain bank accounts by the taxpayer. It is emphasized by the learned AR that as per verdicts of the superior courts bank credit entries do not constitute definite information and all proceedings have been carried out in violation of settled principles. To support the contention, the learned AR has relied upon a decision of Hon ble Lahore High Court (Multan Bench) given in I.T.R No.32 of 2023 titled as CIR v. M/s. Ayyub Brothers Khad Dealer whereby the Hon'ble court relying upon judgment given in Khudadad Heights case (2025 SCMR 716) held that credit entries in bank statement do not necessarily reflect the taxable income and cannot be applied as being one having definite information. Conversely, DR supported the impugned order as having being passed in accordance with law.

7. Arguments heard, order perused.

8. When confronted by the bench the learned AR submitted that confronted bank accounts were declared whereas the impugned order speaks otherwise. The learned DR also disputed the AR's claim. When further confronted about non-appearance in adjudication proceedings the learned AR denied to have received any notice by the taxpayer. We have carefully examined the impugned order and found that the taxpayer was deprived of adequate opportunity of hearing. Record suggests that show-cause notice was issued on 14.11.2024 for compliance on 29.11.2024 and statedly after granting one adjournment and on account of non-compliance assessment was amended and huge tax liability was created against the appellant ex-parte. The superior courts have always emphasized that charging of tax is a serious business and utmost care should be given by the officers while creating fiscal liability against a person. It has been held innumerable times that the department should provide adequate and proper opportunity of hearing to the taxpayers which, in our view, in the present case is missing. Ex-parte order has been passed against the principle of laud 'alteram partem'.

9. On merits, we find that addition was made under section 111(1)(d) on account of un-explained investment in the shape of credit entries treating the same as suppressed sales and concealed income. The contention as to whether credit entries were not a 'definite information' is to be seen in view of the facts of the case. The learned AR stated that bank accounts were declared but the impugned order suggests that out of 15 bank accounts of the taxpayer, 11 were un-declared and were found by the department. Presumption of truth is always attached to a judicial or quasi-judicial order and it cannot be discarded or refuted mere on oral assertions and without any supportive contrary evidence. However, since proceedings have been finalized ex-parte therefore this remains a disputed question which requires proper determination at the department level. In Khudadad Heights case supra, it was held that all transactions not necessarily demonstrate the income of the taxpayer and since neither the commissioner nor the tribunal and the learned High Court disclosed the income of the assessee hence it did not constitute definite information in respect of taxpayer's income. However, the Hon ble apex court also held that the effect of 'definite information' is to be noticed on a case to case basis and the source of information would then consequently decide as to the information being definite or otherwise. Hence, the contention taken by the learned AR that bank credit entries do not constitute definite information at all is not correct given the fact that the taxpayer did not declare these bank accounts and the department gathered information from some other source and not from the taxpayer's declared record. However, it is reiterated here whether bank credit entries constitute income of the assessee is to be seen case to case basis and the department has to establish with supportive material/record that bank credit entries reflect the taxable income of the assessee. Our view is in line with the judgment of Khudadad heights followed by the Hon ble High Court in M/s. Ayyub brothers case that unless it is established that the credit entries disclose information which is 'definite' the subject instrument cannot be applied as being one having 'definite information'. The department has failed to hold a detailed inquiry or established any link or information of these credit entries with the taxable income of the taxpayer.

10. It is also of importance to highlight that even the allegation of the department is found correct even then addition cannot be made against 100% concealed sales in shape of bank credit entries. The authoritative pronouncement of Hon'ble Supreme Court in CIR v. Mian Liaqat Ali (2023 PTD 435) provides that only income, that is the net profit, after deducting cost of sales and allowable business expenses is chargeable to tax. Total 100% addition of concealed sales/bank credit entries in taxpayer's income and charge the same to tax is not warranted under the law and as per principle settled by apex court in Mian Liaqat Ali case ibid and applying the ratio held therein, the department was to first determine the gross profit after linking the credit entries with concealed sales through some record or information and then charge tax after allowing admissible deductions/business expenses. Rather than exercising this methodology to ascertain the taxpayer's taxable income, the department straight away made 100% addition of credit entries in taxpayer's income treated the same as concealed/suppressed sales and charged the same to tax which is neither legal nor lawful.

11. In the light of foregoing and in the interest of fair play and justice, we consider it appropriate to remit the instant case to the assessing officer for de novo proceedings and to decide the matter after providing adequate opportunity of hearing to the taxpayer in accordance with law and principles settled by superior courts as discussed above. Impugned ex-parte order is accordingly annulled and matter is remanded back to the assessing officer for decision afresh through well-reasoned speaking order.

12.Order accordingly.

MQ/18/TAX(TRIB) Case remanded.