Income Tax Ordinance 2001: Unexplained, concealed income or assets

KARACHI: Federal Board of Revenue (FBR) has recently issued updated Income Tax Ordinance, 2001 and explained the concealed or unexplained income for the purpose of tax chargeability.

 

Section 111 of the Ordinance defined the unexplained income or assets:

Section 111: Unexplained income or assets

Sub-Section: (1) Where —

(a) any amount is credited in a person’s books of account;

(b) a person has made any investment or is the owner of any money or valuable article;

(c) a person has incurred any expenditure; or

(d) any person has concealed income or furnished inaccurate particulars of income including —

(i) the suppression of any production, sales or any amount chargeable to tax; or

(ii) the suppression of any item of receipt liable to tax in whole or in part, and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made suppression of any production, sales, any amount chargeable to tax and of any item of receipt liable to tax or the explanation offered by the person is not, in the Commissioner’s opinion, satisfactory, the amount credited, value of the investment, money, value of the article, or amount of expenditure suppressed amount of production, sales or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income chargeable to tax under head “Income from Other Sources” to the extent it is not adequately explained:

Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.

Sub-Section (2): The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax:

(i) in the tax year to which such amount relates if the amount representing investment, money, valuable article or expenditure is situated or incurred in Pakistan or concealed income is Pakistan-source; and

(ii) in the tax year immediately preceding the tax year in which the investment, money, valuable article or expenditure is discovered by the Commissioner and is situated or incurred outside Pakistan and concealed income is foreign-source.

Explanation.—For the removal of doubt, it is clarified that where the investment, money, valuable article or expenditure is acquired or incurred outside Pakistan in a prior tax year and is liable to be included in the income of tax year 2018 and onwards on the basis of discovery made by the Commissioner during tax year 2019 and onwards and the person explains the acquisition of such asset or expenditure from sources relating to tax year in which such asset was acquired or expenditure was incurred, such explanation shall not be rejected on the basis that the source does not relate to the tax year in which the amount chargeable to tax is to be included.

Sub-Section (3): Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than reasonable cost of the investment or the valuable article, or the reasonable amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from Other Sources” in the tax year to which the investment, valuable article or the expenditure relates.

Sub-Section (4): Sub-section (1) does not apply,—

(a) to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding ten million Rupees in a tax year that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.

“(c) to an amount invested in acquiring immoveable property and computed according to the following formula, namely:—

A – B

Where.—

A is the value of immovable property determined under section 68;

B is the value recorded by the authority registering or attesting the transfer:

Provided that this clause shall only apply if the value as computed under section 68 is greater than the value recorded by the authority registering or attesting the transfer;

Explanation: For the removal of doubt, it is clarified that,—

(1) Sub-section (1) shall continue to apply to the amount representing value recorded by the authority registering or attesting the transfer.

(2) Where a person has paid tax under section 236W, the person shall be entitled to incorporate in the books of accounts the amount computed under this clause in tangible form.”

Sub-Section (5): The Board may make rules under section 237 for the purposes of this section.

 

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