Karachi, December 13, 2024 – The Federal Board of Revenue (FBR) has issued detailed instructions to all Chief Commissioners of Inland Revenue (CCIRs) regarding the issuance of notices for unexplained income. These guidelines emphasize the procedural requirements that must be adhered to before initiating proceedings for amending tax assessments.
In a communication with the CCIRs, the FBR underscored the necessity of issuing a separate notice or initiating proceedings under Section 111 of the Income Tax Ordinance, 2001, before any amendments are made under Section 122 of the Ordinance. This directive follows recent legal precedents set by superior courts.
The FBR highlighted a key judgment by the Lahore High Court (Rawalpindi Bench) in “Zubair Khan Versus Commissioner Inland Revenue Jhelum Zone” (2024 PTD 1112). The court ruled that invoking the provisions of Section 122 requires the prior issuance of a separate notice under Section 111 to include unexplained income or assets in taxable income. A notice under Section 122(9) alone is insufficient for this purpose.
Additionally, the FBR referenced earlier rulings reinforcing this position, including “Commissioner Inland Revenue, T.R.O.’ Faisalabad v. Faqir Hussain and another” (2019 PTD 1828) and “Commissioner Inland Revenue, Multan Zone v. Falah ud Din Qureshi” (2021 PTD 192). Both judgments confirmed that a specific notice under Section 111 is mandatory for additions related to unexplained income or assets.
In a recent Supreme Court judgment, “The Commissioner Inland Revenue v. Millat Tractors (Ltd)” (2024 SCMR 700), it was conclusively held that no addition under Section 111 can be made during an amended order under Section 122 without separate proceedings initiated through a notice under Section 111.
To ensure compliance, the FBR outlined a four-step procedure for taxation officers:
1. Issue a specific show-cause notice under Section 111 where applicable.
2. After receiving the taxpayer’s reply, pass a speaking order under Section 111, explicitly stating the relevant clause for the addition.
3. Serve another show-cause notice under Section 122(9) confronting the conclusions from the Section 111 order, along with other legal violations.
4. After receiving the reply, issue a speaking order amending the deemed assessment order.
The FBR emphasized that these instructions, based on Supreme Court judgments, are binding on all officers and appellate forums. Non-compliance with these directives will be viewed seriously.
The FBR advised all assessing officers to strictly adhere to these instructions to ensure quality and legally sound tax orders in the interest of revenue collection.
