ISLAMABAD: The Supreme Court of Pakistan has ruled that registering a First Information Report (FIR) or initiating criminal proceedings in tax-related matters is illegal if tax liability has not first been determined through proper assessment or adjudication under tax laws.
A two-member bench comprising Justice Malik Shahzad Ahmad Khan and Justice Aqeel Ahmed Abbasi granted pre-arrest bail to the petitioner in a case involving allegations of tax evasion and money laundering. The court observed that authorities had not yet established whether the assets allegedly acquired by the petitioner actually constituted proceeds of crime.
Details of the Case
According to case records, the petitioner maintained several personal and business bank accounts during Tax Years 2017 and 2018. He submitted income tax returns declaring Rs7,313,500 as total income for Tax Year 2017 and Rs6,985,000 for Tax Year 2018 under the Income Tax Ordinance, 2001.
However, scrutiny of his bank accounts revealed significantly higher financial activity. Authorities found total credits of Rs153.4 million between July 2016 and June 2017, and Rs246.1 million between July 2017 and June 2018.
Investigators alleged that the petitioner had concealed income amounting to Rs385.22 million and converted the funds into assets and business investments. The alleged tax evasion was calculated at Rs50.67 million for Tax Year 2017 and Rs83.34 million for Tax Year 2018.
Based on these allegations, an FIR was registered on February 10, 2022, under provisions of the Anti-Money Laundering Act, 2010 as well as sections related to tax offences under the Income Tax Ordinance.
Supreme Court Observations
In the judgment authored by Justice Aqeel Ahmed Abbasi, the court stated that the registration of the FIR and initiation of criminal proceedings violated the Supreme Court’s earlier ruling in the Taj International (Pvt) Ltd case.
The court emphasized that disputes involving financial matters, alleged concealment of income, or tax evasion should first be handled by civil courts or specialized tax forums. These bodies are responsible for determining tax liability through assessment proceedings and judicial evaluation of evidence.
Tax Assessment Must Come First
The court noted that allegations of tax evasion require proper assessment under the Income Tax Ordinance, 2001 before criminal liability can be considered. Similarly, money laundering charges depend on establishing that the funds involved represent proceeds of crime derived from a predicate offence under the Anti-Money Laundering Act, 2010.
Since the authorities had not completed the necessary pre-trial steps or tax assessment procedures, the court observed that initiating criminal proceedings at this stage was premature.
The bench also noted that where cases are primarily based on documentary evidence, custodial interrogation is generally unnecessary, reinforcing the decision to grant pre-arrest bail to the petitioner.