LAHORE: A higher appellate forum has ruled in favor of a taxpayer, allowing them to retain evaded tax due to an error in the legal provision cited in the show cause notice issued by the tax department.
During an audit, discrepancies were identified between the taxpayer’s bank statements and their declared final taxation records. The department issued a show cause notice, citing possible sales suppression and tax evasion, and demanded an explanation regarding the nature and source of certain credit entries.
Finding the taxpayer’s response unsatisfactory, the assessing officer amended the tax assessment, resulting in an additional tax demand. The taxpayer then appealed to the Commissioner Inland Revenue, who observed that the assessing officer had incorrectly applied Section 111(1)(d) and the general tax rate without adjusting the taxpayer’s status under the minimum tax regime. As a result, the assessment order was modified, with instructions to allow credit for any previously paid tax.
Both the tax department and the taxpayer subsequently appealed to the Tribunal. The Tribunal overturned the decisions of the lower authorities and deleted the tax addition made under Section 111(1)(d).
The tax department escalated the case to a higher appellate forum, arguing that despite the clear concealment of income through sales suppression, the Tribunal ruled in the taxpayer’s favor solely because Section 111(1)(d) was incorrectly applied instead of Clause (b) of the same section. The department admitted that the show cause notice had been issued under the wrong legal provision.
The taxpayer defended the Tribunal’s decision, asserting that the additions under Section 111(1)(d) were rightly deleted since the provision applies prospectively, not retrospectively.
The higher appellate forum ultimately ruled that while the taxpayer was liable for the concealed income, the misapplication of legal provisions meant the tax could not be recovered. Consequently, the taxpayer was effectively allowed to keep the evaded tax due to the procedural error made by the department.
