ATIR gives landmark ruling on scope of revisional jurisdiction under ITO

ISLAMABAD: In a landmark ruling on the scope of revisional jurisdiction under the Income Tax Ordinance, 2001, the Appellate Tribunal Inland Revenue (ATIR), Special Division Bench, Quetta, has held that Section 122(5A), particularly after its amendment through the Finance Act, 2021, cannot be invoked to conduct an investigation or inquiry into third-party bank credits and determine them as suppressed business turnover.

Such an exercise, the Tribunal ruled, involves discovery and determination of allegedly escaped income and therefore falls squarely within the domain of Section 122 (5), subject to fulfilment of its statutory requirements.

The order was passed by a Bench comprising M M Akram, Judicial Member, and M Abdullah Khan Kakar, Member, in ITA Nos. 849, 850 and 851/ KB-2023 about Tax Years 2018, 2019 and 2020, filed by Lal Muhammad of Quetta against the Commissioner-IR, Zone-I, RTO Quetta.

The appellant, engaged in wholesale and retail trade, had declared turnovers of Rs.9.375 million, Rs.1.305 million and Rs.1.325 million for the three years and paid minimum tax accordingly, with the returns treated as assessments under section 120(1). The assessing authority, acting on information from the Directorate of Intelligence and Investigation (IR), Faisalabad, regarding bank credits, amended the assessments under section 122 (5A) read with section 122 (9), treating the differential amounts as suppressed sales and raising demands. The CIR (A) had upheld these amendments, prompting the present appeals.

Setting aside the orders of the CIR (A) and the assessing authority, the Tribunal held that section 122 (5) and Section 122 (5A) operate in materially different fields. While Section 122 (5) is attracted where audit or definite information reveals escaped income, section 122 (5A) confers a narrower, corrective jurisdiction, confined to errors already demonstrable from the assessment record.

The Tribunal noted that the Finance Act, 2021 had deliberately deleted the words empowering the Commissioner to act after making or causing to be made such enquiries as he deems necessary, holding that this legislative omission restricted Section 122 (5A) from being used as a substitute for audit or investigation.

The Bench observed that a bank credit is merely a financial event and is not, by itself, synonymous with taxable turnover; it may equally represent a loan, capital introduced, an inter-account transfer, or repayment of an advance. Determining whether such credits constitute suppressed sales necessarily requires factual inquiry, an exercise the Tribunal held falls within Section 122 (5), not Section 122(5A).

Relying on the Supreme Court’s judgment in 2025 SCMR 716 and distinguishing 2021 SCMR 437, along with the precedents in 2021 PTD 1367, 2021 PTD 1806, the Tribunal ruled that error and prejudice to revenue must be evident from the show-cause notice itself, leaving no room for roving or fishing inquiries under Section 122 (5A).

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