Exemption from agri income: ATIR asks FBR to set up verification system with provinces

ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR), Islamabad, has warned that the exemption from agricultural income is being used to justify unexplained wealth and asked the chairman Federal Board of Revenue (FBR) to set up a verification system with the help of provinces.

According to the latest order of two-member ATIR bench, the tribunal held that it is imperative that genuine agricultural income is protected while artificial or fictitious claims, designed to explain otherwise unexplained wealth, are identified through lawful and effective verification.

The ATIR observed that substantial sums may be declared as agricultural income, where established through proper inquiry, to bring unexplained money into the system as exempt income. It asked the FBR to examine, with the provinces (i) Data-sharing between the FBR and provincial revenue and agricultural income tax authorities (ii) Year-wise verification of provincial tax paid against landholding and the applicable law (iii) Direct verification of ownership, mutation and tenancy records (iv) Area-specific crop and yield benchmarks (v) Checks on sale proceeds, mandi and commission-agent records and banking transactions (vi) Reconciliation with wealth statements (vii) Risk-based scrutiny and inter-provincial coordination.

The ATIR added that genuine agricultural income must stay protected. Living away from the land, or not owning it, cannot by itself count against a taxpayer. The order has been sent to the FBR chairman and the Member (Legal).

The underlying objective is not to subject genuine agricultural income to federal taxation, but to ensure that the statutory protection available to such income is not misused as a device for explaining otherwise unexplained money, investments or assets, or for concealing income otherwise chargeable to tax under the Income Tax Ordinance.

The ATIR ruled against a Sahiwal-based taxpayer for Tax Years 2020 to 2023. He had declared agricultural income of Rs 4.5 million a year for the first three years and Rs 4.7 million for the fourth, and claimed it as exempt. He also declared a salary or business income of under Rs 1 million in each year.

Proceedings began after an investigation report. Taxpayer relied mainly on a cultivation agreement for about 37 acres at RenalaKhurd, District Okara, with a consideration of Rs 23.68 million. The Assessing Officer found the agreement unreliable because no mutation had been recorded and the stamp duty was inadequate. The taxpayer produced no ownership record (Fard-e-Malkiat), Khasra Girdawari, or evidence of crops, yield, input purchases or sale proceeds. His business profile showed three concerns but no agricultural activity.

The only provincial tax paid was Rs 273,000, deposited on 05.12.2024, after the Section 111(1) notice. The Assessing Officer compared this with an alleged federal liability of Rs 2,249,000. The claimed income and Rs 4.5 million in “opening net assets” were treated as unexplained under section 111(1). The Commissioner (Appeals) upheld these additions.

Copyright Business Recorder, 2026