Bank account of taxpayer: deposit of money could not be deemed to be a taxable sale or supply of goods: ATIR

Appellate Tribunal Inland Revenue, Pakistan (ATIR) has ruled that deposit of money into bank account of a taxpayer could not be deemed to be a taxable sale or a supply of the taxable goods under the Sales Tax Act, 1990. It is learnt that ATIR in a recent judgement ruled that sales tax liability could not be assessed/imposed solely on the basis of bank statement of the registered person without any evidence of corresponding taxable supply made in the course of taxable activity.
When contacted tax lawyer Waheed Shahzad Butt who represented the case before the ATIR told this correspondent that after detailed deliberation it is rightly declared by the ATIR that there is no provision in the Act whereby the discovery of any credits in the bank accounts of a taxpayer can be deemed to be supply, taxable supply or the amount received on account of taxable activity in furtherance of any business.
The ATIR order states "Brief facts of the case are that the appellant is an exporter duly registered with the FBR under income tax and sales tax. On the basis of audit selection by the Board, the IRO conducted audit for the tax periods July-2012 to June-2013. After examining the books of accounts the IRO observed that there was a difference in realisation as per Income Tax Return and realisation as per bank credit entries. The IRO treated the said bank entry as taxable sales and charged sales tax. An amount of GBP 10000 was credited in bank account maintained by the real father of appellant with a bank of Sialkot. Said foreign remittances were sent by his real son for family support, which were later encashed by father of the appellant and admittedly an amount of Rs 1500000.00 was accordingly transferred to bank account of the appellant maintained with the said bank of Sialkot.
The ATIR order further added "Sales tax is chargeable on actual supplies of taxable goods by a registered person under the law. Section 3 of the Act, which is the charging section, contains the scope of sales tax which is to be charged, levied and paid on the value of taxable supplies made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him. The IRO without any corroborative evidence concluded that credit entries/receipts in bank account were routed through taxable supplies made in Pakistan. The authorised representative (AR) further strongly argued that in the Income Tax Ordinance, 2001 there are deeming provisions provided by the legislature under which any unexplained amount available with a taxpayer shall be deemed to be his income from the undisclosed sources and shall be subjected to the levy of Income Tax but quite surprisingly, there is no deeming provisions provided by the legislature in the Sales Tax Act analogous to the deeming provisions contained in the Income Tax Ordinance, 2001.
Perusal of record shows that complete supporting documents were duly submitted by the appellant and all the queries raised by the IRO were fully explained but the IRO without any lawful authority raised the sales tax demand against the appellant. The tribunal has no hesitation in holding that the action of the IRO is not sustainable in the eyes of law, hence, mode and method of assessment is disapproved. The assessment framed lacks the required nexus with the lawful proceedings under the Act. The tribunal must add here that no provision of Sales Tax Act has purported to deem the receipt of money to be a sale. In none of the provisions of the Act deposit of money into bank account could be deemed to be a taxable sale or a supply of the taxable goods. For the purpose of levy of sales tax it would be necessary for the department not only to show that the source of money has not been explained but also to show the existence of money by the taxpayer has resulted from transaction liable to sales tax under the Act and not from other known fully verifiable sources. Whereas in the present before a credit entry recorded in the bank account of the appellant stands fully explained through documentary evidence and no presumption arises that the said amount represents the outcome of taxable sales made in Pakistan.
The tribunal also agrees with the AR that there is no provision in the Act, whereby the discovery of any credits in the bank accounts of a taxpayer can be deemed to be supply, taxable supply or the amount received on account of taxable activity in furtherance of any business. It is established principle of the law of taxation that a taxpayer can be subjected to tax under a provision of law, which is unambiguous and clear. In the absence of any deeming provision the IRO is required to establish that a transaction falls within the parameters of taxable supplies or in furtherance of any taxable activity, failing which the sales tax imposed on the basis of some assumption or presumption not warranted in law shall always be struck down.
Upshot of the discussion made above is obvious. The impugned orders of two authorities below are found to be suffering from legal as well as factual infirmities. The order-in-original is hereby set aside and order of CIR(A) is vacated, the ATIR added.