ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) Lahore has declared that any undisclosed foreign asset or investment held abroad in the past cannot be charged to tax in subsequent tax years if the time limitation for past tax periods has lapsed for the purpose of taxation.
In this regard, the ATIR has issued an order in favour of a taxpayer who has not disclosed his foreign bank accounts in the income tax returns for tax year 2022.
According to the order of the ATIR, Lahore, the taxpayer is an individual. The department received information from the Organization of Economic Cooperation and Development (OECD) that the taxpayer is maintaining foreign bank accounts in Switzerland in US dollars.
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It was further found that US dollar 826,474.09 and 1,357,827.3 convertible to Pak Rs132,235,854 and Rs217,252,368 were appearing in these bank accounts. Accordingly, the assessing officer issued notice under Section 176 of the Income Tax Ordinance 2001.
In response, the taxpayer explained that the inadvertent omission to declare the bank account due to non-availability of record of bank accounts since these had not been operated by the taxpayer for more than 12 years. The taxpayer is owner/beneficiary of share in the bank account.
It was also the stance of the taxpayer that no fresh incremental deposit or fresh investment has ever been made into the bank accounts during the years relevant to tax year 2008 or tax year 2011 and onwards to tax year 2022.
It cannot be taxed on the past and closed transactions.
The ATIR stated that it is crystal clear that no fresh incremental deposits/investment have been made by the taxpayer during the year ended on June 30, 2008 or June 30, 2011 and onward years ending upto June 30, 2022. Therefore, there was no lawful justification for the assessing officer to invoke provisions of Section 111 to make the resultant addition to the tax year 2002.
The ATIR has also gone through the judgment of Lahore High Court (LHC) cited as 2015 PTD 1823 which is referred and relied by the department. In our opinion, this judgment relates to the question of formation of opinion and determination of date of discovery with reference to the adoption of the tax year immediately preceding year in which the discovery was made for the purposes of addition to be made under Section 122 read with Section 111(1). However, this judgment is not applicable to the issues involved in the case in hand wherein the issues involved are distinguishable being relevant to retrospective application of the law as amended in 2018 and the claim of vested right already accrued in favour of the taxpayer before the said amendment in the Ordinance in tax year2018.
The appellant taxpayer filed his return of income for the Tax Year-2011 on 27-11-2011 which was the date the Commissioner was treated to have issued the assessment order. On the said relevant time 27-11-2011,the prescribed limitation to amend the assessment by the Commissioner under section 122(2) of the Ordinance was five years from the end of the financial year in which the Commissioner has issued or treated to have issued the assessment order to the taxpayer (As amended by Finance Act,2009), i.e. 30-06-2017. The notice issued after the said date is beyond the limitation, hence, not valid in law.
It is added to refer here the provision of Section 174 of the Ordinance which also protects the taxpayer from being asked to produce the record or documents after the expiry of prescribed period of six years after the end of the tax year to which they relate. It is clear that any proceedings against the taxpayer that is based on the tax records maintained by the taxpayer should have been initiated within the said prescribed timeframe. Later on, the said Section 174 has been amended by Finance Act, 2022 when the second proviso to sub-section (3) has been added which is reproduced hereunder:
“Provided that limitation prescribed under this sub-section shall not apply to the records pertaining to income, assets, expenses or transaction to which clause (ii)of sub-section (2) of section 111 applies.”
The Supreme Court of Pakistan in the case titled “Additional Commissioner IR Vs. Eden Builders reported as 2018 SCMR 991 = 2018PTD 1474, has held that amendment made in Section 122(2) of the Ordinance through Finance Act, 2009 dated 30-06-2009 was not retrospective in effect and taxpayers who filed returns before 30-06-2009would be governed by the Section 122(2) as it stood before the amendment. In view of various judgments of the higher fora, it is now settled law that a limitation period prescribed by a statute is to be treated as mandatory provision and not procedural. Keeping in view the provisions of Section 122(2) and Section 111(2)to be read with the provision of Section 174(3) of the Ordinance and following the ratio settled through various judgments and in particular the judgment LHC cited as 2004 PTD 2852 referred supra, the ATIR is of the considered opinion and persuaded to agree with the submissions made by the learned AR of the appellant.
“It is well established principle of law that the assessments completed under the old law shall be governed under the old law as existing before the amendment in 2018”, the ATIR order stated. Having anxiously considered the matter, the ATIR is inclined to take our view that the assessments already completed under the then applicable law (as before the amendment in 2018) shall be dealt under the said old law as existing before the amendment in 2018.
Copyright Business Recorder, 2024
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