In an important ruling for taxpayers, the Appellate Tribunal Inland Revenue has clarified that Section 122(5A) of the Income Tax Ordinance, 2001 cannot be used as a mechanism for conducting fresh investigations into third-party bank credits and subsequently treating those credits as suppressed business turnover. The Tribunal held that such an exercise involves discovery and determination of allegedly escaped income and therefore falls within the scope of Section 122(5), subject to fulfilment of the statutory requirements prescribed under that provision.
The case involved assessments where information relating to bank deposits was relied upon to allege undeclared sales. The Tribunal observed that after the Finance Act, 2021, the wording of Section 122(5A) was materially changed by removing the Commissioner’s earlier power to make or cause enquiries. According to the Tribunal, this amendment significantly narrowed the scope of the provision, meaning that Section 122(5A) is intended to correct errors that are already apparent from the assessment record rather than to serve as a substitute for an audit, investigation or fishing inquiry.
The ruling is also significant because the Tribunal recognised that a bank credit, by itself, does not necessarily represent taxable turnover. Such an amount may relate to a loan, capital introduced, an inter-account transfer, repayment of an advance or another legitimate transaction. Determining whether a particular credit actually represents suppressed sales requires proper factual investigation under the appropriate provision of law. The decision therefore reinforces an important principle of tax administration: not only must a tax adjustment be supported by facts, it must also be made through the correct statutory jurisdiction.