Nazir Ahmad vs Cir etc.

Stereo. H C J D A-38.

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, MULTAN BENCH,

MULTAN

JUDICIAL DEPARTMENT

ITR No.31 of 2026

Nazir Ahmad, Mehar Commission Shop, Darya Khan

Versus

The Commissioner Inland Revenue, Zone-II, RTO, Sargodha & others

JUDGMENT

Date of hearing: 07.10.2026.

Applicant by: Mr. Tanveer Ahmad, Advocate.

Respondents by: Mr. Abdul Razzaq Raja, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- This consolidated order shall decide instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance of 2001”), along with the connected case i.e. I.T.R. No. 32 of 2026, as common questions of law and facts are involved in these cases.

2.The following questions of law, asserted to have arisen out of the impugned consolidated order dated 02.02.2026, passed by the learned Appellate Tribunal Inland Revenue of Pakistan (Division Bench-II), Islamabad (“Appellate Tribunal”), have been pressed and argued for our opinion:- I. Whether the learned Appellate Tribunal erred in law by treating CPR-based information already available in the taxpayer’s IRIS profile as “definite information” under Section 122(5), despite the fact that such information was not new, was already part of the Federal Board of Revenue record / database, and was never supported by any independent verification or third-party evidence while the registration charges were added on estimate basis?

II. Whether the learned Appellate Tribunal erred in law by treating the value of the property sold as income to be added in total income when specific provisions of law i.e. Section 37A of the Ordinance is available for taxing capital gain arising out of sale of property?

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III. Whether the learned Appellate Tribunal failed to appreciate that simultaneous issuance of notices under Sections 111 and 122(9), without first culminating proceedings under Section 111 through a speaking opinion of the Commissioner, is contrary to the binding principles laid down by the Hon’ble Supreme Court in Commissioner Inland Revenue, Lahore v. Messrs Millat Tractors Limited, Lahore and others (2024 SCMR 700) and the Sindh High Court in ITRA No.320 of 2025?

IV. Whether the amendment order passed under Section 122(1) is void ab initio for lack of jurisdiction when the Assessing Officer failed to first form an opinion under Section 111, which is a statutory precondition for invoking Section 122(5)?

FACTS AND SUBMISSIONS

3.The applicant-taxpayer is an individual deriving income as a ghalla commission agent. His returns for Tax Years 2020 and 2021 were deemed to be assessments under Section 120(1) of the Ordinance. Subsequently, information concerning property transactions and educational expenses was obtained by the department. For Tax Year 2020, the Tribunal’s order refers to property purchases of Rs.1,361,000 and educational expenses of Rs.1,016,500. For Tax Year 2021, purchases of Rs.5,315,625 and sales of Rs.5,435,000 were reported. The Assessing Officer issued notices under Sections 122(9), read with Section 122(1), and 111(1), through IRIS during September and October 2022. By orders dated 31.01.2023, the deemed assessments were amended under Sections 122(1)/122(5), read with Section 111(1)(b), adding Rs.7,221,480 for Tax Year 2020 and Rs.11,016,406 for Tax Year 2021. The additions included registration charges and, for Tax Year 2021, the gross sale consideration of immovable property. The learned Commissioner Inland Revenue (Appeals) maintained the assessments on 30.09.2024. The learned Appellate Tribunal dismissed the taxpayer’s appeals through the impugned order.

4.Learned counsel for the applicant-taxpayer contends that the proceedings under Section 111 were never concluded through a reasoned opinion of the Commissioner before the assessments were amended; that the learned Appellate Tribunal failed to decide this objection in the light of Commissioner Inland Revenue, Lahore v.

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Messrs Millat Tractors Limited, Lahore and others (2024 SCMR 700); and that the taxpayer’s failure to produce documents could not cure a defect going to the legality of the proceedings. He further argues that the additions improperly combined expenditure, property purchases, gross sale proceeds and estimated registration charges. He has also referred to judgment dated 04.03.2026, passed by a learned Division Bench of this Court in I.T.R. No.33 of 2023 titled Commissioner Inland Revenue v. Abdul Hameed Mirza. Conversely, learned Legal Advisor for the respondent-department supports the impugned order, maintaining that the proceedings were initiated on the basis of definite information, separate notices under Section 111 were issued, and the taxpayer failed to furnish supporting evidence despite opportunities. He further contends that the issues were factual and could not be re-examined in reference jurisdiction. He adds that the decisive objection, however, is whether the record establishes that the statutory process under Section 111 was completed before the amendment proceedings under Section 122 were given effect. In support, he has referred to judgment dated 16.09.2026, passed by a learned Division Bench of the Hon’ble Sindh High Court in I.T.R. Nos. 306 & 307 of 2024 titled Ms. Imtiaz Shabbir v. The Commissioner Inland Revenue, Unit-05, Range-B, Zone AEOI, Large Taxpayer Office, Karachi.

ANALYSIS

A. SECTIONS 111 AND 122 – DISTINCT PROCESSES IN A

MANDATORY SEQUENCE

5.The principal question is governed by the judgment in Millat Tractors’ case supra, wherein the Hon’ble Supreme Court explained that proceedings under Sections 111 and 122 are distinct statutory processes and cannot be subsumed into one another. Where an amendment under Section 122 is founded upon unexplained income, investment or expenditure requiring determination under Section 111, the latter proceedings must culminate in the requisite opinion before the amendment under Section 122 can effectively proceed.

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6.The principle is not that notices under Sections 111 and 122(9) can never be issued simultaneously. Millat Tractors’ case recognizes that simultaneous issuance is permissible in the circumstances contemplated by law. The decisive requirement is that the proceedings under Section 111 must be concluded first, and the resulting opinion must be confronted to the taxpayer in accordance with law before the proposed amendment is given effect. Where no requisite opinion is formed, the notice under Section 122(9), insofar as it depends upon that determination, has no legal effect.

7.The same approach is reflected in The Commissioner Inland Revenue, Zone-II, Regional Tax Office, Lahore v. Shazia Zafar (2022 PTD 1942), which emphasizes that an addition under Section 111 requires the taxpayer to be confronted with the relevant circumstances and an explanation to be considered in accordance with the statutory language. The observations in Shazia Zafar’s case must, however, be read in light of Millat Tractors, which clarifies that simultaneous notices are not, by themselves, impermissible; the statutory sequence remains decisive.

8.In the present case, the assessment orders record the issuance of notices under Sections 111(1) and 122(9). They do not, however, disclose a distinct opinion or determination under Section 111, nor do they demonstrate that the proceedings under that provision culminated before the amendments dated 31.01.2023 were made. Instead, the orders proceed from the taxpayer’s failure to furnish a satisfactory explanation to the additions in the amended assessments. The learned Appellate Tribunal did not resolve this essential legal objection.

9.The department’s reliance on the taxpayer’s failure to furnish bank statements, wealth reconciliations and other documents does not answer the objection. The statutory obligation to explain arises within the process prescribed by Section 111. A failure to respond to a notice cannot substitute for the determination required by law, nor can it validate an amendment made without establishing compliance with a mandatory statutory precondition. The objection was therefore

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required to be decided on its legal merits, rather than rejected merely by reference to the absence of evidence.

B. EFFECT OF THE AMENDMENTS TO SECTIONS 111 AND

10.The department contends that the notices were issued after the amendment to Section 122(5) through the Finance Act, 2020, and the insertion of the Explanation in Section 111 through the Finance Act, 2021. This does not resolve the controversy in its favour. In Millat Tractors, the Hon’ble Supreme Court expressly left the interpretation of the substituted wording of Section 122(5) for determination in an appropriate case. The judgment should not, therefore, be read as conclusively deciding whether CPR information already available in IRIS independently satisfies the amended expression “definite information”.

11.That reservation, however, does not dispense with the separate statutory process required where the proposed addition rests upon a ground enumerated in Section 111(1). The Explanation inserted in Section 111 concerns the requirement of a separate notice in the circumstances to which it applies; it does not eliminate the requirement, emphasized in Millat Tractors, that proceedings under Section 111 be concluded before the proposed amendment is given effect. The present record itself indicates that separate notices under Section 111 were issued. The material question is thus not merely whether notice was issued, but whether the required determination was made and confronted before the amendment.

12.The assessment orders and the impugned order do not establish compliance with that sequence. Nor does the impugned order examine whether any opinion under Section 111 was formed, whether its contents were communicated to the taxpayer, or whether the taxpayer was afforded the opportunity required by law in response to that opinion. The learned Appellate Tribunal consequently failed to apply the governing principle laid down by the Hon’ble Supreme Court.

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C. CPR-BASED INFORMATION AND ESTIMATED

ADDITIONS

13.The taxpayer’s further objection concerns the character of the CPR-based information and the basis on which registration charges were added. As stated above, Millat Tractors left open the interpretation of the amended wording of Section 122(5). We therefore do not hold that information already available in IRIS is, for that reason alone, incapable of constituting definite information. Equally, its presence in a departmental database does not conclusively establish that every statutory requirement for an amendment has been fulfilled.

14.Where the addition depends upon a matter falling within Section 111, the information must be processed through the statutory procedure identified above. In the absence of a demonstrated conclusion of those proceedings, the learned Appellate Tribunal could not sustain the amendments merely by treating the existence of CPR data and the taxpayer’s failure to produce documents as sufficient.

15.The objection regarding estimated registration charges raises a related but distinct issue. An amount added to taxable income must have a lawful and adequately demonstrated basis. The impugned order does not sufficiently explain the computation of those charges or how the amounts were established and confronted. Nevertheless, whether the estimates are factually correct, whether particular amounts were duplicated, and what documentary material supports them are matters requiring examination of the underlying record. We do not undertake a fresh factual appraisal in these references. Question No. I is answered to the extent that the learned Appellate Tribunal could not sustain the additions without addressing the applicable statutory requirements and the legal basis of the amounts added.

D. ADDITION OF GROSS SALE CONSIDERATION AS

INCOME

16.For Tax Year 2021, the assessment order refers to the sale of immovable property for Rs.5,435,000 and treats the amount as capital

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gain while adding it under Section 111(1)(b). The legal difficulty is that gross sale consideration and taxable capital gain are not necessarily the same amount. The nature of the transaction, the applicable charging provision and the prescribed computation must be determined before the taxable capital gain can be ascertained.

17.The question as framed refers to Section 37A. The applicable statutory provisions must be identified accurately: Section 37 concerns capital gains on disposal of capital assets, whereas Section 37A concerns capital gains on disposal of securities. The transaction in question relates to immovable property and must be examined under Section 37 and the provisions applicable to such property. The learned Appellate Tribunal did not adequately examine this distinction or explain the legal basis for sustaining the entire sale consideration as taxable capital gain.

18.This does not mean that the sale proceeds can never be relevant to an inquiry under Section 111, nor does it establish that the transaction is exempt from tax. The narrower conclusion is that the gross consideration cannot be treated as taxable capital gain merely by equating the sale price with the gain, without applying the correct statutory provisions. Likewise, any addition under Section 111 must be supported by the relevant statutory ground and cannot be sustained through an unexplained or potentially duplicative computation. Question No. II is answered in favour of the applicant to that extent.

E. FAILURE OF THE LEARNED APPELLATE TRIBUNAL TO

DECIDE THE MATERIAL OBJECTIONS

19.The impugned order principally relies upon the taxpayer's failure to produce supporting evidence. It does not, however, adequately resolve the material legal objections concerning completion of the proceedings under section 111 before the amendments under section 122 were finalised, or the statutory basis for treating the gross sale consideration of immovable property as taxable capital gain. These objections concern the legality of the proceedings and the interpretation of the governing provisions; they

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cannot be disposed of merely by characterising the controversy as factual.

20.This Court, in its reference jurisdiction, does not undertake a fresh appraisal of the evidence or determine the taxpayer's sources of funds as a court of first instance. The question is whether the learned Appellate Tribunal applied the correct statutory provisions and addressed the material questions of law arising from the amended assessments. In the absence of a legally sustainable determination of the requirements of section 111 and the proper statutory treatment of the property transaction, the impugned order cannot be maintained.

OPINION AND ORDER

21.For the foregoing reasons, the questions of law are answered as follows: Question No. I is answered in favour of the applicant- taxpayer to the extent that the existence of CPR-based information and the taxpayer's failure to furnish documents do not, without examination of the applicable statutory requirements and the legal basis of the additions, suffice to sustain the amended assessments. The broader question whether CPR information already available in IRIS independently constitutes definite information under the amended section 122(5) is left open. Question No. II is answered in favour of the applicant-taxpayer. Gross sale consideration cannot, without application of the correct charging and computation provisions, be equated with taxable capital gain. The transaction must be examined under the provisions applicable to the disposal of immovable property for the relevant tax year. Question No. III is answered in favour of the applicant-taxpayer to the extent that, although notices under sections 111 and 122(9) may be issued simultaneously where permitted by law, the statutory process under section 111 must be completed in the manner required by law before an amendment founded upon that determination is finalised. Question No. IV is answered in favour of the applicant-taxpayer to the extent that an amendment founded upon a matter requiring determination under section 111 cannot be sustained where the requisite statutory

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determination and compliance with the prescribed procedure have not been established.

Consequently, the consolidated order dated 02.02.2026 passed by the learned Appellate Tribunal is set aside, and both Reference Applications are allowed to the extent stated above.

22.A copy of this judgment, under the seal of this Court, shall be transmitted to the learned Appellate Tribunal in accordance with section 133(8) of the Income Tax Ordinance, 2001.

(Sultan Tanvir Ahmad) (Muhammad Sajid Mehmood Sethi) Judge Judge

APPROVED FOR REPORTING

Judge Judge

*A.H.S.*