Cir vs M/S Asia Ghee Mills Pvt Ltd

Stereo. H C J D A-38.

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, MULTAN BENCH,

MULTAN

JUDICIAL DEPARTMENT

ITR No.34 of 2026

The Commissioner Inland Revenue, Zone-IV, Large Taxpayers’ Office, Multan

Versus

M/s. Asia Ghee Mills (Pvt.) Limited, Grain Market, Bahawalpur

JUDGMENT

Date of hearing: 15.10.2026.

Applicant by: Malik Muhammad Shahzad Awan, Advocate.

Respondent by: Mr. Muhammad Imran Ghazi, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- Through instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance of 2001”), following questions of law, asserted to have arisen out of impugned order dated 16.03.2026, passed by the learned Appellate Tribunal Inland Revenue of Pakistan, Division Bench, Multan (“Appellate Tribunal”), have been pressed and argued for our opinion:-

A. Whether under the facts and in the circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to allow the bad debts which were claimed by the taxpayer as a deduction in its return of income, whereas the taxpayer failed to fulfill the necessary precondition for any debt to qualify as bad debt in terms of Section 29 of the Income Tax Ordinance, 2001?

B. Whether under the facts and circumstances of the case, the learned Appellate Tribunal misconstrued the scope of Section 122(5A) by holding that the assessing officer cannot seek necessary information or explanations through notices to establish that an assessment is “erroneous and prejudicial to the interest of revenue”?

C. Whether on the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified in law in deleting the disallowance of depreciation on vehicles by restricting the scope of Section 122(5A), without determining

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whether the vehicles were owned by the taxpayer company and used for business purpose as required under Section 20 of the Income Tax Ordinance, 2001?

2.Briefly, the respondent-taxpayer is a private limited company engaged in the business of manufacturing and sale of vegetable ghee, oil and allied products. For Tax Year 2023, it electronically filed its return of income, which was deemed to be an assessment under Section 120 of the Ordinance, 2001. Subsequently, proceedings under Section 122(5A), read with Section 122(9), were initiated and an amended assessment order dated 16.06.2025 was passed, creating a tax demand of Rs.296,293,357/-. The respondent-taxpayer challenged the amended assessment before the learned Commissioner Inland Revenue (Appeals-II), Multan, who, through order dated 25.02.2026, upheld the aforesaid additions and disallowances, amongst other matters. On further appeal, the learned Appellate Tribunal, through the impugned order dated 16.03.2026, annulled the appellate order to the extent of the three disputed issues. The applicant-department has now invoked the reference jurisdiction of this Court.

1. ARGUMENTS OF THE LEARNED REPRESENTATIVES

3.We have heard the learned counsel of the parties and examined the available record, the impugned order and the relevant statutory provisions.

4.The learned counsel for the applicant-department contends that the Assessing Officer lawfully invoked Section 122(5A) because the original assessment was erroneous insofar as prejudicial to the interest of revenue. He argues that the respondent-taxpayer failed to establish the admissibility of the claimed bad debts, that certain vehicle purchase documents could not be verified through the FBR’s electronic system, and that the withholding tax adjustment was not fully verified. According to the applicant-department, the learned Appellate Tribunal erred in annulling the disallowances by unduly restricting the scope of Section 122(5A).

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5.Conversely, the respondent-taxpayer supports the impugned order on the ground that the relevant documentary record was furnished before the tax authorities and the learned Appellate Tribunal. He maintains that the disallowances were founded upon general observations and electronic-system discrepancies, without identifying any specific defect in the documents or establishing the statutory basis for treating the assessment as erroneous and prejudicial to the interest of revenue.

2. COURT ANALYSIS AND LEGAL REASONING

2.1. Scope of Section 122(5A) and the prohibition against roving inquiries – Question B

6.Before examining the individual questions, it is appropriate to reiterate that the jurisdiction of this Court under Section 133 of the Ordinance, 2001 is confined to questions of law arising out of the order of the learned Appellate Tribunal. The learned Appellate Tribunal is the final forum of fact, and this Court does not ordinarily undertake a fresh appraisal of the evidence or substitute its own factual conclusions for those reached by the Tribunal. Interference is warranted where a finding is perverse, rests upon no evidence, proceeds on misreading or non-reading of material evidence, or otherwise gives rise to a question of law.

7.The scope of Section 122(5A) has recently been considered by this Division Bench in Commissioner Inland Revenue, Zone-II, LTO, Multan v. M/s Magna Processing Industries (Pvt.) Limited, Faisalabad (I.T.R. No.189 of 2025, decided on 01.10.2026). In that judgment, this Court held that the remedial object of Section 122(5A) does not dispense with its statutory preconditions. The assessment sought to be amended must be erroneous, and the error must be prejudicial to the interest of revenue. Both requirements must have a demonstrable factual and legal foundation.

8.It was further held in Magna Processing Industries that Section 122(5A) cannot be converted into an unrestricted authority to reopen a deemed assessment and thereafter discover an error through a roving

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or fishing inquiry. A material distinction exists between making an inquiry to verify an identified error and undertaking an inquiry to establish whether an error may exist in the first place. Although the Commissioner may seek information or make inquiries considered necessary for examining an identified error, such power cannot be employed to construct the very basis upon which the assessment is subsequently sought to be amended. The taxpayer must also be confronted with the specific allegations and material forming the basis of the proposed adverse action.

9.The above principle is consistent with the guidance of the Hon’ble Supreme Court in Commissioner Inland Revenue, Zone Bahawalpur, Regional Tax Office, Bahawalpur v. Messrs Bashir Ahmed (deceased) through LRs (2021 SCMR 1290) and Commissioner Inland Revenue v. Messrs RYK Mills (2023 SCMR 1856), as discussed in Magna Processing Industries. The former underscores the necessity of establishing the requisite factual foundation for amendment, whereas the latter emphasises that the taxpayer must be confronted with the specific allegations and grounds forming the basis of adverse action.

10.Applying these principles to the present case, the question is not whether the Assessing Officer was legally precluded from seeking information or explanations from the respondent-taxpayer. The question is whether the proceedings, as conducted and ultimately decided, satisfied the statutory requirements of Section 122(5A), and whether the learned Appellate Tribunal committed an error of law in finding that the impugned disallowances lacked adequate evidentiary support.

11.The learned Appellate Tribunal recorded that, in relation to bad debts, the respondent-taxpayer had furnished party-wise ledgers, details of receivables and ageing analysis, but the disallowance was sustained without identifying any specific defect, discrepancy or falsity in that material. In relation to depreciation, it noted that documents concerning the acquisition of vehicles, including invoices,

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payment evidence and CPRs/challans, had been furnished but were not properly discussed or rebutted by the tax authorities. Regarding withholding tax adjustment, the Tribunal found that documentary evidence had been produced and that the objection principally rested upon non-verification through the electronic system.

12.These findings indicate that the learned Appellate Tribunal did not hold that the Assessing Officer was prohibited from seeking information as a matter of law. Rather, it examined the material placed before the tax authorities and found that the impugned disallowances were not supported by identified defects in that material. The applicant-department has not demonstrated that these findings resulted from misreading or non-reading of the record, nor has it identified any material legal infirmity that would justify interference in reference jurisdiction. The remedial object of Section 122(5A), by itself, cannot displace these deficiencies.

13.Accordingly, Question No.2 is answered in the negative, against the applicant-department and in favour of the respondent- taxpayer. It is clarified that this answer does not lay down an absolute prohibition against seeking information or making inquiries under Section 122(5A); it affirms only that such power must remain within the statutory limits explained above and cannot be exercised to discover or construct the very error relied upon for amendment. 2.2. Question No.A: Bad debts under Section 29

14.The first question concerns the disallowance of bad debts amounting to Rs.182,678,838/-. The record, as discussed by the learned Appellate Tribunal, shows that the respondent-taxpayer furnished party-wise ledgers, receivable details and ageing analysis. The claim was nevertheless rejected, inter alia, on the grounds that the debtor entities remained operational and the relevant accounts were allegedly not adequately substantiated.

15.Section 29 of the Ordinance, 2001 governs the deduction of bad debts and requires satisfaction of the statutory conditions prescribed therein. The claim cannot be allowed merely because a taxpayer

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describes a debt as irrecoverable; equally, its admissibility cannot be rejected solely because the debtor continues to exist or carry on business. The material question is whether the statutory requirements have been fulfilled and whether the claim is supported by the relevant record.

16.In the present case, the learned Appellate Tribunal found that the documentary material furnished by the respondent-taxpayer had not been properly appreciated by the tax authorities and that no specific defect, discrepancy or falsity had been identified to justify the disallowance. The applicant-department has not shown that the learned Appellate Tribunal ignored any particular statutory condition under Section 29 or that its conclusion was unsupported by the available evidence. In these circumstances, the applicant-department’s challenge essentially seeks reconsideration of the factual assessment already undertaken by the learned Appellate Tribunal, which is not permissible in the present reference proceedings.

17.Question No.1 is, therefore, answered in the affirmative, against the applicant-department and in favour of the respondent- taxpayer.

2.3. Question No.C: Depreciation on motor vehicles 18. The third question concerns the disallowance of depreciation amounting to Rs.24,832,273/- in relation to additions to motor vehicles. It is material to clarify that Section 22 of the Ordinance, 2001 governs the allowance of depreciation, whereas the question as framed refers to Section 20 in connection with business use. The statutory provisions should not be treated as interchangeable; the issue of depreciation must be examined with reference to the applicable requirements of Section 22.

19.According to the findings recorded by the learned Appellate Tribunal, the tax authorities disallowed depreciation on certain vehicle additions substantially because the relevant CPRs/challans could not be verified through the FBR’s electronic system. The respondent- taxpayer had, however, furnished documents relating to the

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acquisition of vehicles, including vehicle details, invoices, payment evidence, import documents and CPRs/challans. The learned Appellate Tribunal found that these documents had not been adequately discussed or rebutted by the tax authorities.

20.A discrepancy in an electronic verification system may warrant examination, but it does not, without more, establish that the underlying documents are false or that the relevant statutory conditions have not been fulfilled. The admissibility of depreciation must be determined in accordance with the governing law and the evidence concerning the relevant assets. Conversely, the production of documents does not dispense with the statutory requirements where their authenticity, ownership, business use or any other relevant condition is genuinely in dispute.

21.In the present case, the learned Appellate Tribunal found that the material produced by the respondent-taxpayer had not been properly examined and that the disallowance rested upon the failure of electronic verification rather than a demonstrated defect in the underlying documents. The applicant-department has not identified any specific finding of the learned Appellate Tribunal that is perverse, or any material evidence establishing that the statutory requirements for depreciation were not met but was ignored by the Tribunal. Nor can a new factual basis for disallowance be introduced in reference proceedings merely to sustain the impugned addition.

22.In these circumstances, the learned Appellate Tribunal’s conclusion does not warrant interference in the limited jurisdiction conferred by Section 133 of the Ordinance, 2001. Question No.3 is, therefore, answered in the affirmative, against the applicant- department and in favour of the respondent-taxpayer.

23.As regards the withholding tax adjustment of Rs.573,194/-, the learned Appellate Tribunal recorded that the respondent-taxpayer had produced withholding tax certificates, challans and CPRs, while the objection of the tax authorities substantially concerned the absence of

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corresponding verification through the electronic system. The Tribunal found that the documentary material had not been adequately rebutted by identifying any specific defect in its authenticity or legal sufficiency.

24.The electronic verification of tax credits may be relevant to their scrutiny, but non-reflection in an electronic system does not, by itself, establish that otherwise relevant documentary evidence is false or that the claim is inadmissible. The claim must be examined in accordance with the applicable statutory requirements and the evidence available on record. Since the applicant-department has not shown that the learned Appellate Tribunal’s findings suffer from any recognised legal infirmity, no interference is called for in reference jurisdiction. This issue is considered as part of the reasoning underlying the impugned order and not as an additional question of law independently proposed for our opinion.

3. CONCLUSION & ANSWERS TO QUESTIONS OF LAW

25.For the foregoing reasons, and particularly in view of the principles laid down by this Division Bench in Magna Processing Industries (supra), we find no legal infirmity in the impugned order warranting interference under Section 133 of the Ordinance, 2001. The learned Appellate Tribunal did not hold that the Assessing Officer was absolutely prohibited from seeking information under Section 122(5A); rather, it found that the disputed disallowances were not sustained by a sufficiently demonstrated factual and legal basis. The applicant-department has failed to establish that this conclusion rests upon misreading or non-reading of material evidence or misconstruction of the relevant statutory provisions.

26.The proposed questions of law are answered as follows: Question No.A is answered in the affirmative, against the applicant- department and in favour of the respondent-taxpayer. Question No.B is answered in the negative, against the applicant-department and in favour of the respondent-taxpayer. Question No.C is answered in the

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affirmative, against the applicant-department and in favour of the respondent-taxpayer.

Resultantly, the instant Reference Application is decided, against the applicant-department.

27.Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal in terms of Section 133(8) of the Ordinance of 2001.

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

APPROVED FOR REPORTING

Judge Judge

*A.H.S.*