IN THE SUPREME COURT OF PAKISTAN 
(APPELLATE JURISDICTION) 
 
 
PRESENT: MR. JUSTICE UMAR ATA BANDIAL 
 
 
MR. JUSTICE IJAZ UL AHSAN 
 
CIVIL PETITION NO.945 OF 2018 
(Against the order dated 24.01.2018 passed by the 
Lahore High Court, Lahore in I.T.R. No.20/2017) 
 
 
Farrukh Shahzad  
… Petitioner 
 
 
 
 
 
 
 
 
 
 
Versus 
 
Commissioner Inland Revenue (Legal) RTO, 
Rawalpindi and others  
… Respondents 
 
 
For the Petitioner:  
 
Hafiz Muhammad Idrees, ASC. 
Syed Rifaqat Hussain Shah, AOR. 
 
For the Respondents: 
 
Dr. Farhat Zafar, ASC. 
 
 
 
 
 
Mr. M.S. Khattak, AOR. 
 
Date of Hearing:  
 
10.04.2018 
 
ORDER  
 
 
 
IJAZ UL AHSAN, J. – Petitioner seeks leave to appeal 
against a judgment dated 24.01.2018 passed by a learned Division 
Bench of the Lahore High Court in Income Tax Reference No.20 of 2017. 
2. 
 
The brief facts necessary for decision of this lis are that 
proceedings under Section 122(C) of the Income Tax Ordinance, 2001 
(“the Ordinance”) were initiated against the petitioner and a demand in 
the sum of Rs.3.3 million was created. The petitioner failed to deposit the 
said amount, in consequence whereof, notice under section 137(2) read 
with Section 138(1)/140 of the Ordinance was issued to him. He filed his 
income tax return, wealth statement, wealth reconciliation statement and 
written explanation. The documents filed by the petitioner were not 
found satisfactory by the department. Consequently, notice under 
Section 122(9) was issued to him. The petitioner filed a response which 
was again not found satisfactory by the department. On the basis of 
C.P.945/2018 
-: 2 :- 
material available with the department, it was held that the petitioner 
was engaged in the real estate business without having been registered 
as a taxpayer. The department proceeded to amend the assessment 
making an addition of Rs.60,360,912/- under Section 111(1)(b) for the 
subsequent tax year. Being aggrieved, the petitioner filed an appeal 
which did not find favour with the Appellate Authority and was 
dismissed. The appeal before the Appellate Tribunal Inland Revenue 
(ATIR) did not succeed either. The petitioner therefore, approached the 
High Court by way of a reference under the Ordinance. Vide order dated 
24.01.2018 relief was denied to the petitioner. Hence, this petition for 
leave to appeal. 
3. 
 
Although three questions were referred to the learned High 
Court for its opinion, the first question was not pressed. Therefore, no 
opinion was expressed by the learned High Court on the said question. 
4. 
 
The learned High Court expressed its opinion on questions 
No.2 and 3 which for ease of reference are reproduced below: - 
“2. 
Whether under the facts and circumstances of the 
case the learned ATIR was justified to uphold an addition 
made under section 18 of the Income Tax Ordinance, 2001 
against its every spirit as explained in the Income Tax 
Ordinance, 2001? 
 
3. 
Whether under the facts and circumstances of the 
case learned ATIR was justified in not considering the 
additions made under section 111(1)(b) of Income Tax 
Ordinance 2001 in the income of a Tax Year to which these 
are not related to therefore are in violation of section 
111(1)(b) of the Income Tax Ordinance, 2001?”   
 
5. 
 
The learned High Court answered question No.2 in the 
“negative”, whereas question No.1 in the “affirmative”. 
6. 
 
Learned counsel for the petitioner submits that by virtue of 
Section 37(1)(A) of the Ordinance, the petitioner was not liable to pay 
Capital Gains Tax as the property was purchased in the year 2008 and 
sold in the year 2013. He maintains that the lower fora fell in error in 
C.P.945/2018 
-: 3 :- 
treating the sale consideration of the property as business income of the 
petitioner under Section 18 of the Ordinance. 
7. 
 
With reference to question No.3 the learned counsel submits 
that by virtue of Section 111(1)(b) of the Ordinance there was no 
justification for adding Rs.60 million in the accumulative wealth of the 
petitioner for the year 2013. He maintains that Section 111(2) of the 
Ordinance only permits inclusion of the amounts mentioned in sub-
section (1) of Section 111 in the person’s income chargeable to tax, in the 
tax year to which such amount relates. He maintains that the petitioner 
filed his return for the first time in 2013. As such, the amount of wealth 
shown for the year 2012 amounting to Rs.60 million could not be taxed 
in terms of Section 111(2) of the Ordinance by treating it as an 
investment for the tax year 2013. 
8. 
 
We have heard the learned counsel for the petitioner and 
examined the record. As far as inapplicability of Section 18 of the 
Ordinance is concerned, we find that the same deals with business 
income. However, Section 37(1)(A) read with Division VIII of Part 1 of the 
First Schedule provides that where holding period of immovable property 
is more than two years, the rate of capital gains shall be zero percent. 
The department however, found that the petitioner was engaged in the 
real estate business for a number of years before 2014 which is the year 
the petitioner claimed that he started his business of real estate. In this 
regard, the department relied upon the material (which was not rebutted) 
indicating that the petitioner had been engaged in the real estate 
business for many years before 2014. Consequently, it was correctly held 
that the benefit of zero percent capital gains tax was not available to the 
petitioner on the sale and purchase of property in the absence of reliable 
material necessary to avail the benefit of Section 37(1)(A) ibid.  
C.P.945/2018 
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9. 
 
We also notice that the addition of Rs.60 million was made 
in the taxable income of the petitioner under Section 111(1)(b) of the 
Ordinance on account of the petitioner’s failure to furnish material in 
support of his defence during reconciliation proceedings. The said 
provisions stipulate that where a person fails to offer a satisfactory 
explanation about the nature and source of the investment, the value of 
the investment shall be included in the person’s income chargeable to 
tax to the extent it is not adequately explained.  
10. 
 
The learned counsel for the petitioner heavily relied upon 
Section 111(1)(2) to contend that only wealth for the year 2013 could be 
added to the income tax of the petitioner for the purposes of tax in view 
of the specific language of the said section. The record indicates that the 
petitioner had shown his net wealth as of 30.06.2013 to be 
Rs.64,346,112/-. However, the department was not satisfied with the 
veracity of the return and called upon him through show cause notice to 
explain net wealth amounting to Rs.60,360,912/- as on 30.06.2012 
which had remained unexplained. Although he submitted his reply but 
the same was neither satisfactory nor did it substantiate his source of 
investment. It is also significant that the petitioner had all along taken 
the stance that he had started his real estate business in 2014 and as 
such he could not be assessed for the year 2013. We have specifically 
asked the learned counsel for the petitioner to explain the accretion of 
net wealth as on 30.06.2012. However, he has not been able to refer to 
any material that may even remotely explain such accretion. We are, 
therefore, satisfied that the findings of the subordinate fora that the said 
accretion was chargeable to tax for the year 2013 do not suffer from any 
error of interpretation or application of the afore-noted provisions of law. 
The learned counsel for the petitioner has not been able to convince us 
that the judgments of the High Court or the Appellate fora suffer from 
C.P.945/2018 
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any legal, procedural or jurisdictional error or flaw calling for interference 
by this Court in terms of Article 185(3) of the Constitution of the Islamic 
Republic of Pakistan, 1973. 
11. 
 
For reasons recorded above, we do not find any merit in this 
petition. It is accordingly dismissed. Leave to appeal is refused. 
 
 
 
JUDGE 
 
 
 
JUDGE 
Islamabad, the 
10th of April, 2018 
Naveed Ahmad/* 
APPROVED FOR REPORTING