Tribunal Overturns Department Tax Demand in Key Case

The department identified inconsistencies between the taxpayer's bank statements and the final taxation details during the audit for the specified period. As a result, a show-cause notice was issued, requesting clarification on the nature and source of credit entries, which were suspected to stem from unreported sales or tax evasion.

The taxpayer’s response was deemed unsatisfactory, leading the assessing officer to revise the assessment, generating an additional tax liability.

Dissatisfied, the taxpayer appealed to the Commissioner of Inland Revenue. The appeal was disposed of with a ruling that the application of Section 111(1)(d) and the general tax rate on the taxpayer’s income, without changing their status under the minimum tax scheme, was incorrect. The assessment was modified, with instructions to credit any taxes already paid by the taxpayer.

Both the tax department and the taxpayer filed separate appeals to the Tribunal. The Tribunal annulled the decisions of both parties and removed the additional tax imposed under Section 111(1)(d).

The department then approached a higher appellate authority, asserting that while the taxpayer had concealed income through sales suppression, the Tribunal had wrongly accepted the appeal, stating that Section 111(1)(d) did not apply. The department also acknowledged that the show-cause notice had been incorrectly issued under Section 111(1)(d) instead of Section 111(1)(b).

In defense, the taxpayer supported the Tribunal's ruling, arguing that the application of Section 111(1)(d) was improper and that it should be applied prospectively, not retroactively. The higher appellate authority confirmed that the taxpayer remained liable for taxes on any undisclosed or suppressed income. However, they concluded that the evaded tax should not be treated as a gift for the taxpayer due to the incorrect citation of the legal provision, despite the established tax evasion.