Text of ITO Section 111

Unexplained income or assets.

(1) Where — (a) any amount is credited in a person’s books of account;
(b) a person has made any investment or is the owner of any money or valuable article;
(c) a person has incurred any expenditure; or
(d) any person has concealed income or furnished inaccurate particulars of income including —
(i) the suppression of any production, sales, or any amount chargeable to tax; or
(ii) the suppression of any item of receipt liable to tax in whole or in part,
and the person offers no explanation about the nature and source of the amount credited or the investment, money, valuable article, or funds from which the expenditure was made, or the explanation offered by the person is not, in the Commissioner’s opinion, satisfactory —
(a) the amount credited, value of the investment, money, value of the article, or amount of expenditure shall be included in the person’s income chargeable to tax under the head “Income from Other Sources” to the extent it is not adequately explained; and
(b) the suppressed amount of production, sales, or any amount chargeable to tax or of any item of receipt liable to tax shall be included in the person’s income chargeable to tax under the head “Income from Business” to the extent it is not adequately explained.

Provided that where a taxpayer explains the nature and source of the amount credited or the investment made, money or valuable article owned, or funds from which the expenditure was made, by way of agricultural income, such explanation shall be accepted to the extent of agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law.

(2) The amount referred to in sub-section (1) shall be included in the person’s income chargeable to tax: (i) in the tax year to which such amount relates if the amount representing investment, money, valuable article or expenditure is situated or incurred in Pakistan or concealed income is Pakistan-source; and
(ii) in the tax year immediately preceding the tax year in which the investment, money, valuable article, or expenditure is discovered by the Commissioner and is situated or incurred outside Pakistan or concealed income is foreign-source.
Explanation.— For the removal of doubt, it is clarified that where the investment, money, valuable article, or expenditure is acquired or incurred outside Pakistan in a prior tax year and is liable to be included in the income of tax year 2018 and onwards on the basis of discovery made by the Commissioner during tax year 2019 and onwards and the person explains the acquisition of such asset or expenditure from sources relating to the tax year in which such asset was acquired or expenditure was incurred, such explanation shall not be rejected on the basis that the source does not relate to the tax year in which the amount chargeable to tax is to be included.

(2A) For the purposes of clause (ii) of sub-section (2) of this section, the “year of discovery of foreign assets or expenditure or concealed income,” shall mean the year in which the Commissioner has issued a notice requiring the person to explain the nature and source of such foreign assets, expenditure, or concealed income.

(3) Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than the reasonable cost of the investment or the valuable article, or the reasonable amount of the expenditure, the Commissioner may, having regard to all the circumstances, include the difference in the person’s income chargeable to tax under the head “Income from Other Sources” in the tax year to which the investment, valuable article or the expenditure relates.

(4) Sub-section (1) does not apply to any amount of foreign exchange remitted from outside Pakistan through normal banking channels not exceeding five million Rupees in a tax year that is en-cashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.

Explanation.— For removal of doubt, it is clarified that the remittance through money service bureaus, exchange companies, or money transfer operators shall be deemed to constitute foreign exchange remitted from outside Pakistan through normal banking channels as provided under this sub-section.

(4A) Where a taxpayer, while explaining the nature and source of any amount referred to in sub-section (1), takes into account any source of income which is subject to final tax under any provision of the Ordinance, the taxpayer shall not be entitled to take credit of any sum as is in excess of imputable income, unless the excess amount is reasonably attributed to the business activities subject to final tax and the taxpayer furnishes financial statements and accounts duly audited by a chartered accountant.

(5) The Board may make rules under section 237 for the purposes of this section.

Explanation.— For the removal of doubt, it is clarified that a separate notice under this section is not required to be issued if the explanation regarding the nature and sources of: (i) any amount credited in a person’s books of account; or
(ii) any investment made or ownership of money or valuable article; or
(iii) funds from which expenditure was made; or
(iv) suppression of any production, sales, or any amount chargeable to tax; or
(v) suppression of any item of receipt liable to tax in whole or in part has been confronted to the taxpayer through a notice under sub-section (9) of section 122 of the Ordinance.