I. EXECUTIVE SUMMARY

A. Facts: Tax authorities alleged sales suppression based solely on difference between:

1. Sales Tax Returns: Rs ---------- (post-registration sales). 

2. Income Tax Returns: Rs -------------- (including pre-registration sales). 

3. Discrepancy claimed: Rs --------------- → Tax demand @17% + 3% = Rs 3,632,281 + penalty/surcharge.

B. Taxpayer's Key Defenses

1. Authorities exceeded show cause notice scope - Violated Supreme Court precedents -------------------------. 

2. Appellate Tribunal order non-speaking - Failed Section 24A, General Clauses Act, 1897 requirements. 

3. No proof of taxable supplies - Income tax sales (pre-registration)  sales tax liability; presumption invalid. 

C. Court's Legal Findings

1. Question 1: Appellate Tribunal failed to issue reasoned, speaking order → Affirmative (in taxpayer's favor). 

2. Question 2: Tribunal exceeded show cause notice allegations, ignoring Supreme Court law → Affirmative. 

3. Question 3: Sales tax cannot be imposed by presumption or ITR-STTR difference alone → Negative (tax authorities unjustified). 

Tax authorities must (1) stay within show cause notice scope (2) issue fresh notices for new issues post-taxpayer response, and (3) provide speaking orders - violation renders proceedings void. 

II. DETAILS

A. Reference & Issues

1. Further to KQU ----- of ------, being an important matter, we would inform you about ----------------------- (Attachment 3416.1) in the ensuing paragraph, with emphasis ours in bold & Underline for quick reading.

2. Brief facts of the case are that the petitioner is ---------------. During interim scrutiny of monthly sales tax record, on account of certain discrepancies found in the results, declared by the applicant, pertaining to tax year 2022, a show cause notice was issued to the applicant-taxpayer, which culminated in passing of order-in-original dated ------------ whereof an amount of Rs --------------- stood recoverable along with default surcharge and imposition of penalty under the relevant provisions of law. The aforesaid order-in-original was upheld by CIR (Appeals) vide its order dated ----------------. Being dissatisfied, applicant-taxpayer preferred second appeal before learned Appellate Tribunal, which was dismissed vide order dated ------------. Hence, instant Reference Application.

3. Through instant Reference Application under Section 47 of the STA, 1990 read with Section 133(1) of the ITO, 2001, following questions of law, asserted to have arisen out of impugned order dated ------------, passed by learned ATIR, ------ Bench, have been pressed and argued for our opinion:-

B. Proposed Questions of Law

1.   Question 1: Speaking Order Requirement

1) Whether on the facts and in the circumstances of the case, the Appellate Tribunal Inland Revenue has failed to pass a just, fair, proper, reasoned and speaking order, as required under Section 24A of the General Clauses Act, 1897? If so:

i. Whether such a non-speaking order is not sustainable in the eye of law?

2.   Question 2: Scope of Show Cause Notice

2) Whether on the facts and in the circumstances of the case, the Appellate Tribunal Inland Revenue has erred in law and fact both, while travelling beyond the allegation voiced and raised in the show cause notice and in the sheer ignorance and disregard of the law laid down by Supreme court in cases reported as -------------------------------------?

3.   Question 3: Tax Imposition Validity

3) Whether on the facts and in the circumstances of the case, the Appellate Tribunal Inland Revenue was justified in ignoring that sales tax cannot be imposed firstly on the basis of presumption and without establishing and discharging onus to the effect that alleged sales were taxable supplies amenable to charge of tax under STA, 1990 and secondly tax cannot be imposed merely on the basis of difference in sales declared in the income tax return and the sales recorded in sales tax return?

C. Learned Counsel for Applicant / Taxpayer Submission

Learned counsel for applicant-taxpayer submits that learned forums below have travelled beyond the allegation voiced and raised in the show cause notice in violation of the dictum of law laid down by the Hon’ble Supreme court in cases reported -------------------------------------------.   He maintains that even otherwise, impugned Appellate Tribunal’s order is absolutely non-speaking within the contemplation of the provisions of Section 24-A of the General Clauses Act, 1897.  

D. Department's Response

Contrarily, learned Legal Advisor for respondent-department defends the impugned order by contending that learned counsel for applicant-taxpayer has failed to point out any illegality or legal infirmity therein.

E. --HC Deliberations

1. Factual Background Analysis

1.1 to 1.5 

2. Show Cause Notice - Operative Part

2.1 to  2.8

F. --HC Decision

In view of the above, our answer to the proposed questions No.1 & 2 is in the affirmative and, to question No.3 is in the negative i.e., All questions in favour of applicant-taxpayer and against the respondent-department.

III. FURTHER DETAILS & SERVICES

Should you require any clarification or explanations in respect of the above or otherwise, or require Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@kasbati.co with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com.

Best regards for Here & Hereafter

Asif S Kasbati (FCA, FCMA & LLB)

Managing Partner

Kasbati & Co (1900+ Tax, Levies, Companies, Economy, Inflation, HR, Banking, Finance, etc Quick Commentary Service Provider and High Level 440+ Tax & Levies Laws Consultants)543