Income Tax Ordinance, 2001 — Section 111: Unexplained income or assets

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; 1[ ]

(c)a person has incurred any expenditure2[; or] Chapter VIII – Anti-Avoidance

(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”] 1[:] 2[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.] 3[(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 Chapter VIII – Anti-Avoidance 1[(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.] 2[(3) Where the declared cost of any investment or valuable article or the declared amount of expenditure of a person is less than 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 3[to which the investment, valuable article or the expenditure relates].] 4[ ] 5[(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.] 6[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. 1 Sub-section (2A) inserted by the Finance Act, 2024. 2 Sub-section (3) substituted by the Finance Act, 2003. The substituted sub-section (3) read as follows: “(3) Where the declared value of any investment, valuable article or expenditure of a person is less than the cost of the investment or valuable article, or the 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 in which the difference is discovered.” 3 The words “immediately preceding the financial year in which the difference is discovered” substituted by the Finance Act, 2010. 4 Sub-section (4) substituted by the Finance Act, 2004. The substituted sub-section (4) read as follows: “(4) Sub-section (1) does not apply to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.” 5 Sub-section (4) substituted by the Finance Act, 2021. The substituted sub-section read as follows:

(4)Sub-section (1) does not apply,

(a)to any amount of foreign exchange remitted from outside Pakistan through normal banking channels 5[not exceeding 5[five] million Rupees in a tax year] that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect5[.] 5 [ ] 5 [ ] 6 The explanation and sub-section (4A) inserted by the Finance Act, 2022. 214 Chapter VIII – Anti-Avoidance (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 1[Board] may make rules under section 2[237] for the purposes of this section. 3[ ] 4[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 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.]