ATIR Grants Relief in IT Export Tax Case

The Appellate Tribunal Inland Revenue (ATIR) has provided relief to a software exporter by remanding a matter concerning PKR 51.2 million in foreign remittances to the assessing officer for fresh adjudication. The Tribunal observed that the declared income may qualify for exemption under the applicable provisions of the Income Tax Ordinance, 2001.

The case pertains to a taxpayer who reported PKR 51,195,457 as export proceeds derived from IT services and software, claiming exemption under Clause 133 of Part I of the Second Schedule to the Ordinance. The return was initially accepted by the tax authorities without objection.

Subsequently, proceedings were reopened under Section 122(8) based on information relating to an alleged property transaction. Upon the taxpayer’s categorical denial of ownership or involvement in such a transaction, the inquiry shifted toward verification of the declared exempt income.

The assessing officer thereafter invoked Section 111, treating the amount as unexplained income and incorporating it into the taxable base. This determination was upheld at the earlier appellate forums.

The taxpayer contested the decision, maintaining that the funds constituted legitimate foreign remittances arising from IT export activities. In support of this position, documentary evidence was furnished, including bank statements, remittance certificates, and certifications issued by the Pakistan Software Export Board.

Upon review, the Tribunal identified a factual inconsistency in the earlier findings concerning the alleged property transaction and acknowledged that the available record, on a prima facie basis, substantiated the taxpayer’s claim regarding the nature and source of the income.

Accordingly, the ATIR set aside the prior orders and directed the assessing officer to undertake a comprehensive re-evaluation of the matter, giving due consideration to the evidentiary material on record.

The Tribunal further emphasized that export proceeds from IT and software services are eligible for tax exemption under the prevailing legal framework and should not be recharacterized as unexplained income without a thorough and evidence-based assessment.

This ruling underscores the necessity for tax authorities to evaluate foreign remittances linked to IT exports in accordance with documentary evidence and the relevant statutory provisions, ensuring consistency with established legal principles.