ISLAMABAD: The Supreme Court of Pakistan has ruled that registering a First Information Report (FIR) or initiating criminal proceedings in tax-related matters is unlawful if tax liability has not first been determined through proper assessment or adjudication under applicable tax laws.
A two-member bench comprising Justice Malik Shahzad Ahmad Khan and Justice Aqeel Ahmed Abbasi granted pre-arrest bail to a petitioner accused of tax evasion and money laundering.
The court observed that the authorities had failed to establish whether the assets allegedly acquired by the petitioner actually constituted proceeds of crime.
According to the case record, the petitioner maintained multiple personal and business bank accounts during Tax Years 2017 and 2018. He filed income tax returns declaring total income of Rs7,313,500 for Tax Year 2017 and Rs6,985,000 for Tax Year 2018 under the provisions of the Income Tax Ordinance, 2001.
However, scrutiny of the petitioner’s bank accounts revealed significantly higher financial activity. Authorities identified total credits of Rs153.4 million between July 2016 and June 2017 and Rs246.1 million between July 2017 and June 2018.
Investigators alleged that the petitioner had concealed income amounting to Rs385.22 million and converted the funds into assets and business investments. Based on these claims, the alleged tax evasion was estimated at Rs50.67 million for Tax Year 2017 and Rs83.34 million for Tax Year 2018.
Following these allegations, an FIR was registered on February 10, 2022, under provisions of the Anti-Money Laundering Act, 2010 along with sections related to tax offences under the Income Tax Ordinance, 2001.
In a judgment authored by Justice Aqeel Ahmed Abbasi, the court held that the registration of the FIR and the initiation of criminal proceedings violated an earlier precedent set by the Supreme Court in the Taj International (Pvt) Ltd case.
The court emphasized that disputes involving financial matters, alleged concealment of income, or tax evasion must first be addressed through civil proceedings or specialized tax forums. These forums are responsible for determining tax liability through proper assessment procedures and judicial examination of evidence.
The bench further observed that allegations of tax evasion must undergo formal assessment under the Income Tax Ordinance, 2001 before criminal liability can be considered. Likewise, money laundering charges depend on proving that the funds in question represent proceeds of crime arising from a predicate offence under the Anti-Money Laundering Act, 2010.
Since the relevant authorities had not completed the required tax assessment or pre-trial procedures, the court ruled that initiating criminal proceedings at this stage was premature.
The bench also noted that cases primarily based on documentary evidence generally do not require custodial interrogation, a factor that supported the court’s decision to grant pre-arrest bail to the petitioner.
