AMENDMENT OF ASSESSMENT

AMENDMENT OF ASSESSMENT AMENDMENT OF ASSESSMENT [A BRIEF STUDY OF SECTION 122 OF THE INCOME TAX ORDINANCE, 2001 AND SECTIONS 65 & 66A OF THE REPEALED INCOME TAX ORDINANCE, 1979] By Muhammad Shahid Baig, Advocate High Court, Lahore The basic function of the legislature is to make laws and judiciary is responsible to understand, comprehend and interpret the law. It is the judiciary who while exercising the power of judicial review gathers the intention of the legislature contained in any law to apply it in its true perspective. This process of interpretation takes years to comprehend the laws. The judiciary took almost two decades to comprehend the earlier law on the subject i.e. sections 65 & 66A. These remedial provisions remained in vogue for more than'20 years and there has been a veritable war between the Taxpayers and Tax Collectors about the invocation and interpretation of these penal provisions of the Fiscal Statute. Now a new chapter has been opened by repealing the old law and enacting a new theory with various amendments through insertion of section 122 of the Income Tax Ordinance, 2001. The subsection (1) of section 122 of the Income Tax Ordinance, 2001 empowers the Commissioner to amend an assessment order treated as issued under section 120 or 121 of the new law or the assessment order issued under sections 59, 59A, 62, 63 or 65 of the old law by making necessary alterations or additions. Although this provision authorizes the Commissioner to amend an assessment but there are certain prerequisites to invoke this provision which are provided in the subsequent subsections. As per this subsection, the basic requirement is that an assessment order sought to be amended should have been treated as issued under section 120 or 121 of the new law and it should have been issued under sections 59, 59A, 62, 63 or 65 of the old law. Briefly stating, a Return of income shall be taken to be complete if it is in accordance with the provisions of subsection (2) of section 114, which means it shall be in the prescribed form and be accompanied by such annexures, statements or documents as may be prescribed and it shall fully state all the relevant particulars or information as specified in the form of Return including a declaration of the record kept by the Taxpayer and shall be signed by the authorized person. One thing more should be remembered here that as per subsection 3 of section 120, the Commissioner shall issue a Notice to the Taxpayer requiring to furnish such information particulars, statements, or documents which are missing in the Return and in case of failure, the Return furnished shall be treated as invalid Return as if it had not been furnished. Here I would like to emphasize that a general impression developed after the inception of new law that whatever Return is ,furnished shall ipso facto be treated, as assessment order is not correct. After due consideration of these provisions, one can understand that only a complete Return is treated as assessment order issued under section 120: And if the Return is incomplete, Commissioner shall issue a Notice requiring the Taxpayer to meet with the deficiencies. This point is noteworthy that only a complete and valid Return is to be treated as assessment order issued under section 120. The verification of Return and all the supporting documents/details etc. as required by the Statute is very essential. So it can safely be said that Return is accepted after due application of mind for treating it as assessment order issued to the Taxpayer. I repeat that only a complete Return after conscious application of mind can be treated as assessment order issued to the Taxpayer which can further be amended by the Commissioner under section 122(1) or any other officer to whom the powers should specifically be delegated by the Commissioner to proceed in accordance with this remedial provision of law. One other point is important that delegation of the powers by the Commissioner is not a compulsion at law. Although the Commissioner is empowered to delegate his authority under section 210 to some other officer but the non delegation of the powers to some other officer cannot be objected to as it is within the discretion of the Commissioner and when a discretion of law is exercised by the competent authority, it is not open to any exception. This view has been upheld by the Karachi High Court in a judgment reported as 2004 PTD 1173. On going through sections 210 and 239 of the new Ordinance, it would come to light that all pending matters including proceedings under section 65 of the Repealed Ordinance at the time of commencement of the new Ordinance are required to be decided in accordance with the provisions contained in the Repealed Ordinance but by an authority competent under the new law i.e., Income Tax Ordinance, 2001. It is relevant to add that as per new law, the pivotal position in the execution of Income Tax Law is occupied by the Commissioner in whom all the powers are vested. The Commissioner may exercise all or any of these powers himself or may delegate all or any of his powers to any other Taxation Officer. However after inception of new law, the scheme of old remedial provisions would not prevail rather loss of revenue can be retrieved through application of section 122 of the Income Tax Ordinance, 2001. The Lahore High Court, Lahore's judgment reported as (2005) 91 Tax 480 (sic), can be consulted in this regard. After subsection (1) L may directly switch over to subsection (5) skipping over the subsections (2), (3), (4) and (4A) which are relevant to limitation but it would not mean that I am going to ignore these vital provisions. The subsection (5) says that an assessment order shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under subsection (4) where, on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that:- (i) any income chargeable to tax has escaped assessment; or (ii) total income has been underassessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or (iii) any amount under a head of income has been misclassified. The corresponding subsections of previous law to this provision are 65(2), 65(1)(a) & 65(1)(b). These provisions are very vital to be understood. As per old law, there were two conditions provided in subsection (2) of section 65 that the proceedings under section 65(1) can be initiated upon receiving definite information and that too after obtaining previous approval of the IAC. Whereas, as per new law, as stated earlier, the entire authority under section 122(1) vests with the Commissioner until and unless he delegates his powers to some other officer. Now as per new law, the condition of approval has been waived off and there is only one condition in the field that assessment can be amended under subsection (1) after acquiring definite information through Audit or otherwise from which it can be inferred that any income chargeable to tax has partly escaped assessment. I mean to say that if any income from one source has been assessed omitting the other source then it can be said that income from that other source has escaped assessment. It can also be said that it is not fully assessed or partly escaped assessment. Second is the case of under assessment. It may apply to the situation where a particular source of income has been assessed but the income from this source has not been fully assessed. Thirdly, when assessed at too low a rate means and covers those cases where income has been correctly assessed but a lower rate of Tax has been wrongly adopted. A point is to be remembered here that computation of lower tax as a result of miscalculation is strictly speaking not covered by this section but by section 156 of the old law and 221 of the new law. However the Courts have held that both these provisions are not mutually exclusive. If a case is covered by both sections, choice lies with the Deputy Commissioner/ Taxation Officer as per old law and the Commissioner as per new law. Fourthly, this provision would apply if the total income has been the subject of excessive relief or refund. This term covers all the cases where any deduction, exemption, rebate or refund has been wrongly allowed. Lastly if any amount under a head of income has been misclassified. This is a new provision having no parallel provision in the old law. The implications of this provision would be discussed later, before which I will discuss the basic requirement of this section which is the definite information. In subsection (8) definite information has been defined but this definition is not conclusive and it includes information of sales or purchases of any goods made by the taxpayer, receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance, and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer. The phrase "definite information" has been thoroughly examined, interpreted and illustrated by the judiciary. This phrase used in section 65(2) of the old law and sections 122(5) and 122(8) of the new law is in fact penal in nature and requires that the concerned officer must have some material evidence in his possession in respect of the particular matter which he wants to re-consider. The material already available on record cannot light-heartedly be used for this purpose, as the same may amount to change of opinion., Once assessment is complete and had attained finality, the officer concerned on the basis of record which was already available with him and without acquiring any new information which could be termed as definite information cannot invoke this remedial provision of law. Here I would like to share the views of the judiciary on the subject. The most renowned judgment of the Supreme Court of Pakistan was delivered in the case of Edulji Dinshaw Limited. This case is reported as PLD 1990 SC 399 = 1990 PTD 155. It provides that once all the facts have been fully disclosed by the assessee and considered by the Income Tax Authorities and the assessments have been consciously completed, and no new fact has been discovered, there can be no scope for interference with these concluded transactions under the provisions of section 65 of the Ordinance on the ground that the income chargeable to tax under the Ordinance has escaped assessment or has been under-assessed, etc, in the meaning of clauses (a) or (b) of subsection (1) of section 65 of the Ordinance. In an other case viz. Phillps Electrical Company of Pakistan (Private) Limited reported as 1990 PTD 389 Mr. Justice Saleem Akhtar observed that the term definite information conveys a meaning which is not the same as change of opinion. A different interpretation of any provision of law or deriving a different conclusion from a given set of facts will not amount to definite information. It will be a change of opinion. Therefore the basis for reopening the assessment was a change of opinion of the respondent. The respondent therefore could not have taken any action under section 65 of the Income Tax Ordinance as it was not based on any definite information, but on change of opinion. In the case reported as 1997 SCMR 1256, the Supreme Court of Pakistan held that there is no concealment of facts. Everything had been declared right from the very beginning and even after 1980 the legal position did not change as section 34A was not applicable to the respondent. In these circumstances, the opinion of the petitioners that a definite information has been received as it was discovered that section 34A was ignored, was completely misconceived and based on mis appreciation and misapplication of law. Where an assessment has been framed consciously by applying mind and there being no concealment of facts by the assessee, discovery of the fact that a provision of law had been ignored or not applied cannot be called a definite information. In Central Insurance Co. It was observed that the expression definite information will include factual information as well as information about the existence of a binding judgment of a competent Court of law/forum for the purposes of section 65 of the Ordinance. This dictum will not cover a case where after framing assessment consciously, the Assessing Authorities realize that any provision of law has been ignored, not applied or misapplied. Such discovery does not fall within the ambit of term definite information as used in section 65 of the Ordinance. In another famous judgment of Messrs Central Insurance Company, reported as 1993 SCMR 1232, it was held that the words "definite information" are the key-words for the purpose of justifying action under subsection (1) and as the said words had not been "defined in the Ordinance, they will carry their literary meanings. It was observed that every information cannot be treated as the basis for reopening of the assessment but the information should be of the nature which should qualify as "definite information" and that the expression definite information" could not be given a universal meaning but it will have to be construed in each case. It was further observed that where an assessee discloses all the material facts without any concealment and the assessment had been consciously completed by the Income Tax Officer, in such a case, in the absence of the discovery of any new facts which can be treated as "Definite information" there cannot be any scope for reopening of the assessment under section 65. It was further observed that any change of opinion on the basis of the same material by the Income Tax Officer will not warrant pressing into service the said provision. It was observed that a Circular from the Board of Revenue interpreting any provision of law was not a "definite information" which will include factual information as well as information about the existence of a binding judgment of competent Court of law/forum for the purpose of section 65 of the Ordinance, but any interpretation of a provision of law by a functionary which has not been entrusted with the function to interpret such provision judicially cannot be treated as a "definite information". In its judgment reported as 2004 PTD 1901, the Karachi High Court held that the pronouncements made in the aforecited case establish beyond any reasonable doubt the principle that misapplication of law or ignorance of law or a principle/pronouncement made by the superior Courts would not furnish a ground for reopening of assessment under section 65 of the repealed Ordinance as the said misapplication or ignorance could not come within the scope of definite information. The Assessing Authority had framed the assessment consciously, with