2026 PLP 757 (PTD)

WIQAR AHMAD, J.

The petitioner, an individual deriving income from sale of cloth and the business of property dealing, filed a return for tax year 2007. The return so filed was treated as a deemed assessment order under section 120 of Income Tax Ordinance, 2001 (hereinafter referred to as "the Ordinance, 2001"). During proceedings of audit taking place in the year 2009 the petitioner filed a wealth statement along with wealth reconciliation statement indicating plots of sale in the tax year 2007. Subsequently, the Taxation Officer passed an amended assessment order under section 122(1) of the Ordinance, 2001, whereby the income of the petitioner was re-determined as follows: Share purchase on 02.12.2012 covered area 5803x500 (rate) Rs. 320,000/? Share in house situated at Chowk Nasir Khan (Inherited) NVD 1/2 Share in shop at Meena Bazar Peshawar NVD 1/2 share in shop at Jahangir Pura Peshawar NVD 4 marla share purchase situated at Old Kakshal dated 21.4.2004 Rs. 310,000 Open Plot No. 884/E-6, 14 Marla purchased on 21.5.2004 Rs. 4,00,000/- Open plot No. 189/E-6, 10 Marla purchased on 15.1.2007. Rs. 2,00,000/- Open plot No. 215/E-6, 20 marla purchased on 2.10.2004 at Hayatabad. Rs. 15,00,000/- Open plot No. 884/E-6, 14 marals Purchased Rs. 200,000/- Total Assessment Rs. 10,130,000/- Movable Assets. Gold belongs to wife (dowry) Rs. NVD Furniture and fixture Rs. 200,000/- Cash in hand/prize bonds Rs. 11, 724, 000/- Grant total Rs. 22,054,000/- Reconciliation Statement Assets as on 30.6.2007 Rs. 22,054,000/- Asses as on 30.6.2006 Rs. 17,626,000/- Accretion Rs. 4,428,000/- Add; HHE for tax year 2007 Rs. 72,000/- Total Rs. 4,500,000/- Explanation Sold plot No. 486/E-6 Peshawar Rs. 4,500,000/-

2. Feeling aggrieved by the order dated 29 April 2013, the petitioner preferred an appeal before the Commissioner Inland Revenue (Appeals), Peshawar (hereinafter referred to as the "Commissioner Appeals"). The appeal was decided vide Order No. 413 dated 18 August 2014, whereby it was held that gain of Rs. 3,000,000 from sale of the plot was taxable under section 37(3) of Income Tax Ordinance, 2001, treating same as capital gain on the disposal of immovable assets. Subsequently, the respondent department filed an application under section 221 of the Ordinance, 2001, seeking rectification of said order. It was pleaded that profit earned by taxpayer on account of sale of the plot during tax year 2007 had been taxed by the Taxation Officer as income from business under section 18 of the Ordinance, 2001, and that the Commissioner Appeals had erroneously treated it as capital gain arising from disposal of immovable property and taxed it under section 37 of the Ordinance, 2001. The department contended that the petitioner was engaged in business of property dealing, involving the sale and purchase of plots, which constituted stock-in-trade and were excluded from the definition of capital assets under section 37(5)(c) of the Ordinance, 2001. The application was allowed, and the mistake that had occurred in order dated 27 August 2013 was rectified under section 221 of the Ordinance, 2001. It was held that the gain on the sale of plots constituted business income and was assessable to tax under section 18 of the Ordinance, 2001. Feeling aggrieved by this rectification, the petitioner filed a second appeal before Appellate Tribunal Inland Revenue, Peshawar (hereinafter referred to as the "Appellate Tribunal"). However, appeal was dismissed vide order dated 18 June 2020. Feeling further aggrieved by order dated 18 June 2020, the petitioner has filed instant reference under section 133 of the Ordinance, 2001, for the determination of the following questions of law. QUESTIONS OF LAW: A. Whether in the facts and circumstances of the case, the order of the learned ATIR is against the law? B. Whether in the facts and circumstances of the case, the learned ATIR has wrongly dealt and rectified the case of the applicant /taxpayer despite the fact that there was no apparent mistake in the original order? C. Whether in the facts and circumstances of the case, the learned ATIR has erred to hold that any mistake can be rectified under section 221 of ITO, 2001? D. Whether in the facts and circumstances of the case, the learned ATIR has wrongly observed that no debate or arguments is required to the extent that the learned ATIR had applied a wrong provision of law while passing the order under section 129 of ITO 2001? E. Whether in the facts and circumstances of the case, the learned ATIR the difference of opinion is not a mistake apparent from the record and cannot be rectified under section 221 of ITO, 2001? F. Whether in the facts and circumstances of the case, the learned ATIR, the L/ATIR has dealt the applicant/taxpayer discriminately in regard to retrospective effect of beneficial amendment as the L/ATIR has already given retrospective effect to clause (6F) of the Second Schedule of ITO, 2001 in the case of M/S Deans Trade Center? G. Whether in the facts and circumstances of the case, the learned ATIR, the L/ATIR has erred to reverse the non-contested accepted plea of the department as narrated on page 3 of the L/CIR (Appeal) Order? H. Whether in the facts and circumstances of the case, the learned ATIR has wrongly dismissed the appeal of the applicant/taxpayer? I Whether in the facts and circumstance of the case any beneficial Registrar amendment brought in to the Income Tax Ordinance would be extendable to the Taxpayer / applicant and by not extending the said benefit, the Learned ATIR has exceeded its jurisdiction? J. Whether the Learned ATIR has erred by not accepting the amended provision of beneficial amendment in section 37 of the ibid ordinance, considering "immovable property" as capital gain at the time of proceedings in the appeal in the year, 2013?

3. Arguments heard and record perused.

4. Perusal of the record reveals that the main questions for determination before this Court were as follows: (i) Whether the Commissioner Appeals was having lawful authority to make the order under section 221(1) of the Ordinance, 2001? (ii) Whether the subsequent order dated 18.8.2014 of Commissioner appeals was within time or same was time barred?

5. The Commissioner Appeals, while deciding the appeal vide Order No.413 dated 27 August 2013, held that the plot had bee held by the assessee for more than one year therefore, as per the provisions of section 37(3) of the Income Tax Ordinance, 2001, seventy-five percent of the gain amounting to Rs. 3,000,000 was to be assessed for the tax year 2007 as capital gain. Thereafter, the department/respondents filed an application under section 221 of the Ordinance on 17 January 2014, which was decided by the Commissioner Appeals on 18 August 2014. The operative part of the said order is reproduced below for ready reference: "The arguments advanced by the learned Authorised Representative were duly considered, and the case law referred to was carefully examined. It has been observed that a mistake of law, apparent on the face of the record, occurred in the earlier order. Specifically, clauses (a) and (c) of subsection (5) of section 37 of the Income Tax Ordinance, 2001, were inadvertently overlooked while passing the said appellate order. The learned Commissioner Inland Revenue, Zone-I, rightly brought this omission to the attention of this office. Accordingly, the case warrants rectification and is hereby rectified under section 221 of the Ordinance by holding that the gain on the sale of plots constitutes business income and is assessable to tax under section 18 of the Ordinance".

6. The petitioner thereafter filed a second appeal before the Appellate Tribunal, which was decided on 18 June 2020 against the petitioner. The Appellate Tribunal held that rectification made by the Commissioner in order dated 18 August 2014 was well within the jurisdiction vested in him under section 221 of the Income Tax Ordinance, 2001.

7. This Court shall first address the question concerning the lawful authority vested in the Commissioner Appeals under section 221 of the Income Tax Ordinance, 2001. For ease of reference, the text of section 221 of the Ordinance is reproduced below:

221. Rectification of mistakes.- (1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the-record-on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner. (1A) The Commissioner may, by an order in writing, amend any order passed under the repealed Ordinance by the Deputy Commissioner, or an Income Tax Panel, as defined in section 2 of the repealed Ordinance to rectify any mistake apparent from the record on his own motion or any mistake brought to his notice by a taxpayer and the provisions of subsection (2), subsection (3) and subsection (4) shall apply in like manner as these apply to an order under subsection (1). (2) No order under subsection (1) which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard. (3) Where a mistake apparent on the record is brought to the notice of the Commissioner 1 [or] Commissioner (Appeals) 2 [], as the case may be, and no order has been made under subsection (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly. (4) No order under subsection (1) may be made after five years from the date of the order sought to be rectified."

8. Learned counsel for the petitioner primarily raised the objection that only a clerical or arithmetical error in the order of the Commissioner Appeals could have been rectified under section 221 of the Income Tax Ordinance, 2001. However, in the present case, a new determination has been made, and the Commissioner Appeals has statedly exceeded scope of the lawful authority vested in him under section 221 of the Ordinance. Conversely, learned counsel representing respondents/department opposed plea of the counsel of Petitioner. He contended that scope of powers under section 221 of the Ordinance, 2001 was not limited to the correction of clerical or arithmetical mistakes only. The language of subsection (1) authorizes the Commissioner to make amendments for the rectification of any mistake apparent from the record. Where a mistake is clearly discoverable from face of the record, same may be rectified under section 221 of the Ordinance, 2001. The Hon'ble Supreme Court of Pakistan, while elaborating upon the scope of section 221 of the Ordinance, 2001, in its recent judgment dated 8 April 20251 in Civil Appeals Nos. 2026, 2027, 2028, 2029, 2030, 2031, 2032, 2034 of 2022 and other connected appeals, has inter alia held that: "

11. Three points may be made with regard to subsection (1). Firstly, it confers jurisdiction on three different authorities/forums to do exactly the same thing in relation to any order passed by the authority, viz., to amend the order in order to rectify a mistake apparent from the record. The jurisdiction for two of the authorities, i.e., the Commissioner (Appeals) and the Appellate Tribunal, is limited to an order passed in exercise of appellate jurisdiction, since that is the only jurisdiction conferred on them by the statute. In the case of the Commissioner there is a range of orders that can come within the scope of the jurisdiction. For example, it could be an order of assessment made under section 121, known as best judgment assessment, and also an amended assessment order under section

122. The crucial question of course is whether the Commissioner's orders that come within the scope of section 221(1) include also a deemed assessment order under

120. Secondly, what constitutes the record for purposes of rectifying a mistake will vary from authority to authority, and in the case of the Commissioner may be different depending on the particular statutory power exercised by him, in passing the order sought to be subjected to the provision.

12. Thirdly, and this is, as will be seen, an important aspect of subsection (1) for present purposes, it can be invoked by the authority itself on its own motion or to rectify any mistake brought to its attention by the taxpayer (or, in the case of orders of the Commissioner (Appeals) and the Appellate Tribunal by the Commissioner as well). In the cases before us, the subsection was invoked by the Commissioner on his own motion in respect of the deemed assessment order. But equally, if the jurisdiction exists, the taxpayer can bring a mistake in relation to such an order before the Commissioner and seek its rectification. Put differently, if there is no jurisdiction vesting in the Commissioner in regard to deemed assessment orders then a mistake therein apparent from the record cannot be rectified even at the instance of the taxpayer, which correction may have accrued to the latter's benefit. (It is of course difficult to contemplate the taxpayer bringing a mistake for rectification before the relevant authority if it did not result in some benefit to him by, e.g., (to track the language of subsection (2)) reducing the assessment or increasing a refund or being otherwise advantageous to him)." Similarly, in the case of Messrs Asia Poultry Feeds (Pvt.) Ltd. v. Federal Board of Revenue2, the Lahore High court has held in this regard that:-

12. If there was any mistake, deficiency or error in calculation of tax, it could have been rectified under section 221 of the Ordinance which is reproduced below for ready reference:-- "

221. Rectification of mistakes.

(1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by them to rectify any mistake apparent from the record on their own motion or any mistake brought to their notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner." When an assessment is made in respect of income of a taxpayer, any error or omission appearing therein can be rectified under section 221 of the Ordinance. Fresh assessment cannot be made in respect thereof because it will be a case of double assessment which is not permissible under law. With initiation of fresh proceedings under section 161 read with section 205 by the respondent No. 4 in respect of the same tax years, in presence of final orders lawfully passed by a competent officers, same situation has arisen which cannot be allowed to be sustained. Views expressed by the learned Income-tax Appellate Tribunal in its judgment reported as 2010 PTD (Trib.) 150 appears to be in consonance with the provisions of section 161 read with section 205 and section 221 of the Ordinance. The impugned notices under section 161 read with section 205 of the Ordinance are, therefore, declared illegal, and without lawful authority. In the case of Commissioner Inland Revenue v. Messrs Chaudhry Steel Mills3, the Lahore High Court has dealt with the scope of powers under section 221 of the Ordinance, 2001 in the following manner: "The above provision of law only prescribes procedure for rectification of a mistake in an order, which is apparent from the record, and the circumstances under which such exercise can be done. The provision of Section 221, thus, neither creates nor takes away any right or privilege in or from anyone, it rather provides for rectification of mistake(s) apparent from the record. The essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order, it may immediately strike on the face of it. Where an officer exercising such power enters into the controversy, investigates into the matter, reassesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to 'rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be termed to be an order which can be corrected by exercising power under section 221 ibid. Reliance can well be placed upon Commissioner of Income-Tax Company's II, Karachi v. Messrs National Food Laboratories (1992 SCMR 687), Commissioner of Income Tax and another v. Messrs Pakistan Petroleum Ltd. and 2 others (2012 SCMR 371), The Taxation Officer / Deputy Commissioner of Income Tax, Lahore v. Messrs Rupafil Ltd. and others (2018 SCMR 1131), Islamuddin and 3 others v. The Income-Tax Officer and 4 others (2000 PTD 306), Commissioner Income Tax v. Gulf Edible Oils (Pvt.) Ltd. (2006 PTD 2854) and Messrs State Life Insurance Corporation of Pakistan, Karachi v. The Commissioner Income Tax, COS.III, Karachi and others (2021 PTD 913)." It is evident that Section 221 of Income Tax Ordinance, 2001 does not expressly employ the terms factual, legal , clerical, or "arithmetical" to classify the types of mistakes eligible for rectification. The omission of these specific categories indicates that the scope of rectification under this section is not limited solely to clerical or arithmetical mistakes. Had the legislature intended such a limitation, it would have explicitly stated so in language of the statute. Instead, the provision uses the broader expression "mistake apparent from the record." This choice of wording reflects the legislative intent to permit rectification of any mistake whether clerical, arithmetical, legal, or factual provided the mistake is apparent from the record. Accordingly, the power to rectify is not confined to narrowly defined categories but extends to any mistakes evident on the face of the record. Therefore, any limitation inferred through restrictive interpretation such as confining the scope of Section 221 to only clerical or arithmetical mistakes would amount to reading into the statute what is not stated. In consequence, the Commissioner (Appeals) or the Appellate Tribunal is legally empowered to rectify any mistake apparent from the record, including legal or factual errors, while exercising authority under Section 221 of the Income Tax Ordinance, 2001.

9. Now coming to facts of the case it was apparent that the mistake rectified by the Commissioner appeals under section 221 of the ordinance, 2001 was very much discoverable from his first order and therefore he has rightly resorted to the provisions of section 221 of the Ordinance, 2001 for removing the mistake. In his earlier order the CIRA had held that income of the assessee was coming under the definition of capital assets and that same should be held under section 37(5) of the Ordinance, 2001. Relevant tax year in the case in hand was 2007. The definition of capital gain as reflected in the relevant statute at the relevant time was not covering the case in hand. For ready reference section 37 of the Ordinance, 2001 is reproduced; "

37. Capital gains.- (1) Subject to this Ordinance, a gain arising on the disposal of a capital asset by a person in a tax year, other than a gain that is exempt from tax under this Ordinance, shall be chargeable to tax in that year under the head "Capital Gains". (1A) Notwithstanding anything contained in subsection (1), gain arising on disposal of immovable property situated in Pakistan, to a person in a tax year shall be chargeable to tax under the head capital gains at the rates specified in Division VIII of Part I of the First Schedule] (2) Subject to [subsection] (4), the gain arising on the disposal of a capital asset by a person shall be computed in accordance with the following formula, namely:- A-B where- A is the consideration received by the person on disposal of the asset; and B is the cost of the asset. (4) For the purposes of determining component B of the formula in subsection (2), no amount shall be included in the cost of a capital asset for any expenditure incurred by a person? (a) that is or may be deducted under another provision of this Chapter; or (b) that is referred to in section 21. (5) In this section, "capital asset" means property of any kind held by a person, whether or not connected with a business, but does not include? [(a) any stock-in-trade [ ], consumable stores or raw materials held for the purpose of business;] (b) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24; [or] (d) any movable property [(excluding capital assets specified in subsection (5) of section 38)] held for personal use by the person or any member of the person's family dependent on the person 3[.] [(6) The person acquiring a capital asset, being shares of a company, shall deduct advance adjustable tax from the gross amount paid for payable] as consideration for the shares [at the time of payment or at the time of registration of shares by the Securities and Exchange Commission of Pakistan or by the State Bank of Pakistan, whichever is earlier] at the rate of ten percent of the fair market value of the shares which shall be paid to the Commissioner by way of credit to the Federal Government, within fifteen days of the payment. (7) Notwithstanding the provisions of section 68, the value of shares, for the purpose of subsection (6), shall be the fair market value, as prescribed for subsection (4) of section 101 A, without reduction of liabilities. (8) The Commissioner may, on application made by the person acquiring of the shares, and after making such inquiry as the Commissioner thinks fit, allow to make the payment, without deduction of tax or deduction of tax at a reduced rate. (9) The provisions of sections 161, 162, entry No. 15 of the Table in section 182, clause (c) of subsection (1) of section 191 and section 205 shall mutatis mutandis apply to the tax deductible and payable under this section. (10) The person disposing of the capital asset, being shares of a company, shall furnish to the Commissioner within thirty days of the transaction of disposal, the prescribed information or documents, in a statement as may be prescribed: Provided that the Commissioner may, by notice in writing, require the said person, to furnish information, documents and statement within a period of less than thirty days as specified in the notice.]

10. It was apparent from subsection (5) of section 37 that immovable property had expressly been excluded from "capital assets". Since immovable property was not falling in the definition of capital gain therefore same was not liable to tax under section 37 but was taxable under section 18 of the Ordinance, 2001. The earlier order of the Commissioner was erroneous and the result of applying wrong section of law. It was a mistake discoverable on perusal of the record and same was not requiring any further analysis, interference or further inquiry and investigation. Learned (CIRA) had therefore rightly invoked his jurisdiction under section 221 of the Ordinance, 2001. He was having lawful authority for said purpose.

11. Learned counsel for petitioner also inter alia contended that since section 37 particularly subsection 5 thereof had subsequently been amended in the year 2012, therefore, said amendment should be given retrospective effect so as to cover case of the petitioner being beneficial amendment. This court is not inclined to agree with such assertion of learned counsel for petitioner. The Legislature never intended to give said amendment retrospective effect by express words or necessary intendment. Said amendment was not foreseeable on the date when the taxpayer had filed his returns. Same could not have been applied to returns or income of the previous year. On no stretch of imagination, the subsequent amendment could be held to be having a retrospective effect. In such circumstances the first question i.e. the Commissioner was having lawful authority to make order under section 112(1) of the Ordinance, 2001 was concerned same is answered in affirmative.

12. The subsequent question was relating to the time provided for making an amendment under section 221(1) of the Ordinance, 2001. Subsection (4) of section 221 was providing a maximum time period of 05 years for making rectification in the order. Order of the Commissioner Appeals was therefore well within time and question No.2 is therefore answered in a manner that the subsequent order dated 18.8.2014 has been passed by the Commissioner within the provided time.

13. Having answered both the questions in the above manner no further order is required on part of this court. The instant tax reference is accordingly answered and the impugned order maintained. MH/68/P Order accordingly. 1 https://www.supremecourt.gov.pk/downloadsjudgements/c.a. 2026 20221.pdf 2 2016 PTD 270 3 2025 PTD 101