Amendment of assessment

Briefly, for the tax year 2009, the respondent taxpayer filed a return of income which was treated as a deemed assessment under S. 120(1) of the Income Tax Ordinance, 2001; subsequently, the assessment was amended by the tax authorities under S. 122 of the Ordinance

Thereafter, the department sought to carry out a further amendment by referring back to the earlier deemed assessment instead of the amended assessment

The appellate tribunal inland revenue held that once an assessment stood amended, any further amendment could not be made in the amended assessment order

Aggrieved of the said order, the commissioner inland revenue filed the present income tax reference before High Court under S.133(1) of the Ordinance

The issue before the High Court was "whether, in law, the commissioner was entitled to further amend the original deemed assessment under S. 120(1) despite the existence of an amended assessment, in view of S. 122(4) of the Ordinance, or whether the amended assessment alone remained operative and amenable to further amendment?"

Held: A collective reading of subsection (6) of S. 114, read with S. 120 and subsection (3) of S. 122 of the Ordinance led to an ineluctable conclusion that once amended, the deemed assessment order merged into the amended order and as a natural corollary, the only assessment which remained in field was the amended assessment

If the commissioner intended to further amend the assessment order, the only available assessment was the revised/amended assessment as the return already filed under S. 120(1) of the Ordinance lost its efficacy and became irrelevant to the extent of the omission/wrong statement

The amended assessment order was only available assessment, which could be subjected to any further amendment in terms of subsection (5A) of S. 122 of the Ordinance

There was no substance in the question sought to be raised through the present reference application, as such, same was dismissed.

Authorities revised the assessment of respondent / taxpayer considering packing material as consumer goods for the use of end user

Validity

Products in question were primarily used as a material for packing other products for various consumer goods and were not typically sold directly to consumers as a stand-alone product

Consumer could buy products packed in such films but would not typically purchase goods in question

Subject goods in their form as described in orders of lower fora were utilizable predominantly by end consumers

These were not directly considered as consumer items but had formed a key component for many consumer products and were meant primarily for an industrial / commercial use

Fast Moving Consumer Goods were those which were supplied in retail market as per "their" daily demand and did not qualify to form part of definition provided in section 2 (13AB) and (22A) of Income Tax Ordinance, 2001

Insertion of phase 'durable' which excludes such product was additionally applied for tax return in question

All such products described as durable were excluded via Finance Act, 2017

Supreme Court set aside judgment passed by High Court

Appeal was allowed.

Authorities revised the assessment of respondent / taxpayer considering packing material as consumer goods for the use of end user

Validity

Products in question were primarily used as a material for packing other products for various consumer goods and were not typically sold directly to consumers as a stand-alone product

Consumer could buy products packed in such films but would not typically purchase goods in question

Subject goods in their form as described in orders of lower fora were utilizable predominantly by end consumers

These were not directly considered as consumer items but had formed a key component for many consumer products and were meant primarily for an industrial / commercial use

Fast Moving Consumer Goods were those which were supplied in retail market as per "their" daily demand and did not qualify to form part of definition provided in section 2 (13AB) and (22A) of Income Tax Ordinance, 2001

Insertion of phase 'durable' which excludes such product was additionally applied for tax return in question

All such products described as durable were excluded via Finance Act, 2017

Supreme Court set aside judgment passed by High Court

Appeal was allowed.

Appellants / taxpayers were aggrieved of applicability of S. 4C of Income Tax Ordinance, 2001, with retrospective effect

Appellants / taxpayers raised the plea that liability stood fixed on 30-06-2022 (for normal tax year) and what was left merely was furnishing of return of income which by law was deemed an assessment order

Validity

Assessment order was in respect of a taxable income for that year and tax due thereon

Amendment to assessment year could only be made under certain circumstances mentioned in S.122 of Income Tax Ordinance, 2001

Other than that the matters between the revenue and the taxpayer come to a close on filing of return of income and nothing more was required to be done

Issue at the heart of litigation in respect of discrimination was that different rates of taxation were provided in Division IIB of Part-I of First Schedule to Income Tax Ordinance, 2001

Proviso to S. 4C of Income Tax Ordinance, 2001, identified and narrowed down certain sectors of businesses which in the opinion of the Legislature had generated windfall profits and, therefore, must be taxed at a different rate

While doing so, the fact had been ignored that there might be a number of persons who earned income exceeding Rs.300 million and who might also be making windfall profits

Such persons were exempted from payment of tax at the rate of 10% and were happy to be dealt with a lesser rate of tax at 4%

This was discrimination writ large on the face of proviso to S. 4C of Income Tax Ordinance, 2001, and had been rectified by substitution through Finance Act, 2023, where income exceeding Rs.500 million was imposed to a rate of taxation at 10%

Anomaly was corrected by the Legislature and a rate of tax across the board in respect of a particular category of taxpayers was imposed

Such discrimination was unconstitutional and contrary to the rule of law

Certain sectors without any intelligible criteria could not be isolated from rest of the persons similarly placed and be taxed at a higher rate than those persons who earned an income in the same bracket

Division Bench of High Court set aside finding of Judge in Chambers of High Court upholding retrospective application of S. 4C of Income Tax Ordinance, 2001, by the use of the words "for the Tax Year 2022"

Division Bench of High Court declared that rights conferred on appellants / taxpayers for Tax Year 2022 on 30-06-2022 were past and closed transactions and could not be impaired or whittled away by the use of these words

Super tax under S. 4C of Income Tax Ordinance, 2001, could not be imposed on appellants / taxpayers for the Tax Year 2022 and special tax year

Intra Court Appeal was allowed accordingly.

Applicant/National Transmission and Dispatch Company (NTDC) was licensed by National Electric Power Regulatory Authority to transmit electricity from Generation Companies (GENCOs) to Distribution Companies (DISCOs)

Dispute was with regard to charging of minimum tax on turnover

Validity

There was no difference in the functions of Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) as it existed now and functions performed by CPPA of NTDC prior to 03-06-2015

CPPA-G was incorporated as a special purpose vehicle and was tasked with administering a Market Settlement System for commercial transactions envisaged by Agreement

DISCOs remained principal and primary obligor in respect of payments and obligations of purchaser (a DISCO in a particular case) towards seller or supplier (GENCOs) under the power purchase agreement

NTDC merely recovered the Use of System Charges and similarly CPPA-G was entitled to market operation fee while operating Market Settlement System

DISCOs were paying minimum tax on turnover including purchase price of electricity

Electricity which was purchased from GENCOs by DISCOs was made liable to minimum tax on the turnover of DISCOs and FBR did not demand that tax from NTDC as well

Purchase of electricity was not done firstly by NTDC and thereafter NTDC did not sell electric power to DISCOs at inflated price

Authorities did not produce any evidence to such effect

NTDC would be falling in breach of its transmission license if it were to engage in such a business

High Court set aside the orders passed by Appellate Tribunal Inland Revenue

Reference was allowed accordingly.

Applicant/National Transmission and Dispatch Company (NTDC) was licensed by National Electric Power Regulatory Authority to transmit electricity from Generation Companies (GENCOs) to Distribution Companies (DISCOs)

Dispute was with regard to charging of minimum tax on turnover

Validity

There was no difference in the functions of Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) as it existed now and functions performed by CPPA of NTDC prior to 03-06-2015

CPPA-G was incorporated as a special purpose vehicle and was tasked with administering a Market Settlement System for commercial transactions envisaged by agreement

DISCOs remained principal and primary obligor in respect of payments and obligations of purchaser (a DISCO in a particular case) towards seller or supplier (GENCOs) under the power purchase agreement

NTDC merely recovered the Use of System Charges and similarly CPPA-G was entitled to market operation fee while operating Market Settlement System

DISCOs were paying minimum tax on turnover including purchase price of electricity

Electricity which was purchased from GENCOs by DISCOs was made liable to minimum tax on the turnover of DISCOs and FBR did not demand that tax from NTDC as well

Purchase of electricity was not done firstly by NTDC and thereafter NTDC did not sell electric power to DISCOs at inflated price

Authorities did not produce any evidence to such effect

NTDC would be falling in breach of its transmission license if it were to engage in such a business

High Court set aside the orders passed by Appellate Tribunal Inland Revenue

Reference was allowed accordingly.

Taxpayer company was aggrieved of show-cause notice issued by authorities reopening of its case for amendment of assessment

Plea raised by taxpayer was that Assessing Authority could not change his opinion already formed in earlier assessment

Validity

Dilating on issues on which Assessing Authority had already formed opinion and deliberated upon constituted change of opinion but in cases where issues were neither deliberated upon, nor any opinion was found by Assessing Authority, such matter did not fall under the ambit of change of opinion, simply on the ground that there was neither any opinion nor any deliberation on such matter

Assessing Authority was fully authorized under the law to reopen an assessment, amend, further amend, as the case could be, looking to the circumstances of that matter if chargeable tax as escaped assessment, assessed at low rate or was subject to excessive relief or refund or was misclassified and other factors as given under S.122 of Income Tax Ordinance, 2001

Show-cause notice issued by authorities was not barred by law and was not abuse of process of law nor was of change of opinion

High Court directed taxpayer to appear before concerned tax authorities by filing proper reply in respect of all query's raised in notice issued to it

High Court directed the authorities to consider reply of taxpayer along with documents attached, If any, and thereafter decide the matter in accordance with law, after providing opportunity of hearing to taxpayer

High Court declined to interfere in show-cause notice issued

Constitutional petition was disposed of accordingly.

In case, if Assessing Authority comes across any information or needs any information from taxpayer, the authority can ask taxpayer to clarify those aspects, whether during the course of assessment or after completion of assessment as the case may be subject to fulfillment of conditions as prescribed under S.122 of Income Tax Ordinance, 2001.

Appellant in Annexure "F" of its sales tax return declared its closing stock of Rs. 1.3 billion whereas it had declared the closing stock in its income tax return to be Rs. 1.115 billion

Assessing Officer treated the difference of Rs. 185 million as expenditure on excess purchases, having not been declared in income tax return

Validity

Data as given in Annexure "F" of sales tax return was basically a summary of input tax which could not be made basis for calculating stocks held on a particular date to make its comparison with that of stock-in-trade as declared in income tax return

Annexure "F" was only meant for summary of input tax and excess carry forward amount of sales tax credit

None of the provisions of Sales Tax Act, 1990, or of the Income Tax Ordinance, 2001, had purported to deem these figures of carry forward summary to be the closing stocks

Such could not be equated with stock statement of a taxpayer on the whims and wishes of the department for creating concurrent tax liabilities under two separate statutes having different standards of reporting stocks and inventory

Appeal of the taxpayer was allowed and the orders passed by the authorities were vacated.

Assessing authority while observing difference between the purchases declared in the income tax return and the sales tax returns turned down the refund request of taxpayer

Appeal filed by taxpayer before the Commissioner (Appeals) was accepted

Validity

Order was passed by the Assessing Authority on a day which was a public holiday

Addition under S.111(1)(d)(i), Income Tax Ordinance, 2001, could have been made if the taxpayer had concealed/furnished inaccurate income, suppressed any production, sales or any amount chargeable to tax

Assessing Authority had made addition under S.111(1)(d), Income Tax Ordinance, 2001, pertaining to the tax year 2007 whereas Cl.(d) was inserted through Finance Act, 2011

No specific notice under S.111(1)(d) of Income Tax Ordinance, 2001, was issued

Order passed by Assessing Authority was not sustainable in the eyes of law, which was rightly cancelled by the Commissioner (Appeals)

Appeal filed by department was dismissed.

Notice under S.122(9) of Income Tax Ordinance, 2001 did not lie if assessment order was not erroneous so as to be prejudicial to the interest of the revenue

Only such two factors were attracted S.122(9) of Income Tax Ordinance, 2001 and would be maintainable, otherwise it was not valid and barred by law

Show-cause notice did not show that Additional Commissioner issuing the notice elaborated erroneous elements in assessment order and a resultant prejudice caused to the Revenue

Both the terms could not be segregated and apply independently

It had to be mentioned by the Additional Commissioner pointing out erroneous assessment and resultant prejudice which did not find mentioned in show-cause notice in question

High Court set aside show-cause notice and remanded the matter to Additional Commission Income Tax to consider issue of assessment as erroneous so as to cause prejudice to revenue initially

High Court directed the Authority to proceed to decide on merits only after he would reach the conclusion that elements of S.122(5A) of Income Tax Ordinance, 2001, were attracted

Constitutional petition was allowed accordingly.

Amendment of assessment under S.122(5-A) of Income Tax Ordinance, 2001 can be made only in cases where twin conditions namely, (i) Assessment Order is erroneous; and (ii) it is prejudicial to the interest of revenue, are satisfied

If one of the two pre-requisites is absent i.e. if Assessment Order is not erroneous but prejudicial to revenue or if it is erroneous but not prejudicial to revenue, recourse cannot be had to S.122(5-A) of Income Tax Ordinance, 2001 and it cannot be invoked to correct each and every type of mistake or error in Assessment Order

Incorrect assumption of facts or incorrect application of law satisfies requirement of order being 'erroneous'

Phrase 'prejudicial to interest of revenue' has to be read in conjunction with erroneous Assessment Order

Every loss of revenue as a consequence of Assessment Order cannot be treated as prejudicial to interest of revenue

When Assessment Order is based on one of the courses permissible in law and it has resulted in loss of revenue or where two views are possible and view taken in Assessment Order is the one with which Commissioner does not agree, it cannot be treated as erroneous order prejudicial to the interests of revenue, unless view taken in Assessment Order is unsustainable in law.

When revised return was furnished it was in conformity with S.114 (6A) of Income Tax Ordinance, 2001, and pre-conditions imposed thereunder, which were already available on statute book and were attracted to revised tax return furnished

Appellate Tribunal Inland Revenue overlooked cause and effect of amendment introduced through Finance Act 2010, through adding subsection (6A) of S.114 of Income Tax Ordinance, 2001

No determination was made by Appellate Tribunal Inland Revenue regarding effect of amended subsection (6A) of S.114 of Income Tax Ordinance, 2001, and consequence on non-fulfilment of pre-condition before filing of revised return

Notice under S.122(9) of Income Tax Ordinance, 2001, was already issued to taxpayer before amendment and taxpayer took two years to furnish revised return

Appellate Tribunal Inland Revenue also failed to appreciate the record, factual statements / assertions of taxpayer made before Commissioner Inland Revenue while submitting reply to another notice while determining validity of revised return

High Court answered both the questions in negative, set aside judgment passed by Appellate Tribunal Inland Revenue and remanded the matter to consider and decide question of appropriation of expenses under final and normal tax regime afresh

Reference was allowed accordingly.

Question before High Court was whether business of respondent regarding slitting/cutting of copper cathode and nickel cathode plates fell within the category of manufacturing

Validity

"Manufacturer" meant a person who was engaged in process of assembling, mixing, cutting or preparation of goods in any other manner

Customs General Order No. 11/2007 had also clarified that copper cathode cut to pieces was a manufacturing process

Issuance of show-cause notice to the taxpayers was mandatory as the word "shall" was used in S. 122(9) of the Income Tax Ordinance, 2001

Department despite availing opportunity had not produced copy of show-cause notice purportedly sent to the taxpayer

Reference was dismissed.

Respondent was selected for audit and the department had every right to conduct such an exercise, within the remit of the law

No audit report was issued to the respondent containing audit observations

Reasonable opportunity of hearing was not provided to the respondent

Such was done considering the time constraint for completion of audit proceedings

Conduct of the department, subjecting a taxpayer to arbitrary adversarial orders merely to circumvent the constraints of limitation, could not be appreciated

Reference application was dismissed.

Authorities withdrew the advantage given to taxpayer company on account of its associated company and revised the assessment order by making an addition to its tax assessment

Appellate Tribunal Inland Revenue deleted the addition made by the authorities

Validity

As per R.5 of 4th Schedule to Income Tax Ordinance, 2001, certain adjustments in computation of income were provided with regard to taxability of an insurance business, which alone could be considered and applied and not the other provision of Income Tax Ordinance, 2001, dealing with normal business, incomes and their computations

Term 'subject to adjustment' related to adjustment as provided under Rules of 4th Schedule to Income Tax Ordinance, 2001, only and did not speak of other adjustments made in the case of other normal/ordinary business

Jurisdiction of assessment/adjustment by department was restricted to the extent as provided under the relevant Rules of 4th Schedule to Income Tax Ordinance, 2001

High Court declined to interfere in the order passed by Appellate Tribunal Inland Revenue

Reference was dismissed, in circumstances.

Such language restricts all further proceedings for amendment of an assessment which means it can only be amended if they are covered by the provisions of said section

Assessment cannot be amended if the requirements and qualifications prescribed in S.122, Income Tax Ordinance, 2001, are not completed.

Department assailed order passed by Commissioner (Appeals) whereby order of assessing officer amending the deemed assessment was set aside

Validity

Amended assessment was framed on presumption and without adhering to audit procedure

Assessing officer had not confronted the taxpayer with the contents of the audit report before amending the assessment order or even before issuance of notice under S.122(9) of the Income Tax Ordinance, 2001

Subsection (5) of S.122 of the Income Tax Ordinance, 2001, allowed amendment of assessment only when the department was in possession of 'definite information' and not otherwise, and in that context, the assessing officer was under legal obligation to specifically identify the nature of suppressed income and issue notice in terms of Cls. (i), (ii) and (iii) of subsection (5) of S.122 of Income Tax Ordinance, 2001, highlighting the facts under which category of taxpayer's case fell

Non-issuance of such notice clearly meant that while passing the amended assessment order, assessing officer was not in possession of 'definite information' and the reason assigned for additions/disallowances, while passing the amended assessment order, could not be termed as based on 'definite information'

Appellate Tribunal found no illegality or infirmity in the order of the Commissioner (Appeals), which was maintained

Appeal was dismissed.

Assessing officer, after formulation of the audit report/audit observation/objections/charge sheet, ought to first confront the same to the taxpayer and secondly, after considering the explanation of the taxpayer, if he considers that assessment order is required to be amended on the basis of 'definite information', he may invoke subsection (1) of S.122, Income Tax Ordinance, 2001 for acquiring jurisdiction to amend the order under subsection (4) read with subsection (5) as the case may be.

Deemed assessment, if selected for audit, may be amended by invoking jurisdiction under S.122(1), Income Tax Ordinance, 2001, subject to fulfillment of conditions as envisaged under subsection (6) of S.177, Income Tax Ordinance, 2001, after fulfilling the pre-requisite/requirement of "definite information" under subsection (5) of S.122 and subject to execution of conditions of clauses (i), (ii) and (iii) of S.122(5) of Income Tax Ordinance, 2001.

Assessing officer, before invoking the provisions of S.122, Income Tax Ordinance, 2001, has to frame charge sheet/audit observation/audit report and the same ought to be communicated to the taxpayer for rebuttal and the explanation/reply/assertion/contention/objection of taxpayer must be obtained and considered

Assessment order can only be amended by acquiring jurisdiction and fulfilling all the requirements of subsections (1) and (5) of S.122, Income Tax Ordinance, 2001

Mere (firstly) issuance of notice under S.122(9), Income Tax Ordinance, 2001, read with S.122(1), Income Tax Ordinance, 2001, after selection for audit and before conducting audit of the taxpayer, does not fulfill the requirements of law

Assessing officer first has to reject the objections/rebuttal of taxpayer on audit report and then acquire jurisdiction under S.122(1), Income Tax Ordinance, 2001 and then under S.122(5), Income Tax Ordinance, 2001.

Audit proceeding under S.177, Income Tax Ordinance, 2001, is only a procedure/mode and method to find out some defects in the accounts and to obtain information to further enter into the jurisdiction under S.122(1), Income Tax Ordinance, 2001, for making an amended assessment after acquiring authority on the basis of "definite information"

Section 177, Income Tax Ordinance, 2001, is just a process/mode and method and prescribed path to reach to conclusion as to from where the assessing officer can further modify an already assessed income.

Section 177 of Income Tax Ordinance, 2001, does not in itself provide any power or absolute empowerment to modify assessment or re-determine the income of taxpayer

Key point to be kept in mind is that it is not a return of income which is being processed by the assessing officer; Assessing officer deals with an 'assessment order' which by process of law has acquired a sanctity

Finalized assessment, therefore, cannot just be modified or disturbed in continuation of the proceedings of audit under S.177 of Income Tax Ordinance, 2001.

Taxation officer issued show-cause notice under S.122(9), Income Tax Ordinance, 2001, for confrontation of amended assessment

Taxation officer found the reply of taxpayer to be unsatisfactory and amended the tax liability

Commissioner (Appeals) remanded the matter to the taxation officer for de-novo consideration

Validity

Case of taxpayer was selected for audit on 18-01-2018 and the amended assessment was framed on 28-09-2018, which was hit by limitation because the assessment was not completed within the same financial year

No justification was found in the order of the Commissioner (Appeals) for remanding the matter to the taxation officer

No notice under Ss.111 & 174(2) of Income Tax Ordinance, 2001 were issued to the taxpayer nor was it specifically confronted with proposed addition so that it could have offered some explanations in that regard

Additions made by the taxation officer under Ss.111 & 174(2) of Income Tax Ordinance, 2001 were without lawful authority

Order passed by Commissioner (Appeals) was vacated and the order under S.122(1) of the Income Tax Ordinance, 2001 was annulled

Appeal filed by taxpayer was allowed.

Availability of 'definite information' as envisaged in subsection (5) read with subsection (9) of S. 122 is an essential pre-requisite to amend an order under S.122, Income Tax Ordinance, 2001.

Deputy Commissioner Inland Revenue (DCIR) observed that the appellant had claimed higher income in wealth reconciliations than the "imputable income" worked back on the basis of tax on exports

Deputy Commissioner Inland Revenue worked out 'imputable income' based on tax collected under FTR and arrived at impugned additions, treating the same as "income from unexplained sources" assessable under S.111, Income Tax Ordinance, 2001

Deputy Commissioner Inland Revenue directed the appellant to produce books of accounts and documents and on its failure passed the impugned orders

Validity

Expression 'imputable income' as used in S.2(28A), Income Tax Ordinance, 2001, could not have been applied to the whole of the Ordinance

"Definite information" was not available with the DCIR and the very jurisdiction was exercised without first satisfying the pre-requisite of subsection (5) of S.122, Income Tax Ordinance, 2001

Alleged 'imputable income' already declared by the taxpayer in the wealth reconciliation statements was not a "definite information"

Commissioner (Appeals) had erred in ignoring the fact that the books of accounts could only be produced under S.177 of the Income Tax Ordinance, 2001, whereas appellant's case was not selected for audit

No addition under S.111(1)(b), Income Tax Ordinance, 2001, was warranted as no specific notice was issued in that regard

Impugned orders were annulled and the appeals were allowed.

Question before High Court was "whether during assessment proceedings, when taxpayer filed a revised return under S.114(6) of Income Tax Ordinance, 2001; could the Department and Appellate Tribunal treat such revised return as invalid when the same was to be deemed to be an assessment order under S.122(3) of said Ordinance"

Held, that for amendment of assessment in terms of Ss.120 & 122(3) of Income Tax Ordinance, 2001, Commissioner had to proceed on basis of said assessment and revised return, if competently filed, would have to be accepted and amended assessment would be passed under S.122 of the Ordinance, while return previously filed lost its efficacy and became irrelevant to extent of any omission or wrong statement

At relevant time, no legal bar existed on taxpayer for filing revised return before completion of assessment proceedings and taxpayer had prerogative to revise return of income before finalization of assessment if taxpayer discovered any omission or wrong statement in previous return

Action of Department and Tribunal in treating such revised return as invalid was beyond their jurisdiction as no provision in Income Tax Ordinance, 2001 existed whereby Department could declare such revised return as invalid

Revised return of income, if filed in accordance with requirements of S.114(6) of Income Tax Ordinance, 2001, then no adjudicating authority had power to declare same as invalid

Reference was answered, accordingly.

Subsection (4) of S.122 of the Income Tax Ordinance, 2001, reveals that the Commissioner may further amend, as many times as may be necessary, the original "assessment" order within five years from the end of the financial year in which he has issued or is treated as having issued the amended assessment order to the taxpayer as per section or otherwise one year from the end of the financial year in which the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer.

Petitioner assailed notice issued by department under S.122(9) read with S.122(4) of Income Tax Ordinance, 2001 whereby certain documents were sought from the petitioner

Validity

No adverse order had been passed against the petitioner and the impugned notice only required certain information/document from it

Alternate remedies were available to the petitioner who could only approach High Court in a Tax Reference after exhausting all those remedies

Petitioner was directed to provide the requisite documents / record/information to the department

Department, under the doctrine of stopgap arrangement, was restrained from taking coercive measures against the petitioner till final decision in the matter

Writ petition was disposed of accordingly.

Section 122(4) of the Income Tax Ordinance, 2001, states that the assessment order, which is defined under S.2(5) of the Ordinance, means an assessment which includes (i) provisional assessment; (ii) re-assessment and (iii) amended assessment while cognate expressions shall be construed accordingly and the Commissioner may further amend, as many times, the original assessment within the time prescribed in subsections (a) & (b) of S.122(4) of the Income Tax Ordinance, 2001.

Assessment is made under Part II of Chapter X of the Income Tax Ordinance, 2001, which deals with the assessment under S.120 of Income Tax Ordinance, 2001 while the scheme of "best judgment assessment" mechanism to amend the assessment is provided in S.122 of the Income Tax Ordinance, 2001

Complete mechanism for amendment of assessment is given in S.122 of the Income Tax Ordinance, 2001 with nine subsections.

Minimum tax was being paid on normal rates till issuance of SRO No.57(I)/2012, dated: 24-01-2012 and on its issuance the tax for the year 2012 was paid at reduced rate

Department, disagreeing on payment at reduced rate retrospectively, proceeded under S.122(5A), Income Tax Ordinance, 2001 and raised a demand of less paid tax

Amended assessment order was successfully assailed before the first appellate authority

Department's appeal was dismissed by the Appellate Tribunal on the ground that remedial law could be given retrospective effect

Validity

Law existing in a particular tax year or tax period was applicable for the purpose of determining tax liability

No right to claim reduction in tax rate existed till closure of tax year 2012

Exemption notifications were always beneficial but were not curative or remedial generally

General rule was that a notification could not operate retrospectively

Exemption notification could not be applied retrospectively

Tax reference was decided in favour of the (applicant) department.

Commissioner Inland Revenue assailed order passed by Commissioner (Appeals) whereby he had declared the applied sale rate of wheat of Rs.12.25 per kg as unwarranted and had directed the taxation officer to accept the declared version of the taxpayer

Validity

Taxation officer had not conducted any sort of inquiry or investigation nor any effort was made to determine a fair market value of wheat stock

Taxation officer had not clarified that on the basis of which information he had determined the sale rate at Rs.12.25 per kg, rather valuation appeared to be hypothetical and without any basis

Burden of assigning reason for determining the fair market value was on the assessing authority

Fair market value was determined on the basis of surmises and conjectures

Commissioner (Appeals) had rightly decided the issue

Appeal was disposed of accordingly.

Department appealed against the order passed by Commissioner (Appeals) wherein he had deleted the disallowance of expense under S.21(c) of the Income Tax Ordinance, 2001

Taxpayer had filed its return for the year 2007 on 14-01-2008 but had later on revised its return on 16-07-2009

In the year 2008 before promulgation of Finance Act, 2009, the limitation to amend the assessment by Commissioner under S.122(2) was five years from the date of assessment

Section 122(2) was amended in the year 2009 by virtue of which the Commissioner could amend the assessment order till the end of the fifth financial year

Taxpayer had throughout the proceedings agitated the issue of limitation

Contention of department was that since the assessment was revised by the taxpayer after the promulgation of Finance Act, 2009, on 16-07-2009, therefore, the time limitation was to be taken from the present section which was till the ending of the financial year and the assessment order under S. 122(5A) dated 30-06-2013 was within time

Validity

Limitation in the case had started from the date of filing of initial return i.e. 14-01-2008 under the then provisions of S. 122(2) which was to expire on 13-01-2013

By just filing a revised return on 16-07-2009 after the Finance Act, 2009, the limitation to amend the assessment order by Commissioner did not stand extended by virtue of that amendment and that too without any express provision in that regard

Once the assessment had attained finality at the expiry of the limitation, vested rights had accrued in favour of the taxpayer which could not be snatched away through procedural law

Assessing officer had amended the assessment order after five months beyond the time limitation

Appeal was dismissed.

Selection of audit or even conducting / doing of audit does not mean or include an assessment or amended assessment / alteration or modification of assessment

Selection of audit and thereafter conducting of audit proceedings is just process and audit authority before invoking provision of S.122 of Income Tax Ordinance, 2001, for amendment have to frame charge sheet / audit observation / audit qualification / audit report and the same has to be communicated to taxpayer for rebuttal

Explanation / reply / assertion / contention / objections of taxpayer must be obtained and considered before proceedings for invoking S.122 of Income Tax Ordinance, 2001

After acquiring jurisdiction and fulfilling all requirements of S.122(1) & (5) of Income Tax Ordinance, 2001, only thereafter assessment may be amended under S.122 of Income Tax Ordinance, 2001

Mere issuance of notice under S.122(1) & (9) of Income Tax Ordinance, 2001, after selection but before conducting audit of taxpayer is not complete requirement of law

Tax authorities first have to reject objection / rebuttal of taxpayer on audit report then require to acquire jurisdiction under S.122(1) of Income Tax Ordinance, 2001 and then S.122(5) of Income Tax Ordinance, 2001.

Taxpayer assailed the amended assessment order on the ground that it was hit by the time limitation as provided in subsection (2) of S.122 of Income Tax Ordinance, 2001

Validity

Commissioner was empowered to amend the deemed assessment within five years after the Commissioner had issued or had treated it as an assessment order on the taxpayer

Show-cause notice was issued when the deemed assessment order had attained finality and the valuable rights of the taxpayer had accrued

Vested right could not be snatched through procedural law

Assessing officer had amended the deemed assessment order after 9 months beyond the time limitation

Amended assessment order was adversely hit by the doctrine of limitation

Impugned orders were quashed and the appeal was allowed accordingly.

Appellant assailed order passed by Assessing Officer whereby he had, after issuance of show-cause notice, enhanced the liabilities of appellant

Commissioner (Appeals), on appeal, had remanded the matter to the Assessing Officer for de novo consideration

Validity

"Definite information" was a pre-requisite to attract the provisions of S.122(5) of Income Tax Ordinance, 2001

Such information might have been acquired from audit or otherwise but no audit of sales tax and income tax affairs was conducted

Mere fishing and roving enquiries did not qualify the definition of "definite information"

Appellant had already provided with the return of total income as well as during re-assessment proceedings

Impugned orders were not sustainable; hence, the appellate order was vacated by the Tribunal and the order under Ss.122(1) & 122(5) of the Income Tax Ordinance, 2001, was annulled

Appeal was allowed.

"Definite information" must be manifest in the show-cause notice and must not be subsequently required to be established by fishing inquiry

Main difference between "information" and "definite" one is that in case of definite information no probe is required.

If a taxpayer discloses all the material facts without any concealment and the assessment has been consciously completed, in such a case, in the absence of discovery of any new fact, which can be treated as "definite information", there cannot be any scope for re-opening the assessment under S.122(5) of the Income Tax Ordinance, 2001.

Department assailed order passed by Commissioner (Appeals) whereby he had held that the order passed under S.120 of Income Tax Ordinance, 2001, had been merged twice in the appellate order and the assessment under S.120, Income Tax Ordinance, 2001, was not in field at the time of issuance of show-cause notice, therefore, the order under S.122(5A) of Income Tax Ordinance, 2001, was illegal

Validity

Additional Commissioner Inland Revenue while passing order under S.122(5A), Income Tax Ordinance, 2001, had observed that the orders passed by authorities had not put bar on the assessment under S.122(5A), Income Tax Ordinance, 2001

Taxpayer, in every forum, had tried to delude the authorities with one reason or the other and had also tried to demonstrate that the authorities were raising the issue again and again but the fact of the matter was that the huge difference between sales declared in return of income and sales declared in sales tax returns was never taken into account

Commissioner had not appreciated the entire record and had passed the order on conjectures and surmises therefore, the same was set aside

Matter was remanded to the adjudication officer for decision afresh

Appeal was disposed of accordingly.

Assessing officer disallowed the claim of exemption/tax credit of appellant on the grounds that Cls. 92 & 58A of Part I of Second Schedule to the Income Tax Ordinance, 2001, were omitted and the appellant had failed to fulfill the conditions laid down in S. 100C for 100% tax credit

Appeal filed before Commissioner (Appeals) was dismissed

Appellant claimed the status of non-profit organization and possessed an approval under S.2(36)(c) of Income Tax Ordinance, 2001

Validity

Income of a University run by a non-profit organization was eligible for tax credit under S.100C(2)(d), subject to the conditions laid down in S.100C(1) of Income Tax Ordinance, 2001

Scheme of tax credit first required determination of taxable income and tax liability of such non-profit organization or University

Section 100C, Income Tax Ordinance, 2001, also provided tax credit against minimum tax and final taxes which meant that such entities were liable to taxes if such entities did not get exemption certificate under S.159(1)(c) of Income Tax Ordinance, 2001

Appellant could neither produce an exemption certificate nor any supporting evidence to show that it fulfilled the conditions laid down in S.100C(1) of Income Tax Ordinance, 2001

Assessing officer, on the other hand, had invoked S.122(5A), Income Tax Ordinance, 2001, to tax the appellant which was beyond the scope of said section as determination of taxable income, tax liability and tax credit required detailed enquiries and investigation

Assessing officer had erred in levying tax on gross declared receipts of the appellant which was illogical because if the appellant was not eligible for exemption or for tax credit then it was still eligible for treatment as a University being run for profit, where expenses incurred were allowed against gross receipts

Orders passed by officers below were not sustainable

Appellate Tribunal remanded the matter to the officer authorized under S.177, Income Tax Ordinance, 2001, to make proper investigations

Appeal was disposed of accordingly.

Show-cause notice must supply grounds/reasons in clear and explicit words to the taxpayer and the provisions of law being invoked against him

Failure on the part of taxing authority to specify the same renders the show cause notice as invalid.

Fair trial means issuance of notice by the competent authority and decision after providing opportunity of being heard and examining the details/documents provided by the taxpayer, if any

Article 10-A of the Constitution unambiguously provides that every executive, judicial and quasi-judicial order affecting the rights of the citizen shall not be passed without providing reasonable opportunity of being heard to the taxpayer.

Appellant attacked the order-in-original on the ground that mandatory show-cause notice was posted one day after the date fixed for appearance of appellant

Validity

Section 122 of Income Tax Ordinance, 2001 provided that the assessment could only be amended if it was found that the deemed order was erroneous and prejudicial to the interest of revenue subject to affording an opportunity of being heard to the taxpayer

Appellant was not provided fair opportunity of hearing

Appellant ought to have been given 15 days time for submitting reply

Only three days time, as per department, was given to the appellant for submitting reply to the notice, which in fact was not received by the appellant till finalization of the proceedings

Orders passed by Additional Commissioner Inland Revenue and Commissioner Inland Revenue (Appeals) were vacated by the Tribunal.

Show-cause notice must supply grounds/reasons in clear and explicit words to the taxpayer and the provisions of law being invoked against him

Failure on the part of taxing authority to specify the same renders the show cause notice as invalid.

Fair trial means issuance of notice by the competent authority and decision after providing opportunity of being heard and examining the details/documents provided by the taxpayer, if any

Article 10-A of the Constitution unambiguously provides that every executive, judicial and quasi-judicial order affecting the rights of the citizen shall not be passed without providing reasonable opportunity of being heard to the taxpayer.

Taxpayer filed normal returns for the tax years 2013 to 2017 which were deemed to have been assessed under S. 120(1), Income Tax Ordinance, 2001

Assessing authority observed that the taxpayer was engaged in the business of supply of medicine, therefore, normal returns were illegal and unlawful as the taxpayer was under legal obligation to file statement under S. 115(4) of Income Tax Ordinance, 2001

Show-cause notices were issued confronting the taxpayer with proposed rectification, in response to which the taxpayer filed reply which was found unsatisfactory by the assessing authority

Assessments were amended by creating demands for the tax years 2013 to 2017

Taxpayer, being aggrieved, filed appeal before the Commissioner Inland Revenue (Appeals), who vide impugned order rejected the appeals of the taxpayer

Validity

Section 221 of Income Tax Ordinance, 2001 left no room for doubt that only those mistakes were rectifiable which were apparent from the record and floating on the surface and which did not require any long drawn process of reasoning, deliberation on a moot or debatable point

Question, whether the receipts declared by the taxpayer fully or partly fell under the ambit of Final Tax Regime (FTR) or normal tax regime was a debatable issue between the department and the taxpayer, which was outside the scope of rectification provisions as contained in S. 221, Income Tax Ordinance, 2001

If at all assessing authority deemed it necessary to make alteration or addition to the deemed assessments completed, then such exercise was required to be done by invoking powers under S. 122 of Income Tax Ordinance, 2001 with existence of definite information and the invoking of the powers under S.221, Income Tax Ordinance, 2001 was outside the authority of the assessing officer, hence, not sustainable in the eyes of law

Orders passed by assessing authority and those passed by Commissioner (Appeals) were consequently vacated

Appeals were disposed of accordingly.

Question before High Court was whether after filing of return by taxpayer under S.114 of Income Tax Ordinance, 2001; could the Department after issuance of notice S.120(3) of the same, proceed to amend assessment of taxpayer

Held, that where tax return filed by taxpayer was incomplete, the same shall be treated as invalid and as having not been furnished and in such a case, Department was competent to issue notice under S.120(3) of Income Tax Ordinance, 2001, and after non-compliance of said notice, proceed to amend such assessment

Reference was answered, accordingly.

Question before the High Court was whether an issue / ground for amendment of assessment of taxpayer, which had not been raised either in the show-cause notice, or before the assessing officer or Appellate Tribunal; could be referred to the High Court under S. 133 of the Income Tax Ordinance, 2001 as a question of law

Held, that once show-cause notice was issued to taxpayer, and matter was decided on basis of ground(s) raised therein and subsequently if the said ground(s) fail before the Appellate Tribunal, then no new ground could be agitated / raised by Department to be a valid reason for amendment in assessment order, despite of the fact that same could be a ground for a show-cause notice

Department however, under S. 122 of the Income Tax Ordinance, 2001, was at liberty to issue a fresh show-cause notice on said ground but within prescribed period of limitation under S. 122 of the Income Tax Ordinance, 2001

Reference was answered, accordingly.

Question before the High Court was whether specific separate notice under S. 111(1) of the Income Tax Ordinance, 2001 was required when notice under S. 122 of the Income Tax Ordinance, 2001 had already been served upon the taxpayer, and unexplained income/assets in terms of S. 111 of the Income Tax Ordinance, 2001 had been added to income of the taxpayer

Held, that word "notice" was not specifically mentioned in S. 111 of the Income Tax Ordinance, 2001 but words used therein, that "the person offers no explanation" and "or the explanation offered by the person is not, in the Commissioner's opinion, satisfactory" clearly suggested that for an explanation to be offered by a taxpayer, he must have been issued a notice

After said notice and failure on the part of taxpayer to offer satisfactory explanation, such addition could be made in income of taxpayer and for an explanation to be offered by a registered person, he must have been issued notice without which no explanation could be offered, within the contemplation of S. 111 of the Income Tax Ordinance, 2001

Non-issuance of separate notice under S. 111 of the Income Tax Ordinance, 2001 caused prejudice to the taxpayer as substantial compliance of said provisions of law had not been made

High Court observed that non-issuance of proper notice in order to invoke provisions of S. 111 of the Income Tax Ordinance, 2001 could not be taken lightly and its non-compliance may render proceedings not in conformity with or according to the intent and purpose of law

In the present case, neither notice under S. 111 of the Income Tax Ordinance, 2001 had been issued to taxpayer nor was taxpayer specifically confronted with such proposed addition so that the taxpayer could have advanced some explanation in this regard

Law mandated the issuance of separate notice / explanation within the contemplation of S. 111, therefore, same could not be made redundant

Reference was answered, accordingly.