Best judgment assessment

2023 PTD 1662 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.132, 131 & 121Constitution of Pakistan, Art. 189Judgments of the Supreme CourtBinding on all CourtsBest judgment assessmentLimitation

Officer Inland Revenue passed order against the taxpayer after passing of 5 years of relevant tax-year, however, the same was confirmed by the Commissioner Appeals

Contention of the appellant / taxpayer was that the order passed by the Officer Inland Revenue was barred by time as the Supreme Court had held that the order under S. 121 of Income Tax Ordinance, 2001 ('Ordinance, 2001') could legally be passed within 5 years after the end of the tax year and/or the income year

Validity

Issue regarding limitation had already been conclusively determined and settled by the Supreme Court through its authoritative pronouncement

Appellate Tribunal Inland Revenue could not re-examine the issue already settled and decided by the Supreme Court which was binding upon the Tribunal under Art.189 of the Constitution

Tribunal set-aside both the orders passed by the Officer Inland Revenue as well as the Commissioner Appeals

Appeal filed by the taxpayer was allowed, circumstances.

2023 PTD 1662 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.121(3) & 131Best judgment assessmentLimitationScopeOrder passed by the Officer Inland Revenue against the taxpayer was confirmed by the Commissioner Appeals

Objection of the appellant / taxpayer was that the order passed by the Officer Inland Revenue was barred by time as the order under S. 121 of Income Tax Ordinance, 2001 ('Ordinance, 2001')could legally be passed within 5 years after the end of the tax year and/or the income year

Validity

Record revealed that the Commissioner Appeals had rejected the said objection (regarding limitation) without discussing or determining the dates relevant for determination of question of limitation

When limitation as a moot point was asserted in any litigation, the same had to be decided on the basis of facts and law

Tax year-in-issue was 2017 and the limitation to adjudicate under S.121 of the Ordinance, 2001 ended on 30-06-2022 whereas, admittedly, the order under S. 121 of the Ordinance, 2001, in the present case, was passed by the Officer Inland Revenue on 28-02-2023, thus the same was beyond period of limitation as prescribed under S. 121(3) of the Ordinance, 2001

Issue of limitation was not a technicality which could not be ignored

Tribunal set-aside both the orders passed by the Officer Inland Revenue as well as the Commissioner Appeals

Appeal filed by the taxpayer was allowed, in circumstances.

2023 PTD 167 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.121 & 122Best judgment assessmentAmendment of assessmentsScope

Provisions of Ss.121 & 122 cannot be invoked simultaneously.

2022 SCMR 1240 SUPREME-COURT Judicial Precedent

S. 177(10)AuditBest judgment assessmentSection 177(10) of the Income Tax Ordinance, 2001

Said section could not be given retrospective effect.

2022 PTD 1169 SUPREME-COURT Judicial Precedent

S. 177(10)AuditBest judgment assessmentSection 177(10) of the Income Tax Ordinance, 2001

Said section could not be given retrospective effect.

2020 PTD 1084 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 121Best judgment assessmentScope

Taxpayer assailed orders passed by Assessing Officer and Commissioner (Appeals) whereby they had made additions in his declared income

Validity

Taxpayer, at first, was issued notice under S.177 of the Income Tax Ordinance, 2001, however, proceedings were finalized on the basis of "best judgment assessment"

Section 121 of the Income Tax Ordinance, 2001 provided that where a person failed to furnish return of income in response to notice under subsection (3) or (4) of S. 114, Income Tax Ordinance, 2001 then the "best judgment assessment" could be made

Assessing Officer had embarked upon undue haste in passing the order under S. 121 of the Income Tax Ordinance, 2001

Taxpayer had filed manual income tax return before Assessing Officer instead of furnishing the same electronically, which might be a procedural impropriety but no loss was caused to the revenue

Appellate Tribunal observed that the taxpayer could not be burdened with undue and unwarranted additions

Impugned orders were set aside and the appeal was disposed of accordingly.

2019 PTD 610 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 121(1)(d) & 177Best judgment assessmentTaxpayer, an individual, who derived income from Engineering Work, filed income tax return

Case of taxpayer was selected for audit under S.177 of the Income Tax Ordinance, 2001 and he was required to produce books of account and related documents

Notices issued to the taxpayer having not been complied with, Assessing Officer proceeded to assess income of the taxpayer by disallowing receipts and expenses claimed by the taxpayer

Appeal filed against the order of Assessing Officer, was rejected

Validity

Income assessed by Assessing Officer was not justified, as estimation of receipts was not based on any information or material

Assessing Officer, after estimating his own receipts against the declared by the taxpayer, had added the expenses claimed without first deducting the same, which reflected the non-application of mind

Impugned order passed by Assessing Officer could not be held to be a best judgment assessment

Both orders, passed by Assessing Officer as well as of the appellate authority, were vacated

Appeal of taxpayer succeeded, in circumstances.

2017 PTD 1852 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 121, 124(4), 129, 132 & 137(2)Specific Relief Act (I of 1877), Ss. 39, 42 & 54Suit for cancellation, declaration and permanent injunctionBest judgment assessmentAssessment giving effect to an orderDisposal of appeal by the Appellate TribunalDue date for payment of tax

Commissioner Inland Revenue (Appeals) had been directed to decide the plaintiff's appeal within certain period and till final disposal of the plaintiff's appeal, the defendants had been restrained from taking any coercive action against the plaintiff

Tabulation made by the plaintiff, wherein certain heads of account had been either deleted or sent for rectification under S. 221 of Income Tax Ordnance, 2001, was not disputed

In terms of S. 124 (4) of the Income Tax Ordinance, 2001, where direct relief was provided in order under Ss. 129 & 132 of the Ordinance, the Commissioner would issue Appeal Effect Order within two months of the date the Commissioner was served with the order

In pursuance of S. 137 (2) of Income Tax Ordinance, 2001, where any tax was payable under assessment order or amended assessment order or any other order issued by the Commissioner under the Income Tax Ordinance, 2001, a notice would be served upon the taxpayer in the prescribed form specifying the amount payable and thereupon the sum so specified would be paid within 15 days from the date of the service of the notice

Original demand notice had been issued prior to amended assessment; hence, the same was not sufficient compliance of issuing notice of demand in pursuance of amended assessment to provide opportunity of 15 days specifying the total amount in pursuance of amended assessment

Compliance to Ss. 124 (4) & 137(2) of Income Tax Ordinance, 2001 was necessary

Appeal Effect Order was an amended assessment tabulation and the same had to be given effect like any other amended decree

High Court directed the defendants to deposit the amount, which had been recovered by them from the Bank account of the plaintiff, in the Court till further orders.

2016 PTD 2905 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 114, 121(1)(d) & 131Filing return of incomeBest judgment assessmentTaxpayer filed return of income declaring net income at Rs.11,22,813 and his case was selected for audit

Taxation Officer made assessment under S.121(1)(d) of Income Tax Ordinance, 2001, enhancing sales at Rs.3,25,00,000; and net income of the taxpayer was assessed at Rs.33,75,000

Appellate Authority on appeal reduced the sale to Rs.3,10,00,000

Contention of taxpayer who was registered with the Sales Tax Department was that relief allowed by Appellate Authority in reducing the assessed sales from Rs.3,25,00,000 to Rs.3,10,00,000 as against declared sales of Rs.2,78,04,488 was insufficient

Plea of representative of the department was that only those sales could be accepted which were supported by the books of accounts, could not be agreed to

Audit by the Sales Tax Department, had some sanctity as it being a Government Department, its decision should be respected by other Government Institutions

Sales Tax assessment, should also be given proper respect while making income tax assessments

Application of law through mutual trust and respect would bring happy and positive change in society

Declared sales of the taxpayer for the year under consideration, was accepted, in circumstances.

2015 PTD 681 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.121(1)(d), 120, 177, 122 & 133Constitution of Pakistan, Art.189Reference to High CourtBest judgment assessmentAudit proceedingsFailure to produce documents or records required to be maintained

Validity of order for best-judgment assessment under S.121(1)(d) of the Income Tax Ordinance, 2001 in presence of existing assessment order under S.120 of the Income Tax Ordinance, 2001

Scope

Question before the High Court was whether provisions of S.121(1)(d) of the Income Tax Ordinance, 2001 could be invoked for non-submission of documents during audit proceedings, in presence of an assessment order under S.120 of the Income Tax Ordinance, 2001

Contention of department was inter alia that such an order could be passed in light of judgment of Sindh High Court in Messrs Sarah Construction Co. v. Taxation Officer-4, Audit-2 Karachi and others (2013 PTD 682)

Held, that High Court in Commissioner Inland Revenue (Legal) v. Commissioner Inland Revenue (Appeals) and others (2013 PTD 837) had answered the said legal proposition / question of law against the Department and had held that an order under S.121 of the Income Tax Ordinance, 2001 for best judgment assessment could not be passed in presence of an assessment order under S.120 of the Ordinance, and said judgment of Lahore High Court had been upheld by the Supreme Court of Pakistan vide order dated 9-5-2013 in Civil Petition No. 526 of 2013; therefore, contention of Department had no force in view of Art.189 of the Constitution

High Court observed that judgment of the Sindh High Court in Messrs Sarah Construction Co. v. Taxation Officer-4, Audit-2 Karachi and others (2013 PTD 682) was per incuriam for having placed reliance on irrelevant provisions of law due to lack of proper assistance

High Court held that order under S.121(1)(d) of the Income Tax Ordinance, 2001, could therefore not be passed in presence of an assessment under S.120 of the Income Tax Ordinance, 2001

Reference was answered, accordingly.

2014 PTD 1085 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.121, 122C, 120 & 114(4)Best judgment assessmentNotice under S.114(4) for submission of Income Tax Return was issuedSaid notice was not complied withAssessing Officer finalized the ex-parte assessment under S.121 of the Income Tax Ordinance, 2001Validity

Clause (a) of subsection (1) of S.121 of the Income Tax Ordinance, 2001 was deleted and re-inserted in the Income Tax Ordinance, 2001 in the shape of S.122C of the Income Tax Ordinance, 2001 through Finance (Amendment) Ordinance, 2010, which provided that if a person failed to furnish return of income for any tax year, the Commissioner, on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income and issue a provisional assessment order specifying the taxable income or income assessed to tax under subsection (2) of S.122C of the Income Tax Ordinance, 2001

Provisions of S.122C also provide that after the expiry of 60 days from the date of service of order of provisional assessment, it would be deemed as final assessment order; and final assessment would not be made if return of income along with wealth statement, wealth reconciliation statement and other documents required under subsection (2A) of S.116 of the Income Tax Ordinance, 2001 were filed by the taxpayer for the relevant tax year during the period of 60 days said period has now been reduced to 45 days through Finance Act, 2013)

Deletion of Cl.(a) of subsection (1) of S.121 of the Income Tax Ordinance, 2001 through Finance Act 2010, showed the intention of the Legislature that best judgment assessment could not be made under S. 121 of the Income Tax Ordinance, 2001 after 1-7-2010

To cater such eventualities S.122C of the Income Tax Ordinance, 2001 had been introduced in the Ordinance through Finance Act, 2010

Bare reading of provisions of S.122C of the Income Tax Ordinance, 2001 showed that where a person had failed to file return of income under S.120 or in compliance to notice under S.114 of the Income Tax Ordinance, 2001, the Assessing Officer could frame best judgment assessment under said section on the basis of available facts and material, assessment framed by the Assessing Officer was illegal and void ab-initio and order of First Appellate Authority was nullity in the eyes of law

Orders of both the authorities below were cancelled by the Appellate Tribunal.

2014 PTD 1032 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.221 & 121(1)Rectification of mistakesScopeBest judgment assessmentApplication for re-calling of order

Taxpayer contended that ex parte order under S.121 (1) of the Income Tax Ordinance, 2001 could only be passed where no return had been filed; and Appellate Tribunal while delivering decision had apparently lost sight of High Court Full Bench decision reported as 2013 PTD 837, on the issue and as such error of law had incurred which could be rectified by resorting to the provisions of S.221 of the Income Tax Ordinance, 2001

Validity

High Court, in the said Full Bench Judgment had held that "prior to the amendment brought about in Ss. 121 & 177(10), through Finance Act, 2010, S. 121(1)(d) did not apply to cases where return of total income had been filed and did not envisage a second assessment order"

Following the principle of consistency, applicant also deserved the same relief as accorded to other taxpayer

Order was modified by following the decision of the High Court and dismissed the departmental appeal for tax year 2008 and maintained the order passed by the First Appellate Authority.

2014 PTD 707 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.121(1)(d), 177 & 120Best judgment assessmentTax year 2008

Taxpayer contended that assessing officer was not justified to pass order under S.121(1)(d) when a valid return had been filed; and First Appellate Authority was not right to remand the case for de novo proceedings

Validity

Prior to amendment brought about in Ss.121 & 177(10), through Finance Act, 2010, S.121(1)(d) of the Income Tax Ordinance, 2001 did not apply to cases where return of total income had been filed and it did not envisage a second assessment order

Appellate Tribunal in circumstances, annulled the orders of both the authorities below.

2013 PTD 2194 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 116, 114 & 121(1)(c)Wealth statementBest judgment assessment

Wealth statement was not filed with the return and was filed in response to a notice under S.121(1)(c) of the Income Tax Ordinance, 2001

Taxation Officer proceeded under S.121 of the Income Tax Ordinance, 2001 and passed best judgment assessment

First Appellate Authority observed that it was not a case of short document and even subsequent filing of wealth statement will not make the original return as valid return; that the best judgment assessment would be framed if a tax payer did not file wealth statement in violation of provisions of law as contained in S.116(2) of the Income Tax Ordinance, 2001; and that order of best judgment was maintained

Taxpayer contended that in case of any short document, required to be filed along with return under S.114 of the Income Tax Ordinance, 2001, the Taxation Officer was required to proceed under S.121(3) of the Income Tax Ordinance, 2001, asking through a notice, to furnish any short document or statement; that in case of compliance within time the return should be treated as complete return; that in case of non-compliance of notice, return would be treated as incomplete; that provisions of S.121 of the Income Tax Ordinance, 2001 could only be invoked if the return under S.114 of the Income Tax Ordinance, 2001 was treated as invalid; that on furnishing of statement under S.116 of the Income Tax Ordinance, 2001 the return became complete; and it had attained the status of assessment order under S.120 of the Income Tax Ordinance, 2001; that notice under S.121(1)(c) of the Income Tax Ordinance, 2001, at best, could be treated as notice under S.120(3) of the Income Tax Ordinance, 2001 read with S.116(1) of the Income Tax Ordinance, 2001 and on compliance by filing wealth statement, the return under S.114 of the Income Tax Ordinance, 2001 should have been treated as complete; that order under S.121 of the Income Tax Ordinance, 2001 was against the spirit of scheme of Income Tax Ordinance, 2001; and that assessment under S.121 of the Income Tax Ordinance, 2001 was a second assessment which could not have been passed in presence of deemed assessment under S.120 of the Income Tax Ordinance, 2001

Validity

Commissioner, in case of non-furnishing of wealth statement, by tax payer, had option to issue notice under S.120(3) of the Income Tax Ordinance, 2001 or to issue notice under S.116(1) or under S.121(1)(c) of the Income Tax Ordinance, 2001 and pass a best judgment assessment

Said provisions needed harmonious construction leading to a definite action for default of not furnishing wealth statement

If a wealth statement as required under S.116(2) and (2A) of the Income Tax Ordinance, 2001 was not furnished along with return under S.114 of the Income Tax Ordinance, 2001, the return was incomplete for not fulfilling the requirement of S.114(2) of the Income Tax Ordinance, 2001

Department should, on such default, issue a notice under S.120(3) read with S.116(1) of the Income Tax Ordinance, 2001 informing the taxpayer about the deficiency and directing him to provide wealth statement

If the wealth statement was furnished within the time to the satisfaction of the Commissioner, the return should be treated to be complete on the day it was furnished

If the notice under S.120(3) read with S.116(1) of the Income Tax Ordinance, 2001 was not complied with, the return should be treated as invalid return

Provisions of S.121 of the Income Tax Ordinance, 2001 could be invoked only after declaring the return filed by the taxpayer under S.114 of the Income Tax Ordinance, 2001 as invalid under S.120(4) of the Income Tax Ordinance, 2001

Return filed under S.120 of the Income Tax Ordinance, 2001 became an assessment order by operation of law unless it was declared invalid under S.120(4) of the Income Tax Ordinance, 2001

Taxation Officer could not proceed under S.121 of the Income Tax Ordinance, 2001 by keeping the fate of return filed under S.114 of the Income Tax Ordinance, 2001 in lurch

Orders of the authorities below were declared to have been passed against the spirit of Income Tax Ordinance, 2001

Notice issued under S.121(1)(c) of the Income Tax Ordinance, 2001 should be treated as notice under S.120(3) read with S.116(1) of the Income Tax Ordinance, 2001

Since taxpayer had filed wealth statement in response to the notice, the return filed under S.114 of the Income Tax Ordinance, 2001 shall be treated to be complete on the day it was furnished.

2013 PTD 246 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.121, 177(10) & 120Best judgment assessmentAssumption of jurisdiction

Department contended that by insertion of subsection (10) of S.177 of the Income Tax Ordinance, 2001, assessment was treated to have been made on the basis of return or revised return shall be of no legal effect while making best judgment assessment under S.121 of the Income Tax Ordinance, 2001

Taxpayer contended that such insertion through Finance (Amendment) Ordinance, 2010, promulgated on 6-2-2010, could not be applied in respect of already completed assessment under S.120 of the Income Tax Ordinance, 1979 and it could only be applied in respect of assessments treated to have been made under S.120 of the Income Tax Ordinance, 2001 after insertion of such subsection

First Appellate Authority held the order under S.121 of the Income Tax Ordinance, 2001 as valid in view of S.177(10) of the Income Tax Ordinance, 2001

Taxpayer pressed for adjudication of the matter on merit before the Tribunal

Accepting the request, Appellate Tribunal disposed of legal ground as not pressed and adjudication was made on merit alone for tax year 2009.

2013 PTD 350 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss.121, 122A & 122(5A)Best judgment assessmentOpportunity of being heard

Complainant contended that ex parte action under S.121 of the Income Tax Ordinance, 2001 was against law as he was not accorded proper opportunity to explain the issues; that Assessing Officer being posted in Audit Zone did not have jurisdiction to amend deemed assessment; and that information relied on to amend the deemed assessment regarding investment made in two motor vehicles did not qualify as "definite information"

Validity

Ex parte assessment had been made on misplaced reliance which was patently defective information as the complainant did not own either of the two motor vehicles

Only one motor vehicle had been acquired on lease under a Hire Purchase Agreement with a bank and the complainant had debited his profit and loss account appended with the return for tax year 2010 with the expenses incidental to the arrangement

Evidently neither of the two motor vehicles referred to by the Department in the assessment order passed under S.121 of the Income Tax Ordinance, 2001 constituted tax payer's property in tax year 2010

Department had brought forth no evidence to establish his ownership of the other vehicle cited in the assessment order

Decision to consider a Hire Purchase Agreement as purchase of a vehicle, and treat the purchase of second vehicle as such, without any documentary basis, was perverse, arbitrary and unreasonable and was tantamount to maladministration

Federal Tax Ombudsman recommended the Federal Board of Revenue to direct the Commissioner to revise the assessment order, as per law, invoking S.122A of the Income Tax Ordinance, 2001.

2013 PTD 324 FEDERAL-TAX-OMBUDSMAN-PAKISTAN Judicial Precedent

Ss.121, 115(3)(b) & 114(1)(vi)Best judgment assessmentPurchase of motor vehicleNon compliance of notice under S.114 of the Income Tax Ordinance, 2001Ex parte assessment

Taxpayer contended that he being an orphan and below 25 years in age at the time of acquisition of motor vehicle, was not required to file return of income; and Assessing Officer unjustifiably ignored the statutory stipulation and illegally finalized assessment

Validity

Amendment in S.114(1)(vi) of the Income Tax Ordinance, 2001 required all owners of motor vehicles of 1000cc engine capacity and above to file a return of income was introduced through Finance Act, 2009 and became effective from tax year 2010 whereas the taxpayer purchased the motor vehicle in tax year 2009

Further, complainant being an orphan and less than 25 years of age on the date the motor vehicle was purchased enjoyed exemption from filing the return

Complainant was not required to file a return for tax year 2009 as he enjoyed exemption under S.115(3)(b) of the Income Tax Ordinance, 2001

Amendment in S.114(1)(vi) of the Income Tax Ordinance, 2001 was brought on the statute through Finance Act, 2009 and became effective from tax year 2010

Complainant was not required to file a return in tax year 2009

Complainant was also not allowed reasonable time to respond to statutory notices

Invocation of S.121 of the Income Tax Ordinance, 2001 being against the statute and contrary to law was tantamount to maladministration under S.2(3) of the Establishment of the Office of Federal Tax Ombudsman Ordinance, 2000

Federal Tax Ombudsman recommended that Federal Board of Revenue direct the Commissioner to invoke revisionary jurisdiction under S.122A of the Income Tax Ordinance, 2001, and decide matter afresh, as per law, after hearing the complainant.