Amendment in assessment

2025 PTD 936 QUETTA-HIGH-COURT-BALOCHISTAN Judicial Precedent

Ss. 111(1) (a), (b), (c) & (d), & 122(9)Unexplained income or assetsAmendment in assessmentAddition madeSeparate specific/ formal notice, non-issuing ofEffect

Section 111 of the Ordinance, 2001 empowers tax authorities to question any unexplained investment, expenditure or concealed income enumerated in S. 111 (1) (1)(a) to (d), while first proviso to S. 111 provides that if a taxpayer claims an amount as agriculture income this explanation shall be accepted only to the extent of the agricultural income worked back on the basis of agricultural income tax paid under the relevant provincial law

In case the taxpayer failed to render any explanation or the explanation offered by the taxpayer is not satisfactory in the opinion of Commissioner, the said liabilities become chargeable to tax

All this exercise naturally called from a taxpayer by issuing a specific notice under S. 111 of the Ordinance, 2001, while S.122 of the Ordinance, 2001 relates to amendment of deemed assessment and allows the Commissioner Inland Revenue to amend a tax assessment if the acquired definite information indicates that income declared by taxpayer is incorrect or incomplete

Such amendment must be based on concrete evidence and follow due process

Pertinently, in respect of issuance of specific notice to the taxpayer under S. 111 of the Ordinance, 2001 an explanation was added in S. 111 pursuant to Finance Act, 2021, whereby it was clarified that a separate notice under this Section is not required to be issued if the explanation regarding nature and source of amount enumerated has been confronted to the taxpayer through a notice under subsection (9) of S. 122 of the Ordinance, 2001

The explanation was further substituted through the Finance Act, 2022 whereby it was also clarified that a separate notice is not required to be issued if the explanation enumerated in S. 111 (1) (a) to (d) of the Ordinance, 2001 had been confronted to taxpayer through a notice under subsection (9) of S. 122 (9) of the Ordinance, 2001

The proceeding under S.111 of the Ordinance, 2001 regarding unexplained income must be concluded before initiating action under S. 122 of the Ordinance, 2001 which pertains to the amendment of assessment of the Ordinance, 2001, which sequence ensures due process and taxpayer rights

The law allows the taxpayer an opportunity to revise returns and voluntarily pay tax under S. 114 (6A) of the Ordinance, 2001 before a notice under S.122 (9) of the Ordinance, 2001 is issued, thereby avoiding penalties under S. 182 of the Ordinance, 2001

Even after introduction of an explanation in 2021, to S. 111(1) of the Ordinance, 2001 the procedural hierarchy remains unchanged i.e. the tax department must conclude the S.111 proceedings before invoking S. 122(9) of the Ordinance, 2001 ; which ensures procedural fairness and prevents arbitrary or premature taxation

In the present case, the taxpayer's return for the year 2018 was amended by the Department without concluding/completing the proceedings under S. 111 of the Ordinance, 2001

As a result, the proceedings under S. 122 of the Ordinance, 2001 would be considered invalid and without legal sanctity

Thus, proposed question was answered against the Department

Income Tax Reference, filed by the Department, was dismissed, in circumstances .

2020 PTD 2008 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S.122Constitution of Pakistan, Art.199Constitutional jurisdiction of High CourtAmendment in assessmentsShow-cause notice under S.122 of Income Tax Ordinance, 2001Factual controversyScope

Petitioner taxpayer impugned show-cause notice under S.122 of Income Tax Ordinance, 2001 whereby petitioner's tax-exempt status under a Double Taxation Treaty had been called in question by Department

Validity

No case of abuse of process or want of jurisdiction was manifest in impugned show-cause notice and there existed no reason to consider same as mala fide, unjust or prejudicial towards petitioner

Questions as to petitioner's status under Double Taxation Treaty and availing of tax emptions rested on conflicting facts leading to divergent interpretations and such disputed questions of fact were not amendable for determination under Constitutional jurisdiction of High Court

High Court observed that petitioner ought to place its case without limitations before forum denoted in impugned show-cause notice and directed Department to conclude same with a speaking order

Constitutional petition was disposed of, accordingly.

2016 PTD 286 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss. 39, 111, 120 & 122Amendment in assessmentMaking addition in the income of taxpayer on "bank to bank transfer"

Inland Revenue Officer made the addition (confirmed by Appellate Authority), without confronting the taxpayer on the proposed addition as required under S.122(9) of Income Tax Ordinance, 2001 and without bringing any evidence on record

Taxpayer submitted the copy of Bank Statement depicting the "bank to bank transfer" before the Inland Revenue Officer and the Appellate Authority, but they failed to determine the true spirit of the fact and made alleged addition in the income of taxpayer without bringing any counter evidence, on the record

Addition made being illegal, unjustified, unsupported and without providing the opportunity of being heard to the taxpayer was deleted, in circumstances.

2013 PLD 627 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.122(4)(a) & 122(4)(b)Amendment in assessmentLimitationTerm "later of", as used in S.122(4)(b) of the Income Tax Ordinance, 2001Connotation and scope

Taxpayer / assesse filed tax return on 29-2-2007, after which taxpayer filed a revised return under S.114 of the Income Tax Ordinance, 2001 on 26-4-2008, whereby original assessment order stood amended

Said assessment order was subsequently further amended on 12-1-2010

Appellate Tribunal had held that the further amendment on 12-1-2010 was in violation of S.122(4)(b) of the Ordinance, which provided a period of one year for any further amendment

Department contended that S.122(4) provided two separate and distinct timelines (five years in S.122(4)(a) and one year in S.122(4)(b)) and "later of" the two timelines were available to the Department

Validity

Language used in Ss.122(4)(a) and 122(4)(b) was clear and unambiguous and both timelines dealt with different periods of limitation for amendment(s) in assessment orders

Only difference was that both timelines had a different reference/starting point for calculating period of limitation and in S.122(4)(a) the period began from end of financial year in which the Commissioner had issued or had treated as having been issued the original assessment order to the taxpayer while in the period of one year in S.122(4)(b) began from the end of the financial year in which the Commissioner had issued or had treated as having been issued amended assessment order

Section 122(4)(a) did not imply that only original assessment order could be amended for the first time within a period of five years and in fact it referred to "original assessment order" as a reference point for commencement of the period of limitation

An original assessment could be amended any number of times within a period of five years from the end of the financial year in which the Commissioner had issued or treated as having issued the original assessment order

In S.122(4)(b) the start of the timeline of one year was from the end of the financial year in which the Commissioner had issued or was treated as having issued the amended assessment order

Department had the option to invoke the available timeline, hence the term "later of" was used in S.122(4)(b) of the Ordinance; which indicated that both timelines were available and the Department had the option to place reliance on the timeline which expired later in time

Original assessment order in the present case was dated 29-2-2007, therefore, period of five years under S.122(4)(a) of the Ordinance would expire on 29-2-2013, and therefore, the amendment brought on 12-1-2012 fell within the timeline.

2013 PTD 1578 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss.122 (4)(a) & 122(4)(b)Amendment in assessmentLimitationTerm "later of", as used in S.122(4)(b) of the Income Tax Ordinance, 2001Connotation and scope

Taxpayer/assessee filed tax return on 29-2-2007, after which taxpayer filed a revised return under S. 114 of the Income Tax Ordinance, 2001 on 26-4-2008, whereby original assessment order stood amended

Said assessment order was subsequently further amended on 12-1-2010

Appellate Tribunal had held that the further amendment on 12-1-2010 was in violation of S.122(4)(b) of the Ordinance, which provided a period of one year for any further amendment

Department contended that S. 122(4) provided two separate and distinct timelines (five years in S. 122(4)(a) and one year in 122(4)(b)) and "later of" the two timelines was available to the Department

Validity

Language used in Ss. 122(4)(a) & 122(4)(b) was clear and unambiguous and both timelines dealt with different periods of limitation for amendment(s) in assessment orders

Only difference was that both timelines had a different reference/starting point for calculating period of limitation and in S. 122(4)(a) the period began from end of financial year in which the Commissioner had issued or had treated as having been issued the original assessment order to the taxpayer while in the period of one year in S. 122(4)(b) began from the end of the financial year in which the Commissioner had issued or had treated as having been issued amended assessment order

Section 122(4)(a) did not imply that only original assessment order could be amended for the first time within a period of five years and in fact it referred to "original assessment order" as a reference point for commencement of the period of limitation

An original assessment could be amended any number of times within a period of five years from the end of the financial year in which the Commissioner had issued or treated as having issued the original assessment order

In S. 122(4)(b) the start of the timeline of one year was from the end of the financial year in which the Commissioner had issued or was treated as having issued the amended assessment order

Department had the option to invoke the available timeline, hence the term "later of" was used in S. 122(4)(b) of the Ordinance; which indicated that both timelines were available and the Department had the option to place reliance on the timeline which expired later in time

Original assessment order in the present case was dated 29-2-2007, therefore, period of five years under S. 122(4)(a) of the Ordinance would expire on 29-2-2013, and therefore, the amendment brought on 12-1-2012 fell within the timeline.

2013 PTD 1012 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss.209, 210, 120, 122 211 & 2(3)Constitution of Pakistan, Art.199Constitutional petitionAmendment in assessmentDelegation of powers and functions of Commissioner Inland Revenue to Additional Commissioner Inland RevenueScope and object

Competence of Additional Commissioners to issue notices to taxpayers under S. 122 of the Income Tax Ordinance, 2001 for amendment in assessments

Petitioner (taxpayers) impugned notices for amendment in their assessments, on the ground that same were issued by Additional Commissioners, Inland Revenue who were not competent to make amendment in assessments of the petitioners

Contention of the petitioners (taxpayers) was that once a tax return was filed by a taxpayer under S. 114 of the Income Tax Ordinance, 2001 and said return had been deemed to be an assessment order of the Commissioner, Inland Revenue under provisions of S. 120(1) of the Ordinance, thereafter an officer subordinate to the Commissioner Inland Revenue, such as Additional Commissioners, Inland Revenue, could not revise the same under S. 122 of the Income Tax Ordinance, 2001

Validity

To effectively and efficiently deal with the practical aspects of scrutinizing tax returns, powers and functions of the Commissioner Inland Revenue could be delegated to an officer subordinate to him and said object was achieved under the provisions of Ss.209, 210 read with Ss. 2(12) and 211 of the Ordinance

Delegation of powers of the Commissioner Inland Revenue were invoked out of sheer need of the Income Tax Department as scrutiny of tax returns which was an onerous and time consuming task, needed a lot of man-hours and application of mind which could not be completed within reasonable time if left only to be done by the Commissioner Inland Revenue, therefore, petitioners' contention that the delegation of powers by the Commissioner Inland Revenue to Additional Commissioners, amounted to abdication of his powers, had no force

Deeming provisions of S. 120(1) of the Ordinance whereby filing of return of income was taken as assessment income made by the Commissioner Inland Revenue were only for the reason that each and every return need not be physically assessed by the Commissioner by application of mind, therefore, said provisions were provisions of convenience

Contention of the petitioners, if accepted, would render the delegation of powers and functions under Ss. 209 and 210 of the Ordinance as absolutely redundant, and redundancy could not be attributed to any provision of a statute unless it did not fit in the whole scheme of such a statute

Such delegation did not prejudice to any rights of a taxpayer that had been preserved under other provisions of the Ordinance, or under other principles of law

High Court observed that no legal infirmity existed in any provision of the Ordinance whereby powers and functions of the Commissioner Inland Revenue were delegated to Additional Commissioners Inland Revenue and that impugned notices were validity issued by Additional Commissioners Inland Revenue under S.122 of the Ordinance

Constitutional petitions were therefore, dismissed, in circumstances.