Monday, March 24, 2025

Mr. Abu Bakar Siddique. VS Commissioner Inland Revenue, RTO, Rawalpindi.

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,

ISLAMABAD

ITA No.362/IB/2023

(Tax Year 2019)

******

Mr. Abu Bakar Siddique; House No.168, Mohallah Hali Road, Westridge-1, Rawalpindi.

NTN: 6110125475149

 

Appellant

 

Vs

 

 

Commissioner Inland Revenue, RTO, Rawalpindi.

 

Respondent

 

Appellant By:                                         Mr. Shehzad Ahmed Malik, FCMA

Respondent BY:                                     Mr. Naeem Hassan, DR

 

Date of Hearing:                                    24.03.2025

Date of Order:                                       24.03.2025

      

ORDER

M. M. AKRAM (Judicial Member): The appellant has filed the present appeal challenging the order issued by the Additional Commissioner Inland Revenue (Appeals-III), RTO, Rawalpindi, on January 25, 2023, under Section 129(1) of the Income Tax Ordinance, 2001 (“the Ordinance”) for the tax year 2019. The appeal is based on the grounds specified in the memos of appeal.

2.      The case stems from the initiation of proceedings based on information indicating that the appellant had conducted transactions totaling Rs. 10,211,800 in his bank accounts, which were not disclosed in the wealth statement for the relevant tax year. During the assessment proceedings, the assessing officer issued a show-cause notice under Section 122(9) read with Section 122(5A) of the Ordinance, pointing out that the deemed assessment order under Section 120(1)(b) was erroneous and prejudicial to the interest of revenue. The notice addressed the issue of credit entries reflected in the appellant's bank statements and the failure to declare the bank account. In response, the appellant provided a written reply, but it was deemed unsatisfactory and lacked supporting documentary evidence. Consequently, the assessing officer determined that the appellant had failed to explain the credit entries of Rs. 10,211,800 or justify the non-declaration of the bank account in the wealth statement. As a result, the assessment was amended under Section 122(5A) of the Income Tax Ordinance, 2001, through an order dated June 6, 2022.

3.      The appellant, aggrieved by the amended assessment, filed an appeal with the learned CIR (Appeals). However, the CIR (Appeals), through an order dated January 25, 2023, upheld the decision of the Additional Commissioner Inland Revenue. Dissatisfied with this decision, the appellant further appealed to this Tribunal, which heard and decided the case ex-parte on March 1, 2023. Following this, the appellant filed Income Tax Reference No. 04 of 2023 before the Honourable Lahore High Court, Rawalpindi Bench. On March 4, 2025, the Honourable Lahore High Court allowed the reference application, set aside the impugned order dated March 1, 2023, and remanded the matter back to the Tribunal with instructions to reconsider the case afresh after granting the taxpayer an opportunity for a hearing. In compliance with the Lahore High Court's directions, the case is now scheduled for hearing today.

4.      The case was heard on March 24, 2025. The learned AR for the appellant argued that the basis for initiating the proceedings did not fall within the scope of Section 122(5A) of the Income Tax Ordinance. He explained that the department alleged that the appellant failed to declare the relevant bank account in his wealth statement, thereby concealing the account. Based on this, the appellant’s counsel contended that, at most, the case should be governed by Section 122(5) of the Ordinance. Therefore, he argued that the proceedings were illegal, void ab initio, and without jurisdiction, and that any structure built upon these proceedings, including the impugned appellate order, must be considered invalid. When this legal objection was raised, the learned DR was unable to refute the appellant's argument.

5.      We have heard the parties and examined the relevant records. It is an undisputed fact that the proceedings, in this case, were initiated based on information indicating that the appellant had engaged in transactions amounting to Rs. 10,211,800/- through his bank accounts during the tax year under consideration, which were not disclosed in the wealth statement for that tax year. As a result, the appellant concealed these transactions and the associated bank account in both the return of income and the wealth statement. In light of this information, the proceedings were initiated under Section 122(5A) of the Income Tax Ordinance, 2001, and concluded by amending the deemed order passed under Section 120(1)(b) of the Ordinance. The key question that arises for our consideration is:

Whether under the facts and circumstances of this case, should the proceedings have been initiated under Section 122(5) or Section 122(5A) of the Ordinance?

6.      Before addressing the proposed question, it is necessary to understand the scope and differences between both provisions. We will now explain each provision independently. To better understand both the provisions are reproduced below:

“Section 122(5). An assessment order in respect of tax year, or an assessment year, shall only be amended under sub-section (1) and an amended assessment for that year shall only be further amended under sub-section (4) where, on the basis of audit or on the basis of definite information the Commissioner is satisfied that —

(i)          any income chargeable to tax has escaped assessment; or

(ii)     total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(ii)         any amount under a head of income has been mis-classified.

 

Section 122(5A). Subject to sub-section (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.”

7.      SCOPE OF SECTION 122(5)

Section 122(5) of the Ordinance, as provided, allows for the amendment of an assessment for a given tax year (assessment year) in specific circumstances. To invoke this provision, the Commissioner IR must be satisfied, either through an audit or definite information, that one of the following situations applies:

1.   Escaped Income:

If any income that is chargeable to tax has escaped assessment, it can be rectified. This essentially means that income was either not reported or was inadvertently omitted from the tax return, leading to it not being taxed.

2.   Under-assessment, Under-Rate, or Excessive Relief/Refund: If the total income has been:

i.     Under-assessed, meaning the taxpayer’s total income was not properly assessed or was under-reported.

ii.    Assessed at too low a rate (e.g., applying the wrong tax rate).

iii.   The taxpayer has received excessive relief or a refund that is greater than what was due.

These conditions reflect mistakes in the calculation of tax or incorrect tax relief being given to the taxpayer.

3.   Misclassification of Income:

If any income under a specific head of income (such as salaries, business income, etc.) has been misclassified, i.e., categorized under the wrong head, it could lead to a wrong determination of the taxable amount.

When Section 122(5) Can Be Invoked:

Section 122(5) allows the amendment of an assessment when the Commissioner identifies any of the above issues based on audit findings or definite information. This could happen after the initial assessment was completed and there is a clear indication that one of the specified errors (escaped income, under-assessment, misclassification) has occurred.

i.     Escaped Income: If new information or evidence is discovered that shows certain income was not previously assessed, the Commissioner can amend the assessment to ensure this income is taxed.

  1. Under-assessment/Excessive Relief: If the assessment was based on incorrect facts or calculations, leading to a lower-than-necessary tax liability or excessive tax relief/benefit, the Commissioner can correct this error.
  2. Misclassification: If a particular source of income was wrongly categorized under a different head (e.g., business income reported as capital gains), leading to incorrect tax treatment, the assessment can be corrected under Section 122(5).

The amendment under Section 122(5) is thus a mechanism for correcting technical or factual errors that affect the proper taxation of a taxpayer. It requires clear evidence of the error or omission, and the power to amend is limited to the situation of fixing these specific errors.

8.      SCOPE OF SECTION 122(5A)

The scope of Section 122(5A) of the Income Tax Ordinance, 2001, is critical to understanding the limits of the Commissioner’s power to amend an assessment order. The provision allows for amendments when the Commissioner deems the order erroneous and prejudicial to the revenue's interest, subject to the conditions set forth in the law.

A.  Jurisdiction Under Section 122(5A) Based on Available Record:

The jurisdiction to amend an assessment under Section 122(5A) is primarily based on the existing records—meaning the information, documents, and data that were available during the original assessment process. The provision specifically allows the Commissioner to amend an order if it is found to be erroneous and prejudicial to the revenue based on what is already on record at the time of the assessment.

B.  Why the Commissioner Cannot Rely on Subsequent Information:

1.   No Reliance on Subsequent Information:

a)   Section 122(5A) does not provide the Commissioner the power to re-open or amend an assessment solely based on information received subsequently. This means that any new facts, evidence, or information coming to light after the assessment is passed cannot be the basis for exercising the power of amendment under this section.

b)   The error or flaw in the assessment must be apparent from the existing record—that is, the information that was available at the time of the original assessment.

2.   Role of Available Record:

a)   The Commissioner’s jurisdiction under Section 122(5A) is restricted to what was already considered during the assessment process. If the error that prejudices the revenue is identifiable within the record (for example, the application of a wrong tax rate, incorrect deductions, or omission of tax), then the Commissioner can amend the assessment.

b)   The focus is on the correctness of the existing records—not on whether new evidence or facts might surface later. This prevents the Commissioner from using Section 122(5A) as a tool to continually review or reconsider decisions once the assessment is made, based on information that was not part of the original assessment.

C.   Commissioner's Power Not to Conduct Detailed Inquiries:

1.   No In-Depth Enquiry or Investigation:

a)   Section 122(5A) does not empower the Commissioner to conduct a detailed inquiry into the facts of the case in order to unearth new information that was previously unavailable.

b)   The Commissioner is required to act within the boundaries of the available record—meaning that if, after reviewing the assessment, it becomes apparent that an error occurred that harms the revenue, the amendment is to be made on that basis alone.

2.   Taxpayer's Record & Documentation:

a)   The Commissioner cannot ask the taxpayer to provide new records or documents as part of this process under Section 122(5A). If the information or documents were not part of the original assessment, they cannot be demanded or relied upon for the amendment of the assessment.

b)   This reinforces the principle that amendments under Section 122(5A) are limited to the records already on file and are not meant to allow the Commissioner to start an investigative process.

D.  Judicial Precedent and Interpretation:

Courts have interpreted provisions like Section 122(5A) as being limited in scope to ensuring that erroneous assessments, which harm the government’s revenue, are corrected without the Commissioner engaging in further investigation into the taxpayer’s affairs beyond the available records. The purpose of this provision is not to open a full-fledged inquiry into the taxpayer's affairs but to correct specific errors or discrepancies in the original assessment that were apparent from the existing documentation. In cases where the Commissioner seeks to go beyond the record or wants to rely on fresh information or conduct a detailed inquiry, they would typically need to invoke other provisions (such as Section 122(5) or 177 of the Ordinance, which deals with reopening assessments based on new information or changes in facts). Reliance may be placed on Glaxo Laboratories Limited v. Inspecting Assistant Commissioner of Income Tax and others, (1992 PTD 932) and M/s S.N.H. Industries (Pvt.) Ltd. v. Income Tax Department and another, (2004 PTD 330). It is also well established that error and prejudice must be clearly evident from the show cause notice, with no room for roving inquiries or fishing expeditions. Judgments in the cases of Commissioner Inland Revenue, Zone-I, LTU v. MCB Bank Limited, (2021 PTD 1367); Honda Atlas Cars (Pakistan) Limited v. Appellate Tribunal Customs, Excise and Sales Tax, (2021 PTD 1806); and Caretex v. Collector of Sales Tax and Federal Excise, (2013 PTD 1536) support this position.

CONCLUSION:

i.     Section 122(5A) allows the Commissioner to amend an assessment based only on the existing record, and not on subsequent information that may become available after the assessment.

  1. The Commissioner does not have the power to conduct a detailed inquiry or ask the taxpayer for additional records beyond what was already provided during the original assessment process.
  2. The objective of this provision is to correct specific errors in the assessment that are clearly detrimental to the revenue, but it is not intended to be used as a tool for continuing or opening a new investigation into the taxpayer's financial affairs.

This limitation ensures fairness and prevents the potential for arbitrary or unwarranted re-assessments based on information that was not part of the initial proceedings, while still providing the Commissioner the means to correct genuine errors that affect the tax revenue.

9.      Summary of the Differences:

Aspect

Section 122(5)

Section 122(5A)

Basis for Amendment

Requires definite information or audit findings showing errors like escaped income, under-assessment, excessive relief, or misclassification.

Allows amendment if the assessment is erroneous and prejudicial to revenue, even without specific identified errors.

Scope of Error

Narrower, focused on specific, identifiable errors.

Broader, can address any erroneous assessment that harms revenue.

Discretion of Commissioner

Limited to clear errors identified through audits or evidence.

Greater discretion to correct assessments that affect the revenue.

Use of New Information

Depends on new audit information or facts discovered during the audit.

Doesn’t require new information, but an erroneous and prejudicial assessment can be amended.

Specificity of Error

Relies on specific errors (escaped income, misclassification, under-assessment).

Can address more general errors, including misapplication of laws or tax avoidance.

 

CONCLUSION:

i.     Section 122(5) is more specific and narrow in its application. It addresses concrete errors, based on existing information, and requires clear evidence to amend the assessment.

  1. Section 122(5A) is broader and gives the Commissioner more discretion to amend an assessment that is prejudicial to the revenue, even without the specific errors outlined in Section 122(5).
  2. The critical difference is that Section 122(5) focuses on rectifying specific errors in assessments, whereas Section 122(5A) allows the Commissioner to act when they believe an assessment is fundamentally wrong or harmful to the revenue, regardless of whether the error is as easily identifiable.

10.    Now, addressing the proposed question, it is undisputed that the proceedings in the present case were initiated based on the fact that the appellant had conducted bank transactions totaling Rs. 10,211,800/- during the relevant tax year, which were not disclosed in the return of income or wealth statement. In light of the scope of both provisions, we are of the considered opinion that Section 122(5A) does not apply here. This provision allows the Commissioner to amend an assessment only if it is erroneous and prejudicial to the revenue based on the existing record. It does not permit amendments based on information that was not available at the time of the original assessment but was received subsequently. In this case, the information regarding the appellant’s concealed transactions and undisclosed bank account came to light only after the original assessment, which makes Section 122(5A) inapplicable.

Conversely, Section 122(5) is more relevant as it allows the Commissioner to amend an assessment if there is definite information, such as findings from an audit or investigation, that reveals specific errors like escaped income or under-assessment. The undisclosed transactions in this case clearly fall under the category of escaped income, justifying an amendment to the assessment based on this new information. Since the failure to disclose these transactions affects the accuracy of the assessment, Section 122(5) is the appropriate provision for initiating the amendment.

In conclusion, considering the facts and the scope of both provisions, we are of the view that Section 122(5) is the correct provision to apply in this case. It directly addresses situations where new information, such as escaped income, reveals errors that were not previously considered in the original assessment. Section 122(5A), being limited to the existing record, does not apply in this case. Therefore, the orders passed by the lower authorities are annulled, and the appeal filed by the appellant is accepted.

 

 

                       -SD-

                        (M. M. AKRAM)

                      JUDICIAL MEMBER

                -SD-

(IMRAN LATIF MINHAS)

  ACCOUNTANT MEMBER

 

  

Monday, March 17, 2025

M/s H A Shah & Sons; VS Assistant Commissioner Inland Revenue, Unit-V, North Zone, RTO, Islamabad.

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,

ISLAMABAD

STA No.653/IB/2024

(Tax Periods July to June 2023)

******

M/s H A Shah & Sons;

Office No.3, 3rd Floor, Sardar Begum Plaza, 109-W Jinnah Avenue, Islamabad.

NTN: 2123450-7

 

Appellant

 

Vs

 

 

Assistant Commissioner Inland Revenue, Unit-V, North Zone, RTO, Islamabad.

 

Respondent

 

Appellant By:                                         Mirza Saqib Siddique, ITP

Respondent BY:                                     Mr. M. Shehzad, DR

 

Date of Hearing:                                    17.03.2025

Date of Order:                                       17.03.2025

      

Thursday, February 27, 2025

M/s PI PAKISTAN (PVT) LTD; Vs The Commissioner Inland Revenue Range-I, Zone-II, CTO, Islamabad.

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I ISLAMABAD

ITA No.44/IB/2025

MA(Cond) No.37/IB/2025

MA(Stay) No.139/IB/2025

(Tax Year, 2019) 

ITA No.45/IB/2025

MA(Cond) No.38/IB/2025

MA(Stay) No.163/IB/2025

(Tax Year, 2022)

********

M/s PI PAKISTAN (PVT) LTD;

House No.37, St No.5, E-7, Islamabad.

(Reg. No.3366884)

 

Appellant

 

VS

 

The Commissioner Inland Revenue Range-I, Zone-II, CTO, Islamabad.

 

Respondent

 

 

 

 

Appellant by:

 

Mr. Zeeshan Zafar, ACA

Respondent by:

 

Mr. Sheryar Akram, DR

Date of hearing:

 

27.02.2025

Date of order:

 

27.02.2025