APPELLATE TRIBUNAL INLAND
REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.362/IB/2023
(Tax
Year 2019)
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Mr. Abu Bakar Siddique; House No.168, Mohallah Hali
Road, Westridge-1, Rawalpindi.
NTN: 6110125475149
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Appellant
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Vs
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Commissioner Inland Revenue, RTO, Rawalpindi.
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Respondent
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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.
- 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.
- 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.
- 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.
- 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:
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Aspect
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Section 122(5)
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Section 122(5A)
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Basis for Amendment
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Requires definite information or audit findings showing
errors like escaped income, under-assessment, excessive relief, or
misclassification.
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Allows amendment if the assessment is erroneous and prejudicial to
revenue, even without specific identified errors.
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Scope of Error
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Narrower, focused on specific, identifiable errors.
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Broader, can address any erroneous assessment that harms
revenue.
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Discretion of Commissioner
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Limited to clear errors identified through audits or evidence.
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Greater discretion to correct assessments that affect the revenue.
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Use of New Information
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Depends on new audit information or facts discovered
during the audit.
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Doesn’t require new information, but an erroneous and prejudicial
assessment can be amended.
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Specificity of Error
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Relies on specific errors (escaped income, misclassification,
under-assessment).
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Can address more general errors, including misapplication of
laws or tax avoidance.
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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.
- 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).
- 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.
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-SD-
(M. M. AKRAM)
JUDICIAL MEMBER
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-SD-
(IMRAN
LATIF MINHAS)
ACCOUNTANT
MEMBER
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