APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I ISLAMABAD
ITA No.336/IB/2025
(Tax Year, 2024)
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M/s Fauji Fertilizer Company Limited; Sona Tower
156, The Mall, Rawalpindi. NTN:1435809 |
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Appellant |
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The Commissioner Inland Revenue, Zone-II, LTO,
Islamabad. |
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Respondent |
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Appellant by: |
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Mr. Azar Abdul Hameed, FCA |
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Respondent by: |
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Mr. Faisal Mushtaq Dar, CIR Mr. Osama Sameer, DC (IT Wing) Mr. Fayyaz Hussain, DR |
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Date of hearing: |
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15.12.2025 |
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Date of order: |
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15.12.2025 |
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O R D E R
M.
M. AKRAM (JUDICIAL MEMBER):
The appellant-taxpayer has instituted the
present appeal challenging the impugned Order dated June 12, 2025, passed by
the Additional Commissioner of Inland Revenue, Zone-II, Large Taxpayers Office
(LTO), Islamabad, under Section 122(5A) of the Income Tax Ordinance,
2001 (“the Ordinance”), relevant to the Tax Year 2024. The appeal has
been preferred on the grounds articulated in the memorandum of appeal.
2. The facts, as borne out from the record, reveal that the
appellant-taxpayer is engaged in the business of manufacturing, importing,
purchasing, and marketing fertilizers and chemicals throughout Pakistan. The
taxpayer filed its return of income for the Tax Year 2024 on September 30,
2024, which constituted a deemed assessment finalized under Section 120(1)(b)
of the Ordinance. In the said return, the taxpayer declared a total income of
Rs.46,286,066,804, taxable income of Rs.42,551,273,468, and claimed a refund
amounting to Rs.5,075,468,960. Subsequently, the deemed assessment was amended
vide an order passed under Section 122(5A) of the Ordinance dated March 24,
2025, whereby the taxable income was determined at Rs.45,417,673,468.
3. However, upon perusal of the deemed assessment order, the amended
assessment order, and the audited accounts filed by the taxpayer for the year
under consideration, it was observed that the deemed assessment order was
erroneous insofar as it was prejudicial to the interest of revenue. The basis
for such observation was that, as per the income tax return and the audited
accounts for the Tax Year 2024, the taxpayer had claimed an amount of
Rs.62,437,223,000 under the head “Gas Infrastructure Development Cess” (GIDC),
which remained payable. Further examination of the income tax return and
audited accounts for the Tax Year 2020 revealed that the taxpayer had claimed a
business expense of Rs.18,960,725,000 on account of GIDC.
4. The Appellate Tribunal
Inland Revenue, in its Order dated January 08, 2025, passed in ITA
No.207/IB/2023 in the case of FFC v. CIR,
held that GIDC is a business expense and is admissible on an accrual basis.
Although the taxpayer claimed the said amount in its profit and loss account,
the balance sheet, particularly Note No. 9.1 of the audited accounts, reflected
that an amount of Rs.62,437,223,000 remained payable, which included the sum of
Rs.18,960,725,000 claimed as a business expense for the Tax Year 2020.
5. Since the said amount had remained payable for three consecutive
tax years, it was considered to be hit by the mischief of Section 34(5) of the
Ordinance, 2001, thereby warranting an addition of Rs.18,960,725,000 in the Tax
Year 2024. As the taxpayer failed to add back this payable amount of GIDC to
its taxable income, the deemed assessment order for the Tax Year 2024 was held
to be erroneous and prejudicial to the interest of revenue, involving tax
implications amounting to Rs.7,394,682,750, computed by applying corporate tax
at the rate of 29% and super tax at the rate of 10% on the said amount.
6. Consequently, a show-cause notice under Section 122(9), read with
Section 122(5A) of the Ordinance, was issued on June 02, 2025, requiring
compliance by June 05, 2025. The contents of the said notice were duly
reproduced in the assessment order. As no compliance was made by the taxpayer
on the stipulated date, another opportunity of hearing was afforded, and notice
was served through IRIS, fixing June 12, 2025, for compliance. In response, the
authorized representative of the taxpayer submitted a reply through IRIS, which
was duly considered by the assessing officer. Upon conclusion of the
proceedings, an order under Section 122(5A) of the Ordinance was passed on June
12, 2025.
7. Being aggrieved by the said order, the taxpayer has preferred the
present appeal before this Tribunal on various grounds.
8. The case was heard on several dates and was finally taken up for
hearing on December 15, 2025. After considering the arguments advanced by the
parties, and in order to arrive at a just and proper conclusion, the learned
Departmental Representative was directed on December 10, 2025, to intimate the
concerned Commissioner Inland Revenue and the Director General (IT) to appear
before the Tribunal along with the complete record. In compliance thereof, the
learned Commissioner Inland Revenue and the Deputy Commissioner (IT),
representing the DG (IT), appeared before the Tribunal on the scheduled date
and were heard at length. The learned Departmental Representative also filed
written submissions, which have been taken on record. Likewise, the learned
Authorized Representative for the appellant submitted written submissions,
which have also been placed on record.
9. We have heard the parties, perused the record and the submission
submitted by the parties at the Bar.
ADMITTED/UNDISPUTED FACTS
9.1
The undisputed facts of the
case are that upon examination of the deemed and amended assessment orders
along with the audited accounts, it was observed that the deemed assessment for
Tax Year 2024 was erroneous and prejudicial to the interest of revenue, as the
taxpayer had claimed Rs.62,437,223,000 on account of Gas Infrastructure
Development Cess (GIDC) which remained unpaid, including
Rs.18,960,725,000 claimed as a business expense in Tax Year 2020. Although the
Appellate Tribunal Inland Revenue, in FFC v. CIR
(ITA No.207/IB/2023 dated January 08, 2025), held that GIDC is an admissible
business expense on an accrual basis, the said amount continued to remain
payable for three consecutive tax years, thereby attracting the provisions of
Section 34(5) of the Ordinance, 2001. As the taxpayer failed to add back the
payable GIDC to its taxable income, the assessment was considered erroneous and
prejudicial to revenue, involving tax implications of Rs.7,394,682,750.
Consequently, a show-cause notice under Sections 122(9) read with 122(5A) of
the Ordinance was issued; however, after considering the taxpayer’s reply
submitted through IRIS and providing due opportunity of hearing, the
proceedings were concluded, and an order under Section 122(5A) was passed on
June 12, 2025.
9.2 In compliance with the statutory requirement
for electronic communication, the Additional Commissioner of Inland Revenue
(Add CIR) uploaded the amended assessment order on IRIS and sent it to the
appellant via e-mail on June 12, 2025, at 10:09 PM, in accordance with Rule 74
of the Income Tax Rules, 2002. Consequently, the amended order was deemed
communicated to the taxpayer. However, the uploaded order was not relevant to
the issue, though the tax calculation and demand in the system corresponded to
the intended determination. Upon realizing the error, the Add CIR subsequently,
on 13.06.2025, replaced the earlier order and uploaded a fresh
order using the same barcode and a back-dated timestamp, effectively
substituting the original order without invoking the provision of section 221
or issuing any rectification notice, without affording the taxpayer the
opportunity to be heard as required under the due process provisions of Article
10A of the Constitution of Pakistan, 1973. These facts are admitted during the
course of hearing and borne out by the IRIS record.
10. ISSUES FOR
DETERMINATION:
After
examining the pleadings and record, the following issues arise for
adjudication:
i. Whether the Add CIR had the legal
authority to replace an amended assessment order already uploaded electroncially on IRIS
at https://iris.fbr.gov.pk/login and via e-mail to the taxpayer in
compliance of Rule 74 of the Income Tax Rules, 2002, without following the
rectification procedure under section 221 of the Ordinance?
ii. Whether such a replacement, using the same barcode and
back-dated upload, is valid under the scheme of the Ordinance?
iii. Can the impugned amended assessment order be sustained under
the law under any stretch of imagination when every activity has
been processed/routed through FBR electronic webportal https://iris.fbr.gov.pk/login and via
e-mail?
Without
prejudice to all above :-
iv. Whether the disallowance under section 34(5) of the
Ordinance is legally justified?
11. With respect to Issues No. i and ii, it is observed that:
11.1 Under the scheme of the Ordinance, once an
assessment order is finalized, it is required to be forthwith and
electronically uploaded on IRIS, which constitutes its statutory communication
to the taxpayer upon receipt of acknowledgement email from the taxpayer. An
assessment order once uploaded, bearing a timestamp and a unique barcode, forms
an integral part of the official tax record, carries legal consequences, and
attains finality, unless it is modified strictly in accordance with the law,
specifically by creating a fresh task or assignment on the FBR electronic web
portal, rather than by clandestinely substituting the already issued/uploaded
version through unfair means that bypass the system’s electronic modules. In
the present case, it is an admitted position that the Additional Commissioner
Inland Revenue uploaded an incorrect and irrelevant assessment order on IRIS
and also transmitted the same to the taxpayer through FBR electronic portal via
e-mail. Although the computation and the tax demand may have been correctly
reflected, the substantive body of the order did not correspond to the issues
forming the basis of the proceedings. Nonetheless, the said incorrect order
constituted a legally communicated assessment order under the Ordinance, having
been conveyed through a legally permissible mode of communication, namely the
FBR electronic web portal (IRIS).
11.2 Upon
discovery of the error, the Additional Commissioner Inland Revenue
surreptitiously exploited the FBR electronic web portal and proceeded to
replace the previously uploaded assessment order with another order, using the
same barcode and a back-dated upload, thereby effectively removing the earlier
order from the IRIS system. The Ordinance does not confer any authority upon
the Additional Commissioner Inland Revenue to replace, overwrite, or back-date
an assessment order once it has been duly communicated to the taxpayer. The
statutory framework for correction of errors is expressly provided under the
Ordinance, namely: (i) Section 221, which governs rectification of mistakes
apparent from the record (after providing opportunity of being heard
to the taxpayer); and (ii) Section 122, which deals with amendment of assessments, where
applicable.
11.3 Any
error, whether clerical, computational, or arising from oversight, including
the uploading of an incorrect assessment order, can be rectified only by
invoking Section 221 of the Ordinance, subject to strict compliance with the
prescribed due process. Such due process requires the issuance of a
rectification notice, affording the taxpayer an opportunity of being heard, and
the passing of a duly rectified order bearing its own independent date and
barcode. In the present case, the Additional Commissioner Inland Revenue failed
to adhere to the procedure mandated under Section 221 of the Ordinance. Consequently,
the unilateral and clandestine replacement of an assessment order, by
exploiting the FBR electronic web portal, is devoid of statutory authority and
is procedurally invalid and patently illegal, being tantamount to an electronic
fiscal offence. The substitution of an order after it has already been lawfully
communicated to the taxpayer is impermissible in law that;
i. Violates
the principle of finality of orders;
ii. Results
in tampering with official records without any check & balace to
misuse/exploit the FBR electronic webportal https://iris.fbr.gov.pk/login;
iii. Circumvents
the procedure prescribed under Section 221;
iv. Deprives
the taxpayer of the right to challenge the original order;
v.
Opens the door to potential
misuse of FBR electronic webportal https://iris.fbr.gov.pk/login.
11.4 It is well-settled that revenue authorities
must operate strictly within the bounds of statutory provisions, and
administrative convenience cannot justify a departure from legal requirements.
Accordingly, the actions of the Add CIR are contrary to the scheme and intent
of the Ordinance. It is also pertinent to note that the IRIS is structured in a
manner whereby, once an order is uploaded and communicated, it cannot lawfully
be overwritten, as the system maintains a comprehensive digital audit trail. Any
facility that permits the overwriting of duly issued orders would undermine
audit integrity, compromise taxpayer rights, and erode transparency within the
FBR electronic web portal (IRIS) https://iris.fbr.gov.pk/login. Permitting
silent or unilateral amendments would effectively allow the Department to
revise or alter orders at its discretion, without recourse to the prescribed
legal process, which is wholly impermissible under settled principles of
administrative law.
11.5 If a statutory order is altered by an officer
after it has been duly communicated, without adherence to the prescribed legal
procedure for rectification, such conduct amounts to a serious breach of
statutory and procedural norms. Specifically, it constitutes:
i. Fraud on the statute:
By circumventing the prescribed procedure, the officer has effectively
manipulated the legal process for purposes not authorized by law, thereby
undermining the integrity of the statutory framework and seriously impairing
the integrity of the FBR electronic web portal (IRIS) across Pakistan.
ii. Violation of transparency:
The unilateral alteration of an order deprives the process of openness, thereby
eroding the fundamental principles of accountability and fairness in
administrative action.
iii.
Suppression
of official record: Unauthorized modifications
compromise the integrity and reliability of official records, impairing the
ability to maintain an accurate historical account of administrative decisions.
It is pertinent to note that
the absence of mala fide intention or personal gain on the part of the officer
does not absolve the action from legal scrutiny. From a legal standpoint, such
conduct may nonetheless be characterized as “procedural fraud on
the statue”,
as it contravenes the statutory safeguards designed to protect both the rule of
law and the rights of the taxpayer. The essence of the law is that statutory
orders, once communicated, acquire finality, and any deviation therefrom must
strictly conform to the procedures envisaged by law; failure to do so,
irrespective of intent (Malafide or Bonafide), undermines
the statutory scheme and is impermissible under established principles of
administrative law.
12. With regard to Question No. iii,
it is observed that the originally uploaded amended order is admittedly
irrelevant and incapable of sustaining an assessment, whereas the subsequently
substituted order is void for lack of lawful authority. Consequently, the
impugned amended assessment is legally unsustainable and cannot be upheld.
13. Notwithstanding the foregoing, and without prejudice
to the finding that the assessment order is vitiated on account of fundamental
procedural infirmities, we proceed to examine the last question, which relates
to section 34(5) of the Ordinance. Prior to addressing the same, it is an
undisputed fact that the expenditure on account of Gas Infrastructure
Development Cess (GIDC) was disallowed by the Additional Commissioner
Inland Revenue in Tax Year 2020 through an amended order dated March 11, 2021,
and that such disallowance was subsequently upheld by the learned Commissioner
Inland Revenue (Appeals) vide order dated February 28, 2023. In the presence of
these subsisting orders, the invocation of the provisions of Section 34(5) of
the Ordinance raises a serious legal question as to its applicability in the
instant case. To proper appreciation of the proposition, it is essentially
required to reproduce below the relevant provision of section 34(5) of the
Ordinance;
Section 34(5) Where a
person has been allowed a deduction for any expenditure incurred in
deriving income chargeable to tax under the head “Income from Business” and the
person has not paid the liability or a part of the liability to which the
deduction relates within three years of the end of the tax year in which the
deduction was allowed, the unpaid amount of the liability shall be
chargeable to tax under the head “Income from Business” in the first tax year
following the end of the three years. (emphasis supplied)
13.1 A plain and purposive reading of Section 34(5)
of the Income Tax Ordinance, 2001, reveals that the provision is attracted only
where two cumulative
conditions are satisfied: first, that a deduction
in respect of an expenditure has actually been allowed
in computing income under the head “Income from Business”; and second, that the
corresponding liability, or part thereof, remains unpaid for a period of three
years from the end of the tax year in which such deduction was allowed. Only
upon fulfilment of both conditions does the unpaid amount become chargeable to
tax in the first tax year following the expiry of the said three-year period.
13.2 Applying the above provision to the facts of
the present case, it is evident that the foundational requirement for invoking
Section 34(5), namely, the allowance of a deduction, stands negated. The record
shows, without any dispute, that the expenditure on account of GIDC claimed by
the taxpayer for Tax Year 2020 was expressly disallowed
by the Additional Commissioner Inland Revenue vide amended order dated March
11, 2021, and that such disallowance was subsequently confirmed by the learned Commissioner Inland
Revenue (Appeals) vide order dated February
28, 2023. These orders are now sub-judice before this tribunal.
13.3 In the presence of the above subsisting and
operative orders, it cannot be said that a deduction in respect of GIDC was
“allowed” within the meaning of Section 34(5) of the Ordinance. Consequently,
the statutory trigger for the application of Section 34(5) is altogether
absent. The provision does not contemplate a situation where an expenditure,
already disallowed and never allowed as a deduction, can again be brought to
tax on the premise of non-payment of the corresponding liability. To hold
otherwise would amount to taxing a disallowed expenditure twice, which is
neither envisaged by the scheme of the Ordinance nor supported by the plain
language of the provision.
13.4 Accordingly, in view of the clear wording of
Section 34(5) and the undisputed factual position that the GIDC expenditure for
Tax Year 2020 was disallowed and such disallowance was upheld in appeal, the
Additional Commissioner Inland Revenue was not justified in
invoking the provisions of Section 34(5) of the Ordinance while passing the
impugned order. The action taken in this regard is legally untenable and
unsustainable, as it constitutes a blatant violation of Article 13 of the
Constitution of the Islamic Republic of Pakistan, 1973.
14. In view of the foregoing findings, the act of the Additional
Commissioner Inland Revenue in replacing the originally uploaded amended
assessment order, without invoking section 221 of the Ordinance, is declared to
be a nullity in the eyes of law, devoid of lawful authority, and void ab
initio. Both the originally uploaded amended order and the substituted amended order
are set aside. The Additional Commissioner Inland Revenue is further directed
to ensure strict compliance with section 221 for any future correction of
mistakes and to refrain from any manipulation, back-dating, or replacement of
orders on IRIS through clandestine use of the FBR electronic web portal. The
appeal is accordingly allowed.
15. Before parting with this judgment, we deem it appropriate to
propose certain safeguards to obviate the recurrence of such anomalies in
future:
A. Procedural Safeguards.
1. The IRIS system should lock any assessment
order once uploaded, and no replacement thereof should be permissible.
2. Any clerical or apparent error should
mandatorily be corrected only through the issuance of a notice under Section
221 of the Ordinance.
3. Complete system log details, including
upload timestamps and any attempted modifications, should be made visible to
taxpayers.
B. Administrative Safeguards.
1. A two-tier review mechanism should be
introduced for assessment orders prior to their uploading on IRIS.
2. An error-reporting module should be
incorporated within IRIS to flag incorrect or irrelevant uploads.
3. Assessing Officers should be provided
regular training on the proper use of IRIS and compliance with prescribed legal
procedures.
C. Legal Safeguards for
Taxpayers
1. Taxpayers should ensure
access to:
(a) a complete IRIS audit trail;
(b) verification of the QR code/barcode; and
(c) recognition of the first uploaded order as
the valid statutory assessment order.
2. Commissioners Inland Revenue (Appeals)
should verify the original upload timestamps on IRIS whenever disputes of this
nature arise.
D. Policy-Level Safeguards.
1. The IRIS development team should disable:
(i) back-dated uploading of orders; and
(ii) replacement of orders using the same
barcode.
2. The FBR is directed to take immediate
corrective and preventive measures to safeguard the integrity of its electronic
system, including the implementation of mandatory immutable audit trails,
comprehensive system logs, and effective accountability mechanisms, in order to
prevent the recurrence of such incidents in the future.
3. A dedicated “Rectification Module,”
directly linked to the provisions of Section 221 of the Ordinance, should be
integrated into the IRIS system.
16. Let a copy of this order be forwarded to the learned Chairman, FBR
for issuance of appropriate instructions to the learned Member (Legal), Member
(IT), and DG (IT), FBR, to ensure that no individual is permitted, in future,
to manipulate the FBR electronic web portal (https://iris.fbr.gov.pk/login).
The learned Chairman is further advised to initiate a thorough and independent
inquiry to determine how, by whom, and under what lawful authority the FBR
electronic system ‘IRIS’ allowed an Inland Revenue Service Officer to modify,
replace, or alter the text of an assessment order after it had already been
issued and uploaded on the system.
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Sd/- (M. M.
AKRAM) JUDICIAL
MEMBER |
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Sd/- (SHARIF UD DIN KHILJI) MEMBER |
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