ISLAMABAD: In a landmark judgement, Appellate Tribunal Inland Revenue, Islamabad has reconciled the apparently conflicting provisions of Section 122 (2) of the Income Tax Ordinance 2001 providing a limitation period of five years for making amended assessment with limitation of 180 days given in section 122(9).
This important judgement of the Appellate Tribunal Inland Revenue, Islamabad has clarified all aspects of the amended income tax assessment made against the taxpayers.
Once the show cause notice is issued to the taxpayer, Section 122 (2) of the Income Tax Ordinance 2001 has specified limitation of five years for amended assessment whereas limitation of 180 days has been provided in section 122 (9).
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In the judgement authored by M M Akram, Judicial Member, ATIR in ITA.No.1197/ IB/ 2024 five questions of laws have been framed and answered as under:
Question A: Is the time limit specified in subsection (9) mandatory, and does it override the limitation provided in subsection (2) of this section?
Conclusion: The proviso to subsection (9) is a mandatory requirement but does not have the power to extend or override the five-year time limit set by subsection (2). Both provisions are mandatory and must be strictly adhered to, but they aim at different objectives as far as the amendment process. Subsection (2) provides a time limit for the conclusion of the amendment process, while the proviso to subsection (9) governs how quickly the amendment process must be completed once started.
Question B: If an order is not passed within the time frame specified in subsection (9) of this section, would an order issued after this period be considered time-barred, even if the five-year period outlined in subsection (2) is still available?
Conclusion: Even if the five-year period under subsection (2) has not yet expired, if the Commissioner does not complete the amendment process within the mandatory timeframe specified in the proviso to subsection (9) (i.e., 180 days plus any extension), the amended assessment order will be considered time-barred. The Commissioner must comply with both time limits simultaneously, and a breach of any of the time limits provided in subsections (2) or (9) would render the entire amendments proceedings to be nullity in the eyes of law.
Question C: If the above interpretation is accepted then whether the provision of section 122 (4) would become redundant which provides that the original assessment order can be amended as many times as may be necessary?
Conclusion: The provision in subsection (4) remains relevant and essential under this interpretation. It allows multiple amendments as needed, ensuring tax assessments can be amended within the statutory timeframes.
The limit prescribed in the proviso to subsection (9) is another safeguard placed by the Legislature to ensure that each amendment, once initiated, is completed efficiently, promptly, and strictly within the prescribed timeframe. Both provisions work together to create a comprehensive framework for amending tax assessments without becoming redundant.
Question D: Once it is declared that the order is not passed within the time given in subsection (9) then how the further amendments be made?
Conclusion: If an amended assessment order is not passed within the time frame set by the proviso to subsection (9), that specific amendment process is considered time barred, and the Commissioner cannot finalize it. However, further amendments can still be made under subsection (4) as long as they are initiated within the overarching time limits and comply with other requirements, including issuing a new show cause notice and adhering to the subsequent time limits. This interpretation maintains the integrity and purpose of both the provisions, allowing the tax assessment process to remain flexible but ensuring due process and timely action.
Question E. If a show cause notice is issued for instance just five days before the end of the five years, did the Commissioner make the order under subsection (9) within the prescribed timeframe?
Conclusion: If the show cause notice is issued just five days before the expiry of the five years, the Commissioner would have only those five days to make and issue the amended assessment order.
The 180-day period provided in the proviso to subsection (9) does not extend the overarching limit set by subsection (2). Thus, the order must be completed within the remaining days before the expiry of the five years, regardless of the procedural allowance for 180 days. In this scenario, if the Commissioner fails to issue the amended assessment order within those five days (before the five-year limit expires), the order would be considered time-barred. This strict interpretation ensures that amendments are made within the allowed substantive period, promoting certainty and finality in tax matters. This leads to another question where the entire amendment proceedings are initiated and concluded within merely a period of five days, would such an amendment sustain the test of ‘fair trial and due process’ in terms of Article 10A of the Constitution, FBRs’ circulars, and the appellate findings. However, we leave this question for some other cases where it has a direct bearing.“
When contacted for comments Shahid Jami, a tax lawyer, urged that the legal wing of the FBR should issue guidelines to the assessing officers in such types of judgments of first impression so that there is no unnecessary litigations on questions of law acceptable to the department.
Copyright Business Recorder, 2024
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