Section 122 (5) and Section 122 (5A): ATIR explains scope of amendment procedure

ISLAMABAD: A division bench of the Appellate Tribunal Inland Revenue (ATIR), Islamabad Bench in a landmark judgment has explained the scope of amendment proceedings under two most used provisions for making amendments to the declared version of the taxpayer. The judgment has been once again authored by the senior most judicial member of the ATIR who has earlier authored dozens of judgements on new legal issues.

A Karachi-based tax consultant, Basharat Qureshi, when contacted, explained that under Section 122 (5), the assessing officer, based on definite information or audit, can amend the self-assessment. Whereas under Section 122 (5A), the additional commissioner can further amend the order of the assessing officer or self-assessment of the taxpayer if the assessment is erroneous in so far as being prejudicial to the interest of revenue. He stated that there was confusion about the scope of these provisions, which were considered by the department as the same, but the ATIR has made it clear. Extracts from the judgment are reproduced:

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“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., categorised 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, mis-classification) 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. ii. 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. iii. Misclassification: If a particular source of income was wrongly categorised 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:

No reliance on subsequent information: a) Section 122 (5A) does not provide the Commissioner 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. 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.

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.

Ii. 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).

iii. 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.

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