AHMAD HASHAAM ZAFAR vs COMMISSIONER INLAND REVENUE, RTO, FAISALABAD Ss

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AHMAD HASHAAM ZAFAR VS COMMISSIONER INLAND REVENUE, RTO, FAISALABAD Ss. 120, 122, 170 & 221---Deemed assessment order---Rectification---Scope---Refund claim, self-adjustment of---Procedure / mechanism under law, non adopting of---Scope and effect---Commissioner Inland Revenue (Appeal) rejected taxpayer's appeal and confirmed rectification order passed by the Officer Inland Revenue (OIR)---Contention of the appellant / taxpayer was that the action of the OIR rectifying the deemed assessment order by way of rejecting the refund claim/adjusted was beyond his lawful authority---Plea of the Respondent /Department was that the taxpayer had adjusted refund against tax liability for relevant tax year without proper verification and determination by the Commissioner, thus considering the same as mistake/error, the Officer Inland Revenue had rightly passed the rectification order---Validity---Rectification is a jurisdiction ancillary to the appellate jurisdiction intended to rectify a mistake of fact or law apparent on the face of record which does not require investigation appraisal of evidence, interpretation of law or an enquiry into facts---Scope of S. 221 of the Income Tax Ordinance, 2001 ('the Ordinance, 2001') is restricted to rectify the mistake apparent from the record---Where an officer exercising such power enters into the controversy, investigates into the matter re-assesses the evidence or takes into consideration additional evidence and on that basis interprets the provision of law and forms an opinion different from the order, then it will not amount to 'rectification' of the order---Any mistake which is not patent and obvious on the record cannot be termed to be an order which can be corrected by exercising power under S. 221 of the Ordinance, 2001---Powers under Ss.120, 122 & 221 of the Ordinance, 2001 are not overlapping rather independent clearly intended to operate within their respective spheres---Powers under S.221 of the Ordinance, 2001 are quite limited to the extent of mistakes apparent form record since there are other provisions which deal with the authority of department officials with regard tore-opening of assessment, revision etc., in cases where the department is of the view that certain income had escaped from the chargeability of tax, but for exercising powers under S.221 of the Ordinance, 2001, there must be a mistake apparently floating on the surface which is so obvious to strike one's mind without entering into long drawn process of reasoning, detailed deliberation etc.---Hence, tax liability created by invoking the provisions of S. 221 of the Ordinance, 2001 in deemed assessment order is illegal and unlawful---However, in the present case , the Officer Inland Revenue declared the self-adjustment of refund as illegal without determination of overpaid tax by the Commissioner, and the appellant /taxpayer had also adjusted refund against his tax liability without filing any refund application under S. 170 of the Ordinance, 2001 for determination of his claim by the Commissioner, rather adjusted the refund against tax liability at the time of filing of return---Retention of money known to have been paid under mistake of law or not due under the law has been discouraged and such practice has been regarded as a shabby thing or dirty trick but the taxpayers cannot be allowed to self-adjust refunds against their tax liabilities without proper determination of overpaid amount by the relevant officer as it would amount to giving them jurisdiction and powers of Commissioners provided under S. 170 of the Ordinance, 2001---Without proper application on given pro-forma and without determination/approval, no refund can be adjusted by the taxpayers against their tax liabilities on their own---Declared version of refund can only be varied through an amendment under S. 122 of the Ordinance, 2001 while disposing of refund application---As the appellant /taxpayer had illegally adjusted the refund against its tax liability without properly filing application for refund and without any determination by the Commissioner, Commissioner (Appeal) was right to the extent that the taxpayer failed to get the refund determined by the Commissioner before the self adjustment, however, he failed to deliberate upon the very vital question of scope of rectification in deemed assessment orders---Thus, appellant/taxpayer committed wrong by adjusting the refund claim against tax ability without getting it determined by the Commissioner; and the OIR rather than dealing the matter under relevant provisions of Ordinance, 2001 proceeded to rectify the self-assessment order which could not be approved as the case of the appellant/taxpayer did not fall in the ambit of rectification---Appellate Tribunal Inland Revenue set-aside impugned orders having been passed without lawful authority and of no legal effect, and directed that the Department would be at liberty to initiate proceedings against the taxpayer for disallowance of refund adjustment after adopting due procedure under the relevant provisions---Appeal filed by the taxpayer was allowed accordingly.

AHMAD HASHAAM ZAFAR vs COMMISSIONER INLAND REVENUE, RTO, FAISALABAD Ss — 2024 PTD 1062 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN

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