AMENDED OF ASSESSMENT SECTION 122 THE MOST SIGNIFICANT

AMENDED OF ASSESSMENT SECTION 122 THE MOST SIGNIFICANT SECTION Can be segregated into different portions namely: Section 122 (3) Thetaxpayermayamendtheorders by filing of revised return. Section 122 (1) The Commissioner may amend already made assessment u/s 120 or u/s 121 Section 122 (4) Incaseofalreadyamendedorder the Commissioner may further amend the order as many times as be necessary. Section 122 (5) Amendment can only be made on the basis of definite information acquired 1 from audit or otherwise.

AMENDED OF ASSESSMENT SECTION 122 Section 122 (5 A) The Commissioner may amend or further amend the assessment order if it is considered that the assessment order is erroneous or prejudicial in the interest of revenue Section 122 (2) & (4) Provide limitation for passing of amended or further amended order. Section 122 (8) Defines the word “Definite Information”. Section 122 (9) Statesthatprovidingofopportunityofbeing heard before amendment of assessment order is obligatory. 2

Amendment of Assessment under section 122 Additional Assessment The concept of sections 65 and 66 A of the Repealed Ordinance has been brought in the new Ordinance in the shape of sub-section (5) and (5 A) of section 122 of the new Ordinance respectively 3

DELEGATION OF POWERS • To invoke the provisions of Section 122 (5 A) the Commissioner cannot delegate his powers to a Taxation Officer who is below the rank of Additional Commissioner, rest of the powers however, can be delegated to any Taxation Officer-Section 210 • Here question lies, when a taxation officer under the powers delegated by the Commissioner makes an order u/s 121 or 122 as the case may be. His order is considered as passed by the Commissioner. How the order passed by the Commissioner can be reversed by a subordinate (Additional Commissioner). Moreover, it is trite law that no one can be judge of his own cause. 4

LIMITATION FOR AMENDEMENT OF ORIGINL ORDER AND FURTHER AMENDEMENT OF ASSESSMNT OF AMENDED ORDER. Sub-Section (4) of Section 122 provides limitation to amend the order which reads as under: “where an assessment order (hereinafter referred to as the “original assessment’) has been amended under Sub-Section (1) or (3) the Commissioner may further amend, as many times as may be necessary, the original assessment within the later of-” “five years from the end of financial year in which the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or “one year from the end of the financial year in which the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer. ” 5

Amendment of Assessment under section 122 On plain reading of above sub-section it is observed that under section 122 the Commissioner can only amend the Original assessment and no further assessment can be made on the amended assessment order. Because of the doctrine of merger, once the original assessment has been amended it would merge and there would be no original assessment order in the field. 6

Amendment of Assessment under section 122 It is also observed that although clause (b) of above sub-section provides that the Commissioner may further amend, as many times as may be necessary within the later of one year after the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer, but if we read the same very minutely the time limit of one year does not exist, as is clear from the following example: 7

Amendment of Assessment under section 122 Tax year 2003 i) Date of furnishing the ii) Return iii) Date of Original Assessment Order iii) Date of amendment of Original Assessment Order 31 -12 -2003 30 -12 -2008 iv) Date of further amendment of assessment Order 30 -12 -2009 v) 30 -12 -2010 As per the above provision the Commissioner can still 8

Amendment of Assessment under section 122 I am sure that legislature has no such intentions to restrict the Commissioner to amend the Original assessment only once or to give him the infinite powers and time limit to amend and further amend the amended assessment. Section 122, since the promulgation of the new Ordinance has undergone many changes and modifications. 9

Amendment of Assessment under section 122 We all remember that previously subsection (4 A) was inserted by Notification No. SRO 633(1)/2002 dated September 14, 2002; wherein it was provided that an amended assessment shall only be made within six years of the date of original assessment, which was later substituted with the present subsection (4 A) as reproduced above. 10

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 In my humble view despite this drafting error the assessment cannot be amended beyond the limitation of six years from the date of original assessment. There has to be finality of the assessment and Superior Courts in number of 11

Amendment of Assessment under section 122 cases have emphasized on this important aspect. Reliance may be placed on (1977) 106 ITRIS. C. ind. 2006 PTD 734 H. C. 12

Amendment of Assessment under section 122 Sub-section (5) of section 122 provides that an assessment order in respect of tax year, or assessment year shall only be amended under subsection (1) and an amended assessment for that year shall only be further amended under sub-section (4) where on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that 13

Amendment of Assessment under section 122 (i) any income chargeable to tax has escaped assessment; or (ii) total income has been underassessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or (iii) any amount under a head of income has been misclassified. 14

Amendment of Assessment under section 122 Sub-section (5) of Section 122 On comparing of above subsection and section 65 of the Repealed Ordinance, it is observed that there are following four major differences between sub-section (1) of section 65 of the Repealed Ordinance and subsection (5) of section 122 of the new Ordinance: 15

Amendment of Assessment under section 122 i) Sub-section (5) of Section 122 Under the Repealed Ordinance the original jurisdiction was available only to the Deputy Commissioner of Income Tax; whereas, under the new Ordinance the jurisdiction may be delegated by the Board or Commissioner to the Taxation Officer. 16

Amendment of Assessment under section 122 Sub-section (5) of Section 122 17

Amendment of Assessment under section 122 Sub-section (5) of Section 122 iv) Now if the Commissioner acquires the definite information and if he is satisfied that any amount under a head of income has been misclassified, he may also amend the original assessment or further amend the amended assessment. 18

Amendment of Assessment under section 122 Sub-section (5) of Section 122 Keeping in view the decisions of the superior courts on section 65 of the Repealed Ordinance and the provisions of section 122 of the Ordinance, I am of the view that it is imperative for the Commissioner to ensure that following parameters exist for assuming jurisdiction under sub-section (5) of section 122 of the new Ordinance: 19

Amendment of Assessment under section 122 Sub-section (5) of Section 122 20

Amendment of Assessment under section 122 Sub-section (5) of Section 122 What is definite information? Sub-section (8) of section 122 of the Ordinance provides the definition of “Definite information”; whereas, in the Repealed Ordinance it was provided as explanation to sub-section (2) of section 65. On perusal of above comparison it is observed that receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance has been further added to the definition provided in the repealed Ordinance. 21

Amendment of Assessment under section 122 Sub-section (5) of Section 122 It is held by the superior courts that Record and facts, including existence of a binding judgment of a competent court of law/forum already available with the assessing officer at the time of original assessment do not constitute definite information [(1990) 61 TAX 46 ]. Where complete facts, information and records have been disclosed by the taxpayer and the Taxation Officer on the basis of such facts, information and records consciously formed an opinion 22

Amendment of Assessment under section 122 Sub-section (5) of Section 122 and finalized the assessment or further amended assessment; he cannot change his opinion and assume the jurisdiction to amend the original assessment on the basis of the same facts [(1990) 61 TAX 105]. [2000 PTD 329] [1990 PTD 539] Definite information does not mean “reason to suspect” [2003 PTD 714] Any interpretation of a provision of law by a functionary which has not been entrusted with the functions to interpret such provision judicially cannot be treated as definite information [1993 PTD 766 ]. 23

Amendment of Assessment under section 122 Sub-section (5) of Section 122 Their Lordship of the Sindh High Court in the case of H. M. Abdullah V/s. ITO, Karachi reported as 63 TAX 113 (H. C. K) held that assessments framed without conscious application of mind can be reopened under section 65. Sub-section (1) of Section 120 of the new Ordinance provides that where a taxpayer has furnished a complete return of income for a tax year; the Commissioner shall be taken to have 24

Amendment of Assessment under section 122 Sub-section (5) of Section 122 made an assessment of taxable income for that tax year and the tax due thereon, equal to those respective amounts specified in the return. The return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished. As such one can very conveniently say that assessment has been finalized without proper application of mind and it can be presumed that conscious order has not been passed by the Commissioner. 25

Amendment of Assessment under section 122 Sub-section (5) of Section 122 But in my humble view sub-section (5) of Section 122 provides that for assuming jurisdiction under section 122, it is mandatory that “definite information” should come into the possession of the Commissioner from an audit or otherwise and not on the basis of existing material facts, records or information filed with the Return of Income. 26

Amendment of Assessment under section 122 Sub-section (5) of Section 122 Moreover, since the Return of income furnished by the taxpayer shall be deemed assessment on the day the same has been furnished; as such action can only be taken under subsection (5) of section 122 of the Ordinance on the acquisition of new information. 27

Amendment of Assessment under section 122 Sub-section (5 A) of Section 122 What are the pre-requisite for the Additional Commissioner of Income Tax to assume the jurisdiction under sub-section (5 A) of section 122? • In order to invoke the jurisdiction under subsection (5 A) of Section 122, there should be an error of jurisdictional nature and the assessment ought to be prejudicial to the interest of revenue [1992 PTD 932] • The record of the assessee, which is to be inspected and the erroneousness should float from the surface of the order at the time of inspection. Furthermore, a disagreement between the two officers i. e. ITO and the IAC also cannot grant jurisdiction to the IAC [2004 PTD 422 (Trib)]. 28

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 What is the due process to be undertaken by the Commissioner for amendment of assessment under sub-section (5 A) of section 122? In my view the Commissioner is under obligation to take the following steps to assume the jurisdiction under sub-section (5 A): Firstly, the Commissioner should consider that it is necessary to amend the assessment; 29

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 • If he considers so under sub-section (5 A), then he should ensure that assessment is erroneous in so far it is prejudicial to the interest of revenue; • The Commissioner must provide an opportunity of being heard under section 122(9) of the new Ordinance; and • Lastly the Regional Commissioner may amend the assessment where the assessment has already been amended by the Commissioner. 30

Whether provision of Sub-Section (5) and (5 A) of Section 122 can be invoked in the case where assessments were completed under the repealed Ordinance? The Supreme Court in a recent judgment has upheld the view point of the Lahore and Sindh High Courts that Section 122 of new ordinance is not applicable on the assessment orders framed under the repealed ordinance. 31

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Amendment of Assessment under section 122 Departure from Assessment to Acceptance assessment under section 120(1) of the Ordinance on the day the return is furnished subject to post assessment audit or other verification by the Taxation Officer. The system prescribed by the new Ordinance, the taxpayer’s statement in his return is taken to represent his view about how the law applies to his circumstances and the taxpayers have been given the powers to assess their own income including losses and determine tax thereon. 33

Amendment of Assessment under section 122 Departure from Assessment to Acceptance It is also observed that the concept of assessee and assessment provided in the repealed Ordinance is no more available in the new Ordinance instead word “taxpayer” has been introduced. 34

on AMENDED OF ASSESSMENT SECTION 122 • • • SECTION 122 THE MOST SIGNIFICANT SECTION Can be segregated into different portions namely: Section 122 (3) The taxpayer may emend the orders by filling of revised return. Section 122 (1) The Commissioner may amend already made u/s 120 or u/s 121 Section 122 (4) Incaseofalreadyamendedorderthe. Commissionermayfurther amend as many times as be ________ • made Section 122 be (5) only can Amendment information acquired from audit or otherwise. • Section 122 (5 A) The Commissioner may amend or further amend the assessment order if it is considered that the assessment order is erroneous or prejudicial in the interest of revenue. • Section 122 (2) & (4) Provide limitation for passing 35

Amendment of Assessment under section 122 Additional Assessment I would also like to share my thoughts on the issues which are common and applicable to both the sub-sections; before, I discuss particular issues related to subsections (5) and (5 A) of 122 separately. 36

Amendment of Assessment under section 122 1. Delegation of Powers under section 122 Although the superior courts in a number of decisions have settled this issue; however I would still emphasize that my learned professional brothers must refer sub-section (13) of section 2, section 209 and section 210 of the new Ordinance and judge that whether proper delegation has been made by the Commissioner in the particular case. 37

Amendment of Assessment under section 122 Delegation of Powers under section 122 However, I will take this opportunity of sharing with you that from an examination of subsection (1) and subsection (5) of section 122, it is further transpired that the word “considers” has been used with reference to Commissioner. The then Chairman of Income Tax Appellate Tribunal Pakistan in the case reported as (1991) 63 TAX 431 (Trib. ) considered the provisions of section 66 A of the Repealed Ordinance and analyzed the impact of the word “considers” and I have already provided the gist of the said order in the paper distributed by the host of this seminar 38

Amendment of Assessment under section 122 Limitation for amendment of Original Assessment and further amendment under section 122 Before we deliberate on the above question it would be deemed appropriate to reproduce sub-section (4) of section 122 of the new Ordinance for ready reference as under: “Where an assessment order (hereinafter referred to as the “original assessment”) has been amended under sub-section (1) or (3), the Commissioner may further amend, as many times as may be necessary, the original assessment within the later of 39

Amendment of Assessment under section 122 Limitation for amendment of Original Assessment and further amendment under section 122 five years after the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or one year after the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer. ” 40

Amendment of Assessment under section 122 Limitation for amendment of Original Assessment and further amendment under section 122 “At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in legal proceedings, the stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set a rest judicial and quasi-judicial controversies as it must in other spheres of human activity”. 41

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Regarding my observation for bare plain reading of sub-section (4); I am of the view that the legislature might be having the intention to grant powers to the Commissioner to amend the original assessment as many time as necessary only to the extent or in respect of any point or issue which was not subject matter before, while finalizing the amended assessment. It may be recalled that in the Repealed Ordinance such provisions were available in sub-section (1 A) of section 66 A. 42

Amendment of Assessment under section 122 • Whether the statement filed under subsection (4) of section 115 can be subject to amendment under section 122 of the new Ordinance? Their Lordship from the High Court of Sindh in the case of Fauji Oil Terminal and Distribution Company Limited, Karachi reported as 2006 PTD 734 have exhaustively discussed the above issue and held that we have already shown that there is no concept of any assessment order in the relation of Presumptive Tax 43

Amendment of Assessment under section 122 Regime and the entire Presumptive Tax Regime revolves around taking the entire payment as income, the deduction of tax as final tax on such income and then treating it as assessment made under section 120 of the Income Tax Ordinance, 1979. In the absence of any assessment order which is condition precedent for invoking the revisional jurisdiction under subsection (5 A) of section 122, the question of invoking such jurisdiction does not arise. 44

Amendment of Assessment under section 122 Sub-section (5 A) of Section 122 • Originally this section was inserted through SRO No. 633 (1)/2002 dated 14 th September, 2002, which was latter substituted vide Finance Act, 2003. This section provides that the Commissioner may amend, or further amend an assessment order, if he considers that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. On study of provisions of subsection (5 A) of section 122 of the new Ordinance, certain basic questions arise in the mind, which require appropriate answers. 45

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 As such in the succeeding paragraphs, to the best of my ability I will make an attempt to discover the answers of the following questions: - (i) Whether the Commissioner may assume the jurisdiction and invoke the provisions of Section 122(5 A) to amend the assessment completed prior to insertion of above subsection? 46

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 After insertion of section 66 -A in the Repealed Ordinance, 1979, queries were made from the Board, whether the proceedings under section 34 A of the Income Tax Act (Said Act), pending on 1 st July, 1979, have lapsed on repealed of the said Act and whether it was possible to revise assessments completed, after promulgation by Income Tax Ordinance 1979, but before the insertion of Section 66 -A in 1980. 47

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 While answering those queries, CBR vide its circular letter CNo. 1(48)IT-I/79 dated: 17 -0221981 clarifies that the proceedings which were pending under the repealed Act may continue under that Act. However, if proceedings under Section 34 -A of the said Act had not been initiated when the old Act was repealed. Similarly section 66 A does not have retrospective application. The assessments finalized before 1 st July, 1980 could not be reopened under section 66 A of the Income Tax Ordinance, 1979 48

Amendment of Assessment under section 122 Sub-section (5 A) of Section 122 • I feel it would be appropriate to further • highlight the issue with reference to amendment made in the Repealed Income Tax Act 1922. Section 34 -A was inserted in the Act through Finance Ordinance, 1959 empowering the IAC(s) to revise the Orders of ITO, while making that amendment, it was specifically mentioned that same was effective from 01 -04 -1959 and had no retrospective affect. The honorable Supreme Court of India in the case of Km Sharma V/s ITO reported as 254 ITR 772 also held the similar views. 49

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 • Jurisdiction to levy penalty: - As per Section 18(I) (c) of the Indian Wealth Tax, 1957 IAC had the jurisdiction to levy penalty prior to 0104 -1976 by virtue of amendment made with effect from 01 -04 -1976, IAC was divested such jurisdiction, therefore, he had no power to levy penalty after 0104 -1976, even in respect of matters referred to him prior to 01 -04 -1976 [1993 PTD Note 152] 50

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 Their Lordships of the High Court of the Sindh in the case of Honda Shahrah-e- Faisal v/s. RCIT & Others reported as 2005 PTD 1316 held that the provision contained in sub-section (5 -A) of section 122 of the Income Tax Ordinance, 2001, inserted with effect from 01. 07. 2003, is not retrospective in operation. Consequently, the assessments finalized before 01. 07. 2003 cannot be reopened/revised/amended in exercise of jurisdiction under the above provisions. 51

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 What are the important changes between the provisions of law under the Repealed and the new Ordinance? (iv) Their Lordships of the High Court of Sindh in the case of Fauji Oil Terminal and Distribution Company Ltd, Karachi reported as 2006 PTD 734 observed that the Subsection (5 A) of section 122 appears to be more limited in its scope. It provides that the Commissioner may amend or further amend an assessment order; 52

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 if he considers that the assessment order is erroneous in so far as it is prejudicial to the interest of revenue. It does not empower Commissioner to cancel the assessment and direct a fresh assessment to be made. It is limited to the amendment and further amendment in the assessment order. The jurisdiction under subsection (5 A) of section 122, is having the same salient features as were contained in section 66 -A of the Repealed Income Tax Ordinance, 1979, with the difference that under the Repealed Ordinance, the said jurisdiction could be exercised by IAC only, while under the scheme of Income Tax Ordinance, 2001, this re-visional jurisdiction can be exercised by IAC or Commissioner. 53

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 Whether the person/case already amended under section 122 of the Income Tax Ordinance, 2001, bars the Commissioner to select the case for audit under section 177? (v) Their Lordships of the High Court of Sindh in the Constitutional Petition No D-2210/2007 in the case of Noble (Private) Limited V/s. Federal Board of Revenue viewed that both the selection of case for the total audit and the action under section 122(5 A) of the Ordinance are different actions and there is no bar for initiating both the actions for the same tax year on identical points. 54

Amendment of Assessment under section 122 of the Income Tax Ordinance, 2001 Sub-section (5 A) of Section 122 (vi) Whether issuance of notice under section 122(5) is a condition precedent for issuance of notice under section 122(5 A) of the Ordinance? Their Lordships of the High Court of Sindh in the case reported as 2006 PTD 734 have held that we do not agree that Commissioner ought to have resorted to subsection (5) of section 122 on fulfillment of the conditions specified in the section. 55

Amendment of Assessment under section 122 Current Position of Appeals pending at the Supreme Court of Pakistan As directed by the court the appeals were to be classified into broad categories by the FBR was of the view that there were only two categories one identified with the decisions of the honorable Karachi High Court and the other with that of the honorable Lahore High Court. From the respondents side lawyers present suggested different categories, however, again on the directions of the honorable Supreme Court of Pakistan; FBR and the Respondents were asked to mutually agree on classification of the appeals. 56

Amendment of Assessment under section 122 Current Position of Appeals pending at the Supreme Court of Pakistan Detailed deliberations were then held in the Bar Room of the Supreme Court of Pakistan between the lawyers of the Respondents and the FBR team which was headed by the Member Legal. After detailed deliberations the following categories were agreed between the parties and informed to the honorable Supreme Court of Pakistan: 57

Amendment of Assessment under section 122 Current Position of Appeals pending at the Supreme Court of Pakistan 1. Appeals falling U/S 122 (5) of the Ordinance; 2. Appeals falling U/S 122 (5 A) of the Ordinance; 3. Appeals in which orders were passed U/S 122 without identifying any sub-section; 4. Appeals related to the period in which SRO was issued( Kashmir Edible Oils) 5. Those cases where the appeals were barred by time; and 6. Appeals in which application of Section 122 has been made on returns falling under the Presumptive Tax Regime. 58

Amendment of Assessment under section 122 Current Position of Appeals pending at the Supreme Court of Pakistan The Court directed FBR to complete the paper books by attaching all relevant documents which would clearly identify the cases in above categories latest by March 10, 2009. It was also agreed that all the cases will be fixed together; but to be heard as per the categories identified and the appeals filed by the department will be disposed off together by one consolidated order. 59

Amendment of Assessment under section 122 Current Position of Appeals pending at the Supreme Court of Pakistan The hearing of the appeals was fixed for February 10, 2009; however regular hearings were started on 15 th April, 2009. So far the case has been argued by the many eminent lawyers of the country before honorable the Supreme Court of Pakistan on 15 th, 16 th, 17 th, 21 st and 22 nd to defend the decisions in the cases of Honda Shahrah-E-Faisal Karachi and Fauji Oil Terminal and Distribution Company Limited, Karachi decided by the honorable Karachi High Courts. The cases are now fixed for hearing on 4 th May, 2009. 60