Asad Ali Vs Commissioner IR Zone-I RTO Peshawae etc

V PESHA HIGH COURT. PESHAWAR

(JUDICIAL DEPARTMENT)

Tax Reference No. 22- with CM No. 0112023.

Asad Ali.

Petitioner.

Versus

Commissioner Inland Revenue Zone-I, Regional Tax Office, Peshawar and another.

....... ..Respondents.

For the Petitioner: Mr. Mohammad Anwar, Advocate.

For the Respondents: IVIr. Abbas Bakhtiar, Advocate alongwith Siraj Mohammad Asstt:

Commissioner, Inland Revenue.

Date of Hearing: 04.6.2025

TUDGMENT

***r.****

WIOAR AHMAD, f.- The petitioner, an individual deriving income from sale of cloth and the business of property dealing, filed a return for tax year 2007 . The return so filed was treated as a deemed assessment order under section 120 of Income Tax Ordinance, 2001 (hereinafter referred to as "the Ordinance, 2001"). During proceedings of audit taking place in the year 2009 the petitioner filed a wealth statement alongwith wealth reconciliation statement indicating plots of sale in the tax yeat

Subsequently, the Taxation Officer passed an amended assessment order under section 122(l) of the Ordinance, 2001, whereby the income of the petitioner was re-determined as follows:

Share pnrchase on02.12.2012 covered area 5803x500 (rate) Rs.320.000/- Share in house situated at Chowk Nasir Khan (Inherited) NVD 12 Share in shop at Meena Bazar Peshawar NVD 12 share in shop at Jahaneir Pura Peshawar NVD 4 marla share ourchase situated at Old Kakshal dated2l.4.2004 Rs. 310.000 Open Plot No. 884/E-6. 14 Marla purchased on 2l.5.2004 Rs.4.00.000/- Ooen olot No. 189/E{- l0 Marla ourchased on 15.1.2007 Rs.2.00.000/- Ooen olot No. 215/E{. 20 marla purchased on 2.10.2004 at Havatabad. Rs. 15.00.000/- Ooen olot No. 884/E{. 14 marals Purchased Rs.200.000i- Totel Assessment Rs. 10.130.000/- Moveble Assets.

Gold belonss to wife ( dowrv) Rs. NVD Furniture and fixture Rs.200.000/- Cash in hand/orize bonds Rs. 11.724.000A Grent totrl Rs.22.054.000/- Reconcilietion Stetement Assets as on 30.6.2007 Rs.22,054,000/- Asses as on 30.6.2006 Rs. 17.626.000/- Accretion Rs.4-428-000/- Add: HHE for tax vear 2007 Rs.72-000/- Totel Rs.4.500-000/- Exolanation Sold olot No. 4861E-6 Peshawar Rs.4-500-000^

2.Feeling aggrieved by the order dated 29 April 2013, the petitioner preferred an appeal before the Commissioner Inland Revenue (Appeals), Peshawar (hereinafter referred to as the "Commissioner Appeals"). The appeal was decided vide Order No. 413 dated 18 August 2014, whereby it was held that gain of Rs.

3,000,000 from sale of the plot was taxable under section 37(3) of Income Tax Ordinan ce, 2001, treating same as capital gain on the disposal of immovable assets. Subsequently, the respondent department filed an application under section22l of the Ordinance, 2001, seeking rectification of said order. It was pleaded that profit earned by turpayer on account of sale of the plot during tax yeat 2OO7 had been taxed by the Taration Officer as income from business urder section 18 of the Ordinance, 2001, and that the Commissioner Appeals had effoneously treated it as capital gain

arising from disposal of immovable property and taxed it under section 37 of the Ordinance, 2001. The department contended that the petitioner was engaged in business of property dealing, involving the sale and purchase of plots, which constituted stock- in-trade and were excluded from the definition of capital assets under section 37(5Xc) of the Ordinance, 2001. The application was allowed, and the mistake that had occurred in order dated 27 August 2013 was rectified under section 221 of the Ordinance, 2001. It was held that the gain on the sale of plots constituted business income and was assessable to tax under section 18 of the Ordinance, 2001. Feeling aggrieved by this rectification, the petitioner filed a second appeal before Appellate Tribunal Inland Revenue, Peshawar (hereinafter referred to as the "Appellate Tribunal"). However, appeal was dismissed vide order dated 18 June 2020. Feeling further aggneved by order dated 18 June 2020, the petitioner has filed instant reference under section 133 of the Ordinan ce, 2001, for the determination of the following questions of law.

OT]BS TIONS OF LAW:

A. Whether in the facts and circumstances of the case, the order of the learned ATIR is against the law?

B. Whether in the facts and circumstances of the case, the learned ATIR has wrongly dealt and rectified the case of the applicant /taxpayer despite the fact that there was no apparent mistake in the original order?

C. Whether in the facts and circumstances of the case' the learned ATIR has erred to hold that any mistake can be rectilied uls22l of ITO' 2001?

I). Whether in the facts and circumstances of the case, the v learned ATIR has wrongly obserued that no debate or arguments is required to the extent that the learned ATIR had applied a wrong provision of law while passing the order u/s 129 of ITO 2001?

E. Whether in the facts and circumstances of the case, the learned ATIR the difference of opinion is not a mistake apparent from the record and cannot be rectified als 221 of rTo 2001?

F Whether in the facts and circumstances of the case, the learned ATIR, the L/ATIR has dealt the applicanUtaxpayer discriminately in - regard to r.trorp*tivettiect of benelicial amendment as the L/ATIR has already given retrospective effect to clause (6D of the Second Schedute of ITO 2001 in the case of It{/S Deans Trade Center?

G Whether in the facts and circumstances of the case, the learned ATIR, the L/ATIR has erred to revente the non- contested accepted plea of the department as narrated on page 3 of the L/CIR (APPeal) Order?

H. Whether in the facts and circumstances of the case, the learned ATIR has wrongly dismissed the appeal of the applicanUtaxPaYer?

I. Whether in the facts and circumstance of the case any beneficial Registrar amendment brought in to the Income Tax Ordinance would be extendable to the Taxpayer /applicant and by not extending the said benefit, the Learned ATIR has exceeded its iurisdiction?

J Whether the Learned ATIR has erred by not accepting the amended provision of benelicial amendment in section 37 of the ibid ordinance, considering "immoYable property" as capital gain at the time of proceedings in the appeal in the year,2013?

3 Arguments heard and record perused'

4 perusal of the record reveals that the main questions for determination before this Court were as follows:

(D Whether the Commissioner Appeats was having lawful authority to make the order under section 221(l) of the Ordinance, 200L?

(ii)whether the subsequent order dated 18.8.2014 of commissioner appeals was within time or same was time barred?

5.The commissioner Appeals, while deciding the appeal vide order No. 413 dated 27 August 2013, held that the plot had been

held by the assessee for more than one year therefore, as per the v provisions of section 37(3) of the Income Tax Ordinance, 2001, seventy-five percent of the gain amounting to Rs. 3,000,000 was to be assessed for the tax year 2OO7 as capital gain. Thereafter, the departmenyrespondents filed an application under section 221 of the ordinance on 17 January zol4, which was decided by the commissioner Appeals on 18 August 2014. The operative part of the said order is reproduced below for ready reference:

,tThe arguments advanced by the learned Authorised Representative were duly considered, and the case law referred to was carefully examined. It has Ueen obserued that a mistake of law, apparent on the face of the record' (c) of sub-section occurred in the earlier order. Specifically, clauses (a) and (5) of section 37 oI the Incomu ta* ordinance, 2001, were inadvertently overlooked while passing the said appellate order' The learned to the Commissioner Inhnd Reveiue, 7'onvl, rightly brought this ornission and is attention of this office. Accordingly, the case warrants rectification that the gain hereby rectitied under section ZZI ottneordinance by holding on the sale of plots constitutes business income and is assessable to tax under section 18 of the Ordinance"'

6.The petitioner thereafter filed a second appeal before the the Appellate Tribural, which was decided on 18 June 2020 against by petitioner. The Appellate Tribunal held that rectification made the commissioner in order dated 18 August 2014 was well within

the jurisdiction vested in him under section 221 of the Income Tax

Ordinance, 2001.

7.This cotrt shall first address the question concerning the section lawful authority vested in the commissioner Appeals under the 221of the Income Tax ordinance, 2001. For ease of reference, text of secti onzzl of the ordinance is reproduced below:

221.Rectification of mistakes'-

\ (1) The Commissioner, the Commissioner (Appeals) or the v Appettate Tribunal may, by an order in writing, amend any order paJsed by him to rectify any mistake anparent from the-record-on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appeltate Tribunal, the Commissioner.

(1A) The Commissioner may, by an order in writing, amend any order passed under the repealed Ordinance by the Deputy Commilsioner, or an Income Tax Panel, as defined in section 2 of the repealed ordinance to rectify any mistake apparent from the re.otd on his own motion or any mistake brought to his notice by a taxpayer and the provisions of subsection (2), sub-section (3) and sub-section (4) snafu appty in like manner as these apply to an order under subsection (1)'

@ No order under subsection (1) which has the effect of or otherwise increasing an assessment, reducing a refund applying adversety to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.

(3)Where a mistake apparent on the record is brought to the ooti.. of the Commissioner I [orl Commissioner (Appeals) 2 [], as the case may be, and no order has been made under sub-section (1) before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordinglY.

(a)No order under subsection (1) may be made after five years i"r, the date of the order sought to be rectified"' g. Learned counsel for the petitioner primarily raised the objection that only a clerical or arithmetical error in the order of the

Commissioner Appeals could have been rectified under section 221 of the Income Tax Ordinan ce, 2001. However, in the present

case, a new determination has been made, and the commissioner vested Appeals has statedly exceeded scope of the lawful authority in him under section 22t of the Ordinance. Conversely, learned counsel representing respondents/department opposed plea of the

counsel of petitioner. He contended that scope of powers under section 221 of the ordinance, 2001 was not limited to the coffection of clerical or arithmetical mistakes only. The language of

subsection (1) authorizes the commissioner to make amendments

for the rectification of any mistake apparent from the record. Where a mistake is clearly discoverable from face of the record, same may be rectified under section 221 of the Ordinan ce, 2001. The Hon'ble Supreme Cotrt of Pakistan, while elaborating upon the scope of section 221 of the Ordinance,200l, in its recent judgment dated 8 April 2025r in Civil Appeals No. 2026, 2027, 2028, 2029, ZO3O, 2031, 2032, 2034 of 2022 and other connected appeals, has inter aliaheld that:

"ll. Three points may be made with regard to subsection (1). Firstly, it confers jurisdiction on three different authorities/forums to do exactly the same thing in relation to any order passed by the authority, viz., to amend the order in order to rectiff a mistake apparent from the record. The jurisdiction for two of the authorities, i.e., the Commissioner (Appeals) and the Appellate Tribunal, is limited to an order passed in exercise of appellate jurisdiction, since that is the only jurisdiction conferred on them by the statute. In the case of the Commissioner there is a range of orders that can come within the scope of the jrrisdiction. For example, it could be an order of assessment made under s. l2l, known as best judgment assessment, and also an amended assessment order under s. 122. T\e crucial question of course is whether the Commissioner's orders that come within the scope of s. 221(l) include also a deemed assessment order under 120. Secondly, what constitutes the record for purposes of rectiffing a mistake will vary from authority to authonfi, and in the case of the Commissioner may be different depending on the particular statutory power exercised by him, in passing the order sought to be subjected to the provision.

12.Thirdly, and this is, as will be seen, arr important aspect of subsection (l) for present purposes, it can be invoked by the authority itself on its own motion or to rectiff any mistake brought to its attention by the taxpayer (or, in the case of orders of the Commissioner (Appeals) and the Appellate Tribunal by the Commissioner as well). In the cases before us, the subsection was invoked by the Commissioner on his own motion in respect of the deemed assessment order. But equally, if the jurisdiction exists, the taxpayer can bring a mistake in relation to such an order before the Commissioner and seek its rectification. Put differently, if there is no jurisdiction vesting in the Commissioner in regard to deemed assessment orders then a mistake therein apparent from the record httos:// .su oremecou rt.gov. ok/ downloads iudsements lc.a. 2026 2O22l.odf

\.u cannot be rectified even at the instance of the taxpayer, which v correction may have accrued to the latter's benefit. (It is of course difficult to contemplate the taxpayer bringing a mistake for rectification before the relevant authority if it did not result in some benefit to him by, e.g., (to track the language of subsection (2)) reducing the assessment or increasing a refund or being otherwise advantageous to him)."

Similarly, in the case of Messrs ASIA POULTRY FEEDS (PVT.)

LTD. Vs FEDERAL BOARD OF REVENUE2, the Lahore High court has held in this regard that:-

12.lf there was any mistake, deficiency or error in calculation of 13:L it could have been rectified under section 221 of the Ordinance which is reproduced below for ready reference:-- "22L Rectification of mistakes.---(1) The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal ndY, by an order in writing, amend any order passed by them to rectiff any mistake apparent from the record on their own motion or any mistake brought to their notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, ttre Commissioner."

When an assessment is made in respect of income of a tar<payer, any elror or omission appearing therein can be rectified under section 221 ofthe Ordinance. Fresh assessment cannot be made in respect thereof because it will be a case of double assessment which is not permissible under law. With initiation of fresh proceedings under section 161 read with section 205 by the respondent No. 4 in respect of the same tan years, in presence of final orders lawfully passed by a competent officers, same situation has arisen which cannot be allowed to be sustained. Views expressed by the learned Income-tax Appellate Tribunal in its judgment reported as 2olo PTD (Trib.) 150 appears to be in consonance with the provisions of section 161 read with section 205 and section 221 ofthe ordinance. The impugned notices under section 161 read with section 205 of the Ordinance are, therefore, declared illegal, and without lawful authority' In the case of COMMISSIONER INLAND REWNUE, VS MESSTS 1HA(IDHRY yTEEL MILLSS , the Lahore High court has dealt 2zoLGPTD2To 32ozs P T D 101

\r with the scope of powers under section 221 of the ordinan ce, 2001 v in the following manner:

"The above provision of law only prescribes procedure for rectification of a mistake in an order, which is apparent from the record, and the circumstances under which such exercise can be done. The provision of Section 221, thus, neither creates nor takes away any right or privilege in or from anyone, it rather provides for rectification of mistake(s) apparent from the record. The essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or funher evidence. The mistake should be so obvious that on mere reading the order, it may immediately strike on the face of it. Where an officer exercising such power enters into the controversy, investigates into the matter, reassesses 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 section 221 ibid. Reliance can well be placed upon Commissioner of Income-Tax Company's II, Karachi v. Messrs National Food Laboratories (1992 SCMR 687), Commissioner of Income Tax and another v. Messrs Pakistan Petroleum Ltd. and 2 others (2012 SCMR 371), The Taxation Officer I Deputy Commissioner of Income Tax, Lahore v. Messrs Rupafil Ltd. and others (2018 SCMR 1131), Islamuddin and 3 others v. The Income- Tax Officer and 4 others (2000 PTD 306), Commissioner Income Tax v. Gulf Edible Oils (P\rt.) Ltd. (2006 PTD 2854) and Messrs State Life Insurance Corporation of Pakistan, Karachi v. The Commissioner Income Tax, COS.[I, Karachi and others (2021 PTD 913)."

It is evident that Section 221 of Income Tax Ordinance,200l does not expressly employ the terms "factualr" "legal," "clericalr" or

\., "arithmetical" to classiff the types of mistakes eligible for rectification. The omission of these specific categories indicates that the scope of rectification under this section is not limited solely to clerical or arithmetical mistakes. Had the legislature intended such a limitation, it would have explicitly stated so in language of the statute. Instead, the provision uses the broader expression "mistake apparent from the record." This choice of wording reflects the legislative intent to permit rectification of any mistake whether clerical, arithmetical, legal, or factual provided the mistake is apparent from the record. Accordingly, the power to rectiff is not confined to narowly defined categories but extends to any mistakes evident on the face of the record. Therefore , dty limitation inferred through restrictive interpretation such as confining the scope of Section 221 to only clerical or arithmetical mistakes would amount to reading into the statute what is not stated. In consequence, the Commissioner (Appeals) or the Appellate Tribunal is legally empowered to rectiff any mistake apparent from the record, including legal or factual errors, while exercising authonty under Section 221 ofthe Income Tax Ordinance, 2001.

g. Now coming to facts of the case it was apparent that the mistake rectified by the Commissioner appeals under secti on 221 of the ordinance, 2001 was very much discoverable from his first order and therefore he has rightly resorted to the provisions of section 22I of the Ordinan ce, 2001 for removing the mistake. In his

\/ earlier order the CIRA had held that income of the assessee was coming under the definition of capital assets and that same should be held under section 37(5) of the Ordinance,200l. Relevant tax yeff in the case in hand was 2OO7 . The definition of capital gain as reflected in the relevant statute at the relevant time was not covering the case in hand. For ready reference section 37 of the Ordinan ce,200l is reProduced;

,037. Capital gains.- (l) Subject to this Ordinance, a gain arising on the disposai of a capital'asset Uy u persol in a tax Y€tr, other than a gain to ta< that is exempt frbm tax under this Ordinance, shall be chargeable in that year under the head "Capital Gains"'

(lA)Notwithstanding anything contained in sub-section (1), gain arising on disposal of immovable property situated. in Pakistan, to capital u p.rron iria ta,x V.ur shall be chargeable to tan under the head guin, at the rates specified in Division VIII of Part I of the First Schedulel

(2)Subject to [sub-section] (4), the gain arising on the disposal of a capital *rit by a p"tton shall be computed in accordance with the following formula, namelY:-

A-B

where-

A is the consideration received by the person on disposal of the asset; and

B is the cost of the asset.

in

(4)For the purposes of determining compole.nt B of the formula sub-section (2),'no urnount shall be included in the cost of a capial asset for any expenditure incurred by a person-

(a)that is or may be deducted under another provision of this Chapter;

or

(b)that is referred to in section 21'

kind held by a

(5)In this section, "capital asset" means properly of any poron, whether o, not with a business, but does not include- "onnected stores or raw materials held for [(a) any stock-in-trade [ ], consumable the purpose of business;]

(b)any property with respect to which the person is entitled to a )rpr."i"tion'deiuction under section 22 or amortisation deduction under section 24;lotl

t2

(d)any movable properly [(excluding capital assets specified in sub- V section (5) of section 38)l held for personal use by the person or any member of the person's family dependent on the person 3[.]

[(6) The person acquiring a capital asset, being shares of a compmy, shall deduct advance adjustable ta<' from the gross amount paid for payable] as consideration for the shares [at the time of payment or at the time of registration of shares by the Securities and Exchange Commission of Pakistan or by the State Bank of Pakistan, whichever is earlier] at the rate of ten percent of the fair market value of the shares which shall be paid to the Commissioner by way of credit to the Federal Government, within fifteen days of the payment.

(7)Notwithstanding the provisions of section 68, the value of shares, for the purpose of sub-section (6), shall be the fair market value, as prescribed for sub-section (4) of section l0lA, without reduction of liabilities.

(8)The Commissioner ffioy, on application made by the person acquiring of the shares, and after making such inquiry as the Commissioner thinks fit, allow to make the payment, without deduction of tax or deduction of tax at a reduced rate.

(9)The provisions of sections 16l, 162, entry No. 15 of the Table in section 182, clause (c) of sub-section (t) of section l9l and section 205 shall mutatis mutandis apply to the tar deductible and payable under this section.

(10)The person disposing of the capital asset, being shares of a company, shall furnish to the Commissioner within thirty days of the transaction of disposal, the prescribed information or documents, in a statement as may be prescribed:

Provided that the Commissioner ffi&y, by notice in writing, require the said person, to furnish information, documents and statement within a period of less than thirty days as specified in the notice.l

10.It was apparent from subsection 5 of section 37 that immovable property had expressly been excluded from "capital assets". Since immovable property was not falling in the definition of capital gain therefore same was not liable to ta>< u/s 37 butwas taxable under section 18 of the Ordinance, 2001. The earlier order of the Commissioner was effoneous and the result of applying wrong section of law. It was a mistake discoverable on perusal of the record and same was not requiring any funher analysis, interference or further inquiry and investigation. Learned (CIRA) had therefore rightly invoked his jurisdiction under section 221 of

\-, the ordinance, 2001. He was having lawful authority for said purpose.

I 1. Learned counsel for petitioner also inter-alia contended that since section 37 pafticularly subsection 5 thereof had subsequently been amended in the year 2012, therefore, said amendment should be given retrospective effect so as to cover case of the petitioner being beneficial amendment. This court is not inclined to agree with such assertion of learned counsel for petitioner. The Legislature never intended to give said amendment retrospective effect by express words or necessary intendment. Said amendment was not foreseeable on the date when the torpayer had filed his refurns. Same could not have been applied to returns or income of the previous year. On no stretch of imagination, the subsequent amendment could be held to be having a retrospective effect. In such circumstances the first question i.e. the Commissioner was having lawful authority to make order under section ll2(l) of the Ordinance,200l was concerned same is answered in affirmative.

12.The subsequent question was relating to the time provided for making an amendment under section 221(1) of the Ordinance, 2001. Subsection 4 of section 221 was providing a maximum time period of 05 years for making rectification in the order. Order of the Commissioner Appeals was therefore well within time and question No.2 is therefore answered in a manner that the subsequent order

L4

v dated 18.8.2014 has been passed by the Commissioner within the provided time.

13.Having answered both the questions in the above manner no furttrer order is required on part of this court. The instant ta>r reference is accordingly answered and the impugned order maintained.

Announced on;

04th of fune,2025 otrrt,,[y'c a

TUDGE

(DB)Hon'ble Mr. Justice syed fushad Ali & Hon'ble Mr. Justice