Rana Farzand Ali vs Cir etc.

Stereo. H C J D A-38.

JUDGMENT SHEET

IN THE LAHORE HIGH COURT, MULTAN BENCH,

MULTAN

JUDICIAL DEPARTMENT

I.T.R. No.25 of 2026

Rana Farzand Ali

Versus

The Commissioner Inland Revenue, Zone-II, Regional Tax Office, Sargodha & others

J U D G M E N The

Date of hearing: 15.10.2026.

Applicant by: Mr. Tanveer Ahmad, Advocate.

Respondents by: Mr. Moiz Riaz Azam Bopera, Advocate.

MUHAMMAD SAJID MEHMOOD SETHI, J.:- Through instant Reference Application under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance of 2001”), following questions of law, asserted to have arisen out of impugned order dated 03.07.2025, passed by the learned Appellate Tribunal Inland Revenue, (Headquarters Bench) Islamabad (“Appellate Tribunal”), have been pressed and argued for our opinion:- I. Whether under the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to ‘Review’ its own order under the cover of rectification application when the learned DR failed in specifically pointing out the mistake in the order of the learned Appellate Tribunal?

II. Whether under the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to accept the rectification application when the department could not establish a mistake apparent from the record as held by the learned Appellate Tribunal in its same order in paras 2 to 5 refers?

2.Briefly, the applicant-taxpayer declared income of Rs.375,000, agricultural income of Rs.200,000 and net wealth of Rs.90,480,000 in his return and wealth statement filed on 26.01.2015, including 75

I.T.R. No.25 of 2026

kanals of land valued at Rs.90,000,000. The department added Rs.95,065,000 to his income under Section 122 of the Ordinance, which was upheld by the learned Commissioner Inland Revenue (Appeals). The learned Appellate Tribunal initially vacated the assessment on 02.03.2016; however, upon remand by this Court in I.T.R. No.235 of 2016, it annulled the assessment on a legal ground vide order dated 07.08.2024, without examining the merits. The department’s subsequent application under Section 221, relying on a notice under Section 111(1)(b) issued on 27.01.2025 and served on 28.01.2025, was allowed by the impugned order dated 03.07.2025, whereby the learned Appellate Tribunal reopened the matter and sustained the addition of Rs.95,065,000. Hence, the present reference.

ARGUMENTS OF THE LEARNED REPRESENTATIVES

3.The learned counsel for the applicant-taxpayer contends that Section 221 of the Ordinance confers a limited power of rectification and does not authorise the learned Appellate Tribunal to review, recall or substantially rewrite its earlier decision. It is argued that the impugned order is internally contradictory because, after recording in paragraphs 2 to 5 that the department had failed to identify a mistake apparent from the record and that its grounds were argumentative in nature, the learned Appellate Tribunal proceeded in paragraph 6 to declare that an error existed and, in paragraph 7, adjudicated the merits of the assessment afresh. According to the learned representative, the subsequent notice under Section 111 could not constitute a mistake apparent from the record in an order passed on 07.08.2024, particularly when the notice was issued and served in January 2025. It is further contended that, if the department considered the earlier order legally erroneous, its remedy lay in pursuing the statutory remedy available under the Ordinance rather than invoking rectification to obtain a fresh decision. In support, he has referred to Commissioner Inland Revenue v. Messrs Northern Power Generation Company (2026 PTD 1449).

I.T.R. No.25 of 2026

4.Conversely, the learned counsel for the respondent-department supports the impugned order on the ground that the earlier decision proceeded on the premise that no separate notice under Section 111 had been issued, whereas such notice was available on the record. It is maintained that the learned Appellate Tribunal was, therefore, competent to correct its earlier order and examine the matter in light of the material brought to its notice.

COURT ANALYSIS AND LEGAL REASONING

Both questions of law are interrelated, as they concern the limits of the rectification jurisdiction conferred by Section 221 of the Income Tax Ordinance, 2001 (“the Ordinance”) and whether the learned Appellate Tribunal Inland Revenue (“the learned Appellate Tribunal”) exercised that jurisdiction to correct a mistake apparent from the record or impermissibly reviewed its earlier decision. They are, therefore, taken up together.

Scope and Limits of Rectification under Section 221 5. The controversy must be examined in the light of the precise language of Section 221 of the Ordinance. Subsection (1) empowers the Commissioner, the Commissioner (Appeals) or the Appellate Tribunal, by an order in writing, to amend an order passed by it for the purpose of rectifying a mistake apparent from the record, either on its own motion or when such mistake is brought to its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, by the Commissioner. The jurisdiction is thus confined to correcting an apparent mistake in an existing order. It does not confer a general power of review or authorise reconsideration of a concluded matter merely because a party advances a different interpretation of the law, disputes the appreciation of evidence or seeks a more favourable determination on merits.

6.The expression “mistake apparent from the record” denotes an error that is patent, obvious and self-evident, capable of identification without embarking upon elaborate reasoning, investigation or reappraisal of evidence. In Commissioner of Income Tax, Karachi v.

I.T.R. No.25 of 2026

Messrs Shadman Cotton Mills Ltd., Karachi through Director (2008 PTD 253), the principle was recognised that rectification is confined to an obvious and patent mistake and cannot be employed to reopen an issue requiring detailed examination. The same principle was elaborated by this Court in Commissioner Inland Revenue, Sialkot v. Messrs Chaudhry Steel Mills S.I.E., Daska (2025 PTD 101), wherein it was held that a mistake rectifiable under Section 221 must be one floating on the surface of the record and so obvious that it strikes the mind upon a mere reading of the order. Where the authority enters into a controversy, investigates the matter, reassesses evidence or forms a different opinion through further interpretation of the law, the exercise ceases to be rectification. More recently, in Commissioner Inland Revenue v. Syed Muhammad Murtaza Zaidi and others (2026 PTD 1348), another learned Division Bench of this Court reaffirmed that Section 221 does not authorise the admission of fresh evidence, reassessment of facts or reconsideration of the merits of a matter already decided by the learned Appellate Tribunal. These authorities establish that the existence of an apparent mistake is the jurisdictional condition for rectification; the provision cannot be invoked to secure a fresh adjudication under the guise of correcting an error.

7.Two further features of Section 221 are material. First, although subsection (1) permits the Commissioner to bring an alleged mistake to the notice of the learned Appellate Tribunal, the filing of an application does not, by itself, establish the existence of such a mistake. The learned Appellate Tribunal must independently identify the specific error apparent from the record and confine its corrective action to that error. Secondly, subsection (2) prohibits the making of an order under subsection (1) which enhances an assessment, reduces a refund or otherwise operates adversely upon a taxpayer unless a reasonable opportunity of being heard has been afforded to the taxpayer. This safeguard assumes particular significance where rectification initiated by the department is sought to revive or sustain a tax demand previously annulled. Compliance with the requirement of

I.T.R. No.25 of 2026

hearing, however, cannot enlarge the substantive jurisdiction conferred by subsection (1). The proposed rectification must satisfy the statutory test of an apparent mistake and must not result in a fresh determination of the controversy beyond the permissible scope of that provision.

Inadmissibility of Review and Availability of Statutory Remedy 8. The distinction between rectification and review is substantive. Rectification corrects an apparent error in an existing decision; review involves reconsideration of the decision itself. Section 221 does not confer the latter power. Accordingly, an allegation that the learned Appellate Tribunal reached an incorrect legal conclusion, failed to appreciate a contention or ought to have decided the controversy differently cannot be converted into a rectifiable mistake unless the alleged error is patent and apparent from the record. In Syed Muhammad Murtaza Zaidi supra, another learned Division Bench of this Court specifically held that rectification cannot be used to re- adjudicate the merits of an earlier order or to bypass the appropriate statutory remedy available against it. Similarly, the case of Chaudhry Steel Mills supra emphasises that the power under Section 221 must remain within its prescribed limits and cannot be employed as an alternative to the statutory provisions governing amendment of assessments.

9.In the present case, the learned Appellate Tribunal, vide its order dated 07.08.2024, annulled the assessment on a legal ground without examining the merits of the additions. If the department considered that conclusion legally unsustainable, it was required to pursue such remedy as was available to it under the Ordinance, subject to the applicable statutory requirements and limitation. The rectification jurisdiction could not be invoked as a substitute for that remedy or employed to secure a fresh adjudication of matters not determined on merits in the earlier order. The subsequent exercise of jurisdiction was, therefore, permissible only if the department demonstrated a mistake apparent from the record in the order dated

I.T.R. No.25 of 2026

07.08.2024; the mere assertion that the earlier decision was legally erroneous could not satisfy that requirement.

The Subsequent Notice under Section 111(1)(b)

10.The subsequent notice under Section 111(1)(b), stated to have been issued on 27.01.2025 and served on 28.01.2025, does not, by itself, alter the above conclusion. The order sought to be rectified was passed on 07.08.2024, several months before the issuance and service of the said notice. Its subsequent production could not, merely by itself, establish that the earlier order contained an obvious mistake when it was made. Whether the notice had any legal bearing upon the assessment, whether it could affect the consequences of the earlier proceedings, and whether the statutory requirements for making or sustaining the addition were otherwise fulfilled are questions that must be determined under the applicable substantive provisions and procedure. They cannot be resolved under Section 221 merely by treating the subsequent notice as proof of a patent error in the earlier order.

11.This Court is not called upon in the present reference to determine the independent merits or legal effect of the notice under Section 111, or to decide whether the original assessment was otherwise legally sustainable. The controversy is confined to the legality of the learned Appellate Tribunal’s exercise of rectification jurisdiction. On that question, the subsequent notice did not, without identification of a specific and patent error in the earlier order, provide a lawful basis for reopening the matter and undertaking a fresh adjudication of the taxpayer’s liability.

Contradiction on the Face of the Impugned Order

12.The impugned order suffers from an internal contradiction material to the exercise of jurisdiction. In paragraphs 2 and 3, the learned Appellate Tribunal recorded that the learned Departmental Representative had advanced legal and factual arguments without specifically identifying a mistake in the earlier order. It further observed that the grounds were argumentative in nature, the relevant

I.T.R. No.25 of 2026

matters had already been discussed, there was no justification to reopen issues already decided, and no mistake apparent from the record had been demonstrated. In paragraphs 4 and 5, the learned Appellate Tribunal referred to judicial authorities reiterating the narrow scope of rectification.

13.Having recorded these findings, the learned Appellate Tribunal could not, without identifying a specific and patent error in the order dated 07.08.2024, reverse its position in paragraph 6 and declare that an error or illegality existed. The mere assertion that a separate notice under Section 111 was available on the record did not explain how the earlier order contained an apparent mistake, particularly when the notice relied upon by the department was issued and served after that order. The impugned order neither reconciles this chronological difficulty nor demonstrates how the alleged error could be corrected without reconsidering the legal basis of the earlier decision. The statutory requirement was not satisfied merely by identifying material which the department considered relevant to the controversy; it was necessary to establish that the order sought to be rectified itself contained an apparent mistake.

14.More significantly, in paragraph 7 of the impugned order, the learned Appellate Tribunal proceeded to examine the taxpayer’s wealth accretion and the merits of the addition of Rs.95,065,000. The earlier order had annulled the assessment on a legal ground without determining those matters on merits. Their subsequent examination was not a mere correction of an obvious clerical, arithmetical or similarly patent error; it involved a fresh evaluation of the substantive tax controversy and resulted in a materially different outcome. Such an exercise falls outside the limited jurisdiction conferred by Section 221, as explained in the cases of Chaudhry Steel Mills and Syed Muhammad Murtaza Zaidi supra. The impugned order could not lawfully sustain the addition by undertaking a fresh determination of the merits under the label of rectification.

I.T.R. No.25 of 2026

15.The contradiction is not a minor irregularity of form but goes to the foundation of the jurisdiction exercised. Having expressly found that the department had not established a mistake apparent from the record, the learned Appellate Tribunal could not proceed, without identifying any such mistake, to reopen the matter and decide the merits under the same rectification application. Read as a whole, the impugned order demonstrates that the power under Section 221 was employed to revisit the earlier decision rather than to correct an identified patent error. The exercise is, therefore, inconsistent with the statutory limits of rectification as explained in the above-mentioned authorities.

Limitation under Section 221(4)

16.Section 221(4) prescribes a five-year period for making an order under subsection (1). Compliance with that period, however, is distinct from satisfaction of the substantive conditions governing the exercise of rectification jurisdiction. In The Taxation Officer/Deputy Commissioner of Income Tax, Lahore v. Messrs Rupafil Ltd. and others (2018 SCMR 1131), the Hon’ble Supreme Court considered the application of procedural amendments and limitation provisions, including the significance of rights accrued in respect of past and closed transactions. Although that judgment arose in a different factual and legal context, it reinforces the need to distinguish the temporal applicability of a statutory provision from the conditions governing the exercise of the power conferred by it. Thus, even if the department’s application was made within the period prescribed by Section 221(4), that circumstance could not enlarge the scope of rectification or validate an otherwise impermissible review. The requirement of demonstrating a mistake apparent from the record remained indispensable.

CONCLUSION AND ANSWERS TO QUESTIONS OF LAW

17.For the foregoing reasons, this Court finds that the learned Appellate Tribunal exceeded the limited jurisdiction conferred by Section 221 of the Ordinance. The department’s application did not

I.T.R. No.25 of 2026

justify a fresh adjudication of the merits, and the learned Appellate Tribunal’s own findings in paragraphs 2 to 5 of the impugned order were inconsistent with its ultimate decision to allow rectification and sustain the addition. In the absence of an identified mistake apparent from the record, the impugned order dated 03.07.2025 cannot be maintained.

18.Both questions of law are answered in the negative, in favour of the applicant-taxpayer and against the respondent-department. Consequently, the instant Reference Application is decided in favour of the applicant-taxpayer and against the respondent- department.

19.Office shall send a copy of this judgment under the seal of the Court to the learned Appellate Tribunal in terms of Section 133(8) of the Ordinance of 2001.

(Sultan Tanvir Ahmad) (Muhammad Sajid Mehmood Sethi) Judge Judge

APPROVED FOR REPORTING

Judge Judge

*A.H.S.*