Lahore, Pakistan: The tax department has faced a setback after failing to justify its disallowance of a taxpayer’s adjustment of unverified refund towards their current year’s tax liability. The taxpayer, a poultry feed manufacturer, had successfully challenged the tax department’s decision at higher appellate forums.
The controversy arose when an assessment officer at the Corporate Tax Office (CTO) objected to the taxpayer’s adjustment, claiming it was a mistake that warranted rectification under the law. The officer issued a notice to the taxpayer, but the taxpayer was unable to provide a satisfactory explanation.
In their appeal before the Commissioner of Appeals, the taxpayer argued that the adjustment was in accordance with the rules and established practice. They emphasized that the tax department had failed to prove that the adjustment was inadmissible in the relevant tax year. Business Recorder
The taxpayer highlighted that the Income Tax Rules, 2002, specifically provide for a column where taxpayers can adjust refunds from previous years against their current year’s tax liability. They contended that no additional documentation was required for this adjustment and that the refund could not be disallowed merely because it was unverified.
The taxpayer further argued that the tax department had neither disputed the overpayment of tax for the preceding year nor conducted any verification process to determine the inadmissibility of the refund. They emphasized that the department’s claim that a refund is only due when the Commissioner is satisfied that tax has been overpaid is irrelevant in the context of a taxpayer-initiated adjustment.
Despite the Commissioner of Appeals rejecting the taxpayer’s appeal, their case was ultimately upheld at higher appellate forums. This decision serves as a reminder to the tax department to exercise caution when disallowing taxpayer adjustments and to ensure that their actions are supported by solid legal grounds.
