Assessment under income tax ordinance 2001

under INCOME TAX ordinance 2001SAAD ALI

SHAMROZE KHANAMMAR BIN FAROOQ

ASSESSMENT sec 120

ASSESSMENTSHAMROZE KHAN

Income Tax

A charge imposed by government on the annual gains of a person, corporation, or other taxable unit derived through work, business pursuits, investments, property dealings, and other sources determined in accordance with the internal revenue code or state law.

Assessment Sec 120

Sec(120) Assessments means , Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,- the Commissioner shall be taken to have made an

assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and

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.

Assessment Sec 120

Where the return of income furnished is not complete, the Commissioner shall issue a notice to the taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on taxable income, as specified in the return, or short payment of tax payable) and directing him to provide such information, particulars, statement or documents by such date specified in the notice. Where a taxpayer fails to fully comply, by the due date, with the requirements of the notice under sub-section (3), the return furnished shall be treated as an invalid return as if it had not been furnished

Best Judgment Assessment, Sec 121

(1)Where a person fails to furnish a statement as required by a notice under sub-section (5) of section 115;

or furnish a return as required under section 143 or section 144; or furnish the statement as required under section 116; or produce before the Commissioner, or any person employed by a firm of chartered

accountants 4[or a firm of cost and management accountants] under section 177, accounts, documents and records required to be maintained under section 174, or any other relevant document or evidence that may be required by him for the purpose of making assessment of income and determination of tax due thereon,

the Commissioner may, based on any available information or material and to the best of his judgment, make an assessment of the taxable income 5[or income] of the person and the tax due thereon.

(2) As soon as possible after making an assessment under this section, the

Commissioner shall issue the assessment order to the taxpayer stating— the taxable income The amount of tax due

Self Assessment

The concept of Universal Self Assessment is embodied in section 120 of the Income Tax Ordinance, 2001. Accordingly, all returns of income, other than the revised returns under sub-section (6) of section114, filed for the tax year 2003 onwards shall be returns of Universal Self Assessment. In view of clause (b) of section 120, a return qualifying for acceptance under Universal Self Assessments shall be deemed to be the assessment order made and issued by the Commissioner on the date the return was furnished”.

Assessment Of Persons Who Have Not Furnished A Return

, sec(121)

(1) Where a person required by the Commissioner through a notice] to furnish a return of income for a tax year fails to do so by the due date, the Commissioner may, based on any available information and to the best of the Commissioner‘s judgment, make an assessment of the taxable income of the person and the tax due thereon for the year.

(2) As soon as possible after making an assessment under this

section, the Commissioner shall issue, in writing, an assessment order to the taxpayer stating

the taxable income of the taxpayer for the year; the amount of tax due; the amount of tax paid, if any; and the time, place, and manner of appealing the assessment order. (3) An assessment order shall only be issued within five years after

the end of the tax year, or the income year, to which it relates.

Amendment of assessments , Sec 122

The Commissioner has power to amend an assessment by making such alteration or additions as the Commissioner considers necessary to ensure that the taxpayer is liable for the correct amount of tax. An assessment order can only be amended within five years from the end of the financial year in which the Commissioner has issued or is treated as having issued the original assessment order. The Commissioner has power to make further amendments as many times as may necessary within the later ofi) 5 years from the end of financial yearii) 1 year from the end of the financial year in which

amendment was made

ASSESSMENTAMMAR BIN FAROOQ

Amended order

Where a person does not produce accounts and records, or details of expenditure, assets and liabilities or any other information required for the purposes of audit under section 177, or does not file wealth statement under section 116, the Commissioner may, based on any available information and to the best of his judgment; make an amended assessment.

Subject to sub-section (9), the Commissioner may amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue. Any amended assessment order under sub-section (5A) may be passed within the time-limit specified in sub-section (2) or sub-section (4), as the case may be. The following points needs to be remembered for amended assessment:1. An amended assessment order is to be treated in all respects as an assessment order the purpose of this Ordinance, other than for the purposes of sub-section(1) of section 122.

Provisional assessment , Sec 122C

Where in response to a notice under sub-section (3) or sub-section (4) of section 114 a person fails to furnish return of income for any tax year, the Commissioner may, based on any available information or material and to the best of his judgment, make a provisional assessment of the taxable income or income of the person and issue a provisional assessment order specifying the taxable income or income assessed and the tax due thereon.

Notwithstanding anything contained in this Ordinance, the provisional assessment order completed under sub-section (1) shall be treated as the final assessment order after the expiry of sixty days from the date of service of order of provisional assessment and the provisions of this Ordinance shall apply accordingly

Provisional assessment in certain cases , Sec 123

Where a concealed asset of any person is impounded by any department or agency of the Federal Government or a Provincial Government, the Commissioner may, at any time before issuing any assessment order under section 121 or any amended assessment order under section 122, issue to the person a provisional assessment order or provisional amended assessment order, as the case may be, for the last completed tax year of the person taking into account the concealed asset.

The Commissioner shall finalize a provisional assessment order

or a provisional amended assessment order as soon as practicable

In this section, concealed asset means any property or asset

which, in the opinion of the Commissioner, was acquired from any income subject to tax under this Ordinance

Assessment in relation to disputed property , Sec 125

Where the ownership of any property the income from which is chargeable to tax under this Ordinance is in dispute in any Civil Court in Pakistan, an assessment order or amended assessment order in respect of such income may be issued at any time within one year after the end of the financial year in which the decision of the Court is made.

Evidence of assessment , Sec 126

The production of an assessment order or a certified copy of an assessment order shall be conclusive evidence of the due making of the assessment and, except in proceedings relating to the assessment, that the amount and all particulars of the assessment are correct.

Any of assessment or other document purporting to be made, issued, or executed under this Ordinance may not be

(a) Quashed or deemed to be void or voidable for want of form; or (b) Affected by reason of any mistake, defect, or omission therein, if it is, in substance and effect, in conformity with this Ordinance and the

person assessed, or intended to be assessed or affected by the document, is designated in it according to common understanding

Rectification of mistakes sec 221

COMPARISON

Point of comparison

PAKISTAN INDIA

Types of Income

1. Salary2. House Property3. Business / Profession4. Capital Gain5. Other Sources

1. Salary2. House Property3. Business / Profession4. Capital Gain5. Other Sources

Types of Assessment

1. Best Judgment Assessment, Sec 121

2. Amendment of assessments , Sec 122

3. Provisional assessment ,Sec 122C

4. Assessment Of Persons Who Have Not Furnished A Return , sec(121)

5. Self assessment

1. Sec 140 A – Self Assessment

2. Sec 143 (3) – Regular / Scrutiny Assessment

3. Sec 144 – Best Judgment Assessment

4. Sec 147 – Assessment / Reassessment of Income

5. Escaping Assessment

COMPARISON

Point of comparison

PAKISTAN INDIA

Normal Procedure of Taxation

The usual process of T axation is:1) The assessee earns income2) He deposits 3) The assessee fils Income Tax Return (IT R)

The usual process of Taxation is:1) The assessee earns income2) He deposits tax – based on self calculation – or as determined byhis T ax Consultant3) T he assessee fils Income T ax Return (IT R)

Assessee The ‘Person’ who is under assessment is called the Assessee

The ‘Person’ who is under assessment is called the Assessee. The Person / Assessee can be an Individual / HUF / Firm / LLP / Cooperative / Company / AOP / BOI / Artificial Juridical Person

COMPARISON

Point of comparison

PAKISTAN INDIA

Evidence of assessment



CASE LAW OF ASSESSMENT

SAAD ALI

Case Law Regarding Assessment

SINDH HIGH COURT Before Aqeel Ahmed Abbasi and

Sadiq Hussain Bhatti, JJ Aminuddin Ansari for Applicant.

Amjad Jawaid Hashmi for Respondent.

Messrs KURDISTAN TRADING COMPANY (Partnership, firm) through

Authorized Attorney


AQEEL AHMED ABBASI, J.---Being aggrieved and dissatisfied with the order dated 30-10-2009 passed by the Income Tax Appellate Tribunal in I.T.A. No.281/KB/2008 (Tax Year 2004), whereby the appeal filed by the applicant was dismissed. The applicant has filed immediate Reference Application under section 133(1) of Income Tax Ordinance, 2001 and has wished-for the following two questions of law, which according to learned counsel for the applicant arise from the impugned order passed by the Tribunal and require authoritative pronouncement by this Court

(a) Whether in terms of section 133(2A) of the Income Tax Ordinance,2001 on the date of hearing of appeal on 10-10-2009 when more than six months had gone since the filing of appeal on 12-4-2008; the Appellate Tribunal ceased to have jurisdiction to hear and decide the appeal and the relief wanted in the grounds of appeal by the appellant/tax payer shall be deemed to have been allowed to the tax payer?

(b) Whether clause 3A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001 inserted through Finance Act, 2004, is in the nature of correct/beneficial legislation and is applicable to tax year 2004 and the applicant/tax payer is entitled for exemption claimed?


Brief facts as recorded by the Appellate Tribunal and stated by the learned advice for the applicant in the instant reference application are that the taxpayer filed return of income for tax year 2004 declaring income of Rs.814,064. The assessment was deemed to have been finalized under the provisions of section 120 of the Income Tax Ordinance, 2001. The Additional Commissioner of Income Tax found the deemed assessment wrong in so far as damaging to the interest of revenue and he issued show-cause notice to the taxpayer as under:--

"On examination of your case record for the Tax Year 2004 open that you have declared income from score amounting to Rs.42,766,374 and claimed its exemption under State Bank of Pakistan, Circ0ular No.29 of 2002. The exemption claimed under State Bank of Pakistan, Circular is not allowable under Income Tax Ordinance and same is to be disallowed under section 70 of Income Tax Ordinance, 2001 and mark up is be treated and taxed income from business.“

The explanation furnished was not found satisfactory by the taxpayer,


Learned advocate for the applicant has pressed question No. 2 only which according to learned advocate is a important question of law which arises from the order passed by the learned tribunal in the instant case. While giving the brief history of the case, it has been contended by learned counsel that for the tax year 2004 the applicant could not file return of income within due date i.e. 30th September 2004

on the other hand, learned advocate for the respondent has controverted the submissions made by the learned advocate for the applicant and has supported the impugned order passed by the Income Tax Appellate Tribunal in the instant case. It has been contended by the learned advocate for the respondent that on the expiry of last date for filing of return for the tax year 2004 i.e. 30th September 2004, the matter became past and closed transaction for the tax year 2004, whereas the applicant was required to furnish the return of total income keeping in view the provision of law as existed on the closing date of the tax year i.e. 30th June 2004


We have heard both the learned counsel and perused the record. Since the learned counsel for the applicant has pressed question No.2 only which relates to prospective or retrospective application of Clause (3A) of Part-IV of the Second Schedule, therefore, will be advantageous to reproduce the provision of Clause (3A) of Part IV of the Second Schedule, section 34 and section 70 of the Income Tax Ordinance, 2001

. If we may examine the provision of Clause 3A of Part IV of the Second Schedule to the Income Tax Ordinance, 2001, it can be seen that the said provisions are remedial and beneficial in nature as certain relief has been given to the tax payers by excluding its benefit derived by way of waiver of profit and debt or the debt itself, from the chargeability to tax


In view of hereinabove facts and by applying the ratio of afore cited judgments, we are of the opinion that the Provision of Clause (3A) of Part IV of the Second Schedule of Income Tax Ordinance, 2001 inserted through Finance Act, 2004 are remedial and beneficial in nature, hence will apply retrospectively, whereas its benefit may also be extended to the case of the present applicant for the tax year 2004, which was pending and not finalized in terms of section 120(1) of the Income Tax Ordinance, 2001. Accordingly, instant reference application is allowed and the question No.2 as proposed hereinabove through instant reference application is answered in affirmative in favour of the applicant. Since the learned counsel for the applicant has not pressed question No.1 nor advanced any arguments in this regard, therefore, we would not answer such question, which otherwise, appears to be a question of law.

ConclusionConclusion

Assessment under income tax ordinance 2001

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