ISLAMABAD: Appellate Tribunal Inland Revenue (ATIR) Islamabad has categorically held that a taxpayer cannot be denied credit of withholding tax merely because the withholding agent typed a wrong section code on the Computerized Payment Receipt (CPR).
Such denial is unlawful and equivalent to unwarranted confiscation of taxpayer’s money for frivolous reasons, it added.
In a ruling of far-reaching consequence for taxpayers across Pakistan, the landmark order delivered in the matter of a foreign based company, arose from the department’s refusal to allow tax credit of over Rs.52 million out of a verified amount of Rs.80.68 million The sole ground for this refusal was that withholding agents had inadvertently cited incorrect section references on their CPRs and IRIS filings.
Waheed Shahzad Butt who has represented the taxpayer informed that the taxpayer filed its annual tax return claiming withholding tax credits of Rs.81.45 million. The taxpayer, being a non-resident Permanent Establishment, was entitled to credit of taxes deducted under section 152(2A)(c). However, various withholding agents, while depositing the tax, recorded the payment under incorrect sections, including sections 152(2A)(a), 152(2A)(b), 153(1)(a), 153(1)(b), 153(1)(c), none of which were applicable to the taxpayer’s legal status.
The taxpayer rightfully consolidated and claimed all such amounts under the correct applicable provision of section 152(2A)(c) in its return. The department while conducting verification acknowledged that Rs.80.688 million was verifiable from the IRIS portal but allowed only Rs.28,516,928, refusing a staggering Rs.52 million on the sole ground of section-code mismatch, a mismatch caused entirely by the withholding agents, not the taxpayer: Waheed added.
ATIR held that the mere entry of an incorrect section code on a CPR cannot change the nature and character of the payment. A wrong section reference is no more than an administrative entry error, it does not alter the substantive tax liability or affect the verifiability of the actual deduction. Acknowledging that the taxpayer could ideally have sought correction of CPRs, the Tribunal was categorical that this at most constitutes a procedural lapse and the genuine statutory right to credit of verifiable taxes under section 168 cannot be withheld on the strength of minor procedural formalities.
The taxpayer had previously secured a decision in its favour from the ATIR in October 04, 2021, which was upheld by the IHC in ITR No.09/2022 with costs imposed on the tax department for frivolous litigation at Rs.100,000/-. Despite these binding orders, the department employed prolonged delay tactics. The taxpayer consequently approached the FTO, wherein the FTO found the department’s delay in processing the refund to constitute maladministration.
This order carries sweeping implications for the entire withholding tax ecosystem in Pakistan, where thousands of transactions are processed daily with varying degrees of accuracy in section code reporting. The key legal propositions settled by the Tribunal are very crucial that wrong CPR Section Code is not fatal, Section 168 is a mandatory entitlement, substance over form prevails, burden cannot shift to taxpayer for agent’s error and refund delays constitute maladministration: Waheed added.
Copyright Business Recorder, 2026
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