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LAHORE: An Officer of Inland Revenue (OIR) could not prove that a private limited company engaged in production under sale of poultry feed has wrongly adjusted unverified refund of previous year towards the current year’s tax liability.

The OIR termed it a mistake and warranted rectification by issuing a notice for disallowing the refund adjustment.

While having no response from the taxpayer, he disallowed the adjustment of previous year refund against tax liability of the current year.

The taxpayer approached the Commissioner Appeals who rejected his stance and confirmed the treatment. The taxpayer agitated that the adjustment was as per law as well as established past practice. The OIR failed to establish the existence of mistake and the adjustment was as per rules and disallowing it without first proving its admissibility in the relevant tax year was patently illegal.

According to him, the format of the return indicates that under the head computation there is a column with description “refund adjustment of other year(s) against demand of this year” at Code 92101. There is no requirement or additional documentation for making the adjustment.

He said when a taxpayer claims refund in return of income, it means that tax paid by him is in access of his tax liability for that relevant year. Unless refund claimed by a taxpayer is found inadmissible after due verification under the law, the same cannot be disallowed merely on the basis that it was ‘unverified’.

He said neither the department had disputed tax overpaid for the preceding year nor was there any verification process employed to declare it as inadmissible. Therefore, disallowing adjustment of prior year’s refund was not justified and that took through rectification proceedings.

It may be noted that the Commissioner Appeals had also misconceived his role by observing that a refund is only due when the Commissioner is satisfied that tax has been overpaid and there is an adjustment order under the law. In actual, issuance of refund or its adjustment was made by the department and not by the taxpayer.

Te appellate forum agreed with the taxpayer and allowed the adjustment.

Copyright Business Recorder, 2024

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