Section 122 (5A) ITO: Power granted to IR commissioners is not without boundaries: ATIR

ISLAMABAD: Appellate Tribunal Inland Revenue (ATIR) has held that the powers granted to Commissioners Inland Revenue to amend assessment orders under Section 122(5A) of the Income Tax Ordinance, 2001 are not without boundaries.

The ATIR emphasised that the scope of investigation and inquiry under this provision is not open-ended, and must operate within clearly defined restrictions and limitations.

In a strongly worded observation, the ATIR remarked that “justice is a concept of moral rightness based on ethics and rationality,” asserting that unchecked investigative authority undermines both the legal process and individual freedoms.

ATIR further stated that the investigative proceedings under the cited provision “suffer not only from the vice of excessive delegation of legislative authority but also amount to a patent violation of fundamental rights and constitutional guarantees.” The ruling criticised the absence of adequate safeguards and procedural clarity, arguing that this lack opens the door to arbitrary use of power.

Tax lawyer Waheed Shahzad Butt says this judgment could set a precedent for future challenges to administrative overreach and highlight the growing need for a balance between state authority and individual constitutional protections. The decision is being welcomed as a reaffirmation of the principles of due process and rule of law.

ATIR order stated: “under Section 122(5A) the scope of investigation and inquiry is not open ended without any restrictions and limitations. Matter of enquiries and fishing and roving inquiries is to be seen in the context of two mandatory prescribed conditions referred in the provision of law.

Enquiries cannot be conducted without the presence of twin criteria of “erroneous & prejudicial to interest of revenue” otherwise there would be no difference between (Regular Audit) Section 177 & (Amendment of assessment) Section 122(5A). Verification of any factual controversy is obviously out of purview of section 122(5A) and requires conduct of audit (if any) under section 177.

Creation of tax demand under the umbrella of Section 122(5A) is a blunt violation. There is no concept of “unfettered discretion” in the fiscal laws and arbitrary exercise of discretionary powers has to be struck down. Justice is a concept of moral rightness based on ethics and rationality, impugned order merits, cancellation, ATIR order added.

Copyright Business Recorder, 2025