1. Assessment
INTRODUCTION
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 Under ,Sec 2(8)
Income Tax Act 1961
Assessment includes Reassessment
Generally, the term ‘assessment’ is understood as the process of determination of total income
and the tax payable thereon .In wealth tax it means the determination of the net wealth and the
tax thereon. The word ‘assessment’ is used in comprehensive sense and it can comprehend the
whole procedure for ascertaining and imposing liability upon the tax-payer and the machinery
for
enforcement thereof. In such a comprehensive sense, proceedings like rectification and revision
would also fall within the scope of assessment.
Assessment Under , Sec 120
Income Tax Act 2001
I. 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,-
(a) 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
(b) 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.

2. II. A return of income shall be taken to be complete if it is in accordance with the provisions
of sub-section (2) of section 114.
III. 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.
IV. 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.
V. Where, in response to a notice under sub-section (3), the taxpayer has, by the due date,
fully complied with the requirements of the notice, the return furnished shall be treated to
be complete on the day it was furnished and the provisions of sub-section (1) shall apply
accordingly.
VI. No notice under sub-section (3) shall be issued after the end of the financial year in which
return was furnished, and the provisions of sub-section (1) shall apply accordingly.
Best Judgement Assessment, Sec 121
Income Tax Act 2001
(1)Where a person fails to
I. furnish a statement as required by a notice under sub-section (5) of section 115; or
II. furnish a return as required under section 143 or section 144; or
III. furnish the statement as required under section 116; or
IV. 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,
V. 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—

3. I. the taxable income
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
I. the taxable income of the taxpayer for the year;
II. the amount of tax due;
III. the amount of tax paid, if any; and
IV. 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
1. Subject to this section, the Commissioner may amend an assessment order treated as
issued under section 120 or issued under section 121 by making such alterations or
additions as the Commissioner considers necessary
2. No order under sub-section (1) shall be amended by the Commissioner after the expiry of
five years from the end of the financial year in which the Commissioner has issued or
treated to have issued the assessment order to the taxpayer
3. Where a taxpayer furnishes a revised return under sub-section (6) 4[or (6A)] of section
114
I. the Commissioner shall be treated as having made an amended assessment of the taxable
income and tax payable thereon as set out in the revised return; and

4. II.
the taxpayer‘s revised return shall be taken for all purposes of this Ordinance to be an
amended assessment order issued to the taxpayer by the Commissioner on the day on
which the revised return was furnished
4. Where an assessment order (hereinafter referred to as the original assessment has
been amended under sub-section (1) (3), the Commissioner may further amend,3[as many
times as may be necessary, the original assessment within the later of
I. five years 4[from the end of the financial year in which] the Commissioner has issued or
is treated as having issued the original assessment order to the taxpayer; or
II. one year 5[from the end of the financial year in which] the Commissioner has issued or is
treated as having issued the amended assessment order to the taxpayer.
5. An assessment order in respect of tax year, or an assessment year, shall only be amended
under sub-section (1) and an amended assessment for that year shall only be further
amended under sub-section (4) where, on the basis of definite information acquired from
an audit or otherwise, the Commissioner is satisfied that
I. any income chargeable to tax has escaped assessment; or
II. total income has been under-assessed, or assessed at too low a rate, or has been the
subject of excessive relief or refund; or
III. any amount under a head of income has been mis-classified
6. As soon as possible after making an amended assessment under 4[sub-section (1), sub-
section (4) or sub-section (5A), the Commissioner shall issue an amended assessment
order to the taxpayer stating –
I. the amended taxable income of the taxpayer;
II. the amended amount of tax due;
III. the amount of tax paid, if any; and
IV. the time, place, and manner of appealing the amended assessment.
7. An amended assessment order shall be treated in all respects as an assessment order for
the purposes of this Ordinance, other than for the purposes of sub-section (1).
8. For the purposes of this section, ―definite information‖ includes information on sales or
purchases of any goods made by the taxpayer, 1[receipts of the taxpayer from services
rendered or any other receipts that may be chargeable to tax under this Ordinance,] and
on the acquisition, possession or disposal of any money, asset, valuable article or
investment made or expenditure incurred by the taxpayer.
9. No assessment shall be amended, or further amended, under this section unless the
taxpayer has been provided with an opportunity of being heard.

5. Revision by the Commissioner , Sec 122A
1. The Commissioner may call for the record of any proceeding under this Ordinance or
under the repealed Ordinance in which an order has been passed by any other than the
Commissioner (Appeals).
2. Subject to sub-section (3), where, after making such inquiry as is necessary,
Commissioner considers that the order requires revision, the Commissioner may make
such revision to the order as the Commissioner deems fit.
3. An order under sub-section (2) shall not be prejudicial to the person to whom the order
relates.
4. The Commissioner shall not revise any order under sub-section (2) if
(a) an appeal against the order lies to the Commissioner (Appeals) or to the Appellate
Tribunal, the time within which such appeal may be made has not expired; or
(b) the order is pending in appeal before the Commissioner (Appeals) or has been made the
subject of an appeal to the Appellate Tribunal.
Revision by the Regional Commissioner, Sec 122B
1. The Regional Commissioner may, either of his own motion or on an application made by
the taxpayer for revision, call for the record of any proceedings relating to issuance of an
exemption or lower rate certificate with regard to collection or deduction of tax at source
under this Ordinance, in which an order has been passed by any authority subordinate to
him.
2. Where, after making such inquiry as is necessary, Regional Commissioner considers that
the order requires revision, the Regional Commissioner may, after providing reasonable
opportunity of being heard to the taxpayer, make such order as he may deem fit in the
circumstances of the case

6. Provisional assessment , Sec 122C
1. 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.
2. 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
1. 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.
2. The Commissioner shall finalize a provisional assessment order or a provisional amended
assessment order as soon as practicable
3. 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 giving effect to an order , Sec 124
1. Except where sub-section (2) applies, where, in consequence of, or to give effect to, any
finding or direction in any order made by the Commissioner (Appeals), Appellate
Tribunal, High Court, or Supreme Court an assessment order or amended assessment
order is to be issued to any person, the Commissioner shall issue the order within two
years from the end of the financial year in which the order of the Commissioner
(Appeals), Appellate Tribunal, High Court or Supreme Court, as the case may be, was
served on the Commissioner.
2. Where, by an order made by the Appellate Tribunal, High Court, or Supreme Court, an
assessment order is set aside and the Commissioner is directed to a new assessment order,

7. the Commissioner as the case may be the new order within the Commissioner is served
with the order
3. Where an assessment order has been set aside or modified, the proceedings may
commence from the stage next preceding the stage at which such setting aside or
modification took place and nothing contained in this Ordinance shall render necessary
the re-issue of any notice which had already been issued or the re-furnishing or re-filing
of any return, statement, or other particulars which had already been furnished or filed.
4. Where direct relief is provided in an order under section 129 or 132, the Commissioner
shall issue appeal effect orders within two months of the date the Commissioner is served
with the order.
5. Where, by any order referred to in sub-section (1), any income is excluded
I. from the computation of the taxable income of a taxpayer for any year and held to be
included in the computation of the taxable income of the taxpayer for another year; or
II. from the computation of the taxable income of one taxpayer and held to be included in
the computation of the taxable income of another taxpayer,
6. Nothing in this Part shall prevent the issuing of an assessment order or an amended
assessment order to give effect to an order made under Part III of this Chapter by the
Commissioner (Appeals), Appellate Tribunal, High Court, or Supreme Court.
7. The provisions of this section shall in like manner apply to any order issued by any High
Court or the Supreme Court in exercise of original or appellate jurisdiction
Powers of tax authorities to modify orders, Sec 124A
1. Where a question of law has been decided by a High Court or the Appellate Tribunal in
the case of a taxpayer, on or after first day of July 2002, the Commissioner may,
notwithstanding that he has preferred an appeal against the decision of the High Court or
made an application for reference against the order of the Appellate Tribunal, as the case
may be, follow the said decision in the case of the said taxpayer in so far as it applies to
said question of law arising in any assessment pending before the Commissioner until the
decision of the High Court or of the Appellate Tribunal is reversed or modified.
2. In case the decision of High Court or the Appellate Tribunal, referred to in sub-section
(1), is reversed or modified, the Commissioner may, notwithstanding the expiry of period
of limitation prescribed for making any assessment or order, within a period of one year
from the date of receipt of decision, modify the assessment or order in which the said
decision was applied so that it conforms to the final decision

8. 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
1. 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.
2. 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
Comparison between Pakistan and India Assessment
POINTS OF
ASSESSMENT
PAKISTAN INDIA
Income 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
Income is a very dynamic concept – as
that is determined through mix of
legislation, court judgment, custom,
business practice etc.Many times, there
are retrospective amendments in law that
leads to change in amount of income for

9. code or state law. particular assessment year (AY ), and
consequently change in tax liability.
Here we may remember that the process
of Assessment comes when income has
already been earned or accrued.
Consequently first the income year
comes and the year next to income year
is the assessment year. For example the
Assessment Y ear 2009-10 would relate
to
income year 2008-09. Here in common
parlance, the income year might be called
‘financial year’. However, the Income T
ax Act of India prefers to call it ‘Previous
Y ear’.
Person – One
Who Earns
Income
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
Types of
Income
1. Salary
2. House Property
3. Business / Profession
4. Capital Gain
5. Other Sources
1. Salary
2. House Property
3. Business / Profession
4. Capital Gain
5. 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
Sec 147 – Assessment / Reassessment of
Income Escaping
Assessment
Best Judgement
Assessment
(1)Where a person fails to
VI. furnish a statement as required
by a notice under sub-section (5)
of section 115; or
VII. furnish a return as required
under section 143 or section 144;
or
VIII. furnish the statement as required
Assessee fails to furnish IT R u/s 139(1)
and has not furnished it u/s139(4)
- fails to comply with all terms of notice
u/s 142(1)
- fails to comply with direction issued u/s
142 (2A)
- fails to comply with terms of notice u/s
143(2)
T hen the AO to the best of his judgment

10. under section 116; or
IX. 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,
X. 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—
II. the taxable income
can determine the income and
tax payable by assessee based on records
possessed by AO.
Prior to proceeding on assessment u/s
144, the AO should give a show
cause notice to the assessee. However if
the AO has already issued
notice u/s 142(1)(i) and the assessee has
not complied with its terms,
then AO can go ahead with assessment
and no show cause notice is
required.
U/s 144 AO cannot assess income below
returned income and cannot
assess loss higher than the returned loss.
Even in case there is no
return for the year, the AO has to base his
calculation on certain
logical/rational/scientific and reasonable
ways viz. based on ratios,
growth rate of industry / sector. T he
assessment order should
therefore be a speaking order.i
Assessment u/s 144 can also be resorted
to if AO is not satisfied with
the correctness / completeness of Books
of Accounts.
Also the AO can reject Books of
accounts u/s 145 if assessment
proceedings are in process u/s 143(3) /
144 / 147 / 153A – and in
such case, the AO shall assess the income
and tax to the best of
judgement (ie. as per the requirements /
procedure of sec 144) and
pdfcrowd.com
complete assessment proceedings under
the particular section under
which the proceedings are going on.
Provisional
assessment in
certain cases
1. 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
No certain part is mentioned in indian
income tax ordinance

11. 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.
2. The Commissioner shall finalize
a provisional assessment order or
a provisional amended
assessment order as soon as
practicable
3. 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.
Normal
Procedure of
Taxation
The usual process of T axation is:
1) The assessee earns income
2) He deposits
3) The assessee fils Income Tax Return
(IT R)
The usual process of Taxation is:
1) The assessee earns income
2) He deposits tax – based on self
calculation – or as determined by
his T ax Consultant
3) T he assessee fils Income T ax Return
(IT R)
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.
Where the ownership of any property the
income from which is chargeable to tax
under this Ordinance is in dispute , 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
1. 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,
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,

12. except in proceedings relating to
the assessment, that the amount
and all particulars of the
assessment are correct.
2. 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
that the amount and all particulars of the
assessment are correct.
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”.
T his simply means that the person
is calculating his own tax liability
and thereafter filing IT R after
payment of self-calculated tax.
Since assessee himself calculates the
tax and income returned – it is
called self-assessment. However,
the
system of self-assessment is only to
make the work of IT Dept easier –
it is not the end of assessment. It is
simply paying tax and filing of
Return by the assessee. T he IT Dept
only gives an acknowledgement /
intimation u/s 143(1). T he assessee
can file IT R as Self assessment
under the different sections of 139
(Return within due date / Belated
Return / Return of Loss etc.) or in
response to notice u/s 142(1) or
148 or 153A
T he Self Assessment also covers
case where one has filed IT Return
–

13. and some Refund is due. T hen
when the IT Dept processes the
Return
and sends the Refund Cheque
(Income T ax Refund Order) – it is
sent
under cover of ‘Intimation u/s
143(1)’
T here is no assessment order by the
Dept. under Self Assessment
simply because, the assessment is
not being done by the department.
In my opinion the self-assessment
should only be considered an
exercise in filing of IT R – and just
– the first step in the process of
assessment(s) that are undertaken
by the department. If the Dept does
not take up the case for any further
assessment – then there is nothing
else to do. Since the assessment is
not being done by the IT
Department, for legal purpose the
acknowledgment / intimation by IT
Department is not considered as
‘Assessment’
Advantages of assessment
1. an amount not being included in the assessable income of the taxpayer of a year of
income where that amount would have been included, or might reasonably be expected to
have been included, in the assessable income of the taxpayer of that year of income if
the scheme had not been entered into or carried out
2. a deduction being allowable to the taxpayer in relation to a year of income where the
whole or a part of that deduction would not have been allowable, or might reasonably be
expected not to have been allowable, to the taxpayer in relation to that year of income if
the scheme had not been entered into or carried out
3. a capital loss being incurred by the taxpayer during a year of income where the whole or
a part of that capital loss would not have been, or might reasonably be expected not to
have been, incurred by the taxpayer during the year of income if the scheme had not been
entered into or carried out
4. a loss carry back tax offset being allowable to the taxpayer where the whole or a part of
that loss carry back tax offset would not have been allowable, or might reasonably be

14. expected not to have been allowable, to the taxpayer if the scheme had not been entered
into or carried out
5. the taxpayer not being liable to pay withholding tax on an amount where
the taxpayer either would have, or might reasonably be expected to have, been liable to
pay withholding tax on the amount if the scheme had not been entered into or carried out
6. the assessable income of the taxpayer of a year of income not including an amount that
would have been included, or might reasonably be expected to have been included, in
the assessable income of the taxpayer of that year of income if the scheme had not been
entered into or carried out where:
(i) the non-inclusion of the amount in the assessable income of
the taxpayer is attributable to the making of an agreement, choice,
declaration, agreement, election, selection or choice, the giving of a notice or the exercise
of an option (expressly provided for by this Act or the Income Tax Assessment Act 1997 )
by any person, except one under Subdivision 126-B, 170-B or 960-D of the Income; and
(ii) the scheme was not entered into or carried out by any person for
the purpose of creating any circumstance or state of affairs the existence of which is
necessary to enable the declaration, agreement, election, selection, choice, notice or
option to be made, given or exercised, as the case may b.
Disadvantages of assessment
1. When a government collects more in tax revenues, it accumulates more money to spend.
This increase in discretionary income, compared with the money available to the citizens
and businesses of the country, causes a shift in power away from the people towards the
government
2. In addition to discouraging investment, high taxes can also stifle the motivation of
individual workers.
3. In addition to the macroeconomic problems that high taxes can precipitate, an onerous tax
scheme can have the effect of penalizing hard work.
4. When taxes rise, the citizens and businesses of a country pay more of their income to the
government. People stop paying taxes and corruption will increase in this regard
5. For the those in the middle class and lower classes, an earnings tax may be a financial
hardship, regardless of the amount.

15. Case law regarding assessment
I.T.R.A. No.411 of 2010, decided on 15th August, 2013. Dates of hearing: 20th December,
2012, and 12th August, 2013.
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
COMMISSIONER INLAND REVENUE
ORDER
ORDER
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 instant
Reference Application under section 133(1) of Income Tax Ordinance, 2001 and has proposed
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 elapsed 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 sought 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 remedial/beneficial legislation and is
applicable to tax year 2004 and the applicant/tax payer is entitled for exemption claimed?
2. Brief facts as recorded by the Appellate Tribunal and stated by the learned counsel for the

16. 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 erroneous in so far as prejudicial 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 revealed that you have
declared income from mark-up amounting to Rs.42,766,374 and claimed its exemption under
State Bank of Pakistan, Circular 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 as income
from business."
Counsel for the taxpayer filed reply to the above stated show-cause notice which is
responded as under.-
"Reference is made to your notice under section 122(9) of the Income Tax Ordinance,
2001 along with letter No. Addl. CIT/Audit/Div-I/Cos-III/2007-08/71 both dated August,
11,2007 showing your intention to tax reversal of unpaid mark up vide State Bank of Pakistan
BPD Circular No.29 of 2002 dated October, 15, 2002 under section 70 of the Income Tax
Ordinance, 2001. In this connection we draw your attention to Clause 3A of Part IV of Second
Schedule to the Income Tax Ordinance, 2001 which specifically provide exemption of this
income under section 70 of the Income Tax Ordinance, 2001.
In view of the above you would understand the notice issued based on the
misunderstanding which may be withdraw with intimation to our client and oblige."
3. The explanation furnished was not found satisfactory by the taxpayer, who passed the
order under section 122 (5A) of the Income Tax Ordinance, 2001, whereafter an appeal was
preferred by the applicant before the Commissioner of Income Tax (Appeals), which was also
dismissed by the Commissioner vide order dated 14-12-2007. The applicant preferred appeal
before the Income Tax Appellate Tribunal against the order passed by the CIT (Appeals), who
vide impugned order has also dismissed the appeal filed by the applicant.
4. Learned counsel for the applicant has pressed question No. 2 only which according to
learned counsel is a substantial 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 and sought extension of time, which was granted by the
respondent and the return was filed on 15-10-2004. Per learned counsel, an amendment was
introduced by Finance Act, 2004, whereby clause (3A) of Part IV of the Second Schedule to the
Income Tax Ordinance, 2001 was inserted whereby certain benefit and exemption was extended
to the tax payers. It is contended by the learned counsel for the applicant that from bare reading
of clause (3A) of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001, it is clear
that the application of subsections (5) and (5A) of section 34 and section 70 were made not
applicable to any benefit derived by way of waiver of profit on debt or the debt itself under the

17. State Bank of Pakistan, Banking Policy Department's Circular No.29 of 2002 dated 15th
October, 2002, therefore, the date of application of clause (3A) of Part-IV of the Second
Schedule by the legislature itself has been made effective from the 15th October, 2002, which
reflects that retrospective effect has been given by the legislature to such amendment. It is further
contended by the learned counsel for the applicant that instant amendment is beneficial and
curative in nature, hence will apply retrospectively and its effect is required to be given to the
pending cases as well. Learned counsel states that the case of the applicant for the tax year 2004
was a pending case as the return was filed on 15-10-2004, whereas the amendment was
introduced through Finance Act, 2004, applicable from July 2004 onwards. Per learned counsel,
the case of the applicant was not past and closed transaction, therefore, the benefit of the
amended provision was available to the applicant, which has wrongly been denied by the
respondent. In support of his contention, learned counsel for the applicant has placed reliance in
the following case-laws:--
(1) C.I.T Karachi v. BRR Investment (Pvt.) Ltd., Karachi 2011 PTD 2148.
(2) Commissioner of Income Tax v. Shahnawaz and others 1993 SCMR 73
(3) Commissioner of Income Tax v. Humayun Elahi Shaikh 2011 PTD 145.
5. Conversely, learned counsel for the respondent has controverted the submissions made by
the learned counsel 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 counsel
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. Per learned counsel, since
the amendment was introduced by Finance Act, 2004 in July 2004 the same was applicable for
the tax year 2005 onwards and not for the earlier years as suggested by the counsel for the
applicant. It is contended that a taxpayer is required to furnish return of total income for the
relevant tax year keeping in view the law as existed during that year and cannot be allowed to
take benefit of any amendment introduced after the cutoff date meant for closing of the tax year
and on expiry of the last date for filing return for the tax year. It has been contended by the
learned counsel that no question of law arises from the order of learned Tribunal, therefore,
instant reference application may be dismissed.
6. 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, which read as follows:--
"(3A) The provisions of subsections (5) and (5A) of section 34 and section 70 shall not
apply to any benefit derived by way of waiver of profit on debt or the debt itself under the State
Bank of Pakistan, Banking Policy Department's Circular No.29 of 2002, dated the 15th October,
2002, to the extent not set off against the losses under Part VIII of Chapter III."

18. "34. Accrual-basis accounting.
(5) Where a person has been allowed a deduction for any expenditure incurred in deriving
income chargeable to tax under the head-Income from Business and the person has not paid the
liability or a part of the liability to which the deduction relates within three years of the end of
the tax year in which the deduction was allowed, the unpaid amount of the liability shall be
chargeable to tax under the head-Income from Business in the first tax year following the end of
the three years.
2[(5A) Where a person has been allowed a deduction in respect of a trading liability and
such person has derived any benefit in respect of such trading liability, the value of such benefit
shall be chargeable to tax under 3[the] head-Income from Business for the tax year in which such
benefit is received.]"
"70. Recouped expenditure.---Where a person has been allowed a deduction for any
expenditure or loss incurred in a tax year in the computation of the person's income chargeable to
tax under a head of income and, subsequently, the person has received, in cash or in kind, any
amount in respect of such expenditure or loss, the amount so received shall be included in the
income chargeable under that head for the tax year in which it is received."
7. From perusal of the provision of Clause (3A) of Part IV of the Second Schedule inserted
by Finance Act, 2004, it is seen that provisions of subsections (5)(5A) of sections 34 and 70 of
the Income Tax Ordinance, 2001 are made inapplicable in the case, where any benefit derived by
way of waiver of profit on debt or the debt itself under the State Bank of Pakistan, Banking
Policy Department Circular No. 29 of 2002 dated 15th October 2002, to the extent not setoff
against the losses under Part VIII of Chapter-3 of the Income Tax Ordinance, 2001 is excluded
from the charge of tax. The precise controversy which has been raised through instant reference
application by the counsel for the applicant is to determine as to whether Clause (3A) of Part IV
of the Second Schedule to the Income Tax Ordinance, 2001 inserted through Finance Act, 2004,
is remedial and beneficial in nature, hence, applicable retrospectively to tax year 2004.
Admittedly, the financial year in the case of applicant for the tax year 2004 was closed on 30th
June 2004, whereas, the applicant was required to furnish return of his total income for the tax
year 2004 by 30th September 2004. The applicant in the instant case, could not furnish the return
of his total income by 30th September 2004 and sought extension of time for filing of return,
which was granted by the respondent, and the return of income in the instant case was filed by
15th October 2004. The aforesaid facts reflect that when the return of tax year 2004 was filed by
the applicant, the amendment in Part IV of the Second Schedule by inserting Clause (3A) therein
by Finance Act, 2004 was in existence, whereas assessment for the tax year 2004 was pending
as in terms of section 120(1) a deem assessment by the Commissioner, Inland Revenue could
come into existence only on the filing of return of income in terms of section 114 read with
section 118 of Income Tax Ordinance, 2001. In view of hereinabove fact, it can be safely
concluded that when Clause 3A of Part IV of the Second Schedule was inserted through Finance
Act, 2004, the assessment for tax year 2004 in the case of applicant was still pending.
8. If we may examine the provision of Clause 3A of Part IV of the Second Schedule to the

19. 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. It can be further
seen that legislature, while inserting Clause (3A) Part IV of the Second Schedule has extended
this benefit retrospectively by referring to Circular No. 29 of 2002 dated 15th October 2002
issued by the State Bank of Pakistan. There is no cavil to the legal proposition that normally
amendments introduced in fiscal statutes through Finance Act apply prospectively in the year in
which it has been inserted, unless, some retrospective effect has been given by the legislature. On
the other hand, in cases where the amendment introduced is remedial and beneficial in nature, it
has to be given retrospective effect and also to apply to all pending cases on the date of
amendment/enactment as well, unless some prospective effect is given by the legislature or it is
made prospective by its implication. It is trite principle of construction of a fiscal statute that
unless and until any amendment introduced by Finance Act, creating any charge or additional
burden upon a taxpayer, is given retrospective effect by express words by the legislature, it
cannot be applied retrospectively to the disadvantage of the taxpayer. In the instant case, though
the accounts of the tax payer for the tax year 2004 were closed by 30th June 2004, however, the
assessment, which includes calculation, computation and application of tax rates and exemption
etc., if any, was not finalized, even, a deemed assessment in terms of section 120(1) of the
Income Tax Ordinance, 2001 was not made.
9. The scope and its application of an amendment made in subsection (6) of Section 18-A of
the Income Tax Act, 1922 by the Finance Act, 1973, whereby the additional amount of tax
under subsection (6)(18-A) could only be charged for a period not exceeding 15 months, was
extended also to the cases of assesses who had submitted their returns before the coming into
force of the said amendment, but their assessment had not yet been finalized and were still
pending, came up for consideration before the Hon'ble Supreme Court in the case of
Commissioner of Income Tax v. Shahnawaz Ltd. and others reported as 1993 SCMR 73,
wherein the Hon'ble Supreme Court has held as under:--
"As explained in Crawford's Statutory Construction" a statute relating to remedial law
may properly, in several instances, be given retrospective operation and we are of the opinion
that as the amendment in the instant case was introduced to redress an injury which in the words
of Circular No. 6 of 1973 (Income Tax) issued on 7th July, 1973 by the Central Board of
Revenue itself was "designed to soften the law in favour of tax-payers who could previously be
charged to additional tax up to the date of assessment even though the finalization of assessment
was delayed due to no fault of theirs." This was a proper case in which retrospective operation, to
the extent the High Court gave to it, could be given to the amending law."
10. In the case of Commissioner of Income Tax, Karachi v. Messrs B.R.R. Investment (Pvt.)
Ltd., Karachi reported as 2011( PTD 2148, a Division Bench of this Court was pleased to hold as
under:--
"It is trite proposition of law that beneficial provisions of law are always retrospective in
nature until and unless they have been made prospective by their implication."
11. In view of hereinabove facts and by applying the ratio of afore cited judgments, we are of

20. 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.
12. Let copy of this judgment under the seal of this Court may be sent to the Appellate
Tribunal, Inland Revenue, Karachi, for passing the appropriate order accordingly.