The Federal Board of Revenue (FBR) has outlined the powers of tax authorities to modify assessment orders following changes in judicial decisions under Section 124A of the Income Tax Ordinance, 2001. The provision helps ensure that tax assessments remain consistent with the final legal position established by the High Courts or the Appellate Tribunal Inland Revenue.
For taxpayers, understanding Section 124A is important because an assessment based on an earlier court ruling may be revised if that ruling is subsequently reversed or modified.
What Is Section 124A of the Income Tax Ordinance?
Section 124A empowers the Commissioner Inland Revenue to follow a decision of a High Court or the Appellate Tribunal on a question of law in a taxpayer’s case, even if the FBR has challenged that decision before a higher forum.
This approach may continue until the relevant judicial decision is reversed or modified.
Key Powers Under Section 124A
1. Following Judicial Decisions
The Commissioner may apply a relevant High Court or Appellate Tribunal decision to the same question of law arising in a pending assessment, subject to the provisions of the law.
2. Modifying Tax Assessment Orders
If the earlier judicial decision is subsequently reversed or modified, the Commissioner may revise the assessment or order to bring it in line with the final decision.
3. One-Year Time Limit
The modification may be made even after the normal limitation period for an assessment has expired. However, Section 124A provides that the Commissioner must exercise this power within one year from the date of receiving the final judicial decision.
How Does Section 124A Affect Taxpayers?
Section 124A can affect the tax liability of individuals and businesses where an assessment depends on a judicial interpretation of the law. A later change in that interpretation may result in a corresponding modification of the assessment.
Taxpayers should retain relevant assessment orders, appeal records and supporting documents and seek professional advice when a judicial decision affects their tax position.
How Xact Legal Can Help
Xact Legal provides tax and legal guidance to individuals and businesses in Pakistan, including assistance with tax assessments, compliance matters and tax disputes.
Contact Xact Legal for professional guidance on FBR assessment orders and Section 124A.