IN THE HIGH COURT OF SINDH AT KARACHI

I.T.R.A. No.33 of 2015

[Commissioner Inland Revenue Zone-1 v. M/s. Pakistan Gum Ind. (Pvt) Ltd]

PRESENT:

Mr. Justice Arshad Hussain Khan

Mr. Justice Amjad Ali Sahito

*****

Applicant : Through Mr. Faheem Ali Memon, Advocate

Respondent : Through Mr. Muhammad Tariq Masood, Advocate

Date of hearing : 30.09.2026

Date of order : 30.09.2026

JUDGMENT

ARSHAD HUSSAIN KHAN J; Through the instant Income Tax Reference Application, filed under Section 133 of the Income Tax Ordinance, 2001 (“the Ordinance”), the Applicant/Department has called in question the legality of the order dated 27.11.2014 passed by the Appellate Tribunal Inland Revenue, Karachi Bench (“ATIR”), in M.A. (Recall) No.318/KB/2014, arising out of I.T.A. No.204/KB/2012 for Tax Year 2009. By the impugned order, the learned ATIR, while exercising its rectification jurisdiction, recalled and modified its earlier judgment dated 08.07.2014 to the extent of Ground No.3. which read as under :

“3. Without prejudice to above the learned CIR (Appeals), Karachi has erred in deleting the various additions treating them as adhoc additions without realizing the fact that the additions were made as the taxpayer had failed to produce the documentary evidence.”

2. The essential facts giving rise to the instant reference are that the Respondent-taxpayer, a private limited company, e-filed its return of income for Tax Year 2009, declaring taxable income of Rs.70,448,810/- and tax payable under the Normal Tax Regime (“NTR”) at Rs.25,744,815/-. After adjustment of tax amounting to Rs.23,472,112/- already paid/deducted at source, the Respondent paid the balance amount of Rs.2,272,703/-. Subsequently, the Deputy Commissioner Inland Revenue (“DCIR”), vide order dated 18.03.2010 passed under Section 122(1)/(5) of the Ordinance, amended the assessment and determined the total income at Rs.70,824,874/-, inter alia, by making additions/disallowances in respect of Profit & Loss expenses and interest on loans. Aggrieved, the Respondent preferred an appeal before the Commissioner Inland Revenue (Appeals-III), Karachi [“CIR(A)”], who, vide order dated 24.08.2011, deleted the additions made on account of Profit & Loss expenses. The Department assailed the order of the CIR(A) before the learned ATIR in I.T.A. No.204/KB/2012. Vide judgment dated 08.07.2014, the learned ATIR decided the relevant issue in favour of the Department, observing that the additions had been made by the Assessing Officer on account of the Respondent’s failure to produce supporting evidence; consequently, the order of the CIR(A) to that extent was vacated and the additions were restored. Thereafter, the Respondent filed M.A. (Recall) No.318/KB/2014 seeking recall/rectification of the judgment dated 08.07.2014. By the impugned order dated 27.11.2014, the learned ATIR allowed the application and recalled its earlier finding in respect of Ground No.3, thereby dismissing the Department’s appeal to that extent, while maintaining the remainder of its judgment dated 08.07.2014 unchanged. Aggrieved by the aforesaid order, the Department has filed the present Reference Application under Section 133 of the Ordinance.

3. When the matter was taken up for hearing, learned counsel for the Applicant/Department submitted that he presses only Questions Nos.1, 2 and 3, as formulated in the Reference Application, all of which essentially relate to the scope and extent of the learned ATIR’s jurisdiction under Section 221 of the Ordinance. For ease of reference, the said questions are reproduced as under:

“1. Whether on facts and circumstances of the case learned ATIR was justified to recall or rectify its own findings given with the conscious application of mind and reasons in its first order when as per various judgments of the superior counts the Tribunal cannot review its own judgment?

2. Whether learned ATIR can change its adjudicated opinion through a rectification order under section 221 of the Ordinance when there was no mistake apparent from Record?

3. Whether learned ATIR was justified to rectify its own order by relying on Commissioner (Appeals) order without considering the facts that specific and clear instances of inadmissibility of P&L expenses already had been given and discussed in the amended assessment order u/s.122(1) passed by the DCIR?”

4. Learned counsel for the Applicant/Department contended that the learned ATIR, under the guise of rectification, had effectively exercised the power of review, which is not vested in it under Section 221 of the Ordinance. He submitted that Ground No.3 had already been consciously adjudicated upon on merits by the learned ATIR in its earlier judgment dated 08.07.2014 and, having so decided the issue, the Tribunal had become functus officio and could not subsequently revisit or reverse its finding through rectification proceedings. According to learned counsel, the jurisdiction conferred by Section 221 is confined to rectification of an error or mistake apparent from the record and cannot be invoked to reconsider the merits of an adjudicated issue or substitute one view for another. He, therefore, maintained that the findings recorded in the impugned order dated 27.11.2014 are legally unsustainable. In support of his submissions, learned counsel placed reliance upon the judgment of the Honourable Supreme Court of Pakistan in Chaudhary Steel Furnace v. Commissioner Inland Revenue [2025 SCMR 1505].

5. Pursuant to notice, learned counsel entered appearance on behalf of the Respondent-taxpayer and filed his Vakalatnama, which is taken on record. Learned counsel supported the impugned order passed by the learned ATIR and submitted that its earlier judgment dated 08.07.2014 suffered from a mistake apparent from the record. He contended that the learned ATIR had failed to appreciate that the CIR(A) had deleted the disallowances on the ground that the Assessing Officer had neither established the existence of “definite information” nor provided the requisite statutory justification for invoking Section 122(5) of the Ordinance. According to learned counsel, through the impugned order, the learned ATIR merely corrected a patent error apparent from the record and brought its earlier decision in conformity with the applicable legal principles. He, therefore, maintained that the exercise undertaken by the learned ATIR fell within the scope of rectification contemplated under Section 221 of the Ordinance and did not amount to a review or reconsideration of the case on merits.

6. We have heard learned counsel for the parties and carefully examined the material available on record in the light of the governing statutory provisions and the applicable judicial precedents. The principal question that arises for our consideration is whether, in the facts and circumstances of the present case, the learned ATIR, while exercising jurisdiction under Section 221 of the Ordinance, was competent to recall its earlier finding recorded on merits and substitute it with a contrary conclusion. Section 221 confers a limited power of rectification and permits amendment of an order only for the purpose of rectifying a “mistake apparent from the record”. Such a mistake must be patent, manifest and self-evident from the record, and not one whose identification or correction requires elaborate reasoning, investigation into disputed questions, re-appraisal of evidence, or reconsideration of an issue already adjudicated upon. The power of rectification is thus distinct from the power of review and cannot be employed as a means of rehearing the matter on merits or substituting a different view merely because, upon reconsideration, another conclusion may appear possible or preferable.

7. The legal position in this regard has been authoritatively settled by the Honourable Supreme Court in Messrs Chaudhary Steel Furnace (supra). While examining Section 57 of the Sales Tax Act, 1990, which is pari materia with Section 221 of the Ordinance insofar as the power of rectification is concerned, the Honourable Supreme Court held that although a mistake apparent from the record may be rectified, such power does not extend to rendering a complete and altogether different decision independent of the view earlier taken. It was further held that where the Tribunal re-adjudicates an issue already decided and proceeds to reverse its earlier conclusion upon reconsideration of the merits, it effectively assumes the role of an appellate forum over its own order, which is impermissible in law.

8. Applying the said principle to the present case, the learned ATIR had, in its judgment dated 08.07.2014, already adjudicated Ground No.3 on merits, whereby the Department had challenged the deletion by the CIR(A) of various additions on the ground that they had been wrongly treated as ad hoc, despite the Respondent-taxpayer having failed to produce the requisite documentary evidence. Upon consideration of the said ground, the learned ATIR recorded a definitive finding in favour of the Department and restored the additions. By the subsequent order dated 27.11.2014, however, the learned ATIR recalled that finding and arrived at the contrary conclusion that the Department’s appeal on the said ground was devoid of merit. Such an exercise did not amount to correction of a patent or self-evident mistake apparent from the record; rather, it entailed reconsideration of an issue already adjudicated upon and substitution of the earlier conclusion by a different conclusion on merits. The exercise, therefore, travelled beyond the limited rectification jurisdiction conferred by Section 221 of the Ordinance and, in substance, amounted to a review of the earlier decision. If the Respondent-taxpayer considered the judgment dated 08.07.2014 to be erroneous on a question of law, the remedy available under the statutory scheme was to invoke the reference jurisdiction of this Court under Section 133 of the Ordinance, rather than to seek reconsideration of the merits through proceedings under Section 221.

9. For the foregoing reasons, and following the dictum laid down by the Honourable Supreme Court in Messrs Chaudhary Steel Furnace (supra), we hold that the learned ATIR exceeded the jurisdiction conferred upon it under Section 221 of the Ordinance by recalling and reversing its earlier adjudicated finding on Ground No.3. Accordingly, Questions Nos.1, 2 and 3 are answered in the negative, in favour of the Applicant/Department and against the Respondent-taxpayer. Consequently, the impugned order dated 27.11.2014 passed by the learned ATIR in M.A. (Recall) No.318/KB/2014 is set aside, with the result that the learned ATIR’s original judgment dated 08.07.2014, to the extent subsequently recalled and modified through the impugned order, stands restored.

A copy of this judgment shall be sent to the Appellate Tribunal Inland Revenue under the seal of this Court, as required under Section 133(8) of the Income Tax Ordinance, 2001.

JUDGE

Naveed PA