Tax Department Cannot Reject Advance Tax Estimates Filed by Taxpayer – Business & Finance

On July 11, 2024By Rgal Nv

LAHORE: A corporate taxpayer has challenged the unjustified collection of advance tax by the income tax department, claiming that the department had no power to reject the advance tax assessments for the March 2024 quarter.

The company therefore challenged the wrongful recovery of advance tax by the Department under Section 147 of the Income Tax Ordinance, 2001 by way of a recovery notice issued under Section 138 of the Ordinance.

The ministry had asked the company to pay its due advance tax. The company had paid the advance tax amount based on its estimates.

The Ministry recalculated the amount of debt for the specified period on the basis of amended assessment under section 122(5A) of the ITO and issued a revised notice with an increased demand for advance tax. This was followed by issuance of a recovery notice.

The company challenged the recovery notice on the grounds that the Department had no jurisdiction to question the accuracy of the estimate for the tax period in question. However, if the respondent Department did not agree with the amount paid as advance tax for the period assessed as estimated by the taxpayer, the Department had the option of imposing a default surcharge at the stage when the returns were provided.

The ministry, however, argued that the taxpayer’s case did not involve an estimate of the withholding tax, but rather a lower or erroneous estimate.

The competent appellate court held that the law allowed taxpayers to file an estimate of their withholding tax liability and pay the amount they considered due. However, the law did not give the tax authorities the power to recover the amount due under Section 147. Instead, the ITO relied on the taxpayer’s self-assessment, and the tax authorities could reassess the tax returns in accordance with the ITO and seek recovery of non-payment or underpayment of withholding tax under Section 147 on the basis of such reassessment. It set aside the recovery notice and held that the department may recalculate the withholding tax due by the company after filing the returns and that if the amount determined exceeds the amount already paid, a default surcharge may be imposed.