What is the Time Limit to Amend Income Tax Assessment?

A landmark judgment by the Appellate Tribunal Inland Revenue (ATIR) in Islamabad has clarified a previously confusing aspect of the Income Tax Ordinance (ITO) 2001. This article explains the key points of this judgment and its implications for taxpayers.

The Issue:

The ITO has two seemingly contradictory sections regarding time limits for amended income tax assessments:

• Section 122 (2): Provides a five-year limitation period for making an amended assessment.
• Section 122 (9): Specifies a 180-day limit (with possible extensions) for completing the amendment process once initiated.

The Judgment's Conclusion:

The ATIR judgment clarifies that both sections are mandatory and serve separate purposes:

• Section 122 (2): Sets the overall time limit for completing the entire amended assessment process.
• Section 122 (9): Ensures the amendment process initiated within the five-year window is completed efficiently within the 180-day timeframe (plus any extensions).

Implications for Taxpayers:

• Timeliness is Crucial: The Commissioner must comply with both time limits. Failing to complete the amendment process within 180 days, even if the five-year window hasn't expired, renders the amended assessment order invalid.
• Multiple Amendments Possible: Subsection (4) of Section 122 allows for multiple amendments within the five-year timeframe as long as each amendment adheres to its own 180-day completion limit.

Addressing Potential Redundancy:

The judgment clarifies that both subsections of Section 122 serve distinct purposes and remain relevant:

• Section 122 (2): Provides the overall five-year window for amended assessments.
• Section 122 (9) (Proviso): Ensures efficiency and timeliness within the amendment process itself.

Handling Time Limit Breaches:

• Amendment Process Time Barred: If the Commissioner fails to complete an amendment process within the 180-day limit (including extensions), it becomes time-barred, and the order cannot be finalized.
• Further Amendments Possible: Fresh amendments can still be initiated within the overall five-year window, following proper procedures like issuing a new show cause notice.

Short Notice Scenarios:

• Limited Time for Orders: If a show cause notice is issued just before the five-year limit expires, the Commissioner has that remaining time to finalize the amended assessment order. The 180-day window doesn't extend the five-year deadline.

This article was published at Clarifying Time Limits for Amending Income Tax Assessments