ZAHID SIKANDAR, JUDICIAL MEMBER. The titled appeal has been preferred by the taxpayer against Order-in-Appeal dated 09.03.2023 passed by Commissioner Inland Revenue (Appeals-V), Lahore wherein the Learned CIR(A) dismissed the appeal of the taxpayer and confirmed the amended assessm ent order passed by the OIR.
2. Brief facts of the case are that the appellant/taxpayer being a private limited company filed income tax return for tax year 2016 under, self-assessment scheme. Upon examination, the said deemed tax return was found erroneous in so far as prejudicial to the interest of revenue. Hence, proceedings under section 122(5A) were initiated by the OIR against the taxpayer. It was alleged that the taxpayer claimed refund adjustment of Rs.871,767/- against tax liability instead of paying the admitted liability for the year under consideration. Allegedly, no one responded to the show- cause notice on behalf of the taxpayer. Consequently, the taxation officer declared the refund adjusted unlawful and considering the tax return erroneous and prejudicial to the interest of revenue held an amount of Rs.871,767/- recoverable from the taxpayer.
3. The taxpayer filed appeal before the CIR(A) which was also regretted. Hence, the appellant has come up further before the tribunal through this appeal against orders passed by the authorities below.
4. Heard.
5. It transpires from record that the taxation officer declared the self-adjustment of refund as illegal without determination of overpaid tax by the Commissioner. The taxpayer adjusted refund against tax liability of Rs.871,767/. It is an admitted position that the taxpayer did not tile any refund application under section 170 for determination of his claim by the Commissioner rather adjusted the refund against tax liability at the time of filing of return. The said discrepancy was confronted but the taxpayer did not join the adjudication proceedings. Section 170 of Income Tax Ordinance, 2001 deals with conditions, procedure and powers of issuing or refusing refund and is reproduced under for ready reference: "170. Refunds.---(1) A taxpayer who has paid tax in excess of the amount which the taxpayer is properly chargeable under this Ordinance may apply to the Commissioner for a refund of the excess.
[(1A) Where any advance or loan, to which sub-clause (e) of clause (19) of section 2 applies, is repaid by a taxpayer, he shall be entitled to a refund of the tax, if any, paid by him as a result of such advance or loan having been treated as dividend under the aforesaid provision.]
(2) An application for a refund under subsection (1) shall be-
(a) made in the prescribed form;
(b) verified in the prescribed manner; and
(c) made within 2 [three] years of the later of -
(i) the date on which the Commissioner has issued the assessment order to the taxpayer for the tax year to which the refund application relates; or
(ii) the date on which the tax was paid.
(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall -
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance;
(b) apply the balance of the excess, if any, in reduction of any outstanding liability of the taxpayer to pay other taxes; and
(c) refund the remainder, if any, to the taxpayer.
(4) The Commissioner shall, within [sixty] days of receipt of a refund application under subsection (1), serve on the person applying for the refund an order in writing of the decision [after providing the taxpayer an opportunity of being heard].
(5) A person aggrieved by -
(a) an order passed under subsection (4); or
(b) the failure of the Commissioner to pass an order under subsection (4) within the time specified in that subsection, may prefer an appeal under Part III of this Chapter.]
(6) The Board may make rules regulating procedure for expeditious processing and automatic payment of refunds through centralized processing system with effect from a date to be notified by the Board.]"
6. Under the above given provision, a taxpayer who has paid tax in excess of the amount may apply to Commissioner for refund of excess amount paid. According to rule 71 of Income Tax Rules, 2002, an application for refund of tax shall be made in the proforma specified in Part VI of First Schedule of the rules.Taxpayer has to disclose in application (i) the total income of relevant tax year (ii) tax chargeable in respect of total income and (iii) amount of tax paid. The refund application shall be accompanied by such documents, statements and certificates as specified in the form and in the ordinance and rules. On receipt of application, once the commissioner is satisfied that the tax has been overpaid, he under section 170(3) shall either apply the excess in reduction of any other tax, apply the balance of the excess if any in reduction of any outstanding liability or refund the remainder. If the commissioner is not satisfied, he shall pass a written order refusing the claimed refund after providing opportunity of hearing to the taxpayer.
7. The whole mechanism given in section 170 nowhere provides or allows self-adjustment of refund by the taxpayers on their own against their tax liabilities. Section 170 read with rule 71 are very clear that a person claiming any refund is required to submit an application on a proper proforma given and it is the authority of the Commissioner to determine the correctness of overpaid tax and to allow/reject the refund after determination. Excess tax paid could be claimed/adjusted only by filing an application with the proper officer. Limitation is also provided for making such claim. In the instant case there is no such application available on record given by the taxpayer rather the taxpayer after self-assuming the jurisdiction of commissioner adjusted the refund claimed against tax liability. The taxpayer neither filed application for refund nor joined the adjudication proceedings. When by his own conduct the appellant has lost its right to obtain refund, this bench may not relieve the taxpayer of the said statutory bar and grant refund.
8. Though, the apex courts as well as this tribunal have always discouraged the retention of money known to have been paid under a mistake of law or not due under the law and such notice has been regarded as a shabby thing or dirty trick but the taxpayers cannot be allowed to self-adjust refunds against their tax liabilities without proper determination of overpaid amount by the relevant officer as it would amount to giving them jurisdiction and powers of Commissioners provided under section 170 of Income Tax Ordinance. Without proper application on a given pro forma and without determination/approval, no refund can be adjusted by the taxpayers against their tax liabilities on their own. Needless to mention that it is also a settled preposition that declared version of refund can only be varied through an amendment under section 122 while disposing of refund application. Reliance may be placed on a decision of the Hon'ble Lahore High Court given in a case titled as CIR v. Fatima Enterprises in STA No.1654/LB/2015 reported in 2016 PTD 377.
9. The taxpayer has illegally adjusted the claimed refund against its tax liability without properly filing application for refund and without any determination by the Commissioner hence the OIR has rightly noted the tax return as erroneous and prejudicial to the interest of revenue as admitted tax liability of Rs.871,767/- against declared income remained unpaid. The CIR(A) has committed no illegality in confirming the amended assessment order hence impugned order is accordingly upheld.
10. The taxpayer's appeal is dismissed. We order accordingly.