Law: Income Tax Ordinance, 2001

Section: 124,170,170)(1),170(3)

Citation(s): 2025 SLD 2749 Appellate Tribunal Inland Revenue, Islamabad ITA NO. 1501/IB/18 (TAX 2016). DATE OF HEARING: JULY 07, 2025. DATE OF ORDER: JULY 08, 2025 AUTHOR(S): IMRAN LATIF MINHAS (MEMBER) AND SHARIF UD DIN KHILJI (MEMBER) APPELLANT: THE FIRST MICROFINANCE BANK LIMITED VS RESPONDENT: COMMISSIONER INLAND REVENUE, LTO, ISLAMABAD FOR TAXPAYER: MR. AQEEL AHMED FOR TAX DEPARTMENT: MS. MARIA SHARIF Law: Income Tax Ordinance, 2001 Section: 124,170,170)(1),170(3) The taxpayer, First Microfinance Bank Limited, appealed against the appellate order of the Commissioner Inland Revenue (Appeals) dated July 23, 2018, which upheld the Deputy Commissioner Inland Revenue’s disallowance of prior year refund adjustments for tax year 2016. The core issue was whether a refund application or a refund order under Section 170 of the Income Tax Ordinance, 2001 is mandatory for a taxpayer to adjust prior year refunds against current tax liability. Arguments Presented Taxpayer’s Argument (by Mr. Aqeel Ahmed): Refund adjustment does not require a formal refund application or order. The requirement applies only when a taxpayer seeks refund payment. The taxpayer relied on the Lahore High Court’s decision in CIR vs M/s Famous Brands (Pvt.) Limited (ITR No. 60472/2023), which upheld the Appellate Tribunal’s ruling that refund adjustments can be made without prior approval. Department’s Argument (by Ms. Maria Sharif): Since no refund application was filed, no refund was “due” to the taxpayer, making the adjustment impermissible. Tribunal’s Decision The Tribunal rejected the Department’s contention and followed the Lahore High Court’s judgment in Famous Brands. Key findings: Section 170(1) vs. 170(3): Subsection (1) deals with applications for refund payments. Subsection (3) allows the Commissioner to apply excess tax against other liabilities but does not prohibit taxpayers from making such adjustments themselves while filing returns. Refund Adjustment via Return: Income tax returns include a specific column (and a dedicated tab in IRIS) for adjusting prior year refunds against current liability, indicating legislative…