RAWALPINDI: The Lahore High Court’s (LHC) Rawalpindi bench has curtailed the Federal Board of Revenue’s (FBR) suo motu power to amend deemed tax assessments, ruling that Section 122(5A) of the Income Tax Ordinance, 2001, cannot be used for “roving or fishing inquiries” or speculative revenue recovery.

In an income tax reference, titled Commissioner Inland Revenue versus Sajid Hussain Gondal and others, Justice Mirza Viqas Rauf and Justice Jawad Hassan laid down guidance on the scope and limits of amendment powers under Section 122, bringing long-awaited doctrinal clarity to a provision frequently invoked by tax authorities.

The reference application, filed under Section 133 of the ordinance, challenged an order of the Appellate Tribunal Inland Revenue (ATIR), which had set aside an amendment made to a taxpayer’s deemed assessment for tax year 2019. The tribunal had earlier ruled that the FBR’s use of Section 122(5A) in the case was unlawful.

The taxpayer, Sajid Hussain Gondal, had filed an income tax return for 2019, which became a deemed assessment under Section 120 of the ordinance. Subsequently, the Additional Commissioner of Inland Revenue issued a show-cause notice under Sections 122(9), 111(1), and 122(5A), alleging discrepancies in declared gross revenue, purchases under Section 236A, deductions under Section 153, profit and loss expenses, and capital declarations.

The tax department claimed that these discrepancies rendered the deemed assessment erroneous and prejudicial to the interest of revenue, justifying an amendment under Section 122(5A). Despite the taxpayer’s explanation, the assessment was amended in June 2022, an action later upheld by the Commissioner (Appeals) but ultimately struck down by the ATIR in November 2023.

In a detailed ruling, the LHC reaffirmed that a deemed assessment under Section 120 cannot be unsettled lightly and drew a clear legal boundary between Section 122(5) and Section 122(5A).

It said Section 122(5) applies where an amendment is based on audit findings or definite information indicating escaped income, under-assessment, misclassification or excessive relief. By contrast, Section 122(5A) is revisional in nature and can be invoked only when the assessment order is both erroneous and prejudicial to the interest of revenue.

The bench stressed that both conditions must coexist, and that mere suspicion, arithmetic mismatch or perceived revenue loss does not meet the statutory threshold.

Justice Rauf observed that Section 122(5A) does not grant open-ended authority to revisit assessments. Rather, it is meant to correct glaring and apparent errors committed by the assessing officer where such errors are demonstrably harmful to revenue.

“The revisional jurisdiction under Section 122(5A) is not a licence for roving or fishing inquiries,” the high court held, adding that the alleged error must be evident from the record, and the claimed prejudice must be legally demonstrable, not conjectural.

Published in Dawn, February 13th, 2026