PESHAWAR: Peshawar High Court has set aside a Rs350.628 million advance tax recovery notice issued by the Federal Board of Revenue (FBR) to the Peshawar Electric Supply Company (Pesco) and restrained tax authorities from making any recovery until the matter is “determined afresh”.
A bench consisting of Justice Syed Arshad Ali and Justice Kamran Hayat Miankhel disposed of a petition filed by Pesco through its chief executive officer and referred the matter back to the relevant commissioner Inland Revenue to re-decide it keeping in view the objections raised by the petitioner.
“The commissioner is expected to conclude the proceedings within 15 days, and until such a decision is made, no recovery shall be effected. The petitioner shall, however, submit its estimate as required under Section 147 of the Ordinance (Income Tax Ordinance) within 10 days,” the bench directed.
The petitioner had challenged the impugned notice issued on May 18, 2026, wherein an advance tax liability of Rs350.628 million had been demanded from the Pesco for the first three quarters of Tax Year 2026.
Disposes of plea against notice, refers matter back to Inland Revenue for re-determination
The petitioner had requested to set aside the impugned notice and declare the same illegal and without lawful authority.
The petitioner had sought declaration of the court that the computation forming the basis of the impugned notice was arbitrary, misconceived and legally unsustainable.
Barrister Syed Saad Ali Shah appeared for the petitioner and said that the disputed notice asserted an additional advance-tax liability against the power utility for Tax Year 2026, despite Pesco having already paid approximately Rs2.64 billion in advance tax for the first three quarters of the year.
He contended that the alleged shortfall had not first been lawfully determined or crystallised through a proper assessment of speaking order.
He contended that Section 138 of the Income Tax Ordinance, 2001, was a recovery provision that may only be invoked where a tax liability had already become legally due and enforceable. He added that it could not be used to determine a disputed liability and recover it simultaneously.
He argued that the mandatory statutory sequence had been bypassed, as no prior determination under Section 147(7) or valid notice of demand under Section 137(2) had preceded the coercive recovery notice.
Barrister Saad pointed out that prior to and during the relevant tax period, a material restructuring of the petitioner’s distribution business took place pursuant to the formal bifurcation of Pesco and establishment of Hazara Electric Supply Company (Hazeco).
He said that through a notification on Jan 18, 2023, issued by the ministry of energy, Power Division, the prime minister had approved the bifurcation of the Pesco and establishment of Hazeco.
The counsel said that the financial impact of the said bifurcation was also duly recorded through bifurcated financial statements.
He argued that any computation of advance tax for the Tax Year 2026 based on the preceding year’s turnover could not lawfully be made by loading the entire pre-bifurcation turnover of Pesco upon the petitioner’s alone.
Barrister Saad contended that the respondents including the FBR was legally bound to take into account the post-bifurcation position and to confine any computation, if lawfully undertaken, to the turnover and financial position relatable to the remaining Pesco.
He added that after establishment of Hazeco and the subsequent transfer of business, consumers, assets, receivables and revenue had materially reduced the turnover attributable to Pesco.
Advocate Umair Jamal appeared for the FBR and raised objection about maintainability of the petition, contending that the grievances of the petitioner could be addressed by the department if the petitioner approached it for an appropriate determination.
The petitioner’s counsel said that he had no objection if the department re-determine the tax liability for the petitioner, keeping in view the bifurcation of the two companies, and after affording the petitioner an opportunity of hearing.
The bench decided to set aside the impugned notice and refer the matter back to the commissioner Inland Revenue for re-deciding it keeping in view objections raised by the petitioner.
Published in Dawn, June 17th, 2026