ATIR Nullifies CTO Refund Rejection Order

The Appellate Tribunal Inland Revenue (ATIR) has nullified a refund rejection issued by the Corporate Tax Office Islamabad (CTO), ruling that tax authorities exceeded their statutory mandate in denying a foreign company’s refund claim, as reported by Business Recorder.

In a strongly worded judgment, the Tribunal declared the department’s action unlawful and barred by limitation, holding that officials attempted to reopen a finalized assessment contrary to settled principles of law and binding precedent of the Supreme Court of Pakistan.

The Tribunal observed that the taxpayer’s return for Tax Year 2018 had attained the status of a deemed assessment under Section 120 of the Income Tax Ordinance. Any modification could only have been undertaken through Section 122 proceedings within the legally prescribed timeframe, which had already lapsed. Consequently, the assessment had achieved finality.

Notwithstanding this statutory closure, the CTO sought to revisit withholding taxes deposited under Sections 148 and 152, recharacterising them as “minimum tax” and thereby treating them as non-refundable. ATIR categorically held that refund proceedings under Section 170 do not confer authority upon tax officers to reclassify income streams, reinterpret the nature of business operations, or indirectly reassess a return that has become time-barred.

The ruling further highlighted that the Federal Tax Ombudsman had previously declared the department’s delay in processing the refund as maladministration on November 11, 2025, directing the CTO to decide the matter within 45 days. Instead of adhering to that directive, the department issued a rejection order which, according to the Tribunal, disregarded evidentiary material and departed from established jurisprudence.

Relying on authoritative precedents—including judgments of the Supreme Court, the Lahore High Court, and prior ATIR decisions—the Tribunal reaffirmed that refund mechanisms cannot be deployed as a surrogate means to reopen concluded assessments.

Accordingly, ATIR set aside the CTO’s order in its entirety and reinstated the taxpayer’s entitlement to the refund, holding that the authorities lacked lawful jurisdiction to reopen the matter, reclassify adjustable withholding taxes as minimum tax, or prolong the proceedings over an extended period.