ATIR Rules on Super Tax Adjustment

The Lahore Bench of the Appellate Tribunal Inland Revenue (ATIR) has ruled that refundable income tax can be adjusted against outstanding super tax liability under Section 4C of the Income Tax Ordinance, 2001, reinforcing taxpayers' rights under Section 170(3)(a).

The decision came in ITA No. 2226/LB/2026 involving M/s Prime Steel Re-Rolling Mills for Tax Year 2025.

The Tribunal held that once excess income tax has been established, the Commissioner Inland Revenue is legally required to adjust the refundable amount against any other tax payable under the Ordinance, including super tax.

It rejected the reasoning adopted by the lower authorities, which had relied on the M/s CM Pak Limited v. Federation of Pakistan judgment. The Tribunal clarified that the cited case dealt with withholding tax credits during tax computation and did not apply to the adjustment of an established tax refund against an outstanding tax demand.

The ruling further distinguished between tax credits and the appropriation of refunds, stating that the adjustment of a confirmed refund is a statutory obligation rather than a discretionary decision.

The Tribunal also observed that the tax recovery provisions contained in Sections 138 and 140 cannot override the mandatory requirements of Section 170(3). It added that Rule 210B requires tax authorities to first determine whether any refundable amount is available before initiating coercive recovery proceedings.

As a result, the Tribunal set aside the orders of the lower authorities and allowed the adjustment of Rs230.95 million in refundable income tax against a super tax demand of Rs58.27 million.

The judgment reinforces the principle that statutory tax refunds must be used to settle outstanding tax liabilities where applicable, rather than being withheld at the discretion of tax authorities.