The Federal Tax Ombudsman (FTO) has ruled that the Federal Board of Revenue (FBR) cannot use technical limitations of its own IRIS software as an excuse to deny taxpayers a lawful tax credit, directing the board to fix system glitches that blocked a legitimate claim under Section 63 of the Income Tax Ordinance 2001.

The order was issued in response to a complaint filed by a salaried director of a private limited company, represented by counsel Muhammad Aleem. The complainant, described as a regular and compliant taxpayer, had invested in an Approved Pension Fund that entitled him to a tax credit of Rs2,341,120 under Section 63 of the ordinance.

According to the counsel, system-related constraints on the IRIS portal prevented the complainant from claiming the correct credit while filing his return for tax year 2025. As a result, he was compelled to deposit Rs217,188 to ensure timely filing and avoid penalties.

The counsel explained that a surcharge of Rs1,066,257 under Section 4AB of the ordinance, charged at 10 per cent in addition to income tax under Division-I of Part-I of the First Schedule, was not factored in by IRIS when calculating the tax credit under Section 63 for taxable income exceeding Rs10 million. The surcharge, classified as a defined tax under Section 2(63), was not automatically picked up by the system for accurate calculation.

On an application from the complainant, the Commissioner Inland Revenue approved a revised return under Section 114(6)(ba) of the ordinance to incorporate the credit. However, IRIS continued to block the claim, a failure the department itself attributed to system glitches. Representations sent to the FBR chairman, Member (Operations) and the FBR helpline received no response.

Following its investigation, the FTO found no dispute over either the entitlement to the Section 63 credit or the validity of the revision approval. The Ombudsman held that the FBR cannot shield itself behind software limitations to deny a substantive legal right, and is duty-bound to provide a functional system wherever the law permits a credit and a commissioner has authorised a revision.

The FTO described the failed attempts to secure redress from FBR headquarters as evidence of a systemic failure, stressing that taxpayers should not be penalised or forced into litigation because of outdated departmental systems. The inability of IRIS to implement the commissioner order, combined with the silence of FBR headquarters, was declared to constitute maladministration under Section 2(3)(ii) of the Establishment of the Office of Federal Tax Ombudsman Ordinance 2000, reflecting inefficiency and delay in tax administration.

The FTO directed the Director General (IT & DT) at the FBR to coordinate with M/s PRAL for immediate removal of the glitches and to allow the complainant to revise his return for tax year 2025 with the admissible credit under Section 63.

The counsel confirmed that the glitches were subsequently removed in compliance with the FTO order, allowing the complainant to successfully file his revised return under Section 114(6), with the lawful tax credit under Section 63 duly allowed.