Tax Ombudsman declares recovery action maladministration, orders restoration of frozen accounts and disposal of pending tax appeal within 40 days.
ISLAMABAD: The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to immediately restore all bank accounts, including the pension account, of a retired Pakistan Navy officer after ruling that the recovery action initiated by the Regional Tax Office (RTO)-II Karachi amounted to maladministration.
In its order, the FTO instructed the FBR to ensure that the Commissioner Inland Revenue (Zone-I), RTO-II Karachi, de-attaches all bank accounts of the complainant within seven days. It also directed the Commissioner Inland Revenue (Appeals-II), Karachi, to decide the taxpayer’s pending appeal relating to Tax Year 2018 within 40 days.
Tax demand challenged
The complaint was filed under Section 10(1) of the Federal Tax Ombudsman Ordinance, 2000.
According to the case record, the retired Pakistan Navy officer, who receives a federal government pension, was issued a show-cause notice under Section 122(9) of the Income Tax Ordinance, 2001, on May 17, 2024, proposing amendments to his tax return for Tax Year 2018.
Although the taxpayer submitted a detailed reply, the Inland Revenue department passed an assessment order under Section 122(1) on June 27, 2024, raising a tax demand of Rs12.16 million. A demand notice under Section 137(2) was issued on the same day.
The taxpayer subsequently filed an appeal before the Commissioner Inland Revenue (Appeals) on July 22, 2024, which remained undecided.
Pension account frozen
According to the complaint, the tax department later issued a recovery notice under Section 138(1) of the Income Tax Ordinance on October 28, 2025.
After requesting that recovery proceedings be kept in abeyance until the appeal was decided, the taxpayer alleged that the department obtained approval from the Commissioner Inland Revenue and attached his bank accounts, including his pension account, under Section 140 on May 18, 2026.
He argued that the recovery proceedings were unlawful because his statutory appeal was still pending and sought immediate restoration of his bank accounts along with suspension of coercive recovery measures.
FBR defends recovery action
In its response, RTO-II Karachi contended that the complaint was not maintainable, arguing that the taxpayer had already exercised his statutory right of appeal before the Commissioner Inland Revenue (Appeals), where the legality of the assessment order and tax demand was under consideration.
The department maintained that the tax demand had become legally recoverable following the assessment order and that, in the absence of any stay order, it was authorised to initiate recovery proceedings to safeguard government revenue.
Ombudsman finds maladministration
Rejecting the department’s objections, the FTO observed that the complaint did not challenge the assessment itself but rather the use of coercive recovery measures while the taxpayer’s first appeal remained pending.
The Ombudsman held that the actions of the tax authorities were arbitrary, unreasonable and contrary to law, constituting maladministration under the Federal Tax Ombudsman Ordinance.
The FTO further ruled that tax authorities cannot legally attach or freeze a dedicated pension account for the recovery of tax liabilities. Referring to the Pensions Act, 1871, Section 60(1)(g) of the Code of Civil Procedure, and relevant civil service regulations, the Ombudsman noted that pension funds enjoy statutory protection from attachment or seizure.
The order also observed that the taxpayer’s appeal had remained pending well beyond the 120-day period prescribed under Section 129(4) of the Income Tax Ordinance, 2001, describing the delay as another instance of maladministration.
Accordingly, the FTO directed the FBR to restore all attached bank accounts, including the pension account, within seven days and ensure that the pending appeal is decided within 40 days.