A recent ruling by the Federal Tax Ombudsman (FTO) has compelled the Federal Board of Revenue (FBR) to address technical glitches in its IRIS software, which had prevented a taxpayer from claiming a legally entitled tax credit. The decision underscores that government agencies cannot use system limitations as a justification for denying substantive legal rights. Main Developments The FTO directed the FBR to remove system glitches that blocked a tax credit under Section 63 of the Income Tax Ordinance 2001. The case involved a salaried individual serving as a director in a private limited company, represented by counsel Muhammad Aleem. The complainant, a regular taxpayer, had invested in an Approved Pension Fund, entitling him to a tax credit of Rs2,341,120. However, due to IRIS software constraints, he could not claim the correct credit when filing his return for tax year 2025, forcing him to deposit Rs217,188 just to avoid penalties for late filing. Read also: Delhi High Court Orders Transfer of Activist Wangchuk to Private Hospital Additionally, a surcharge of Rs1,066,257 under Section 4AB was paid but not considered by IRIS for calculating the tax credit. The FTO found that the surcharge, a defined tax under Section 2(63), was automatically excluded by the system, even though the law required its inclusion for taxpayers with taxable income exceeding Rs10 million. Despite the Commissioner Inland Revenue approving a revised return under Section 114(6)(ba), IRIS still refused to allow the credit. The FBR attributed this failure to system glitches. Subsequent complaints to the FBR chairman, Member (Operations), and helpline went unanswered. Background The FTO investigated and found no dispute regarding the complainant's entitlement to the tax credit or the validity of the revision approval. The Ombudsman noted that the department cannot hide behind its own software's technical limitations to deny a taxpayer a substantive legal right. The ruling emphasized that the FBR is duty-bound to provide a functional interface wherever the law allows a credit and the Commissioner authorizes a revision. The complainant's unsuccessful attempts to seek redress from FBR headquarters pointed to a systemic failure, according to the FTO. The FTO held that the inability of IRIS to implement the commissioner's order, coupled with the silence from FBR headquarters, constituted maladministration under Section 2(3)(ii) of the Establishment of the Office of Federal Tax Ombudsman Ordinance 2000. This reflected inattention, delay, and inefficiency in tax administration. Why It Matters This ruling sets a precedent that taxpayers should not be penalized or forced into litigation because a government department's computer system is not updated in accordance with the law. It reinforces the principle that substantive legal rights cannot be overridden by technical shortcomings. The decision also highlights accountability for the FBR and its technology partner, M/s PRAL, which manages the IRIS system. System glitches that block lawful credits can lead to financial penalties for taxpayers and erode trust in the tax administration. What's Next The FTO recommended and directed the Director General (IT & DT), FBR, to take up the matter with M/s PRAL for immediate redressal. The glitches in IRIS have since been removed, allowing the complainant to file a revised return under Section 114(6) with the lawful tax credit under Section 63 duly allowed.