I got, 177(1) (Notice to call for record / documents / books of account), What to do?

I got, 177(1) (Notice to call for record / documents / books of account), What to do?

This is to inform you that in exercise of the powers conferred under section 214D of the Income Tax
Ordinance 2001, your case has automatically been selected for audit on account of late filing of Income
Tax Return within stipulated time. Intimation letter to conduct an audit under section 177 of the Income
Tax Ordinance, 2001 has already been served upon you by the worthy Commissioner Inland Revenue,
Zone-II, Regional Tax Office, Gujranwala with the request to produce books of account maintained under
section 174(2) of the Income Tax Ordinance, 2001 read with Rules 28 & 33 of Income Tax Rules, 2002.
You are requested to provide the following record for examination and verification of your declared
results by due date positively:

1. Copies of Withholding tax statements u/s 165 of the Income Tax Ordinance, 2001.
2. Copy of financial statements including income & expenditure statement, trading Account, P&L Account and Balance sheet
3. Journal, ledger, Cash book & Bank Book.
4 Salary Register.
5 Party wise details of purchases
6 Details of all the bank accounts alongwith bank statements .
7 Details of assets alongwith addition / deletion during the year, if any.
8 Details of loans and interest paid, if any.
9 Copy of Wealth Statement alongwith reconciliation statements.
10 Personal Expenditure statements.
11 Details of taxes paid alongwith tax payment challans and copies of utility bills.

Please note that in case of failure to provide the record with in the given time, penalty proceedings for penalty of Rs.25,000/- under Para 8(a) of section 182(1) of the Income Tax Ordinance, 2001 shall be initiated

What to Do If You Receive a 177(1) Notice (Notice to Call for Record/Documents/Books of Account) from FBR

Receiving a 177(1) notice from the Federal Board of Revenue (FBR) can be intimidating, especially for those unfamiliar with the audit process in Pakistan. This comprehensive guide will explain what a 177(1) notice is, why you might receive one, your legal obligations, and step-by-step instructions on how to respond, avoid penalties, and protect your interests.

Understanding Section 177(1) of the Income Tax Ordinance, 2001

What is a 177(1) Notice?

A 177(1) notice is a formal communication from the FBR, issued under Section 177(1) of the Income Tax Ordinance, 2001. It is sent when your tax return is selected for audit, either due to random selection, risk parameters, or specific discrepancies in your tax filings. The notice requires you to provide specific records, documents, and books of account for examination.

Legal Authority

• The Commissioner of Inland Revenue is empowered to call for any record, documents, or books of account for audit purposes.

• The notice must specify the tax year under review, the documents required, and the deadline for submission.

Why Did You Receive a 177(1) Notice?

You may receive a 177(1) notice for several reasons:

• Late filing of your income tax return (as highlighted in your notice).

• Discrepancies or inconsistencies in your tax return.

• Random or risk-based selection by the FBR under Section 214C4.

• Failure to avail immunity under Section 214E (for cases initiated under the now-omitted Section 214D).

Immediate Steps to Take After Receiving a 177(1) Notice

1. Read the Notice Carefully

• Identify the tax year in question.

• Note the list of required documents and the deadline for submission.

• Understand the reason for audit if stated.

2. Gather and Organize Required Documents

The notice typically asks for:

• Withholding tax statements

• Financial statements (income & expenditure, trading account, P&L, balance sheet)

• Journal, ledger, cash book, bank book

• Salary register

• Party-wise details of purchases

• Bank account statements

• Asset details (with additions/deletions)

• Loan and interest details

• Wealth statement and reconciliation

• Personal expenditure statements

• Tax payment challans and utility bills

Tip: Ensure all documents are complete, accurate, and well-organized to facilitate the audit process.

3. Reconcile Your Records

• Match your financial statements with your filed tax returns.

• Ensure that all income, expenses, and deductions are properly documented and justified.

• Prepare explanations for any discrepancies, such as large bank deposits or unusual expenses.

4. Consult a Tax Professional

• If you are unsure about any aspect of the notice or the documents required, seek advice from a qualified tax consultant or chartered accountant.

• Professional assistance can help you avoid mistakes and present your case effectively.

How to Respond to the 177(1) Notice

Drafting Your Response

• Address the notice formally, referencing the notice number and date.

• List the documents you are submitting.

• If any documents are unavailable, explain the reasons and provide alternatives if possible.

• Maintain a professional and respectful tone in all correspondence.

Submitting the Documents

• Submit the required documents within the specified deadline (usually mentioned in the notice).

• Keep copies of all submitted documents and the acknowledgment of receipt from the FBR.

• If you need more time, request an extension in writing, providing valid reasons.

Sample Response Table

What If You Fail to Comply?

Penalties for Non-Compliance

Failure to respond to a 177(1) notice or to provide the required documents can result in significant penalties:

Note: Persistent non-compliance may also result in a “best judgment assessment” under Section 121, where the FBR determines your tax liability without your input—often leading to higher tax demands4.

Key Legal Provisions Explained

Best Practices During the Audit

• Cooperate fully: Attend all hearings and respond promptly to FBR queries.

• Be transparent: Provide clear explanations and supporting documents for all queries, especially regarding sources of income, major expenses, and unusual transactions.

• Maintain professionalism: Interact respectfully with tax officials to facilitate a smoother audit process3.

• Document everything: Keep detailed records of all communications and submissions.

What to Do If You Disagree with the Audit Findings

• Appeal: If you believe the audit findings are incorrect, you can file an appeal with the Commissioner (Appeals) under Section 127.

• Further Appeals: If dissatisfied with the outcome, you may approach the Appellate Tribunal under Section 1313.

• Strong Documentation: Robust evidence and documentation are crucial for successful appeals.

Frequently Asked Questions (FAQs)

Q: Can I ignore a 177(1) notice if my only income is from salary below the taxable limit?

A: No. Even if your income is below the taxable limit, you must respond to the notice and provide the requested information. If your case qualifies for closure under Section 214E (for cases selected under omitted Section 214D), you may reference this in your response, but always consult a tax professional first7.

Q: How long do I need to keep my records?

A: You are required to maintain all relevant records for at least six years from the end of the relevant tax year34.

Q: What if I need more time to gather documents?

A: You may request an extension from the FBR, providing valid reasons. However, this should be done before the original deadline expires.

Conclusion: Responding to a 177(1) Notice—Your Checklist

1. Read the notice carefully and note all requirements.

2. Organize and reconcile all relevant documents.

3. Consult a tax professional if needed.

4. Draft a clear, formal response with supporting documents.

5. Submit your response before the deadline and keep records.

6. Cooperate with the FBR throughout the audit process.

7. Appeal if you disagree with the audit findings, supported by strong documentation.

By following these steps, you can navigate the audit process confidently, avoid penalties, and ensure compliance with Pakistan’s tax laws.

Table: Summary of Actions and Consequences