I Got a Show Cause Notice for Best Judgment Assessment u/s 121: What to Do? (Complete Guide for 2025)

SUBJECT: SHOW CAUSE NOTICE FOR BEST JUDGMENT ASSESSMENT U/S 121(1)(d) READ WITH 121
(1)(ab) OF THE INCOME TAX ORDINANCE, 2001 – TAX YEAR 2022

Please refer to the subject cited above.
This office has credible information that you have made a taxable activity during Tax Year 2022. The
detail of particulars is given below:
Taxable amount          Tax deducted               Nature of Payment/Under Section
7700000                     77000                                               236C
The proceedings to probe the investment were initiated and consequently notice u/s 114(4) of the
Income Tax Ordinance, 2001 has already been issued for filing of income tax return for tax year 2022 by
this office. You have not made any compliance in response to the above said notice. Non-compliance on
your part invokes provisions of section 121(1)(d) read with section 121(1)(ab) of the Income Tax
Ordinance, 2001 which reads as follows:

121. Best Judgment Assessment
(i) Where a person fails to:
[(ab) furnish return of income in response to notice under sub-section (3) or sub – section (4) of section
114;

There is no evidence available on record that can explain your said investment. The lack of evidence
calls for imposition of section 111(1)(b) read with section 111(2) of the Income Tax Ordinance, 2001 in
your case. You are afforded an opportunity through this show cause to explain your stance/position
regarding said investment You are informed that in case of non-compliance there will be no other
alternative except to make best judgement u/s 121(1)(d) read with section 121(1)(ab) by making an
addition of Rs. 7,700,000/- u/s 111(1)(b) read with section 111(2) of the Income Tax Ordinance, 2001 as
“Income from Other Sources”.

You are requested to make compliance of this notice on or before due date mentioned above positively,
otherwise penalty and prosecution proceedings will be initiated against you.

 

I Got a Show Cause Notice for Best Judgment Assessment u/s 121: What to Do?

Receiving a show cause notice for a Best Judgment Assessment under Section 121 of the Income Tax Ordinance, 2001, can be stressful for any taxpayer in Pakistan. This comprehensive guide explains what such a notice means, why you received it, the legal process, your rights, and—most importantly—step-by-step actions you should take to protect yourself and respond effectively.

Understanding the Show Cause Notice u/s 121

A show cause notice under Section 121 is an official communication from the Federal Board of Revenue (FBR) indicating that they have credible information about your taxable activities, but you have not filed a required income tax return or provided requested documentation. The FBR is considering making a “Best Judgment Assessment” of your income and tax liability based on available information, which may not be favorable to you24.

What Is a Best Judgment Assessment?

• Definition: A Best Judgment Assessment is when the tax authorities estimate your income and tax due based on their own judgment, usually because you have not filed a return or provided sufficient records46.

• Legal Basis: Section 121 of the Income Tax Ordinance, 2001, empowers the FBR to assess your income if you fail to comply with notices under Section 114 (filing of returns) or fail to provide necessary documents24.

• Implications: The FBR can add unexplained amounts (like investments or deposits) as “Income from Other Sources,” leading to potentially high tax liabilities and penalties24.

Why Did You Receive This Notice?

You may have received a show cause notice u/s 121 for several reasons:

What Does the Notice Typically Contain?

A typical show cause notice for Best Judgment Assessment includes:

• Details of the taxable amount detected (e.g., Rs. 7,700,000)

• Tax deducted (if any) and nature of payment/section (e.g., 236C for property transactions)

• Reference to previous notices (like u/s 114(4))

• Legal references (Sections 121(1)(d), 121(1)(ab), 111(1)(b), 111(2))

• A warning that failure to respond will result in an adverse assessment and possible penalties or prosecution12.

Legal Framework: Section 121 and Related Provisions

Section 121: Best Judgment Assessment

• When Invoked: If you fail to file a return or provide required documents after being served a notice under Section 114.

• Process: The Commissioner can estimate your income and issue an assessment order based on available information46.

• Time Limit: Assessment must be completed within five years of the relevant tax year4.

Section 111: Unexplained Income or Assets

• If you cannot explain the source of an investment or deposit, the FBR can treat it as unexplained income and tax it as “Income from Other Sources”2.

What Are the Consequences of Ignoring the Notice?

Ignoring a show cause notice u/s 121 can have serious consequences:

Step-by-Step: How to Respond to a Show Cause Notice u/s 121

1. Stay Calm and Read the Notice Carefully

• Do not panic. Read every line of the notice and note the specific sections and allegations35.

• Check the date of issue and actual date of receipt. Keep evidence of when you received it, as this may be important for appeals37.

2. Check the Due Date for Response

• Identify the deadline for your reply. If insufficient time is given, you can request an extension (adjournment request)37.

3. Verify the Details and Jurisdiction

• Ensure the notice is addressed to you, issued by the correct authority, and references the correct tax year and transactions37.

4. Gather All Relevant Documents

• Collect all supporting documents related to the transactions or investments mentioned (e.g., bank statements, sale deeds, loan agreements, tax deduction certificates)45.

• Cross-check the figures in the notice with your own records to identify discrepancies3.

5. Prepare a Detailed Written Response

• Clearly explain the source of any investments or deposits questioned by the FBR.

• Attach copies of all supporting documents and reference them in your reply5.

• If you have already filed a return or provided documents, mention this and attach proof.

6. Seek Professional Help

• Consult a qualified tax consultant or chartered accountant to draft your response and represent you before the FBR if necessary4.

7. Submit Your Response on Time

• File your reply before the due date. Keep evidence of submission (acknowledgment receipt, courier slip, or online submission proof)37.

8. Prepare for Further Proceedings

• If the FBR is not satisfied with your response, they may proceed with the assessment. You will receive an assessment order, which you can appeal if you disagree with it4.

Sample Table: Checklist for Responding to a Show Cause Notice

What If You Disagree with the Assessment? Appeals Process Explained

If the FBR issues a Best Judgment Assessment order and you disagree:

• Right to Appeal: You can file an appeal with the Commissioner (Appeals) within 30 days of receiving the assessment order4.

• Further Appeals: If unsatisfied, you can appeal to the Appellate Tribunal, High Court, and ultimately the Supreme Court3.

• Stay of Recovery: In some cases, you can request a stay of tax recovery while your appeal is pending.

Common Mistakes to Avoid

• Ignoring the notice or delaying your response

• Submitting incomplete or inaccurate information

• Failing to attach supporting documents

• Not keeping proof of submission

• Not seeking professional help when needed

Frequently Asked Questions (FAQs)

Q1. Is a show cause notice u/s 121 a final tax demand?
No. It is an opportunity for you to explain your position before the FBR makes a Best Judgment Assessment4.

Q2. Can I ignore the notice if I believe it is a mistake?
No. Always respond, even if you believe the notice is incorrect. Explain your position and attach evidence5.

Q3. What if I need more time to respond?
You can request an extension by filing an adjournment request with reasons37.

Q4. What happens if I lose my appeal?
You may pursue further appeals to higher authorities. Meanwhile, you may be required to pay the assessed tax or seek a stay order34.

Receiving a show cause notice for Best Judgment Assessment u/s 121 is serious but manageable if you act promptly and responsibly. Carefully read the notice, gather all relevant documents, seek professional advice, and submit a well-documented response on time. If needed, use your right to appeal. Proactive compliance and clear communication with the FBR are your best defenses against adverse tax consequences.

Remember:

• Responding properly can often resolve the matter without penalties or prosecution.

• Ignoring or mishandling the notice can lead to significant financial and legal trouble.

If you need further assistance, consult a qualified tax professional experienced in handling FBR notices and assessments.

This guide is based on the latest tax laws and best practices as of April 2025. Always consult a professional for case-specific advice.