176(1) (Notice to obtain information or evidence)

                     NOTICE UNDER SECTION 176 OF THE INCOME TAX ORDINANCE, 2001.

                                Please refer to the above subject.

Please refer to the captioned subject and section 7E of the Income Tax Ordinance, 2001. You have e-filed return of income u/s 114 (1) of the Income Tax Ordinance, 2001, for the subject tax year along with wealth statement and wealth reconciliation statement.

Perusal of your declaration revealed that you have declared capital Assets, as defined in clause (a) of sub-section (4) of section 7E of Income Tax Ordinance, 2001, more than Rs. 25,000,000/-. As per subsection (2) of section 7E of Income Tax Ordinance, 2001, you were required to charge tax on deemed income of an amount equal to five percent of the fair market value of capital assets held by you on 30.06.2022 in Pakistan.

For ready reference, the section 7E of the ITO, 2001 is reproduced as under: “ Section 7E. Tax on deemed income.- (1) For tax year 2022 and onwards, a tax shall be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule on the income specified in this section.

(2) A resident person shall be treated to have derived, as income chargeable to tax under this section, an amount equal to five percent of the fair market value of capital assets situated in Pakistan held on the last day of tax year” It is worth mentioning that the Hon’able Lahore High Court, Lahore in ICA No.35908 of 2023 Titled Commissioner Inland Revenue Versus Muhammad Osman Gul dated 15.02.2024 has declared levy of tax on deemed income under section 7E as constitutional. Consequently, you are liable to pay the amount of tax under section 7E of the ITO, 2001.

How to Effectively Respond to an FBR Section 176(1) Notice: A Step-by-Step Guide

Receiving a 176(1) Notice from the Federal Board of Revenue (FBR) in Pakistan is an important communication and should be taken seriously. The notice is typically issued for the “production of documents” under Section 176 of the Income Tax Ordinance 2001. It means that FBR is requesting you to provide certain records, books of accounts, or documents to verify your income, tax returns, or other financial matters.

Here’s what you should do if you receive a 176(1) Notice:

1. Understand the Reason for the Notice

• The notice is usually sent when FBR wants to verify certain financial transactions or ensure compliance with tax laws.
• It could be related to income tax filings, sales tax issues, or audit procedures.

2. Review the Notice Carefully

• Carefully read the notice to identify which documents or records FBR is asking for. This could include:
  • Books of accounts.
  • Tax returns.
  • Bank statements.
  • Proof of income, expenses, or deductions.
• The notice should also specify a deadline for submitting the requested documents. Ensure you are aware of the deadline to avoid any penalties for non-compliance.

3. Gather the Required Documents

• Collect all the relevant documents that FBR is requesting. These could be:
  • Financial statements.
  • Tax returns for the last few years.
  • Sales and purchase records.
  • Bank and financial transaction statements.
• If any documents are missing or incomplete, try to gather them from the appropriate sources or reconcile your records.

4. Consult a Tax Professional (If Necessary)

• If you are uncertain about the specific documents FBR is requesting or how to respond, it’s a good idea to consult with a tax consultant or chartered accountant.
• A tax professional can help you navigate the process, ensure the correctness of the provided documents, and assist in responding to the notice.

5. Respond Timely

• Ensure that you respond to the notice before the given deadline. Non-compliance could lead to penalties or legal actions.
• You can respond by submitting the requested documents online through the FBR’s portal, or you may need to physically present them at an FBR office, depending on the specifics of the notice.

6. Keep Records of Your Response

• After you submit the documents, keep a copy of everything for your records. You may need to refer to this in case of future correspondence with FBR.

7. Be Prepared for a Follow-Up

• After submission, FBR may conduct further scrutiny or follow-up inquiries. Be ready for potential meetings or requests for additional documentation if necessary.

8. Compliance is Key

• Responding to an FBR notice promptly and accurately is crucial. Failing to do so could result in an audit, penalties, or other legal consequences.

Conclusion:

The 176(1) Notice is FBR’s way of verifying your financial records and ensuring tax compliance. By responding in a timely and organized manner, you can resolve the issue and avoid complications. If in doubt, seek the help of a tax expert to guide you through the process.

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