221(2) (Notice for rectification of mistake in assessment order)

SHOW CAUSE 221(2) (Notice for rectification of mistake in assessment order)

Please refer to the above.

Return of income for the tax year mentioned above was filed, which was deemed to be assessed under section 120 of
the Income Tax Ordinance, 2001. Perusal of the return reveals that you had adjusted a refund of the prior year against
tax liability. The refund adjusted against tax liability needs proper verification and requires your explanation as prima
facie no determined refunds are available in your case. You are hereby afforded with an opportunity to provide
documentary proof of the said adjustment made therein. In case of non-compliance your adjustment of refund made in
income tax return for tax year under consideration will be rejected and tax chargeable will be recovered against your
declared income for tax year mentioned above. Your reply should reach the office of the undersigned on or before due
date as mentioned above.
Amount Adjusted Rs. x,xxx.

A 221(2) Notice from the Federal Board of Revenue (FBR) refers to Section 221(2) of the Income Tax Ordinance, 2001, which deals with the powers of FBR to issue a notice for further assessment or to call for additional information related to the taxpayer’s affairs. It typically arises when FBR is either conducting a review, audit, or reassessment of your tax filings, and it seeks additional information or clarification to determine your correct tax liability.

Click here to read about Got Notice u/s 11(1) read with section 26 and 33(1) of Sales Tax Act 1990 from FBR – What should you do?

What You Should Do Upon Receiving a 221(2) Notice:

1. Understand the Purpose of the Notice

• Request for Information: Under Section 221(2), FBR may issue a notice to obtain additional information or clarification to proceed with the assessment, audit, or investigation of your tax affairs. This can occur if there are discrepancies, incomplete filings, or additional details required.
• Re-assessment of Tax Returns: If FBR believes there are issues with your submitted returns, they may issue this notice to gather more details before re-assessing your tax liability.

2. Review the Notice Carefully

• Reason for the Notice: The notice should specify the reason for issuance. Common reasons may include:
  • Non-filing or late filing of a tax return.
  • Discrepancies between reported income and available records.
  • Missing documents or insufficient information in your filed tax return.
• Information Requested: FBR will also detail the specific information or documents that you need to provide. This could include:
  • Financial statements.
  • Bank records.
  • Tax receipts or payment evidence.
  • Clarification on specific income sources or deductions.

3. Gather Required Documents

• Prepare Your Financial Records: Based on the notice, gather the documents requested. Common documents include:
  • Bank statements, including business and personal accounts.
  • Proof of income (e.g., salary slips, contracts, invoices).
  • Tax receipts for any payments or deductions.
  • Business financial records (for business owners or self-employed individuals).
  • Investment records, including real estate, stocks, or other assets.
• Ensure Accuracy: Double-check the documents to make sure the information you provide is accurate and up-to-date.

4. Respond to the Notice Within the Given Timeframe

• Timely Submission: FBR will specify a deadline by which you need to respond to the notice. It’s crucial to submit the required information on time to avoid penalties or other legal consequences.
• Failure to Comply: Failing to comply with the notice could lead to penalties, further investigation, or the possibility of an audit being initiated.

5. Submit Documents via the Correct Channel

• Online Submission: The FBR e-filing portal is usually the most efficient and preferred method to submit documents electronically. Ensure that you upload the requested documents and any clarification as per the instructions in the notice.
• Physical Submission: If the notice requires physical submission or you need to submit hard copies of certain documents, ensure they are submitted to the correct FBR office.

6. Seek Professional Assistance (if needed)

• Consult a Tax Professional: If the requested information is complex or you are unsure how to respond, it may be beneficial to consult a tax consultant or chartered accountant. They can assist in ensuring the documents are correct and can guide you through the process.
• Audit Preparation: If the notice is part of an audit process or investigation, a tax professional can help you prepare the necessary documentation and handle the interaction with FBR.

7. Check for Any Tax Liabilities

• Pay Any Outstanding Tax: If, after responding to the notice, you find that you owe taxes, make sure to pay the outstanding amount as soon as possible. This will help you avoid additional penalties or interest for delayed payments.
• Interest and Penalties: FBR may apply penalties or interest on unpaid taxes if discrepancies are found in your return. Prompt payment can minimize these costs.

8. Monitor the Outcome

• Track Your Response: After submitting the required documents, follow up to ensure FBR has received and processed your information.
• Status Update: You can check the FBR portal or directly contact the relevant FBR office for updates on the status of your submission.
• FBR Decision: FBR will process the information and either:
  • Confirm that your tax return is in order and close the matter.
  • Issue a revised assessment if additional taxes are owed.
  • Initiate an audit if necessary, based on the documents you provided.

Possible Outcomes:

• No Issues: If the requested information is sufficient and accurate, FBR may close the matter without further action.
• Additional Tax Assessment: If discrepancies are found or additional tax is owed, FBR may issue a revised tax assessment and demand payment.
• Audit: If FBR is not satisfied with your response or finds significant issues, the matter may be escalated to an audit for further review.
• Penalties and Interest: Failure to comply with the notice or provide accurate information can lead to penalties, interest, or legal consequences.

Conclusion:

A 221(2) Notice from FBR is typically issued when the tax authorities need additional information or clarification regarding your tax return, or when they are conducting a reassessment or audit. To handle the notice:

1. Review the notice carefully to understand the information required.
2. Gather and submit the requested documents by the specified deadline.
3. If necessary, consult a tax professional to ensure compliance.
4. Pay any outstanding taxes promptly to avoid penalties.

Responding promptly and accurately to the notice will help ensure that your tax affairs remain compliant and avoid further issues with FBR.