u/s 121 (Notice to amend assessment)

HOW 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.

Here’s what you should do if you receive a Section 121 Notice from FBR:

1. Understand the Purpose of the Notice

• Section 121 allows FBR to initiate an audit to ensure that the taxpayer has reported accurate information in their tax returns. This could happen if FBR suspects discrepancies or if your tax return is flagged for any reason.
• The notice will typically request you to provide supporting documents, records, or further information for scrutiny.

2. Review the Notice Thoroughly

• Carefully read the Section 121 notice to understand what FBR is requesting. It will specify the details of your income, expenses, tax payments, or any other matter FBR intends to review.
• Check if the notice specifies a deadline for submission of documents or attending a meeting with FBR.

3. Gather the Required Documents

• The notice will typically ask for the following:
  • Tax returns for the relevant years.
  • Books of accounts, including ledgers, trial balances, profit & loss statements, etc.
  • Invoices, receipts, or any records of income and expenses.
  • Bank statements and financial transaction records.
  • Any other relevant documents that FBR may deem necessary.
• Ensure that all the documents requested are available, accurate, and complete.

4. Consult a Tax Professional

• If you’re unsure about the notice or the documents requested, it’s highly recommended to consult a tax professional or chartered accountant.
• A tax expert can help you understand the specifics of the notice, prepare the required documents, and guide you through the audit process.
• They can also assist in identifying any discrepancies in your records, potentially avoiding penalties or additional scrutiny.

5. Respond to the Notice Promptly

• Failing to respond to a Section 121 notice on time can lead to penalties or further legal consequences.
• Submit the requested documents within the stipulated time frame. You may need to provide physical copies or upload them through the FBR’s online portal.
• If you’re unable to meet the deadline, it’s important to request an extension before the deadline expires. This can usually be done via FBR’s online system.

6. Be Prepared for an Audit

• After you submit your documents, FBR may initiate a formal audit to verify the accuracy of the provided information.
• The audit could involve a detailed examination of your financial records, meetings with FBR officials, and additional requests for clarification.
• Keep your records organized and readily accessible for further examination if needed.

7. Cooperate with FBR

• During the audit process, ensure you cooperate fully with FBR’s inquiries and requests. Non-cooperation can lead to additional penalties or legal action.
• If you disagree with any findings during the audit, you have the right to appeal FBR’s decisions through the appropriate legal channels.

8. Ensure Future Compliance

• Once the audit is complete, and any adjustments have been made, ensure that your future tax returns and financial records are in compliance with all legal requirements.
• You may want to implement better record-keeping practices to avoid similar issues in the future.

Conclusion:

A Section 121 notice from FBR signifies that the tax authority is conducting an audit of your tax filings. By responding timely, gathering accurate documents, and seeking professional advice, you can navigate the audit process smoothly and ensure compliance with tax laws.

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