A notice under section 114(4) of the Income Tax Ordinance, 2001 requires a person to furnish a return of income for a specified tax year. FBR issues them in volume, usually where its data shows a transaction - a property purchase, a vehicle registration, substantial banking activity, a foreign remittance - inconsistent with no return having been filed.
It is not an accusation and it is not an assessment. It is an instruction to file, and it has a deadline.
Read what the notice actually says
Check three things on the notice itself:
- The tax year it relates to. Notices frequently relate to a year several years back.
- The compliance date - the deadline for filing.
- The section. A 114(4) notice is a call for a return. A notice under section 122(9) is a show-cause before amending an assessment, and a notice under section 176 is a call for information or documents. They require different responses.
All notices are served in the IRIS inbox, and service there is good service. Not having seen it is not a defence, which is why the IRIS account and the registered mobile and email need to be ones you actually monitor.
What happens if you ignore it
Section 121 allows the Commissioner to make a best judgement assessment where a person fails to furnish a return in response to a 114(4) notice. That means FBR estimates your income from whatever data it holds - and the estimate is not generous.
Once a best judgement assessment is framed, the tax becomes payable, recovery proceedings follow under section 138 (including attachment of bank accounts), and the burden shifts entirely to you to displace the assessment on appeal. Penalties under section 182 for failure to furnish a return apply separately, and default surcharge under section 205 accrues.
The asymmetry is the point: filing takes an evening, and un-filing a best judgement assessment takes a year.
Responding properly
- Log into IRIS and open the notice. Note the compliance date.
- If you need more time, file an application for extension in IRIS before the date expires, with a reason. Extensions are routinely granted; they are not granted retrospectively.
- File the return for that tax year, with the wealth statement where required under section 116. For an individual, the wealth statement and the reconciliation are compulsory in most cases, and an unreconciled increase in wealth is what generates the next notice.
- Where you believe no return was due - income below the threshold, non-resident status, no source of income in Pakistan - reply in IRIS saying so, with evidence, rather than staying silent. A reasoned reply closes many notices.
- Keep the acknowledgment.
Filing an old year's return
Returns for prior years can be filed in IRIS by selecting the relevant tax year. Expect:
- Penalty under section 182 for late filing, calculated on the tax payable with a prescribed minimum.
- Default surcharge under section 205 on any tax paid late.
- The return being treated as a return filed after the due date, which affects Active Taxpayer List status for that year.
Filing late is still substantially better than not filing. The penalty is quantifiable; a best judgement assessment is not.
The wealth reconciliation
For individuals this is where most trouble originates. The wealth statement records assets and liabilities at the start and end of the year, and the reconciliation must explain the movement between them from declared income, gifts, inheritance or asset disposals.
An increase in wealth that income does not explain is unexplained income under section 111 and is added to income for the year. If a property was bought with family money, a foreign remittance or a documented gift, say so in the reconciliation with the supporting evidence at the time of filing - not two notices later.
If an assessment has already been framed
- An application under section 221 for rectification, where there is a mistake apparent from the record.
- An appeal to the Commissioner (Appeals) under section 127, within thirty days of service of the order, with the prescribed fee.
- Onward appeal to the Appellate Tribunal Inland Revenue, and thereafter a reference to the High Court on a question of law.
- An application to stay recovery pending appeal, which needs to be made promptly - recovery does not pause automatically because an appeal has been filed.
The thirty-day appeal period is strict and is the deadline most often missed.
This article describes the general position on FBR notices under the Income Tax Ordinance, 2001. Provisions and penalties change with each Finance Act. It is not tax advice; consult a tax practitioner promptly, because the deadlines are short.