ASSESSMENT PROCEDURES UNDER THE INCOME TAX ORDINANCE, 2001

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1. Original Assessment Order - Filing of Return of Income

Section 120 of the Income Tax Ordinance, 2001

A return of income once filed by the taxpayer instantly becomes an assessment order under section 120 of the Income Tax Ordinance, 2001.


Where a taxpayer has furnished a complete return of income (other than a revised return under sub-section (6) of section 114) for a tax year ending on or after the 1st day of July, 2002,—
(a) the Commissioner shall be taken to have made an assessment of taxable income for that tax year, and the tax due thereon, equal to those respective amounts specified in the return; and
(b) the return shall be taken for all purposes of this Ordinance to be an assessment order issued to the taxpayer by the Commissioner on the day the return was furnished.

Section 114 of the Income Tax Ordinance, 2001

Please click here to see the complete list of persons required to file return of income.

The Commissioner may, by notice in writing, require a person, or a person‘s representative, as the case may be, to furnish a return of income by the date specified in the notice for a period of less than twelve months, where -

(a) the person has died;

(b) the person has become bankrupt or gone into liquidation;

(c) the person is about to leave Pakistan permanently;

(d) the Commissioner otherwise considers it appropriate to require such a return to be furnished.

The Commissioner may, by notice in writing, require any person who, in the Commissioner‘s opinion, is required to file a return of income under this section for a tax year or assessment year but who who has failed to do so to furnish a return of income for that year within thirty days from the date of service of such notice or such longer or shorter period as may be specified in such notice or as the Commissioner may allow.

A notice may be issued upto last five completed tax years. 

Provided that in case of a person who has not filed return for any of the last five completed tax years, notice may be issued in respect of one or more of the last ten completed tax years.

2. Best Judgement Assessment

Section 121 of the Income Tax Ordinance, 2001- 

Where a person fails to

- furnish a statement as required by a notice under sub-section (5) of section 115; or

- furnish return of income in response to notice under sub- section (3) or sub-section (4) of section 114; or

- furnish a return as required under section 143 or section 144; or

- furnish the wealth statement as required under section 116; or

- produce accounts, documents and records required to be maintained under section 174, or any other relevant document or evidence that may be required for the purpose of making assessment of income and determination of tax due thereon, the Commissioner may, based on any available information or material and to the best of his judgement, make an assessment of the taxable income of the person and the tax due thereon and the assessment, if any, treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.

As soon as possible after making an assessment under this section, the Commissioner shall issue the assessment order to the taxpayer stating—

(a) the taxable income;

(b) the amount of tax due;

(c) the amount of tax paid, if any; and

(d) the time, place and manner of appealing the assessment order.

(3) An assessment order under this section shall only be issued within five years after the end of the tax year or the income year to which it relates.

3. Amending the assessment order

Amending assessment by revising return as per section 114 -

Any person who, having furnished a return, discovers any omission or wrong statement therein, may file revised return subject to the following conditions, namely: —

(a) it is accompanied by the revised accounts or revised audited accounts, as the case may be;

(b) the reasons for revision of return, in writing, duly signed, by the taxpayers are filed with the return;

(c) it is accompanied by approval of the Commissioner in writing for for revision of return if revised after 60 days; and

(d) taxable income declared is not less than and loss declared is not more than income or loss, as the case may be, determined by an order issued under sections 121, 122, 122A, 7[ ] 129, 132, 133 or 221:-

If any of the above conditions is not fulfilled, the return furnished shall be treated as an invalid return as if it had not been furnished.

Also that condition of sixty days shall not not apply and the approval required thereunder shall be deemed to have been granted by the Commissioner, if-

(a) the Commissioner has not made an order of approval in writing, for revision of return, before the expiration of sixty days from the date when the revision of return was sought; or

(b) taxable income declared is more than or the loss declared is less than the income or loss, as the case may be, determined under section 120.

(c) If a taxpayer files a revised return voluntarily along with deposit of of the amount of tax short paid or amount of tax sought to be evaded along with the default surcharge, whenever it comes to his notice, before receipt of notice under sections 177 or sub-section(9) of 122, no penalty shall be recovered from him:

Provided that in case the taxpayer 4[deposits] the amount of tax as pointed out by the Commissioner during the audit or before the issuance of notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, the default surcharge and twenty-five per cent of the penalties leviable under the Ordinance along with the revised return:

Provided further that in case the taxpayer 5[revises] the return after the issuance of a show cause notice under sub-section (9) of section 122, he shall deposit the amount of tax sought to be evaded, default surcharge and fifty per cent of the leviable penalties under the Ordinance along with the revised return and thereafter, the show cause notice shall stand abated.

Amending assessment under Section 122 of the Income Tax Ordinance, 2001 - 

The Commissioner may amend an assessment order treated as issued under section 120 or issued under section 121 by making such alterations or additions as the Commissioner considers necessary.

Where a taxpayer furnishes a revised return under section 114 —

(a) the Commissioner shall be treated as having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and

(b) the taxpayer‘s revised return shall be taken for all purposes of this Ordinance to be an amended assessment order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished.

The Commissioner may further amend, as many times as may be necessary, the original assessment within the later of —

(a) five years of original assessment order; or

(b) one year of amended assessment order to the taxpayer.

An assessment order in respect of tax year, or an assessment year, shall only be amended on the basis of definite information acquired from an audit or otherwise, the Commissioner is satisfied that —

(i) any income chargeable to tax has escaped assessment; or

(ii) total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii) any amount under a head of income has been mis-classified.

The Commissioner may amend an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.

As soon as possible after making an amended assessment the Commissioner shall issue an amended assessment order to the taxpayer stating 

(a) the amended taxable income of the taxpayer;

(b) the amended amount of tax due;

(c) the amount of tax paid, if any; and

(d) the time, place, and manner of appealing the amended assessment.

An amended assessment order shall be treated in all respects as an assessment order for the purposes of this Ordinance.

Definite Information: includes information on sales or purchases of any goods made by the taxpayer, receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance,]and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer.

No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard.

Amending assessment as a result of Audit selection under section 214 C

The Board may select persons or classes of persons for audit of Income Tax affairs through computer ballot which may be random or parametric as the Board may deem fit.

Audit of Income Tax affairs of persons selected shall be conducted as per procedure given in section 177 and all the provisions of the Ordinance, except sub-section (1) of section 177, shall apply accordingly.

It is declared that the powers of the Commissioner under section 177 are independent of the powers of the Board under this section and nothing contained in this section restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under section 177.

Amending assessment order as a result of audit under section 177

The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any there law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commissioner or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person:

Provided that—

(a) the Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and

(b) the reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer:

Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.

After obtaining the record of a person the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.

After completion of the audit the Commissioner may, after obtaining taxpayer‘s explanation on all the issues raised in the audit, amend the assessment.

The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years.

The Board may appoint a firm of Chartered Accountants or a firm of Cost and Management Accountants to conduct an audit of the income tax affairs of any person and the scope of such audit shall be as determined by the Board or the Commissioner on a case to case basis.

Where a person fails to produce any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required for the purpose of audit, the Commissioner may proceed to make best judgement assessment under section 121 of this Ordinance and the assessment treated to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.

5. Rectification of Order

Section 221 of the Income Tax Ordinance, 2001 -

The Commissioner, the Commissioner (Appeals) or the Appellate Tribunal may, by an order in writing, amend any order passed by him to rectify any mistake apparent from the record on his or its own motion or any mistake brought to his or its notice by a taxpayer or, in the case of the Commissioner (Appeals) or the Appellate Tribunal, the Commissioner.

No rectification order which has the effect of increasing an assessment, reducing a refund or otherwise applying adversely to the taxpayer shall be made unless the taxpayer has been given a reasonable opportunity of being heard.

Limitation - 

Where a mistake apparent on the record is brought to the notice of the Commissioner or Commissioner (Appeals), as the case may be, and no rectification order has been made before the expiration of the financial year next following the date on which the mistake was brought to their notice, the mistake shall be treated as rectified and all the provisions of this Ordinance shall have effect accordingly.

No such order be made after five years from the date of the order sought to be rectified.



Author:

Zeeshan Qureshi
Income Tax Practitioner
Expert in dealing audit notices (177/214C) and provisional assessments (122)
Contact

zeeshanqureshi.email@gmail.com