Essential Guide to Tax Notices Under Section 176 and Their Legal Implications
The purpose of this notice is to obtain any kind of information from the taxpayer, be it documents or any evidence. When any information is required from the taxpayer, the concerned tax officer of the FBR can ask for this information. The purpose is only to obtain information from the taxpayer.
If a timely and correct response is not given under this Show-Cause, or the information is not provided in a proper manner, then later the FBR can take action under other sections. Therefore, this type of Show-Cause from the department should not be taken casually but should be replied to properly and the prescribed deadlines must be followed.
Why is a notice issued?
Under this notice, the FBR usually need further clarification or information regarding the amounts declared in the tax return in the form of gifts, foreign remittances, loans or other high-value transactions and when there is not properly described.
If all income and transactions are properly declared while filing the return and relevant documents are attached, then the chances of such correspondence are reduced.
Common matters on which notice is issued
The most frequent correspondences are in respect of gifts, in which bank statements, gift deeds, tax returns and relationship with the gift donor are requested.
Similarly, in the case of foreign remittances the PRC is required and if the amount is exceeding 5 million rupees in a year then sources of income of the sender must also be need to provide.
If withholding tax has been declared but not deposited with the FBR, then the proof of payment (CPR) and withholding tax certificate may be requested.
How to Response to the Notices: Checking the Due Date
How to Response to the Notices: Checking the Due DateThe First step is to check the due date of the notice and assess whether you can reply or respond within the due date.
If the required information or documents that FBR has asked are likely to take time to obtain, then it is better to request for time extension (adjournment) rather than giving an incorrect or incomplete reply, mention the time that is required for compilation of records or third-party information.
How to get Time Extension?
To apply for extension login to IRIS portal and click on Reply in front of the relevant notice, and click assignment the last tab and then a dialog box will be appeared, in which you can select ‘’ Adjournment Required”.
Checking the legality and jurisdiction of the notice
Before responding, it is important to review the show-cause to see if it is legally valid.
For this, first check whether the show-cause has been issued through IRIS or not, and whether the Document Notification Number (DIN) is clearly mentioned in it.
Also, check whether the officer signing the show-cause is a Commissioner or Deputy Commissioner, and whether he has the formal authority and instructions to issue this show-cause or not.
Sometimes it happens that the notice is from another jurisdiction but is mistakenly sent to another taxpayer.
If the notice does not fall within the jurisdiction of the tax officer, then such a notice is not considered legally valid.
Drafting a Reply
To draft a reply, it is necessary to first write in the introduction that you have received the relevant notice and give its formal acknowledgement.
If the intention is to challenge the jurisdiction and legality of the notice, that it should also be clearly stated. Then, mention whether the relevant tax has already been paid, how much tax has been paid, and also describe the legal status of the taxpayer, salaried, business, AOP/Company resident or Non-resident.
Preparation of documents and provision of only relevant information
After you receive the extension, prepare all documents requested in the notice, such as a bank statement, gift deed, withholding tax certificates, or foreign remittances related such as PRC.
Provide only as many documents as requested:
For example, if information is requested about a specific transaction and only one or two pages of a bank statement are required, provide only those pages that contain the relevant transaction.
You do not need to provide the entire bank statement, unnecessary or additional information and provide only relevant information which are requested in the notice.
Scanned copies of all document will required to be attached and hard copies will also be submitted in person in concerned RTO (Tax Office).
Legal precautions when responding to tax notices
When reply to the notice the legal aspect of the information must be known.
Many times it happens that when we provide information without knowing tax laws, further action can be taken from us on this basis.
Example
For example, if you have received a monetary gift from someone, the two basic requirements must be fulfilled for a gift.
The first is that the amount must has been transferred through a banking channel, and the second is that the person giving the gift is your close relative.
Now, if the taxpayer has factually received the gift in cash and when reply to the notices said that the gift amount not through the bank but was received in cash, then the taxpayer itself has itself provided evidence to the tax authorities.
In such a situation, the tax officer based on the information provided may take further action and charge tax on the gift amount.
Consequences of not providing documents
If a taxpayer does not cooperate with the FBR or does not fulfil the legal requirements, a fine can be imposed on him.
For the first time, a fine of Rs 25,000 can be imposed, and for repeated non-cooperation, a fine of Rs 50,000 can be imposed.
If a taxpayer refuses to cooperate without any justification, then a sentence of imprisonment up to one year can also be imposed.
This strict action is usually taken only when the taxpayer deliberately does not cooperate and matter is serious for example the amount involved is huge.
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