How to Explain Your Information or Evidence Under Section 176(1) of the Income Tax Ordinance 2001 

  

If you are a taxpayer in Pakistan, you may have received a notice from the Federal Board of Revenue (FBR) under section 176(1) of the Income Tax Ordinance 2001. This notice requires you to explain or provide evidence for any information or document that the FBR has obtained from any source regarding your income, assets, expenses, liabilities or any other matter relevant to your tax affairs. This notice is part of the FBR’s efforts to broaden the tax base and enhance compliance. 

  

In this blog post, we will explain what section 176(1) is, what are your rights and obligations as a taxpayer, and how to respond to such a notice in a professional and effective manner. 

  

What is Section 176(1)? 

  

Section 176(1) of the Income Tax Ordinance 2001 empowers the FBR to issue a notice to any person requiring him or her to explain or provide evidence for any information or document that the FBR has obtained from any source. The notice may relate to any income year or tax period and may cover any aspect of the person’s tax affairs. 

  

The FBR may issue such a notice based on any information or document that it has received from any source, such as: 

  

– Third-party information from banks, financial institutions, utility companies, property registrars, etc. 

– Information from other government agencies or departments, such as NADRA, SECP, FIA, etc. 

– Information from foreign tax authorities under bilateral or multilateral agreements or conventions. 

– Information from whistleblowers or informers. 

– Information from media reports or public sources. 

– Information from audits or investigations conducted by the FBR or its officers. 

  

The purpose of issuing such a notice is to verify the accuracy and completeness of the person’s tax returns and declarations, and to assess or reassess the person’s tax liability if there is any discrepancy or concealment. 

The information or evidence that can be demanded by the Commissioner under section 176(1

The information or evidence that can be demanded by the Commissioner under section 176(1) may include, but is not limited to, the following: 

  

– Books of accounts, records, documents, vouchers, invoices, receipts, etc. relating to the income, expenditure, assets and liabilities of the taxpayer or any other person. 

– Bank statements, credit card statements, loan agreements, mortgage deeds, etc. showing the sources and uses of funds by the taxpayer or any other person. 

– Contracts, agreements, memoranda of understanding, etc. evidencing the terms and conditions of any transaction or arrangement involving the taxpayer or any other person. 

– Statements of witnesses, affidavits, declarations, etc. confirming or denying any fact or circumstance relevant for the tax matter. 

– Any other information or evidence that may be prescribed by rules or required by notice in writing by the Commissioner. 

Whom Commissioner can demand the information or evidence under section 176(1)?

The Commissioner can demand the information or evidence under section 176(1) from any person who is or may be liable to tax under the Ordinance or who has any connection with such person. The connection may be direct or indirect, legal or beneficial, past or present. For example, the Commissioner can demand information or evidence from a taxpayer’s spouse, children, parents, siblings, relatives, partners, associates, employees, agents, representatives, trustees, beneficiaries, etc. 

  

What are Your Rights and Obligations as a Taxpayer? 

  

As a taxpayer, you have certain rights and obligations when you receive a notice under section 176(1). 

  

Your rights include: 

  

– The right to be informed of the source and nature of the information or document that the FBR has obtained and that forms the basis of the notice. 

– The right to be given a reasonable time and opportunity to explain or provide evidence for the information or document in question. 

– The right to be heard and represented by an authorized representative or a tax consultant of your choice. 

– The right to appeal against any assessment or order made by the FBR based on the notice. 

  

Your obligations include: 

  

– The obligation to respond to the notice within the time specified in the notice, which is usually 30 days from the date of receipt of the notice. 

– The obligation to provide truthful and complete information and evidence in support of your explanation. 

– The obligation to cooperate with the FBR and its officers in resolving the matter amicably and expeditiously. 

– The obligation to pay any tax due as a result of the notice, unless you file an appeal against it. 

  

How to Respond to a Notice Under Section 176(1)? 

  

If you receive a notice under section 176(1), you should not panic or ignore it. Instead, you should take the following steps: 

  

– Read the notice carefully and understand what information or document the FBR has obtained and what explanation or evidence it requires from you. 

– Gather all relevant information and evidence that can support your explanation or justify your position. This may include bank statements, invoices, receipts, contracts, agreements, correspondence, etc. 

– Prepare a written response to the notice that clearly explains or provides evidence for each point raised by the FBR. You should also attach copies of all supporting documents with your response. You should avoid making vague or general statements that do not address the specific issues raised by the FBR. 

– Submit your response to the FBR within the time specified in the notice. You should also keep a copy of your response and all supporting documents for your record. You should also obtain an acknowledgment receipt from the FBR for your submission. 

– Follow up with the FBR and its officers to ensure that your response has been received and considered. You should also try to resolve any queries or objections raised by the FBR in a timely and cooperative manner. 

– If you are not satisfied with the outcome of your response, you can file an appeal against any assessment or order made by the FBR based on the notice. You should consult a tax expert before filing an appeal. 

  

Conclusion 

In conclusion, section 176(1) of the Income Tax Ordinance, 2001 is a powerful tool for the Commissioner to obtain any information or evidence that may be relevant for any tax matter. The taxpayers and other persons who are required to furnish such information or evidence must comply with the requirement in a timely and truthful manner. Otherwise, they may face severe penalties and prosecution under the Ordinance.