Understanding Income Tax Return Filing Under Section 114
Section 114 of the Income Tax Ordinance, 2001 outlines the persons who are required to file an income tax return in Pakistan. Filing of returns is not only a legal requirement but also a fundamental component of tax compliance under the Federal Board of Revenue (FBR) regulations.
According to Section 114, the following persons are required to file returns:
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Every company, irrespective of income
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Every individual with taxable income exceeding the minimum threshold
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Non-profit organizations and trusts
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Individuals owning immovable property, vehicles above 1000cc, or holding foreign income/assets
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Individuals who paid utility bills exceeding Rs. 500,000 or foreign travel expenses
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Any person required by notice from the Commissioner Inland Revenue
Failure to file the return within the due date makes the person liable to penalties and possibly prosecution under Section 182 of the Ordinance.
What Is a Show Cause Notice?
A Show Cause Notice (SCN) is a formal written communication from the FBR or a Commissioner Inland Revenue, asking the taxpayer to explain why a certain penalty should not be imposed. In this context, the notice is issued when a taxpayer fails to file their return under Section 114.
The purpose of the notice is to give the taxpayer an opportunity to justify the delay or non-compliance before a penalty under Section 182 is enforced.
Legal Grounds for Penalty under Section 182
Section 182 of the Income Tax Ordinance, 2001 provides a list of penalties for various offenses related to non-compliance. Under clause (1), failure to file a return under Section 114 attracts a monetary penalty.
The relevant part of Section 182(1) states:
“Any person who fails to file a return of income under section 114 within the due date shall pay a penalty of 0.1% of the tax payable for each day of default, subject to a minimum penalty of Rs. 40,000 in case of a company and Rs. 5,000 in other cases.”
This penalty continues to accrue until the return is filed or the maximum penalty cap is reached.
Categories of Taxpayers and Penalty Amounts
The penalty for not filing a return varies based on the taxpayer category:
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Companies: Minimum penalty of Rs. 40,000
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AOPs and Individuals: Minimum penalty of Rs. 5,000
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Non-Resident Persons: Same penalty if they derive Pakistan-source income
If the person continues to default despite reminders and notices, the penalty can escalate and the taxpayer may be deemed as non-compliant, leading to further action including audit, best judgment assessment, and even prosecution in extreme cases.
Typical Format and Contents of Show Cause Notice
A Show Cause Notice issued under Section 182 typically includes the following components:
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Reference to taxpayer’s NTN or CNIC
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Details of the default (non-filing of return under Section 114)
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Reference to the due date and statutory obligations
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Citing relevant provisions of the Ordinance (Section 114 and Section 182)
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Timeline for submission of reply (usually 7–15 days)
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Warning of potential penalty or ex parte action in case of non-response
It may be issued via:
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Registered post
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Email from FBR’s IRIS system
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Display on the IRIS portal as an e-notice
Response to Show Cause Notice – Legal and Strategic Approach
Upon receipt of a Show Cause Notice, the taxpayer should:
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Immediately log in to the IRIS portal and download the notice
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Verify the validity of the notice (filing date, type of taxpayer, etc.)
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Consult a tax advisor or lawyer
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Prepare and file a written reply within the stipulated time
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Provide evidence, if applicable, of reasons for late or non-filing
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Request for waiver or reduction of penalty based on reasonable cause
An appropriate and timely response can lead to withdrawal or reduction of penalty.
Common Grounds for Defense in Response to SCN
A taxpayer can defend against the penalty under several grounds:
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Technical difficulties on IRIS portal during filing
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Incorrect due date communication by FBR
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Natural disaster, illness, or pandemic-related disruption
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Tax return already filed but not reflected due to system error
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No taxable income or nil return due
These must be supported by proper documentary evidence such as screenshots, affidavits, or hospital records.
Filing the Income Tax Return After Receiving SCN
To mitigate the impact of a Show Cause Notice, filing the return as soon as possible is crucial. Here’s how to do it:
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Access IRIS: https://iris.fbr.gov.pk
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Complete the online return form for individuals, AOP, or companies
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Attach supporting documents (if required)
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Submit return and download acknowledgment
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File a reply to the SCN referencing the return filing
Filing before the deadline given in the notice may lead to leniency or waiver of penalty by the tax officer.
Impact of Not Responding to Show Cause Notice
If a taxpayer ignores the Show Cause Notice:
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Penalty under Section 182 will be imposed automatically
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The return may be assessed under best judgment under Section 121
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The taxpayer may be disqualified from ATL (Active Taxpayer List)
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In some cases, prosecution under Section 191 may be initiated
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Business bank accounts and transactions may be monitored or frozen
Therefore, non-response not only leads to financial loss but can also severely disrupt business operations.
Penalty Waiver and Commissioner’s Discretion
Under Section 182(5), the Commissioner Inland Revenue has the discretion to waive or reduce the penalty imposed, if the taxpayer demonstrates reasonable cause and files the return promptly.
Applications for penalty waiver must be submitted in writing and include:
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Reason for non-compliance
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Date of actual return filing
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Proof or supporting documents
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Assurance of future compliance
Sterling.pk can assist in drafting professional waiver applications and follow-up.
Importance of Filing Return Under Section 114
Timely filing of return ensures:
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Inclusion in Active Taxpayer List (ATL)
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Lower withholding tax rates
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Business reputation and government contract eligibility
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Ease in obtaining visas, bank loans, and tenders
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Avoidance of penalties and audit risks
Return filing is the cornerstone of corporate compliance and good standing with FBR.
Automated Issuance of Show Cause Notices in IRIS
In recent years, FBR has automated the detection of non-filers. If a taxpayer is obligated to file under Section 114 and does not do so, the IRIS system automatically triggers issuance of:
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Show Cause Notice under Section 182
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Demand Notice for penalty
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ATL exclusion
Hence, taxpayers must remain vigilant and regularly check their IRIS accounts for notices and system messages.
Time Limits and Deadlines Related to SCNs
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Response Time: 7–15 days from receipt of notice
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Filing Return Window: May vary depending on tax year and extensions announced by FBR
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Review Petition: Can be filed within 30 days if dissatisfied with penalty
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Appeal to Commissioner Appeals: Must be filed within 30 days of penalty imposition
Missing deadlines can result in forfeiture of appeal rights and solidification of penalties.
Role of Tax Consultants in Handling SCNs
A qualified tax advisor or firm like Sterling.pk can:
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Analyze the notice for legal validity
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Draft and submit a proper written response
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Prepare waiver applications
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Represent before tax authorities
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Ensure return filing with proper documentation
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Prevent recurrence by setting up compliance calendars
Our team has handled hundreds of penalty notices successfully for clients across sectors.
Preventive Measures to Avoid SCNs and Penalties
Businesses and individuals can avoid SCNs by:
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Filing all returns before due dates
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Regularly updating IRIS profiles
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Enabling email/SMS alerts on FBR portal
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Keeping tax calendars and reminders
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Hiring accounting professionals for compliance
Technology tools and CRM systems can also automate reminders for filings.
Appeal Process Against Penalty Order
If the taxpayer disagrees with the penalty after submitting a response:
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File appeal with Commissioner Inland Revenue (Appeals)
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Include grounds of appeal and supporting evidence
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Pay partial penalty or seek stay of recovery
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If unsatisfied, escalate to Appellate Tribunal Inland Revenue (ATIR)
A favorable decision at appellate level can cancel the penalty and restore ATL status.
Important Case Laws and Precedents
Some notable judgments by tax tribunals and courts on Section 182 penalties include:
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Lahore High Court: Justified waiver when FBR servers were down near deadlines
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ATIR Islamabad: Reduced penalties in cases of nil income
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FTO (Federal Tax Ombudsman): Directed FBR to ensure fair hearing before imposing penalty
These rulings support the case for relief where non-filing was not willful.
FBR Circulars and Clarifications on SCNs
FBR often issues clarifications through:
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Circular Letters
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Income Tax General Orders (ITGO)
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Statutory Regulatory Orders (SROs)
These can offer extensions, relaxations, or procedural guidance. Monitoring these notifications helps taxpayers and advisors prepare in advance.
Recent Developments and Future Outlook
FBR is increasing automation through:
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Integration with NADRA, SECP, and Banks
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Artificial Intelligence and Data Analytics
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Nationwide documentation drive
Going forward, defaulting taxpayers will be automatically flagged, and penalties will be enforced with reduced human intervention. Businesses must prioritize tax compliance as a part of corporate governance.
Conclusion
A Show Cause Notice under Section 182 for failure to file return under Section 114 is a serious matter. Ignoring it can lead to hefty penalties, audits, and exclusion from the Active Taxpayer List. However, timely response, proper documentation, and filing the overdue return can significantly reduce or eliminate penalties.
Professional support from firms like Sterling.pk ensures that taxpayers respond strategically, protect their business reputation, and avoid future non-compliance. Whether you’ve missed a deadline or received an SCN, we’re here to help you get back on track with expert legal and tax advisory services.
