How to Handle Notice under section 120(3) from FBR

How to Handle Notice under section 120(3) from FBR

If you received notice under section 120(3) to file complete income tax return along with form under section 7E of the Income Tax Ordinance, 2001. The taxpayers must know and understand on How to Handle Notice under section 120(3) from FBR.

The Finance Ministry amended Income tax Ordinance, 2001 to impose Tax on Deemed Income from Immovable Property (Tax on Deemed Rental Income) where a new section 7E has been introduced through Finance Act, 2022 whereby for tax year 2022 and onwards, a resident person is treated to have derived income equal to five percent of fair market value of the capital assets situated in Pakistan which will be chargeable to tax at the rate of 20% under Division VIIIC of Part I of First Schedule of the Ordinance.

Federal Board of Revenue can issue notice the return of income furnished is not complete having deficiency to file the form u/s 7E of the Ordinance (form provided by the Board vide SRO.1891(I)/2022 dated 13-10-2022.

Sample Notice under section 120(3) read with section 7E of the Income Tax Ordinance

Name: xxxxxxxxxx
Address: xxxxxxxxxxx
Registration No. xxxxx-xxxxxxx-x
Medium : Online
Document Date: 30-Jan-2023
Period: 01-Jul-2021 – 30-Jun-2022
Due Date: 10-Feb-2023
Tax Year : 2022
120(3) (Notice to complete deficiencies in Return of Income)

It is intimated to you that you have filed income tax return under section 114(1) of the ordinance 2001 for tax year 2022. However, the return of income furnished is not complete having deficiency to file the form u/s 7E of the Ordinance (form provided by the Board vide SRO 1891(I)/2022 dated 13.10.2022).

You are required to file complete return along with form under section 7E with and intimate the office accordingly.

However, any notice from FBR can be responded to in the following manner:

How to Handle Notice under section 120(3) from FBR How to Handle Notice from FBR: In a third world country, ordinarily governmental agencies tend to abuse powers and tax departments of Pakistan (federal, provincial or city/district governments) are no exception.

A taxpayer should know on how to handle notice from tax enforcement agency is key issue which if handled wrongly can cause un-wanted fines, penalties, decreased compliance with tax department and in some cases can also lead to business closure.

Ordinarily, on receipt of a notice (informative and inquisitorial) an ordinary taxpayer of Pakistan is driven by three reactions.

  1. A reaction of fear
  2. A reaction of aversion
  3. A reaction of misunderstanding

In their approach, these reactions are negative, evasive and reactive in character and instead of resolution of the issue there is a likelihood of exploitation or an expedient conclusion which might prove self-defeating in short or medium terms for lawful tax compliance.

On the contrary, a prudent taxpayer and a right-conscious citizen would react to such notice with three positive approaches.

  1. He would examine as to whether the notice has been issued by exercise of excessive powers beyond the prescribed conditions and limitations cast upon the tax machinery?
  2. Whether the notice has over-stepped the tax rights guaranteed by the statute?
  3. Whether the notice has created liabilities without fulfilling the prescribed collateral preconditions in terms of protecting the statutory and fundamental rights of a taxpayer?
  4. The taxpayer/taxpayer’s consultant would separate factual points and legal points raised from reading/ interpretation of the said notice. This would help taxpayer/taxpayer’s consultant will be in a better position to present facts and law points with proper evidence/ precedents.

As a tax litigation expert, I would like to advise that the pain, confusion and disillusionment of fear, aversion and misunderstanding can be avoided by asking your tax advisers to come out with a solution with respect to your rights, liabilities and limitations, which are always there, on exercise of powers by the tax authorities.

This is the essence of tax justice and access to complete justice is a fundamental right of every taxpayer/citizen.

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