Taxation & Customs

Responding to an FBR Show-Cause Notice: A Practical Guide

An FBR notice is not, by itself, a demand for money or a finding against you. It is an invitation to explain a position the department has questioned. A well-prepared reply resolves a substantial proportion of notices without any additional tax being assessed. A poor one — or none at all — converts a question into an order.

First: identify the section

Everything follows from the section cited on the notice. The most common under the Income Tax Ordinance, 2001:

• Section 114 — notice to file a return. The department believes a return was not filed or you are not on the Active Taxpayer List. Deadlines here are short, often 7 to 10 days. The response is to file, or to explain in writing why you are not required to.
• Section 176 — a demand for documents or information. Routine in itself, but what you produce shapes everything that follows.
• Section 177 / 214C — selection for audit. This is a substantive examination of your records, not a formality.
• Section 122 — amendment of assessment. The department is proposing to change your assessed liability, typically over unreported income, disallowed deductions, or assets not reconciled with the wealth statement. This is the notice that most often needs professional handling.
• Section 111 — unexplained income or assets. Among the most serious, because the burden falls on the taxpayer to explain the source.
• Section 161 — withholding tax audit, where the allegation is failure to deduct or deposit tax withheld from payments.
• Section 182 — penalty proceedings.
• Section 138 — recovery. By this stage assessment is behind you and enforcement is beginning.

Parallel provisions exist under the Sales Tax Act, 1990 and the Federal Excise Act, 2005, and the same principle applies: read the section before reacting to the tone.

Verify the notice is genuine

Fraudulent notices circulate. Before responding — and certainly before paying anything — log into IRIS and confirm the notice appears in your inbox with a matching reference number. A notice that exists only in an email attachment, or that directs payment to an account rather than through the ordinary challan process, warrants scrutiny before action.

The deadline that binds FBR, not just you

This is the point most taxpayers never learn, and it can be decisive. Historically, amendment proceedings under Section 122 could remain pending indefinitely after a show-cause notice was issued, leaving taxpayers exposed for years. The Finance Act, 2021 changed that: proceedings under Section 122 must ordinarily be concluded within 120 days of the show-cause notice. The Commissioner may extend that period by up to a further 90 days, but only for reasons recorded in writing. The provision applies to show-cause notices issued after 1 July 2021.

Separately, the Ordinance prescribes a five-year outer limit for amendment of assessment. Where a notice or an order falls outside these limits, that is a substantive ground of challenge — independent of the merits of the underlying tax question. It is worth checking the dates on every notice before arguing about the figures.

The same Finance Act withdrew the power that had allowed officers to conduct an inquiry under Section 122(5A) for the purpose of amending an assessment without selecting the case for audit under Section 177 — a change that matters where a notice appears to be conducting an audit by another name.

What a strong reply contains

A reply that works tends to have four elements:

1. A direct answer to the specific allegation. Not a general account of your tax affairs — a response to the discrepancy actually identified.
2. Documents that reconcile. Bank statements, ledgers, invoices, contracts, payroll records, and — critically — a reconciliation that mathematically ties your declarations to your bank entries. Assertion without reconciliation rarely persuades.
3. The legal position, stated. Where the department's view of a provision is wrong, say so and cite the provision. Where limitation or procedure has been breached, raise it in the reply rather than saving it for appeal.
4. Everything filed on the record, through IRIS, within time. A verbal explanation at a hearing that is not on the file does not exist for appellate purposes.

What happens if you ignore it

The department can proceed ex parte — assessing on the material available to it, without your explanation. The consequences compound: additional tax, default surcharge, penalty, and eventually recovery measures including attachment of bank accounts. Unwinding an ex parte order on appeal is considerably harder and more expensive than answering the notice would have been, because you are then arguing against a formed order rather than shaping the assessment before it exists.

When the reply becomes an appeal

If the reply does not resolve matters and an order issues, the route runs to the Commissioner (Appeals), then to the Appellate Tribunal Inland Revenue, and on a question of law by reference to the High Court — and beyond that, in appropriate cases, to the Supreme Court of Pakistan. Each stage narrows what can be argued: factual material and legal objections not placed on the record early become progressively harder to introduce. Our guide to the tax assessment appeal route sets out that chain in detail.

Which is the practical reason to treat the show-cause notice seriously rather than as an opening formality: the record you build at this stage is the record you will be arguing from for years.

Common questions

This article is general information about Pakistani law and procedure, not legal advice for any specific matter. If this touches on something you're currently facing, get in touch and we'll advise on your facts directly.