CAF 2 Tax Practices

CHAPTER 15
ASSESSMENT, RECORDS AND AUDIT

1.1 Assessment:
Sec 2(5), “assessment” includes provisional assessment, re-assessment and amended assessmentand the
cognate expressions shall be construed accordingly.
Sec 2(5A), “assessment year” means assessment year as defined in the repealed Ordinance
Assessment under the Income Tax Ordinance, 2001 is generally made on the basis of returns filedfor a
tax year. This is termed as Universal Self-Assessment Scheme (USAS) by the FBR, though no such words
are used in the Ordinance.
1.2 Ways of framing the assessment
Various ways of framing the assessment under the Income Tax Ordinance, 2001 are as under:
➢ Normal assessment, usually referred to as ‘assessment’
➢ Best judgment assessment
➢ Provisional assessment in certain cases
1.3 Normal assessment [Sec 120]
If a taxpayer has furnished a complete return of income other than a revised return, the Commissioner
shall be treated to have assessed theincome and tax due thereon.
Return shall be taken to be complete if it is in the prescribed form accompanied by such annexures,
statements or documents, fully state all the relevant particulars or information, duly signed with
evidence of payment due and accompanied with a wealth statement in accordance with section 114(2).
Return furnished shall be considered as assessment order issued by the commissioner to the taxpayer
on the date it was furnished.
In addition to above deemed assessment the commissioner has power to conduct audit of income tax
affairs of a person under income tax ordinance.
Adjustment to be made in declared respective amounts of the return [Sec 120A]
A return of income furnished under sub-section (2) of section 114 shall be processed throughautomated
system to arrive at correct amounts of total income, taxable income and tax payable by making
adjustments for:
(i) any arithmetical error in the return;
(ii) any incorrect claim, if such incorrect claim is apparent from any information in the
return;
(iii) disallowance of any loss, deductible allowance or tax credit as specified; and
(iv) disallowance of carry forward of any loss under clause (b) of sub-section (1) of section 182A.
(a) “Arithmetical error” includes any wrong or incorrect calculation of tax payable including
any minimum or final tax payable.
(b) "An incorrect claim apparent from any information in the return" shall mean aclaim, on
the basis of an entry, in the return,—
(i) of an item, which is inconsistent with another entry of the same or some other item
in such return;
(ii)
regarding any tax payment which is not verified from the collection system; or
(iii)
in respect of a deduction, where such deduction exceeds specified statutory limitwhich
may have been expressed as monetary amount or percentage or ratio or fraction
Provided that no such adjustments shall be made unless a system generated notice is given to the
taxpayer specifying the adjustments intended to be made:
Provided further that the response received from the taxpayer, if any, shall be considered before making
any adjustment, and in a case where no response is received within 30 daysof the issue of such notice,
adjustments shall be made.
Provided also that where no such adjustments have been made within 6 month of filing of return, the
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amounts specified in the return as declared by the taxpayer shall be deemed to have been taken as
adjusted amounts on the day the return was filed and the taxpayer shall be intimated automatically
through IRIS.

Assessment in Case Of Incomplete Return:

• If the return of income furnished is not complete, the Commissioner shall issue a notice to the
taxpayer informing him of the deficiencies (other than incorrect amount of tax payable on
taxable income, as specified in the return, or short payment of tax payable) and directing him to
provide certain information, particulars, statement or documents by the date specified in the
notice in order to make the return a ‘complete return’.
• If a taxpayer fails to fully comply, by the due date, with the requirements of the notice the return
furnished shall be treated as an invalid return as if it had not been furnished. However, if the
taxpayer fully complies with the requirements of the notice, by the due date, the return furnished
shall be treated to be complete on the day it was furnished.
• Such notice shall not be issued after expiry of 180 days from the end of the financial year (e.g
June 30) iswhich return was furnished.
A tax year ended on June 30, 2022 and Mr. Ahmad filed his return on September 28, 2022.
Now the commissioner can inform him about his deficiencies within 180 days of end of year
i.c June 30 and 180 days will end to December 27, 2022.
1.4 Best Judgment Assessment [Sec 121]
This type of judgment is made where a person fails to:
• furnish return of income in response to notice of a Commissioner under sub section(3) or sub
section (4) of section 114; or
• furnish a return as required under section 143 or section 144 (return to be filed by air carrier
or shipping companies); or
• furnish the wealth statement as required under section 116; or
• produce before the commissioner, or a special audit panel or any person employed by a firm of
chartered accountantsor a firm of cost and management accountants, accounts, documents and
records required to be maintained under, or any other relevant document or evidence that may
be required by him for the purpose of making assessment of income and determination of tax due
thereon.
The Commissioner may, based on any available information or material and to the best of his judgment,
make an assessment of the taxable income of the person and the tax due thereon. Under such a case,
the assessment, if any, treated to have been made on the basis of return or revised return filed by the
taxpayer shall be of no legal effect.
After making a best judgment assessment, the Commissioner shall issue the assessment
order to the taxpayer stating:
• the taxable income;
• the amount of tax due;
• the amount of tax paid, if any; and
• the time, place and manner of appealing against the assessment order.
An assessment order under section 121 (best judgment assessment) shall only be issued within six
years from the endof the tax year to which it relates. (e.g a TY ended on June 30, 2016 its best judgment
assessment can be made to June 30 2023.)
where notice for furnishing a return of income to any person under sub-section of section 114 is issued
by a Commissioner in respect of one or more of the last ten completed tax years in pursuance of proviso
to sub-section (5) of section 114, an assessment order under this section shall only be issued within two
years from the end of tax year in which such notice is issued.
Example:
If commissioner asks in TY 2022 to file tax return of last ten tax years (TY 2012 to 2021) and tax payer
submitted the combined return but it was with any deficiency (like wealth statement not attached)
then his judgment can be made till June 30, 2024.
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Explanation:
• If taxpayer files his complete return it will assumed that commissioner has made assessment
of taxable income and tax.
• When return is complete then audit may be conducted and during audit if he refused to show
records the commissioner may apply best judgment assessment.
• If taxpayer files his return that is incomplete the commissioner shall issue a notice informing
him the missing document (e.g wealth statement) to fulfill the deficiency.
• If taxpayer complies with the notice the return shall be considered as complete return.
• If taxpayer does not comply with the notice the commissioner may apply best judgment
assessment.

1.5 Provisional Assessment in Certain Cases [Sec 123]

Sec 2(13AA), concealment of income includes;
(a) the suppression of any item of receipt liable to tax in whole or in part, or failure to disclose
income chargeable to tax;
(b) claiming any deduction or any expenditure not actually incurred;
(c) any act referred to in sub-section (1) of section 111 (e.g unexplained income); and
(d)claiming of any income or receipt as exempt which is otherwise taxable.
Sec 123(3) Concealed asset means any property or asset which, in the opinion of Commissioner, is
acquired from any income chargeable to tax but could not be charged to tax.
For removal of doubt it is clarified that none of the aforementioned acts would constitute
concealment of income unless it is proved that taxpayer has knowingly and willfully committed these
acts;
• This type of assessment is applicable in case where any concealed asset of a person is impounded
by any agency of Federal or Provincial Government (like NAB, FIA). In such a case, the
Commissioner is empowered to make provisional assessment before making a best judgment
assessment or amended assessment.
• Where an offshore asset of any person, not declared earlier, is discovered by the Commissioner
or any department or agency of the Federal Government or a Provincial Government, the
Commissioner may at any time before issuing any assessment order under section 121 (best
judgment) or amended assessment order under section 122, issue to the person a provisional
assessment order or provisional amended assessment order, as the case may be, for the last
completed tax year of the person taking into account the offshore asset discovered.
• Where any concealed asset is impounded, it shall be taken into account in the computation of
taxable income and tax payable for the last completed tax year of the person during whichthe
concealed asset was accounted for.
• The Commissioner shall finalize the provisional order or provisional amended assessmentorder
as soon as possible.

2. SPECIAL PROVISIONS WITH RESPECT TO ASSESSMENT

2.1 Assessment in Relation to Disputed Property [Sec 125]
Where the ownership of any property the income from which is chargeable to tax is in dispute in any
civil court in Pakistan, an assessment order or amended assessment order in respect of such income may
be issued at any time within one year after the end of the financial year in which the decision of the
court is made.
2.2 Evidence of Assessment [Sec 126]
• The production of an assessment order or its certified copy shall be conclusive evidence of
due making of assessment. The assessment order or its certified copy shall also be conclusive
evidence that the amounts and all other particulars are correct except in cases where the
proceedings relating to assessment are under appeal.
• Any order of assessment or other document required to be made under Income Tax
Ordinance, 2001, may not be:
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(i) quashed or void or voidable for want of form; or
(ii) affected due to any mistake, defect or omission therein
• However, an order shall be quashed or void:
(i) if it is in substance and effect, not in conformity with Income Tax Ordinance, 2001; or
(ii) the person assessed or intended to be assessed or effected by the document is not
designated in it according to common understanding.

3. AMENDMENT OF ASSESSMENT
3.1 Amendment of Assessment [Sec 122]
Method of amendment of assessment is elaborated in section 122 of the Ordinance.
• Commissioner is empowered to amend an assessment order treated as issued on self-
assessment basis u/s 120 or an assessment order made to the best of Commissioner’s
judgment u/s 121. The Commissioner may make such alteration or additions as he considers
necessary.
• Amendment of assessment shall not be made after the expiry of 5 years, from the end of the
financial year in which the order is issued or treated as issued. (e.g if tax return filed for TY
2017 it may be amended from July 1 2017 to June 30, 2022).
Example:
Mr. Kazim filed his income tax return for TY 2017 on September 25, 2017 and commissioner
passed an order for SAS on September 26 2017. Now commissioner may amend this
assessment till June 30, 2023. (five years from the financial year in which the order was
passed)
• If a taxpayer furnishes a revised return of income
i. the Commissioner shall treat the revised return as amended assessment of the taxable income
and tax payable thereon as set out in the revised return; and
ii. the taxpayer’s revised return shall be taken to be an amended assessment order issued to the
taxpayer by the Commissioner on the day the revised return was furnished.
• Commissioner is also empowered to amend further as many times as may be necessary, the
original assessment order as amended previously within the later of:
i. five years from the end of the financial year in which the original assessment order is issued or
treated as issued by the Commissioner; or
ii. one year from the end of the financial year in which the amended assessment order is issued
or is treated as issued.
• An assessment order shall only be amended, or an amended assessment shall only be further
amended as above, where the Commissioner has definite information, acquired froman audit
or on the basis of definite information the Commissioner is satisfied, that:
i. any taxable income has escaped assessment;
ii. total income has been under assessed or assessed at too low tax rate or has been the subject
of excessive relief or refund; or
iii. any amount under a head of income has been misclassified.

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• Definite information includes information relating to sales or purchases of any goods made by
the taxpayer, receipts of the taxpayer from services rendered or other receipts relating tothe
acquisition / possession / disposal of any money / asset / valuable article, or investment made
or expenditure incurred by the taxpayer.
• The Commissioner may amend, or further amend, an assessment order, if he considers thatit is
erroneous in so far it is prejudicial to the interest of revenue.
• Once the order of assessment is amended, the Commissioner shall issue an amended
assessment order as soon as possible stating:
i. the amended taxable income of taxpayer;
ii. the amended amount of tax due;
iii. the amount of tax paid, if any, and
iv. the time, place and manner of appealing the amended assessment.
• No assessment shall be amended or further amended without giving the taxpayer an
opportunity of being heard.
• Order under this section shall be made within one hundred and eighty days of issuance of
show cause notice or within such extended period as the Commissioner may, for reasons tobe
recorded in writing, so however, such extended period shall in no case exceed ninety days.
This proviso shall be applicable to a show cause notice issued on or after the first dayof July,
2021.
• Any period during which the proceedings are adjourned on account of a stay order or Alternative
Dispute Resolution proceedings or agreed assessment proceedings under section 122D or the
time taken through adjournment by the taxpayer not exceeding sixty days shall be excluded from
the computation of the period specified above.
3.2 Detailed Explanation:
The above provisions relating to amendment of assessment carry much significance. Followingpoints
should be kept in mind:
1) An assessment can only be amended in two situations i.e. on the basis of audit or on the basis
any definite information or where the assessment is erroneous and prejudicial to the interest
of revenue.
2) An assessment can be erroneous however, in case the same is not prejudicial to the interestof
revenue then tax authorities cannot initiate the proceedings of amendment of assessment
under section 122(5A) of the Ordinance. Thus, co-existence of both situations i.e. first error in
the assessment secondly tax loss suffered by the tax authorities, is very necessary to invoke
provisions of section 122(5A) [amendment of assessment].
3) Any change of opinion does not constitute any definite information or makes the assessment
as erroneous and prejudicial to the interest of revenue.
4) No amendment is allowed unless the taxpayer has been given proper opportunity of being
heard.

4. ACTION AGAINST ASSESSMENT/AMENDED ASSESSMENT ORDER

4.1 Revision of Assessment by the Commissioner [Sec 122A]
Process of revision of assessment is defined in section 122A of the Ordinance in the followingmanner:
• The Commissioner may, suo-moto call for the record of any proceeding in which an
order has been passed by any Officer of Inland Revenue other than the Commissioner
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(Appeals).
• Where, after making such inquiry as is necessary, Commissioner considers that the
order requires revision, the he may make such revision to the order as he deems fit.
• Any such order shall not be prejudicial to the person to whom the order relates.
• The Commissioner shall not revise any order if:
(a) an appeal against the order lies to the Commissioner (Appeals) or to the Appellate
Tribunal and the time within which such appeal may be made has not expired; or
(b) The order is pending in appeal before the Commissioner (Appeals) or has been madethe
subject of an appeal to the Appellate Tribunal.
• If any order is remanded back to any lower authority by the Commissioner for modification,
alteration, implementation of directions or de novo proceedings, the order giving effect to the
directions of the Commissioner shall be issued within one hundred and twenty days
4.2 Revision by Chief Commissioner [Sec 122B]
• The Chief Commissioner may, either of his own motion or on an application made by the
taxpayer for revision, call for the record of any proceedings relating to issuance of an exemption
or lower rate certificate with regard to collection or deduction of tax at source under Income
Tax Ordinance, 2001. Record of such proceedings shall be called in which an order has been
passed by any authority subordinate to him.
• If, after making such inquiry as is necessary, The Chief Commissioner considers that the order
requires, revision, he may make such order as he may deem fit in the circumstances of the case.
However, he shall provide a reasonable opportunity of being heard to the taxpayer.
4.3 Powers of Tax Authorities to Modify Orders, etc. [Sec 124A]
• The modification of orders is elaborated in section 124A of the Ordinance in the following
way: This applies where a question of law is decided either by a High Court or the Appellate
Tribunal in case of a taxpayer.
• In such a case the Commissioner may proceed to amend the assessment, to the extent it
needs revision due to the decision of High Court or Appellate Tribunal on the question of law.
In this regards the Commissioner shall ignore the fact that either an appeal is preferredor an
application for reference is made against the order of High Court or Appellate Tribunal.
• Where decision of High Court or Appellate Tribunal is reversed or modified, the Commissioner
may modify assessment in which the said decision was followed within one year of the date of
receipt of decision. In making such modification, the provisions of IncomeTax Ordinance, 2001
relating to time limit for making an assessment or amended assessment shall be ignored.
4.4 Agreed Assessment in Certain Cases [Sec 122D]
• Where a taxpayer, in response to a notice under sub-section (9) of section 122-Amendmentof
assessment, intends to settle his case, he may file offer of settlement in the prescribed form
before the assessment oversight committee, hereinafter referred to as the Committee, in
addition to filing reply to the Commissioner.
• The Committee after examining the aforesaid offer may call for the record of the case and
after affording opportunity of being heard to the taxpayer, may decide to accept or modify
the offer of the taxpayer through consensus and communicate its decision to the taxpayer.
• Where the taxpayer is satisfied with the decision of the Committee:
(a) the taxpayer shall deposit the amount of tax payable including any amount of penalty
and default surcharge as per decision of the Committee;
(b) the Commissioner shall amend assessment in accordance with the decision of the
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Committee after tax payable including any amount f penalty and default surcharge as
per decision of the Committee has been paid;
(c) the taxpayer shall waive the right to prefer appeal against such amended assessment;
and
(d) no further proceedings shall be undertaken under this Ordinance in respect of issues
decided by the Committee unless the tax as per clause (c) has not been deposited by
the taxpayer.
• Where the Committee has not been able to arrive at a consensus or where the taxpayer is not
satisfied with the decision of the Committee, the case shall be referred back to the
Commissioner for decision on the basis of reply of the taxpayer in response to notice under
sub-section (9) of section 122 notwithstanding proceedings or decision, if any, of the
Committee.
• The Committee shall comprise the following income tax authorities having jurisdiction over
the taxpayer, namely:-
(a) the Chief Commissioner Inland Revenue;
(b) the Commissioner Inland Revenue; and
(c)the Additional Commissioner Inland Revenue.
• This section shall not apply in cases involving concealment of income or where interpretation of
question of law is involved having effect on other cases.

5. RECORDS AND AUDIT

5.1 Records [Sec 174]
• Every taxpayer shall maintain in Pakistan such accounts, documents and records as may be
prescribed.
• The Commissioner may disallow or reduce a taxpayer‘s claim for a deduction if the taxpayer is
unable, without reasonable cause to provide a receipt, or other record or evidence of the
transaction or circumstances giving rise to the claim for the deduction.
• The accounts and documents required to be maintained shall be maintained for six years after
the end of the tax year to which they relate;
• However, where any proceeding is pending before any authority or court the taxpayer shall
maintain the record till final decision of the proceedings.
• Moreover, time limit of 6 years will not be applicable in case of foreign source income, assets,
expenses etc. and taxpayer is required to maintain record for indefinite period of time.
• Pending proceedings include proceedings for assessment or amendment of assessment,
appeal, revision, reference, petition or prosecution and any proceedings before an Alternative
Dispute Resolution Committee.
• Deduction means any amount debited to trading account, manufacturing account, receipts and
expenses account or profit and loss account.
• The Commissioner may require any person to install and use an Electronic Tax Register of such
type and description as may be prescribed for the purpose of storing and accessing information
regarding any transaction that has a bearing on the tax liability of such person.

Sec 2(19C), “electronic record” includes the contents of communications, transactions and
procedures under this Ordinance, including attachments, annexes, enclosures, accounts, returns,
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statements, certificates, applications, forms, receipts, acknowledgements, notices, orders,
judgments, approvals, notifications, circulars, rulings, documents and any other information
associated with such communications, transactions and procedures, created, sent, forwarded, replied
to, transmitted, distributed, broadcast, stored, held, copied, downloaded, displayed, viewed, read, or
printed, by one or several electronic resources and any other information in electronic form

5.2 Prescribed Books of Accounts (Rule 28-33)

Rule Taxpayer required to Records to be kept
maintain proper books of
account, documents and
records
28 Every taxpayer • all sums of money received and expended by the
derivingincome from taxpayer and the matters in respect of which the
business receipt and expenditure takes place.
• all sales and purchases of goods and all services
provided and obtained by the taxpayer.
• all assets of the taxpayer
• all liabilities of the taxpayer; and
• in case of a taxpayer engaged in assembly,
production, processing, manufacturing, mining or
like activities, all items of cost relating to the
utilization of materials, labour and other inputs.
• the books of account, documents and records to be
maintained under this chapter shall be maintained
for six years after the end of the tax year to which
they relate.
• the provision of maintaining the books shall not
apply where any proceeding under the Ordinance is
pending before any authority or court the taxpayer
shall maintain the record till final decision of the
proceedings.
29 Every taxpayer other •
than companies,
deriving income
chargeable under the
head Income from
business
30(1) Taxpayers with • Serially numbered and dated cash-memo / invoice
business income upto / receipt for each transaction of sale or receipt
Rs.500,000 and new containing the following
taxpayers deriving (a) taxpayer’s name or the name of his business,
income from business address, national tax number or CNIC and sales
tax registration number, if any
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(b) the description, quantity and value of goods
sold or services rendered;
• Where each transaction does not exceed
Rs. 100, one or more cash-memos per day for all
such transactions may be maintained
• Daily record of receipts, sales, payments,
purchases and expenses a single entry in respect of
daily receipts, sales, purchases and differentheads
of expenses will suffice; and
• Vouchers of purchases and expenses.
30(2) Taxpayers with • Serially numbered and dated cash-memo / invoice
businessincome / receipt for each transaction of sale or receipt
exceeding Rs. 500,000 containing the following.
and wholesalers, (a) taxpayer’s name or the name of his business,

distributors, dealers address, national tax number or CNIC and sales

and commission tax registration number, if any
agents (b) the description, quantity and value of goods
sold or services rendered; and
(c) in case of a wholesaler, distributor, dealer and
commission agent, where a single transaction
exceeds Rs. 10,000, the name and address of
the customer
Provided that where each transaction does not
exceed Rs.100, one or more cash-memos per
day for all such transactions may be
maintained
• Cash book and/or bank book or daily record of
receipts, sales, payments, purchases and expenses;
a single entry in respect of daily receipts, sales,
purchases and different heads of expenses will
suffice.
• General ledger or annual summary of receipts,
sales, payments, purchases and expenses under
distinctive heads.
• Vouchers of purchases and expenses and where a
single transaction exceeds Rs. 10,000 with the
name and address of the payee; and
Where the taxpayer deals in purchase and sale of goods,
quarterly inventory of stock-in-trade showing
description, quantity and value.

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30(3). Professionals like • Serially numbered and dated patient-slip / invoice
medicalpractitioners, /receipt for each transaction of sale or receipt
legalpractitioners, containing the following
accountants, auditors, • taxpayer’s name or the name of his business or
architects,engineers profession, address, national tax number or
etc. CNIC and sales tax registration number, if any
• the description, quantity and value of
medicines supplied or details of treatment/
case/ services rendered (confidential details
are not required) and amount charged
• the name and address of the patient / client
Provided that the condition of recording
address ofthe patient on the patient slip under
this clause shall
not apply to general medical practitioners
• Daily appointment and engagement diary in respect
of clients and patients provided that this clause shall
not apply to general medical practitioners
• Daily record of receipts, sales, payments,
purchases and expenses; a single entry in respect
of daily receipts, sales, purchases and different
heads of expenses will suffice
• Vouchers of purchases and expenses
Manufacturers (with • Serially numbered and dated cash-memo / invoice
turnover exceeding Rs. /receipt for each transaction of sale or receipt
2.5 million): [30(4)] containing the following
(a) taxpayer’s name or the name of his business
address, national tax number or CNIC and sales
tax registration number, if any
(b) the description, quantity and, value of goods
sold
(c) where a single transaction exceeds Rs. 10,000
with the name and address of the customer
• Cash book and/or bank book
• Sales day book and sales ledger (where applicable)
• Purchases day book and purchase ledger (where
applicable)
• General ledger
• Vouchers of purchases and expenses and where a
single transaction exceeds Rs. 10,000 with the
name and address of the payee;

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• Stock register of stock-in-trade (major raw materials
and finished goods) supported by gate in-ward and
outward records and quarterly inventory of all items
of stock-in-trade including work-in-process showing
description, quantity and value.
31 Every taxpayer Salary
derivingincome • Salary certificate indicating the amount of salary
chargeable under the and tax deducted there from.
head income from Income from property
salary, property, • Tenancy agreement, if executed
capital gains orother • Tenancy termination agreement, if executed
sources • Receipt for amount of rent received
• Evidence of deductions claimed in respect of
premium paid to insure the building, local rate, tax,
charge or cess, ground rent, profit/interest or share
in rent on money borrowed, expenditure on
collecting the rent, legal services and unpaid rent.
Capital gain
• Evidence of cost of acquiring the capital asset
• Evidence of deduction for any other costs claimed
• Evidence in respect of consideration received on
disposal of the capital asset.
Income from other sources
Dividends
• Dividend warrants
Royalty
• Royalty agreement.
Profit on debt
• Evidence and detail of profit yielding debt
• Evidence of profit on debt and tax deducted
thereon, like certificate in the prescribed form or
bank account statement; and
• Evidence of Zakat deducted, if any.
Ground rent, rent from the sub-lease of land or
building, income from the lease of any building
together with plant or machinery and consideration
for vacating the possession of a building or part
thereof
(a) Lease agreement
(b)
Lease termination agreement.
Annuity or Pension
• Evidence of amount received.
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Prize money on bond, winning from a raffle, lottery
or cross word puzzle
• Evidence of income and tax deducted thereon, like
certificate in the prescribed form.
Provision, use or exploitation of property
• Agreement.
Loan, advance, deposit or gift
• Evidence of mode of receipt of a loan, advance,
deposit
or gift i.e., by a crossed cheque or through a
banking channel.
General
• Evidence of deduction for any other expenditure
claimed.

5.3 Books of Accounts, Documents and Records to be Kept at Specified Place (Rule 33)
S. No Taxpayer required to Records to be kept
maintain proper books
of account, documents
and records
1. Income from business The books of accounts, documents and records
requiredto be maintained by a taxpayer shall be kept
at the place where the taxpayer is carrying on the
business or, where the business is carried on in more
places than one, at theprincipal place of business or at
each of such places if separate books of accounts are
maintained in respect of each place.
2. Income from sources Where a person derives income from sources other
other than business
thanfrom business, the books of accounts, documents
and records shall be kept at the person’s place of
residence or such other place as may be so declared
by such person.
3. Place to be clearly The place or places where the books of accounts,
stated on tax returns
documents and records are kept shall be clearly stated
on the tax return form in the column requiring the
details of the records maintained.

5.4 National Database and Registration Authority (Sec 175B)

• The National Database and Registration Authority shall, on its own motion or upon
application by the Board, share its records and any information available or held by it, with
the Board, for broadening of the tax base.
• The National Database and Registration Authority may identify in relation to any person,
(whether a taxpayer or not) income, receipts, assets, properties, liabilities, expenditures, or
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transactions that have escaped assessment or are under-assessed or have been assessedat a
low rate, or have been subjected to excessive relief or refund or have been misdeclared or
misclassified under a particular head of income.
• The Board may use and utilize any information communicated to it by the National Database and
Registration Authority and forward such information to an income tax authority having
jurisdiction.
• The National Database and Registration Authority may compute indicative income and tax
liability of anyone mentioned above by use of artificial intelligence, mathematical or statistical
modelling or any other modern device or calculation method.
• The indicative income and tax liability computed by the National Database and Registration
Authority shall be notified by the Board to the person in respect of whom such indicative
income and tax liability has been determined, who shall have the option to pay the
determined amount on such terms, conditions, instalments, discounts, reprieves pertaining
to penalty and default surcharge, and time limits that may be prescribed by the Board.
• In case the person against whom a liability has been determined, does not pay such liability
within the time prescribed, the Board shall take action under this Ordinance, upon the basis
of tax liability computed above.
• If the person against whom the liability has been determined pays such liability, such payment
shall be construed to be an amended assessment order under section 120 or sub-section (1) of
section 122 or sub-section (4) of section 122 as the case may be.
5.5 Audit [Sec 177]
• The Commissioner may call for any record or documents including books of accounts maintained
under the Ordinance or any other law for the time being in force for conducting audit of the
income tax affairs of the person.
• Where such record or documents have been kept on electronic data, the person shall
allowaccess to the Commissioner or the officer authorized by the Commissioner for
use of machine and software on which such data is kept and the Commissioner or the
officer may have access to the required information
• The Commissioner shall not call for record or documents of the taxpayer after expiry
of six years from the end of the tax year to which they relate.
• For the purpose of sub-section (2), the Commissioner may conduct audit proceedings
electronically through video links, or any other facility as prescribed by the Board.
[Section 177(2A)]
Audit on the basis of sectoral Benchmark Ratios prescribed by the Board [Section 177(2AA)
Where a taxpayer—
(a) has not furnished record or documents including books of accounts;
(b) has furnished incomplete record or books of accounts; or
(c) is unable provide sufficient explanation regarding the defects in records, documents
or books of accounts,
(d) it shall be construed that taxable income has not been correctly declared and the
Commissioner shall determine taxable income on the basis of sectoral benchmark
ratios prescribed by the Board.
Explanation— The expression “sectoral benchmark ratios” means standard business sector
ratiosnotified by the Board on the basis of comparative cases and includes financial ratios,
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production ratios, gross profit ratio, net profit ratio, recovery ratio, wastage ratio and such
other ratios in respect of such sectors as may be prescribed.”;
• After obtaining the record of a person, the Commissioner shall conduct an audit of the
income tax affairs.
• After completion of the audit the Commissioner may, if considered necessary, after
obtainingtaxpayer‘s explanation on all the issues raised in the audit, issue an audit
report containing audit observations and findings.
• After issuing the audit report, the Commissioner may, if considered necessary, amend
the assessment under sub-section (1) or sub-section (4) of section 122, as the case
may be, after providing an opportunity of being heard to the taxpayer under sub-
section (9) of section122.”
• The provisions of section 177 shall not apply to a person whose income tax affairs have been
audited in any of the preceding four tax years. However, Commissioner may select a person
under section 177 for audit with the approval of the Board.
• The Board may appoint a firm of Chartered Accountants or a firm of Cost and Management
Accountants to conduct an audit of the income tax affairs of any person or classes of persons and
the scope of such audit shall be as determined by the Board or the Commissioner on a case
to case basis.
• Where a person fails to produce before the Commissioner or a firm of Chartered Accountants
or a firm of Cost and Management Accountants appointed by the Board or the Commissioner
to conduct an audit, any accounts, documents and records, required to be maintained under
section 174 or any other relevant document, electronically kept record, electronic machine
or any other evidence that may be required by the Commissioner or the firm of Chartered
Accountants or the firm of Cost and Management Accountants for the purpose of audit or
determination of income and tax due thereon, the Commissioner may proceed to make best
judgment assessment under section 121 and the assessment treated to have been made on
the basis of return or revised return filed by the taxpayer shall be of no legal effect.
• Power of the Commissioner under section 177 is independent of the powers of the Board under
section 214C and nothing contained in section 214C restricts the power of the Commissioner to
call for the record or documents including books of accounts of a taxpayer for audit and to
conduct audit under this section.
Special Panel and its Composition:
• The Board may appoint as many special audit panels as may be necessary, to conduct an audit,
including a forensic audit, of the income tax affairs of any person or classes of personsand the
scope of such audit shall be as determined by the Board or the Commissioner on a case-to-
case basis. Relevant provisions in this regard are summarized below:
a) The panel shall comprise of any two or more members from:
• an officer of Inland Revenue;
• a firm of chartered accountants;
• a firm of cost and management accountants; or
• any other person as directed by the Board.
b) The Panel shall be headed by a Chairman who shall be an officer of Inland Revenue;
c) Powers under section 175 and 176 for the purpose of conducting an audit shall only be
exercised by an officer of Inland Revenue who are member or members of the panel, and
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CAF 2 Tax Practices
authorized by the Commissioner;
d) Where a person fails to produce before the Commissioner or a special audit panel appointed
to conduct an audit, any accounts, documents and records, required to be maintained under
section 174 or any other relevant document, electronically kept record, electronic machine
or any other evidence that may be required by the Commissioner or the panel for the purpose
of audit or determination of income and tax due thereon, the Commissioner may proceed to
make best judgment assessmentunder section 121 and the assessment treated to have been
made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.
e) If any member of the panel, not being the Chairman, is absent from conducting an audit, the
proceedings may continue and the audit conducted by the special audit panel shall not be
invalid or be called into question merely on account of such absence;
a. Functions performed by the officer or officers of Inland Revenue as members of the
special audit panel to conduct audit, shall be treated as having been performed by the
special audit panel;
f) The Board may prescribe the mode and manner of constitution, procedure and working of the
special audit panel.

ICAP Past Paper Questions

Question 1
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
i. briefly discuss the terms ‘Normal assessment’ and ‘Best judgement assessment’. (03)
ii. list the additional records which are required to be kept by a sole proprietor whose business income
exceeds Rs. 500,000 as compared to a sole proprietor whose business income is upto Rs. 500,000.
(02)[Aut 22 Q 5 a i & ii]
Ans i Reference 1.3 and 1.4
Ans ii
Following additional records are required to be kept by sole proprietor whose business income
exceeding Rs. 500,000 as compared to a sole proprietor whose business income is upto Rs. 500,000.

▪ In case of a wholesaler, distributor, dealer and commission agent, where a single transaction
exceeds Rs. 10,000, the name and address of the customer ;

▪ Cash book and/or bank book;

▪ General ledger or annual summary of receipts, sales, payments, purchasesand expenses under
distinctive heads;
▪ Where a single transaction exceeds Rs. 10,000 with the name and addressof the payee; and

▪ Where the taxpayer deals in purchase and sale of goods, quarterlyinventory of stock-in-trade
showing description, quantity and value.

Question 2
Briefly explain the term ‘Sectoral benchmark ratios’. Also, explain the circumstancesin which a Commissioner shall
determine taxable income on the basis of sectoral benchmark ratios. (03)[Spr 22 Q 4a]
Ans 2:
‘Sectoral benchmark ratios’ means standard business sector ratios notified by the Board on the basis of
comparative cases and includes financial ratios, production ratios, gross profit ratio, net profit ratio, recovery
ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.
Where a taxpayer:
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• has not furnished record or documents including books of accounts;
• has furnished incomplete record or books of accounts; or
• is unable to provide sufficient explanation regarding the defects in records,documents or books of
accounts,
it shall be construed that taxable income has not been correctly declared and the Commissioner shall determine
taxable income on the basis of sectoral benchmark ratios prescribed by the Board.
Question 3:
Star Garments Limited (SGL) had filed its tax return for the tax year 2015 on30 September
2015.
On 25 February 2021, the Commissioner of Income Tax, on the basis of definite information,
issued a notice u/s 122 (5) to SGL for the audit of books of account for the tax year 2015.
The accountant informed the chief executive officer that tax audit for the tax year 2015 had
already been conducted in 2019 and an amended assessment order u/s 122(5A) was issued by the
Commissioner on 24 February 2020.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
(a) explain the term ‘Definite information’. (02)
(b) discuss whether the Commissioner is empowered to make further amendment in the assessment order issued on
24 February 2020. (07)[Spr 21 Q 5]
Ans 3
a) Definite information includes information on sales or purchases of any goods made by the taxpayer, receipts
of the taxpayer from services rendered or other receipts chargeable to tax under the Ordinance on the
acquisition / possession / disposal of any money / asset / valuable article, or investment made or expenditure
incurred by the taxpayer.

Commissioner is empowered to amend further the original assessment order asmany times as may be necessary on
the basis of audit or definite information that:
• any taxable income has escaped assessment;
• total income has been under assessed or assessed at too low tax rate or hasbeen the subject of excessive relief
or refund; or
• any amount under a head of income has been misclassified.
The Commissioner may also amend the original assessment order if he considers that the assessment order is
erroneous in so far as it is prejudicial to the interest ofrevenue.
However, the Commissioner can make amendment in the original assessmentorder within the later of:
five years from the end of the financial year in which the original assessmentorder is issued or treated as issued by
the Commissioner; or
one year from the end of the financial year in which the amended assessment order is issued or is treated as issued.
Considering the above provisions of law, SGL’s position is as follows:
• Five year period will be completed on 30-06-2021 as the original assessment order was filed on 30-09-2015
(financial year 30-06-2016)
• One year would be completed on 30-06-2021 as the amended assessment order was issued on 24
February 2020 (financial year 30-06-2020).
Therefore, the Commissioner still have time to further amend the assessment order.
However, no further amendment can be made by the Commissioner unless the SGL has been provided with an
opportunity of being heard.
Question 4
Briefly explain the provisions of the Income Tax Ordinance, 2001 and Rules madethereunder relating to:
requirement of books of account to be maintained by a manufacturer having turnover exceeding Rs. 2.5 million.
(04)[Spr 21 Q 4b]
Ans 4
The following books of account are required to be maintained by a manufacturer having turnover
exceeding Rs. 2.5 million:
▪ Serially numbered and dated cash-memo / invoice /receipt for eachtransaction of sale or receipt
containing the following:

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CAF 2 Tax Practices
− taxpayer’s name or the name of his business address, national taxnumber or CNIC and sales tax
registration number, if any
− the description, quantity and, value of goods sold
− where a single transaction exceeds Rs. 10,000 with the name andaddress of the customer

▪ Cash book and/or bank book

▪ Sales day book and sales ledger (where applicable)
▪ Purchases day book and purchase ledger (where applicable)
▪ General ledger
▪ Vouchers of purchases and expenses and where a single transaction exceeds
Rs. 10,000 with the name and address of the payee;
▪ Stock register of stock-in-trade (major raw materials and finished goods) supported by gate in-ward
and outward records and quarterly inventory ofall items of stock-in-trade including work-in-process
showing description,quantity and value.

Question 5
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,discuss:
the concept of ‘Concealed asset’ and state the powers of the Commissioner relating to concealed asset of any
person when it is impounded by the Federal Government. (05)[Spr 21 Q 3 c]
Ans 5
• Under the Income Tax Ordinance, 2001 if in the opinion of the Commissioner, an asset is acquired
from any income chargeable to tax but could not be charged to tax, it is considered to be a concealed
asset.
• The Commissioner may at any time before issuing any assessment order under section 121 (best
assessment order) or 122 (amended assessment order) issue to the person a provisional assessment
order or provisional amended assessment order as the case may be.
• While issuing the assessment order the Commissioner, shall take into account the computation of
taxable income and tax payable for the last completed tax year of the personduring which the
concealed asset was accounted for.
• The Commissioner shall finalize the provisional order or provisional amended assessmentorder as
soon as possible.
Question 6
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,briefly explain the
following:
a) Requirement of books of account to be maintained by a taxpayer who has business income upto Rs.
500,000. (04)
b) Provisions regarding Special Audit Panel. (05)[Aut. 19 Q 4 a c]
Ans 6:
a)
The books of accounts required to be maintained by a taxpayer who has business income(only)
up to Rs. 500,000 are as follows:
▪ Serially numbered and dated cash-memo / invoice / receipt for each transaction of saleor
receipt containing the following:
− taxpayer’s name or the name of his business, address, national tax number orCNIC
and sales tax registration number, if any
− the description, quantity and value of goods sold or services rendered;

▪ Where each transaction does not exceed Rs. 100, one or more cash-memos per day forall
such transactions may be maintained
▪ Daily record of receipts, sales, payments, purchases and expenses a single entry in
respect of daily receipts, sales, purchases and different heads of expenses will suffice;
And
▪ Vouchers of purchases and expenses.

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CAF 2 Tax Practices
b)
Provisions regarding Special Audit Panel
The Board may appoint as many special audit panels as may be necessary, to conduct an audit, including a
forensic audit, of the income tax affairs of any person or classes of persons and the scope of such audit shall be as
determined by the Board or the Commissioner on a case to case basis.

Relevant provisions in this regard are summarized below:

▪ The panel shall comprise of any two or more members from:

− an officer of Inland Revenue;

− a firm of chartered accountants;
− a firm of cost and management accountants; or
− any other person as directed by the Board.

▪ The Panel shall be headed by a Chairman who shall be an officer of Inland Revenue;
▪ Powers for conducting an audit shall only be exercised by officer(s) of Inland Revenue
who are member(s) of the panel, and authorized by the Commissioner;
▪ Where a person fails to produce any accounts, documents and records, required to be
maintained or any other relevant document, electronically kept record, electronic machine
or any other evidence that may be required by the Commissioner or the panel for the
purpose of audit or determination of income and tax due thereon, the Commissioner may
proceed to make best judgment assessment and the assessment
treated to have been made on the basis of return or revised return filed by the taxpayershall
be of no legal effect.
▪ If any member of the panel, not being the Chairman, is absent from conducting an
audit, the proceedings may continue and the audit conducted by the special audit panelshall
not be invalid or be called into question merely on account of such absence;
▪ Functions performed by the officer or officers of Inland Revenue as members of the
special audit panel to conduct audit, shall be treated as having been performed by the
special audit panel;
▪ The Board may prescribe the mode and manner of constitution, procedure andworking of
the special audit panel.

Question 7
Under the provisions of the Income Tax Ordinance, 2001 briefly discuss the following:
a) The term ‘Concealed assets’. (02)
b) The powers of Commissioner relating to the concealed assets of any person when these are impounded by the
Federal Government. (03)[spr 18 Q 3 a]
Ans 7:
Same answer of Question 5
Question 8
Anwar had filed his return of income for the tax year 2013 on 31 August 2013. Discussthe following in the light of
provisions of the Income Tax Ordinance, 2001:
By which date the Commissioner of Income Tax could make the first amendment of the assessment, if required
(02)
By which date any further amendment can be made if the first amendment was made on 15 February 2017.
(02) [spr 18 Q 3 b]
Ans. 8
The Commissioner of income tax is empowered to amend the assessment ofthe taxpayer within five years from
the end of the financial year in which theCommissioner has issued or treated to have issued the assessment order
to the taxpayer Accordingly, in this case amendment can be made by 30 June 2019.
Where the Commissioner has issued the amended assessment order to the taxpayer, the limitation period
should be later of:
▪ five years from the end of the financial year in which the originalassessment order is issued or
treated as issuedby the Commissioner; or
▪ one year from the end of the financial year in which the amendedassessment order is issued or is
treated as issued to the tax payer.

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CAF 2 Tax Practices
The time limitation for the next assessment will therefore to be by 30 June2019.
Q uestion No. 9
Under the provisions of the Income Tax Rules, 2002 list the records to be kept by ataxpayer in respect of his
income from:
a) Salary (1.0)
b) Property (1.5)
c) Capital Gain (1.5) [spr 18 Q 3 d]
Ans 9
Ref to records and documents 5.2
Question No. 10

List the situations under which an original assessment can be amended or anamended
assessment can be further amended by the Commissioner of Income Tax. Also state the time
period within which the original or the previously amended assessment order can further be
amended. (07)[Aut. 17 Q 4b]
Ans. 10
When the Commissioner has definite information acquired from an audit or otherwise, the Commissioner is
satisfied that:
• Any taxable income has escaped assessment
• Total income has been under assessed or assessed at too low tax rate or has been the subject of
excessive relief or refund; or
• Any amount under a head of income has been misclassified
The Commissioner considers that the assessment order is erroneous in so far as it is prejudicial to the
interest of revenue.
Time period within which assessment can be amended:
The Commissioner is empowered to amend the assessment order within the later of:
• Five years from the end of financial year in which the original assessment order is issued or treated as
issued by the Commissioner; or
• One year from the end of financial year in which the amended assessment order is issued or treated
as issued.
Question 11
Maroof filed his return of income for tax year 2015 on 30 September 2015. On 15 August 2016 he received a
show cause notice from the Commissioner Inland Revenue u/s 122 foramendment of the assessment order
issued on self-assessment basis.
Required:
Under the provisions of the Income Tax Ordinance, 2001 briefly describe:
a) the circumstances under which an assessment order treated as issued on self-assessment basis
may be amended by the Commissioner. (04)
b) the situations in which the Commissioner may be barred from amending the original assessment order.
(04)[Aut. 16 Q 2]

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