Income Tax Ordinance, 2001 — Section 121: Best judgement assessment

3[121. Best judgement assessment.— (1) Where a person fails to 1 Section 120A omitted by the Finance Act, 2013. The omitted section 120A read as follows: “120A.Investment Tax on income.— (1) Subject to this Ordinance, the Board may make a scheme of payment of investment tax in respect of undisclosed income, representing any amount or investment made in movable or immovable assets.

(2)Where any person declares undisclosed income under sub-section (1) in accordance with the scheme and the rules, the tax on such income called investment tax shall be charged at such rate as may be prescribed.

(3)Where a person has paid tax on his undisclosed income in accordance with the scheme and the rules, he shall –

(a)be entitled to incorporate in his books of account such undisclosed income in tangible form; and

(b)not be liable to pay any tax, charge, levy, penalty or prosecution in respect of such income under this Ordinance.

(4)For the purposes of this section

(i)“undisclosed income” means any income, including any investment to be deemed as income under section 111 or any other deemed income, for any year or years, which was chargeable to tax but was not so charged; and “investment tax” means tax chargeable on the undisclosed income under the

(ii)scheme under sub-section (1) and shall have the same meaning as given in clause

(63)of section 2 of the Income Tax Ordinance, 2001.” 2 New Section (120B) inserted though Finance Act, 2019. 3 Section 121 substituted by the Finance Act, 2003. The substituted section 121 read as follows: “121. Assessment of persons who have not furnished a return.- (1) Where a person required by the Commissioner through a notice] to furnish a return of income for a tax year fails to do so by the due date, the Commissioner may, based on any available information and to the best of the Commissioner’s judgement, make an assessment of the taxable income of the person and the tax due thereon for the year.

(2)As soon as possible after making an assessment under this section, the Commissioner shall issue, in writing, an assessment order to the taxpayer stating –

(a)the taxable income of the taxpayer for the year;

(b)the amount of tax due;

(c)the amount of tax paid, if any; and

(d)the time, place, and manner of appealing the assessment order.

(3)An assessment order shall only be issued within five years after the end of the tax year, or the income year, to which it relates.” 245 Chapter X – Procedure 1[ ] 2[ ] 3[(ab) furnish return of income in response to notice under sub section (3) or sub-section (4) of section 114; or”;] 4[(ac) furnish return of income in response to notice under sub-section

(3)of section 117; or]

(b)furnish a return as required under section 143 or section 144; or

(c)furnish the statement as required under section 116; or

(d)produce before the Commissioner, or 5[a special audit panel appointed under sub-section (11) of section 177 or]any person employed by a firm of chartered accountants 6[or a firm of cost and management accountants] under section 177, accounts, documents and records required to be maintained under section 174, 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 judgement, make an assessment of the taxable income 7[or income] of the person and the tax due thereon 8[and 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]. Chapter X – Procedure 1[(1A) For the purposes of making a best judgment assessment under sub section (1), the Commissioner may determine taxable income on the basis of sectoral benchmark ratios prescribed by the Board. Explanation.- The expression “sectoral benchmark ratios” means standard business sector ratios notified by the Board on the basis of comparative cases and includes financial ratios, 102 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.]

(2)As soon as possible after making an assessment under this section, the Commissioner shall issue the assessment order to the taxpayer stating

(a)the taxable income;

(b)the amount of tax due;

(c)the amount of tax paid, if any; and

(d)the time, place and manner of appealing the assessment order.

(3)An assessment order under this section shall only be issued within Chapter X – Procedure 1[(2) No order under sub-section (1) shall be amended by the Commissioner after the expiry of five years from the end of the financial year in which the Commissioner has issued or treated to have issued the assessment order to the taxpayer.]

(3)Where a taxpayer furnishes a revised return under sub-section (6) 2[or (6A)] of section 114

(a)the Commissioner shall be treated as having made an amended assessment of the taxable income and tax payable thereon as set out in the revised return; and

(b)the taxpayer’s revised return shall be taken for all purposes of this Ordinance to be an amended assessment order issued to the taxpayer by the Commissioner on the day on which the revised return was furnished.

(4)Where an assessment order (hereinafter referred to as the “original assessment”) has been amended under sub-section (1) 3[,] (3) 4[or (5A)], the Commissioner may further amend,5[as many times as may be necessary,] the original assessment within the later of

(a)five years 6[from the end of the financial year in which] the Commissioner has issued or is treated as having issued the original assessment order to the taxpayer; or

(b)one year 7[from the end of the financial year in which] the Commissioner has issued or is treated as having issued the amended assessment order to the taxpayer. 1 Sub-section (2) substituted by the Finance Act, 2009. The substituted sub-section (2) read as follows: “(2) An assessment order shall only be amended under subsection (1) within five years after the Commissioner has issued or is treated as having issued the assessment order on the taxpayer.” 2 Substituted by the Finance Act, 2010. The substituted provision has been made effective from 05.06.2010 by sub-clause (77) of clause 8 of the Finance Act, 2010. Earlier the substitution was made through Finance (Amendment) Ordinance, 2009 which was re-promulgated as Finance (Amendment) Ordinance, 2010 and remained effective till 05.06.2010. 3 The word “or” substituted by the Finance Act, 2010. 4 Inserted by the Finance Act, 2010. Amendment made in sub-section (4) has been validated through sub-clause (18)(b) of clause (8) of Finance Act, 2010, with effect from the first day of July, 2003. 5 Inserted by the Finance Act, 2002 6 The word “after” substituted by the Finance Act, 2009. 7 The word “after” substituted by the Finance Act, 2009. 248 Chapter X – Procedure 1[(4A) In respect of an assessment made under the repealed Ordinance, nothing contained in sub-section (2) or, as the case may be, sub-section (4) shall be so construed as to have extended or curtailed the time limit specified in section 65 of the aforesaid Ordinance in respect of an assessment order passed under that section and the time-limit specified in that section shall apply accordingly.] 2[(5) An assessment order in respect of tax year, or an assessment year, shall only be amended under sub-section (1) and an amended assessment for that year shall only be further amended under sub-section (4) where, on the basis of 3[audit or on the basis of definite information] the Commissioner is satisfied that

(i)any income chargeable to tax has escaped assessment; or

(ii)total income has been under-assessed, or assessed at too low a rate, or has been the subject of excessive relief or refund; or

(iii)any amount under a head of income has been mis-classified.] 4[(5A) Subject to sub-section (9), the Commissioner may 5[, ] 6[ ] amend, or further amend, an assessment order, if he considers that the assessment order is erroneous in so far it is prejudicial to the interest of revenue.] Chapter X – Procedure 1[(5AA) In respect of any subject matter which was not in dispute in an appeal the Commissioner shall have and shall be deemed always to have had the powers to amend or further amend an assessment order under sub-section (5A).] 2[(5B) Any amended assessment order under sub-section (5A) may be passed within the time-limit specified in sub-section (2) or sub-section (4), as the case may be.]

(6)As soon as possible after making an amended assessment under 3[sub section (1), sub-section (4) or sub-section (5A)], the Commissioner shall issue an amended assessment order to the taxpayer stating –

(a)the amended taxable income of the taxpayer;

(b)the amended amount of tax due;

(c)the amount of tax paid, if any; and

(d)the time, place, and manner of appealing the amended assessment.

(7)An amended assessment order shall be treated in all respects as an assessment order for the purposes of this Ordinance, other than for the purposes of sub-section (1).

(8)For the purposes of this section, “definite information” includes information on sales or purchases of any goods made by the taxpayer, 4[receipts of the taxpayer from services rendered or any other receipts that may be chargeable to tax under this Ordinance,]and on the acquisition, possession or disposal of any money, asset, valuable article or investment made or expenditure incurred by the taxpayer. Chapter X – Procedure reasons to be 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 day of July, 2021: Provided further that 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 in the first proviso.] ] 1 [122A. Revision by the Commissioner.—(1) The Commissioner may 2[ 3[, suomoto,] ] call for the record of any proceeding under this Ordinance or under the repealed Ordinance in which an order has been passed by any 4[Officer of Inland Revenue] 5[ ] .

(2)Subject to sub-section (3), where, after making such inquiry as is necessary, Commissioner considers that the order requires revision, the Commissioner may 6[suomoto] make such revision to the order as the Commissioner deems fit.

(3)An order under sub-section (2) shall not be prejudicial to the person to whom the order relates.

(4)The Commissioner shall not revise any order under sub-section (2) if

(a)an appeal against the order lies to the Commissioner (Appeals) or to the Appellate Tribunal, 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 made the subject of an appeal to the Appellate Tribunal.] Chapter X – Procedure