CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
CHAPTER 15
Assessment, Records and Audit
TABLE OF CONTENTS
1. Assessment
2. Special provisions with respect to assessment
3. Amendment of assessment
4. Action against assessment / Amended assessment order
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
1. ASSESSMENT
There are three ways of framing the assessment under income tax ordinance, naming:
▪ Normal assessment, usually referred to as ‘assessment’
▪ Best judgment assessment
▪ Provisional assessment in certain cases
1.1 Normal assessment:
▪ If a taxpayer has furnished a complete return of income (other than a revised return), the
commissioner shall be treated to have assessed the income 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.
▪ A return shall be processed through automated system to arrive at correct amounts of total
income, taxable income and tax payable by making adjustments for:
a. any arithmetical error
b. any apparent incorrect claim,
c. disallowance of any loss, deductible allowance or tax credit and
d. disallowance of carry forward of loss.
▪ Adjustments shall be made after issuing a system generated notice to the taxpayer.
▪ The response of taxpayer shall be considered before making any adjustment. In case no
response is received in 30 days of notice, adjustments shall be made.
▪ If no adjustment is made in 6 months of filing of return, the amounts in the return (as
declared by the taxpayer) shall be assumed to be adjusted and taxpayer shall be informed
automatically through IRIS.
Assessment in case of incomplete return
▪ If return is incomplete, the Commissioner shall issue a notice to taxpayer informing
deficiencies (other than incorrect tax on taxable income, or short payment of tax) and will
order him to provide the missing information and particulars in order to make a return a
“complete return”.
▪ The above notice can be issued within 180 days from the end of financial year in which the
return is filed.
▪ If taxpayer complies with notice in due time, the return shall be considered as complete on
the day it was furnished.
▪ If taxpayer fails to comply with the notice, the return furnished shall be considered as
invalid and it will be assumed that no return has been furnished.
Example:
Mr. Atif filed return on 15th of September 2025. Till when commissioner can issue notice to
remove deficiencies?
Solution:
Such a notice can be issued within 180 days of 30th June 2026
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
1.2 Best judgment assessment
▪ If a person fails to:
• furnish return of income in response of notice of a commissioner; or
• furnish the wealth statement; or
• furnish return of income in response to notice of business discontinuance.
• produce before Commissioner or a special audit panel appointed, or any person
employed by a firm of chartered accountants,
• produce documents required for making assessment of income and determination of tax
the Commissioner may, based on available information and to the best of his best
judgement, make an assessment of the taxable income of the person and tax due thereon.
▪ For making best judgment assessment, Commissioner may determine taxable income on
sectoral benchmark ratios prescribed by 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,
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 making a best judgment assessment, the Commissioner shall issue the assessment
order to taxpayer stating:
(a) the taxable income;
(b) the tax due;
(c) the tax paid, if any; and
(d) the time, place and manner of appealing the assessment order.
▪ What is the time limitation for issuing best judgment assessment?
Best judgement assessment can be issued within 6 years from the end of the tax year to
which it relates.
Example: Best judgment assessment relating to TY19 can be made up to TY25.
▪ Further where notice for furnishing a return of income (under subsection (4) of section
114) is issued for one or more of the last 10 completed tax years, best judgement
assessment order shall be issued within 2 years from the end of tax year in which notice for
filing of return is issued.
1.3 Provisional assessment in certain cases
▪ Where Government/agency has impounded a concealed asset of a person, Commissioner
may, before issuing assessment order, issue a provisional assessment order, for the last
completed tax year by adding the concealed asset.
▪ Where Commissioner or any department or agency of the Federal Government or a
Provincial Government discovers an offshore asset of any person (not declared earlier)
commissioner may, before issuing any assessment order (under section 121 or 122), issue a
provisional assessment order for the last completed tax year by adding the offshore asset.
▪ The Commissioner shall finalize the provisional order as soon as possible.
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
“Concealed asset” means any property or asset which was acquired from income chargeable to tax
but could not be charged to tax.
“Concealment of income” includes:
a) the suppression of any item of receipt or failure to disclose taxable income;
b) claiming any deduction/expenditure not actually incurred;
c) any act referred in section 111 (Unexplained asset or income); and
d) claiming any income/receipt as exempt which is actually taxable.
Explanation: All of above will only be considered as “concealment of income” if it is proved that
taxpayer has knowingly and willfully committed these acts.
2. SPECIAL PROVISION WITH RESPECT TO ASSESSMENT
2.1 Assessment in relation to disputed property
▪ If there is a dispute in a Civil Court on ownership of a property whose income is chargeable
to tax, an assessment order may be issued within 1 year after the end of the financial year in
which Court decided the case.
Example:
There is a dispute for TY 2010. Court decided case on 12 March 2024.
Solution:
Assessment order should be issued by 30 June 2025.
2.2 Evidence of assessment
▪ 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 may not be:
➢ quashed or considered void and considered as invalid
➢ Affected because of any mistake, defect or omission
▪ However, an order shall be quashed or void
➢ If it is not in conformity with Income tax ordinance, or
➢ the person assessed or intended to be assessed or effected by the document is not
designated in it, according to common understanding
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
3. Amendment of assessments
▪ The Commissioner may amend following assessment order:
▪ treated as issued on self-assessment basis/Normal Assessment, or
▪ best judgment assessment,
by making such alterations/additions as he considers necessary.
▪ An amendment of assessment can be made within 5 years from the end of the financial year
in which the order is issued or is treated to have issued.
Question: Mr. Tipu’s tax year ends on June 30, 2010. He furnished his return of income on
September 30, 2010. On 31 May 2016, Commissioner found that the income classified as other
sources should have been classified as capital gain for TY 2010. Decide whether assessment
order can be amended on 31 May 2016.
Answer: Yes, assessment order can be amended on 31 May 2016 because assessment order can
be amended within 5 years from the end of the financial year in which the commissioner has
issued or is treated as having issued the original assessment order. The last date for amending
the order for the first time is 30 June 2016.
▪ If a taxpayer furnishes a revised return
a. It will be considered that the Commissioner has made an assessment of taxable
income and tax as mentioned in the revised return; and
b. the revised return shall be considered as an amended assessment order issued by
the Commissioner on the day the revised return was furnished.
▪ If an assessment order has been amended, Commissioner may further amend, as many
times as may be necessary, the original assessment within the later of:
a. 5 years from the end of the financial year in which the Commissioner has issued or
is treated as having issued the original assessment order; or
b. 1 year from the end of the financial year in which amended assessment order is
issued.
Example: Mr. Amir filed return of TY 2020 on 30–09–2020. The return filed by him is considered
as original assessment order issued by tax authorities. He was selected for audit and the first
amendment of assessment took place on March 2026. Identify the date by which 2ⁿᵈ Amendment
of assessment can be made by tax authorities?
Solution: The second amendment of assessment can be made within later of:
•5 years from the end of the financial year in which commissioner has issued original
assessment order. (30–06–26)
• 1 year from the end of financial year in which first amendment of assessment has been
made (30–06–27)
Conclusion: Later date is 30ᵗʰ June 2027.
Therefore, Commissioner can amend for 2ⁿᵈ time by 30 June 2027.
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
▪ The Commissioner may amend or further amend an assessment order, where through audit
or on the basis of definite information, he is satisfied that:
a. an income chargeable to tax has escaped assessment; or
b. total income is under-assessed, or lower tax rate is applied, or excessive relief is
provided; or
c. an amount under a head of income has been misclassified.
"Definite information" includes information on:
➢ sales or purchases of any goods made by the taxpayer,
➢ receipts of the taxpayer from services rendered,
➢ other receipts that may be chargeable to tax under this Ordinance,
➢ the acquisition, possession or disposal of any money, asset, valuable
article or investment or
➢ expenditure incurred by the taxpayer.
▪ The Commissioner may amend/further amend an assessment order, if order is prejudicial to
interest of revenue.
▪ After making an amended assessment the Commissioner shall issue an amended
assessment order stating as soon as possible
a. the amended taxable income of the taxpayer;
b. the amended tax due;
c. the tax paid, if any; and
d. the time, place, and manner of appealing the amended assessment.
▪ An assessment can only be amended/further amended if taxpayer has been provided with
an opportunity of being heard.
▪ Amended assessment order (under this section) shall be issued within 180 days of issuance
of show cause notice or in such extended period as the Commissioner may allow. The
extension shall not exceed 90 days.
Following period will not be counted in above days (Exclusion):
➢ stay order or
➢ Alternate Dispute Resolution proceedings or
➢ agreed assessment proceedings (under section 122D) or
➢ adjournment by the petitioner (Taxpayer) not exceeding 60 days.
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
4. ACTION AGAINST ASSESSMENT/AMENDED ASSESSMENT ORDER
4.1 Revision by the Commissioner
▪ The Commissioner may on its own motion, call for record of proceedings in which an order
has been passed by an Officer of Inland Revenue.
▪ Where after making such inquiry as necessary, Commissioner consider that the order
requires revision, he may make revision in the order as he deems fit.
▪ Order of revision shall not be prejudicial to the taxpayer.
▪ The Commissioner shall not revise the order if:
➢ appeal is filed against assessment before Commissioner (Appeals) or
➢ time for making appeal has not expired.
▪ If any order is remanded back to any lower authority by the Commissioner for modification,
alteration, implementation of directions or de novo proceedings (proceedings from start),
the order shall be issued by lower authority in 120 days.
4.2 Revision by the Chief Commissioner
▪ The Chief Commissioner may either on its own motion or on application by taxpayer, call for
records of any proceedings relating to issuance of an exemption or lower rate certificate. He
can call for records when order is passed by his subordinate.
▪ Where after making such inquiry as necessary, Chief Commissioner consider that the order
requires revision, he may make revision in the order as he deems fit.
▪ However, he shall provide a reasonable opportunity of being heard to the taxpayer.
4.3 Agreed assessment in certain cases
▪ If a taxpayer, after receiving show cause notice, intends to settle his case, he may file offer of
settlement (in the prescribed form) before assessment oversight committee, (called as
Committee), in addition to filing reply to Commissioner.
▪ The Committee after examining offer may call for 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 Committee:
a. the taxpayer shall deposit the tax (including penalty and default surcharge as per
Committee decision)
b. Commissioner shall amend assessment according to Committee decision after tax
payment as per decision of the Committee in a above
c. taxpayer shall waive right of appeal against such amended assessment; and
d. no further proceedings shall be undertaken on issues decided by the Committee if
the tax has been deposited by the taxpayer.
▪ Where committee has not reached any consensus or taxpayer is not satisfied with the
decision of Committee the case shall be referred back to Commissioner for decision on the
basis of reply of the taxpayer on show cause notice.
▪ The Committee shall comprise of the following (having jurisdiction over the taxpayer):
(a) the Chief Commissioner Inland Revenue;
(b) the Commissioner Inland Revenue; and
(c) the Additional Commissioner Inland Revenue.
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
ICAP PAST PAPERS
Question 1
a. Briefly state the time limit within which the Commissioner is permitted to further amend an
assessment? (2)
b. Briefly state the time limit within which the Commissioner is required to pass an order to
give effect to the finding or directions of the CIR(A)? (2)
Question 2
What are the time limits prescribed by the Income Tax Ordinance, 2001 within which the
Commissioner is required to pass an order to give effect to the decision of Appellate Tribunal Inland
Revenue under the following circumstance?
The ATIR has set aside the assessment and order of the ATIR was received by the Commissioner on
November 30, 2004. (3)
Question 3
One of your clients has received a notice demanding payment of tax in respect of an order issued by
the Commissioner against which your client intends to file an appeal before the Appellate Tribunal.
You are required to explain the provisions contained in the Income Tax Ordinance, 2001 regarding
stay of demand by the Appellate Tribunal. (6)
Question 4
Mr. Dynamic has received a notice from the Commissioner in which he identified certain errors and
deficiencies in the return filed for the last tax year.
Required:
(a) State the deficiencies on account of which the return submitted by Mr. Dynamic
may be regarded as ‘incomplete’ for tax purposes. (5)
(b) Narrate the circumstances under which the Commissioner may amend Mr.
Dynamic’s assessment order. (4)
Question 5
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 for amendment 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)
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
Question 6
(a) Under the provisions of the Income Tax Ordinance, 2001 briefly discuss the
following:
(i) The term ‘Concealed assets’. (02)
(ii) The powers of Commissioner relating to the concealed assets of any person
when these are impounded by the Federal Government. (03)
(b) Anwar had filed his return of income for the tax year 2013 on 31 August 2013. Discuss the
following in the light of provisions of the Income Tax Ordinance, 2001:
(i) By which date the Commissioner of Income Tax could make the first amendment
of the assessment, if required. (02)
(ii) By which date any further amendment can be made if the first amendment was
made on 15 February 2017. (02)
Question 7
Star Garments Limited (SGL) had filed its tax return for the tax year 2015 on 30 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)
Question 8
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) state the requirements that should be complied with by a sole proprietor on discontinuance
of business. (02)
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
ICAP PAST PAPERS SOLUTIONS
Answer 1
a. Where an assessment order has been amended the Commissioner may further amend, as
many times as may be necessary, the original assessment within the later of – [S.122(4)]
(i) Five years from the end of the financial year in which the Commissioner has issued
or is treated as having issued the original assessment order; or
(ii) one year from the end of the financial year in which amended assessment order was
passed.
b. Where an assessment order is to be issued to give effect to order of Commissioner
(Appeals), Appellate Tribunal, High Court, or Supreme Court, the Commissioner shall issue
the appeal effect order (assessment order) within 2 years from the end of the financial year
in which appellate order is served. [S.124(1)]
Answer 2
Where an assessment order has been set aside by the Appellate Tribunal, High Court, or Supreme
Court, and the Commissioner or Commissioner (Appeals), is directed to pass a new assessment
order, they shall pass the new assessment order within 1 year from the end of the financial year in
which appellate order was served to them.
The limit will not apply if an appeal or reference is made against the order of appellate authority.
[S.124(2)]
In this specific case the last date by which order should be passed is 30.06.2006.
Answer 3
S. 131(5)
Answer 4
i) A return of income – [S.114(2)]
a) shall be in the prescribed form and shall contain prescribed annexures and statements; The
Board may prescribe different returns for different classes of income or persons (including
persons subject to final taxation).
b) shall state all the relevant particulars, including a declaration of the records kept;
c) shall be signed by an individual and in case of other persons it shall be signed by person’s
representative.
d) shall contain evidence of payment of tax as indicated in return.
e) shall contain a wealth statement (u/s 116)
f) shall be accompanied with a foreign income and assets statement.
If any of the above condition is not fulfilled the return filed by Mr. Dynamic will be
considered as ‘incomplete’.
ii) Following are the circumstances under which return of Mr. Dynamic can be amended:
Refer S.122 (5), (5A)
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
Answer 5
(a) First ground on which assessment can be amended
The Commissioner may amend or further amend an assessment order, where through audit
or on the basis of definite information, he is satisfied that
(i) any income chargeable to tax has escaped assessment; or
(ii) total income is under-assessed, or lower tax rate is applied, or excessive
relief is provided; or
(iii) any amount under a head of income has been misclassified.
Second ground on which assessment can be amended
The Commissioner may amend/further amend an assessment order, if order is prejudicial to
interest of revenue.
(b) The Commissioner shall not amend any assessment order:
➢ after 5 years from the end of the financial year in which the Commissioner has issued or is
treated to have issued the original assessment order. [S. 122(2)]
➢ unless taxpayer has been provided with an opportunity of being heard. [S. 122(9)]
Answer 6
(a)
(i) “Concealed asset” means any property or asset which was acquired from income chargeable to
tax.
(ii) Where Government has impounded a concealed asset of a person, Commissioner may, before
issuing assessment order, issue a provisional assessment order, for the last completed tax year by
adding the concealed asset.
The Commissioner shall finalize the order as soon as practicable.
(b)
(i) An assessment order can be amended within 5 years from the end of the financial year in which
the Commissioner has issued or is treated to have issued the original assessment order.
Therefore first amendment of assessment can be made by 30–June–2019.
(ii) If an assessment order has been amended, Commissioner may further amend, as many times as
may be necessary, the original assessment within the later of
(a) 5 years from the end of the financial year in which the Commissioner has issued or is treated as
having issued the original assessment order; or
(b) 1 year from the end of the financial year in which amendment was passed.
Therefore further amendment of assessment can be made within the later of:
➢ 30–06–2019
➢ 30–06–2018
Hence further amendment of assessment can be made by 30–06–2019.
CAF-02 –Tax Practices
Sir Abdullah Maqsood, ACA
Answer 7
a. S.122(8)
b. The Commissioner may amend or further amend an assessment order, where through audit or on
the basis of definite information, he is satisfied that
(i) any income chargeable to tax has escaped assessment; or
(ii) total income is under-assessed, or lower tax rate is applied, or excessive relief is provided;
or
(iii) any amount under a head of income has been misclassified.
The Commissioner may amend/further amend an assessment order, if order is prejudicial to
interest of revenue.
If an assessment order has been amended, Commissioner may further amend, as many times as may
be necessary, the original assessment within the later of
a) 5 years from the end of the financial year in which the Commissioner has issued or is
treated as having issued the original assessment order; or
b) 1 year from the end of the financial year in which amendment was passed.
The second amendment of assessment can be made within later of:
➢ 5 years from the end of the financial year in which Commissioner has issued assumed
assessment order (30–06–21)
➢ 1 year from the end of financial year in which first amendment of assessment has been
made (30–06–21)
Conclusion:
Therefore Commissioner may further amend an assessment by 30 June 2021 and he is justified.
Answer 8
i) Normal assessment
If the taxpayer has furnished a complete return of income (other than a revised return),
a) It will be considered that Commissioner has made an assessment of taxable income and tax
due thereon; and
b) return shall be considered as an assessment order issued by Commissioner on the day the
return was furnished. [S.120(1)]
Best judgment assessment
If a person fails to:
(ab) furnish return of income in response of notice under subsection (3) and (4) of section 114; or
(ac) furnish return of income in response to notice under sub-section (3) of section 117; or
(b) furnish a return as non-resident ship owner or aircraft owner; or
(c) furnish the wealth statement; or
(d) produce before Commissioner or a special audit panel appointed (u/s 177) or any person
employed by a firm of chartered accountants, (u/s 177) accounts, or documents required for
making assessment of income and tax
The Commissioner may, based on available information and exercising his best judgement, make an
assessment of the income and tax. Now assumed assessment shall have no legal effect. [S.121(1)]
ii) Section 117(1),(2)
