Most audit notices are procedural and most audits close without drama. The ones that go badly usually do so for avoidable reasons: the deadline was missed, the response volunteered material nobody asked for, or the taxpayer treated it as an accusation and responded in kind.
What the notice actually is
An audit notice signals that your return has been selected for examination. Read it carefully before doing anything.
- Identify the provision it is issued under - this determines what is being done and what follows.
- Note the tax year concerned.
- Note exactly what is being asked for - specific records, or a general explanation.
- Note the deadline, which is the single most important thing on the page.
- Note the issuing office and officer.
- Check it on IRIS rather than relying on a paper copy alone.
Selection for audit does not imply wrongdoing. Returns are selected on various bases including risk parameters and random selection, and a great many audits conclude with no change at all. Approaching it as an accusation leads to defensive, over-long responses that raise questions nobody had asked.
Your rights in the process
| Right | In practice |
|---|---|
| To know the legal basis | The notice should state the provision relied on |
| To a reasonable opportunity to respond | Including seeking an extension for good reason |
| To be represented | By a lawyer or authorised representative |
| To be heard before an adverse assessment | An assessment should not issue without opportunity |
| To a reasoned order | You are entitled to know the basis of any assessment |
| To appeal | Through the statutory appeal channels, within time |
These sit under the Income Tax Ordinance 2001. Where a notice appears defective - no provision cited, an unreasonable deadline - that is worth raising properly rather than simply ignoring it.
Preparing the response
- Re-read your filed return for the year in question.
- Assemble only the records asked for - bank statements, invoices, expense records, as specified.
- Reconcile the records to the return before submitting, so you find any discrepancy first.
- Prepare an explanation for anything that does not reconcile.
- Take professional advice where the amounts are significant or something does not add up.
- Submit through IRIS, within the deadline, keeping the acknowledgement.
Step three is where the value is. Finding a discrepancy yourself, and presenting it with an explanation, is a completely different position from having it found for you. The first looks like a taxpayer with control of their records; the second invites a wider examination.
What not to do
- Do not ignore it. The deadline passing does not make it go away; it makes an ex parte assessment likely.
- Do not volunteer unrequested material. Answer what was asked.
- Do not submit records you have not reviewed.
- Do not create or alter documents. This is a different order of problem entirely.
- Do not respond emotionally or treat the notice as an accusation.
- Do not rely on a verbal assurance that it has been resolved.
- Do not miss the appeal window if an assessment issues.
The second point is the one professionals emphasise most. An audit examines specified matters, and a response that ranges beyond them can open lines of enquiry that would otherwise never have arisen.
What happens after you respond
| Outcome | What it means |
|---|---|
| No further action | The audit closes with no change |
| Further information sought | Additional queries; respond as before |
| Show-cause notice | A proposed position you are invited to answer |
| Amended assessment | Tax recomputed; reasons should be stated |
| Demand raised | Payment sought; appeal rights apply |
| Penalty proceedings | Separate, with their own process |
Treat a show-cause notice as the real opportunity. It sets out the position FBR proposes to take and invites your answer before it is finalised. A thorough reply at that point frequently avoids an assessment altogether - and is far cheaper than an appeal against one.
If an assessment is made
- Obtain the order and read the reasoning.
- Note the appeal deadline immediately - it is short and it is strict.
- Take advice on the merits before deciding to appeal.
- Consider the position on recovery while an appeal is pending.
- File within time, with the grounds properly drafted.
- Keep the documentary record assembled during the audit - it is your evidence.
Appeal deadlines are the most common way a good case is lost. Diarise the date the moment the order arrives, not when you have decided what to do about it. See responding to FBR notices and our tax dispute service.
Handling it yourself or getting representation
Not every audit needs a lawyer, and it is worth being honest about which do.
| Situation | Reasonable to handle yourself? |
|---|---|
| Simple query on a salaried return | Usually yes, with organised records |
| Request for bank statements you can reconcile | Usually yes |
| Discrepancy you cannot explain | Get advice first |
| Business or multiple income sources | Advisable to be represented |
| Significant unexplained credits | Get advice before responding |
| Show-cause notice received | Represented, in almost all cases |
| Assessment and appeal | Represented |
The dividing line is roughly whether you can explain everything in the record with documents you actually hold. Where you can, a clear, prompt reply usually closes the matter. Where you cannot, what you write early tends to define the rest of the process.
If you do instruct someone, do it before the first response rather than after an assessment. Correcting an unhelpful reply already on the file is considerably harder than getting the first one right, and the first reply is often what determines whether the audit widens or closes.
Records worth keeping year round
An audit is straightforward for a taxpayer with organised records and painful for one without. Maintain:
- Bank statements for all accounts, complete for the year.
- Salary certificates and tax deduction certificates.
- Invoices raised and received, where in business.
- Expense records supporting anything claimed.
- Property and investment documents for acquisitions and disposals.
- Evidence of exempt or non-taxable receipts - inheritance, gifts, agricultural income.
- Copies of returns filed, with acknowledgements.
The sixth item is the one most often missing and most often queried. Receipts that are genuinely not taxable still need to be explainable - an unexplained credit in a bank account is exactly what an audit picks up. Keep the evidence at the time, because reconstructing it years later is difficult even when the receipt was entirely legitimate.
Frequently asked questions
What does an FBR audit notice mean?
That your return has been selected for examination. It is a request to examine the return and supporting records, not an allegation and not an assessment. Selection can be on risk parameters or random, and many audits close with no change.
What are my rights?
To know the provision the notice is issued under, a reasonable opportunity to respond including seeking an extension for good reason, to be represented, to be heard before an adverse assessment, to a reasoned order, and to appeal within time.
What should I do first?
Read the notice for the provision relied on, the tax year, exactly what is asked for, the deadline and the issuing office - and check it on IRIS rather than relying on a paper copy alone.
Should I send everything I have?
No. Answer precisely what was asked. An audit examines specified matters, and volunteering unrequested material can open lines of enquiry that would otherwise never have arisen.
What if I find a discrepancy in my own records?
Present it with an explanation rather than waiting for it to be found. A taxpayer who identifies and explains a discrepancy is in a completely different position from one who has it discovered for them.
What happens if I ignore the notice?
The deadline passing does not make it go away - it makes an assessment without your input likely, which you then have to appeal. Respond within time even if only to seek an extension.
What is a show-cause notice?
A statement of the position FBR proposes to take, inviting your answer before it is finalised. It is the real opportunity to close the matter, and a thorough reply then is far cheaper than appealing an assessment.
What if an assessment is made against me?
Obtain the order, note the appeal deadline immediately as it is short and strict, take advice on the merits, and file within time with properly drafted grounds. Missed deadlines are the commonest way a good case is lost.
Do I need a lawyer for an audit?
Not always. A simple query on a salaried return with organised records is usually manageable yourself. Get advice where there is a discrepancy you cannot explain, business or multiple income sources, or a show-cause notice.
When should I instruct someone?
Before the first response rather than after an assessment. Correcting an unhelpful reply already on the file is much harder, and the first reply often determines whether the audit widens or closes.
Sources & official references
- FBR - income tax law, notices and taxpayer facilitation
- FBR IRIS - the online portal for returns, registration and notices
- Income Tax Ordinance 2001 - the statute governing income tax in Pakistan