' These two cross appeals, one filed by the taxpayer and the other by the department, impugned the same appellate order dated 5-5-2009 passed by the CIR(Appeals) under section 129 of the Income Tax Ordinance, 2001 (hereinafter referred to as 'Ordinance'). The said order was passed in consequence of the appeal preferred by the taxpayer against the amended assessment order dated 30-5-2008 issued under section 122(5) read with section 177 of the Ordinance.
2. Facts for the purpose of disposal of these appeals, in brief, are that the taxpayer is a quoted public limited company engaged in the business of assembling/manufacturing of motor vehicles under the brand name 'Honda'. It is also engaged in the sale of spare parts as its 'after sale activity'.
It filed the return of income for the tax year 2006 on the due date and declared taxable income at Rs,935,323,668. Subsequently the case was selected for audit under section 177 of the Ordinance by the concerned commissioner and on conclusion of audit proceedings a show- cause notice was issued whereby the company was required to explain its position vis-a-vis issues which cropped up during the course of audit. The Taxation Officer, not feeling convinced by the reply submitted by the taxpayer proceeded to amend the assessment order under section 122(1) of the Ordinance and raised tax demand of Rs,119,341,911 against the company.
3. The said order was contested by the taxpayer in appeal before the first appellate authority, which allowed partial relief to the taxpayer company ,on certain points. The company, still feeling dissatisfied with the quantum of relief has come up in further appeal before us whereas the Revenue has assailed the order of the CIR(Appeals) on points where relief was allowed to the taxpayer. Since both the appeals impugned the same appellate order, we take up these appeals together and dispose them of through this consolidated order as under:- TAXPAYER' S APPEAL
(i) Imported Honda Accord in CBU condition
4. Through grounds of Appeals Nos.2 and 3 the taxpayer has challenged the finding of the authorities below whereby (i) the tax withheld at the import stage in respect of seven imported vehicles given to the employees under Employees Cars Scheme, has been held to be discharge of final tax liability and (ii) the depreciation on these vehicles has been held to be an inadmissible deduction under the law. The learned AR of the company contended that the Taxation Officer has incorrectly held that the import of the seven vehicles fell within the ambit of Presumptive Tax Regime in terms of provisions of section 148(7) of the Ordinance, as the imported vehicles were meant for self-use and as such final tax regime was not applicable because of the explicit exception available in the law. Since matter relates to the interpretation and application of section 148(7) of the Ordinance, it would be appropriate if the relevant provisions are reproduced hereunder for the sake of reference:- "Except in case of an industrial undertaking importing goods as raw materials, plant/machinery and equipment for its own use, the tax collected under this section shall be a final tax on the income of the importer arising from the imports subject to subsection (I)".
5. The learned AR of the company contended that the plain reading of the provisions of section 148(7) of the Ordinance, suggests that they are applicable to the "Commercial Imports" i,e, the goods which are imported for onward sale only whereas the goods which are imported for self- utilization, not involving any subsequent sale/profit, are not covered by the said provisions of law.
This position, the A.R. Elaborated, was itself explained by the Finance Ministry at the time when in the year 1991 these provisions were brought onto the statute book. The AR went on to explain that the following position vis-a-vis final tax on imports is already documented in the budget speech for the relevant year:- "We, therefore, propose that for persons whose only source of income is contracts, supplies and commercial imports, the withholding tax itself be treated as the final tax liability."
' To reinforce his argument the AR referred to the decisions of this Tribunal in ITA No,1855/KB/2002 dated 29-3-2004 and 2004 PTD 1251 wherein it has been held that only those commercial imports which are undertaken for subsequent sale are covered by the PTR whereas imports for self- utilization/consumption remain outside the purview of the final tax regime. It was argued that in above quoted judgments of the Tribunal both the intension of legislature and scope of these provisions have been discussed at length. In the latter judgment the Tribunal categorically held as under:-- "Although section 80-C(2)(ii) does not provide any exception from said provision to a commercial importer as claimed by the learned A.R. For the assessee, yet the entire Scheme of Presumptive Tax Regime is focused on taxing the deemed income which is in the nature of turnover or sales of such goods, which are subsequently sold and generate profits."
6. As an alternate argument, the A.R. Pleaded that in any case the subject vehicles were in the nature of 'plant' and as such stood excluded from the purview of the Presumptive Tax Regime. In this respect reliance was placed on the case reported as GST 2003 CL 79 wherein the honourable Sindh. High Court, while dealing with 'dump trucks', held that they were 'plant' for all practical purposes. The honourable High Court while dilating upon the scope of "Plant" made reference to various dictionaries and lexicons and after detailed deliberation observed that the expression 'plant' was a very wide and all-embracing term and its meaning and scope would continue to develop with the evolution of business. Relying upon the ratio of the judgment, the learned AR submitted that the subject items (vehicles) being in the nature of 'plant' were not covered by the final tax regime as there was no dispute that the taxpayer was an industrial undertaking and the vehicles were imported for its own use.
7. ' The learned A.R. Further submitted that even if the tax withheld at the import stage was held to be final discharge of tax liability, it was not understandable as to why statutory depreciation on the vehicles had been disallowed. He asserted that there was no rebuttal to the fact that the asset was used for the purpose of the business and the expenditure was also not in the nature of one covered under section 169(2)(b) of the Ordinance. It was submitted that by no stretch of imagination, could this depreciation be termed as an expenditure incurred for 'deriving' income taxable under the final tax regime. The learned AR thus concluded that the taxpayer had been incorrectly denied the benefit of depreciation without any justification.
8. The learned DR, on other hand, reiterated the contention of the Taxation Officer as embodied in his order and argued that the words 'Commercial Imports' are not there in the statute and as such the tax remains final tax liability by reference to what is expressly provided in section 148(7) of the Ordinance. He argued that court had to look at only what had been provided for in the law and not beyond that. On our specific query, the learned DR, however, could not satisfactorily distinguish the decisions in I.T.A. No,1855/KB of 2002 dated 29-3-2004 and 2004 PTD 1251, relied upon by the taxpayer. On the argument of the taxpayer relating to 'plant' the DR submitted that the facts of the case of the taxpayer were clearly distinguishable from the one dealt with by the honourable Sindh High Court. In this context, he argued that in order to ascertain as to whether an item was "Plant" or not, one has to look at the headings given in the Pakistan Customs Tariff and only such items, as are classifiable under chapters 84 and 85, can be regarded as plant and machinery. It was further explained that the vehicles being covered by chapter 87, could not be regarded as plant and machinery and, therefore, not covered by the exclusion specified in section 148(7) of the Ordinance.
9. We have considered the rival arguments, examined the available record and gone through the judgments relied upon by the learned A.R. There is no confusion or disagreement between the parties that the subject items (vehicles) were not commercial imports and were meant for self-use in the business. The issue to be decided is whether tax withheld on such import is a presumptive tax or adjustable advance against the tax payable on business profits. The word "commercial import" does not figure in the law and to this extent the contention of the DR is correct. However, when the provisions of the section 148(7) of the Ordinance are minutely examined it transpires that the legislature has used the words "income of the importer arising from...". These words, particularly the word 'arising', make the intention of the legislature manifestly clear. By reference to these words, in our view, what is brought within the ambit of final tax regime is a transaction which involves an import to make a profit i,e, a commercial import or import undertaken for resale with the intention of making profit. No doubt the definition of expression 'income' itself includes the amount subject to collection of tax under section 148 of the Ordinance but had the intention been to treat all types of transactions as 'income' the legislature would have not used the words "income of the importer arising from"...., rather the wording would have been' ....The tax collected under this section shall be a final tax...". This cautious and discreet choice of words makes it amply clear that within the scope of final tax regime only those goods fall which are imported for resale to make a profit. This rationale has already been appreciated in the decision 2004 PTD 1251 referred to supra and following this judgment, we hold that the items which are imported for the purpose of self-use fall outside the ambit of final tax regime. Accordingly, we hold that the tax withheld/collected at the import stage in respect of the vehicles remains an adjustable advance tax. As regards depreciation, we have not been able to understand the basis for disallowing the depreciation and hold that the Taxation Officer had no basis valid reason to disallow the depreciation. We, therefore, annul the orders of the authorities below on this account and direct that depreciation be allowed to the taxpayer as per law.
(ii) Royalty on self-manufactured capitalized vehicles
10. Through grounds Nos. 4 and 5 the taxpayer has challenged the treatment accorded by the Taxation Officer whereby/depreciation attributable to royalty (paid by the taxpayer to its parent company under License Agreement) in respect of vehicles manufactured by it and capitalized in the financial statement has been disallowed. The addition under this head aggregates to Rs,122,889 Relevant facts, succinctly stated, are that in respect of thirty cars manufactured and capitalized by the taxpayer, the Taxation Officer confronted the taxpayer with his intention of treating the capitalization as sale and disallowing depreciation claimed thereon. In forming this opinion, the Taxation Officer made a reference to sales tax invoices, generated by the taxpayer, in respect of these vehicles. In response, the taxpayer company submitted a detailed explanation which the Taxation Officer appears to have accepted. However, he proceeded on to disallow the depreciation attributable to royalty paid by the taxpayer to its principal. In this respect the Taxation Officer observed that under the relevant clause of the License Agreement the taxpayer was required to pay royalty in respect of vehicles that are "manufactured and sold". Relying upon these words, the Taxation Officer concluded that no royalty was payable in respect thereof as the subject vehicles were not sold. He, therefore, disallowed depreciation attributable to the component of royalty.
11. The AR while explaining the background submitted that up until the previous year, royalty, under the License Agreement, was payable to the principal in respect of products "assembled, manufactured, sold or otherwise disposed of". This scope was modified in the current year to bring within the ambit of royalty payments for the products "assembled, manufactured and sold or otherwise disposed of". Elaborating the impact of the change,-the learned AR submitted that the modification was introduced principally to exclude from the ambit of royalty such vehicles as are imported in CBU condition and sold locally like Honda Accord. It was clarified that had the scope of royalty been not modified, the principal could have demanded royalty independently on sale of a product not manufactured locally. The intention behind the modification was to restrict payment of royalty only on locally manufactured products. It was further submitted that in the present case both the recipient and the payer are clear on the scope of agreement and the agreement is being implemented as per mutual understanding. The Taxation Officer, the learned AR submitted, had no mandate to interpret the agreement otherwise and in this respect relied upon the case 1991 PTD 488 wherein the apex court had strongly disapproved of such action by tax authorities. Explaining the facts further the learned AR submitted that although the Taxation Officer in the case of taxpayer has held that no royalty to this extent was payable yet the department while assessing the income of the recipient has collected tax on royalty including the subject amount. The learned AR submitted that the stance of the department is self-contradictory---on the one hand the department does not allow deduction of expense on account of royalty but collecting tax from the recipient under the same head on the other. Lastly it was argued that in any case the disallowance was illegal as the taxpayer was never confronted on this point specifically and as such it was illegal on his part to draw adverse inference on a point that was never confronted to the taxpayer through the statutory notice.
12. The learned DR, in his turn, reiterated the contention of the Taxation Officer and argued that no such royalty was payable under the License Agreement. He, however, could not give satisfactory answer when asked as to how the department taxed the amount as royalty in the case of the non- resident recipient if it was not considered and allowed as an expense of the appellant. Likewise, the DR had no answer to the decision of the apex court cited supra. Regarding the contention of the learned A.R that the appellant had never been confronted with the disallowance of Royalty, the DR submitted that the issue was an off shoot of the matter confronted to the taxpayer and thus Taxation Officer was legally justified in proceeding with the disallowance. In this respect he relied upon the case reported as 2004 PTD 441.
13. We have considered the rival submissions and are persuaded to agree with the submissions of the learned AR of the taxpayer that the scope of royalty has not been properly appreciated by the Taxation. Officer. It was clearly to exclude the possible demand of royalty in respect of sale of imported CBU cars that change was introduced. Contradictory nature of the stance of the department is obvious as on the one hand tax is being collected by treating the amount as royalty in the hands of recipient but it is being disallowed as a deduction on the other in the case of the payer. We are, therefore, unable to subscribe to self contradictory treatment and direct deletion of the disallowance as the department cannot be allowed to blow hot and cold in the same breath.
Besides, the addition was made without confronting the taxpayer, which is against the principles of natural justice. Such an addition is, therefore, I F not sustainable both on factual and legal grounds.
(iii) Amortization of License Fee
14. In Connection with grounds Nos. 6 and 7, it is the stance of the taxpayer that the learned Taxation Officer has erred in interpreting the provisions of section 152(1) of the Ordinance, thereby disallowing the deduction claimed on account of 'initial license fee' by an amount of Rs,6,310,526 under section 21(c) of the Ordinance by inadvertently holding that withholding tax was deductible at the rate of 30% of the gross amount of fee as against the rate of 15% effected by the taxpayer.
Furthermore, it has also been agitated that the learned Taxation Officer erred in making disallowance of Rs,6,310,526 by misinterpreting the provisions of section 21(c) of the Ordinance and holding that disallowance under the said provisions is applicable in respect of the entire amount of deduction without appreciating the position that such provisions provide for disallowance only to the extent of amount not subjected to deduction of withholding tax. The learned AR of the taxpayer has argued that the initial license fee is 'royalty' in nature and, under the law, attracted 15% withholding tax rate which was correctly applied by the taxpayer while effecting the payment.
Under the provisions of law, the learned A.R argued that, the amounts are classifiable as royalty as they are a consideration of right to use design or model, trademarks etc. The subject payment was made to the parent company for adopting the design and specification, in Pakistan, of new model of the Honda City brand motor vehicle introduced abroad. Under the License Agreement, the taxpayer company, in addition to a perpetual royalty payment for manufacturing and selling vehicles under the brand name Honda', is required to pay a one-time 'initial fee' on account of acquisition of rights to manufacture a newly introduced model of a motor vehicle with the same specification/design as is introduced by the recipient from time to time and for which the recipient holds the proprietary rights. In this background, the learned AR submitted that the amount was on account of use of model/design which is classifiable as royalty under the provisions of section 2(54) of the Ordinance. Since the law itself says that amounts for specified heads would remain a royalty, howsoever described, therefore the initial fee being an amount for use of I design/model remains royalty. Elaborating further the learned AR submitted that in this case the department has itself treated the amount as royalty in the hands of the recipient. He submitted a copy of the return of the recipient company to substantiate his assertion and requested deletion of the disallowance.
15. The DR on the other hand, took us through various parts of the order of the authorities below but could not satisfy us about the varied treatment the department itself has given for the same amount in the case of payer and recipient.
16. Having taken into account the rival submissions, facts of the case and the provisions of License Agreement, we have reached the conclusion that the law and the License Agreement are clear on this point. The amount in question is clearly covered by the provision of section 2(54) of the Ordinance. The long drawn discussion made by the Taxation Officer in the amendment order is nothing but hair splitting leading to nowhere, which in our view is nothing but an attempt to make a non-issue an issue. The amount was clearly paid in consideration of use of design/model which can be classified as royalty under the relevant provisions of law. That being the case, it cannot be given a treatment other than the one given by the taxpayer itself. Resultantly the disallowance is deleted, being not sustainable under the law.
(iv) Excess cost of perquisite
17. In the amendment order an addition of Rs,5,567,241 has been made on account of excess cost of perquisites in respect of canteen subsidy, cost of living allowance and freight and handling charges. While cost of living allowance was treated by the taxpayer as a part of salary for computing excess cost of perquisite, the other two amounts were not categorized as perquisites for the purpose of section 21(k) of the Ordinance. The Taxation Officer treated all the three amounts as perquisites for the purpose of working out excess perquisites under section 21(k) and the first appellate authority upheld the finding of the Taxation Officer.
18. The learned AR reiterated the same arguments as advanced before the first appellate authority and referred to the Board's Circular No,16 of 1990 dated 4-12-1990 to contend that canteen subsidy and cost of living allowance are not hit by the mischief of section 21(k) of the Ordinance. Regarding freight and handling charges, the learned AR submitted that the amount was incurred for acquisition food items of certain Japanese expatriates and since this was not as per their terms of employment, it could not be treated as a perquisite in terms of the judgment reported as 2009 PTD 1559. The DR, on the other hand, supported the order of the authorities below.
19. We have examined the record and also perused the circular and the case law relied upon the AR carefully. We have noted that the Taxation Officer did not follow the instructions contained in the Board's Circular No,16 of 1990 regarding the issue of canteen subsidy by observing that the circular granted concession to 'expenditure incurred on maintenance of canteen' and, therefore, did not apply to provision of subsidized food. This, in our opinion, is a strange and illogical conclusion. We are mindful of the fact that the controversy between the department and the taxpayer regarding the items to be included in salary for the purpose of working out excess perquisites has been the subject matter of litigation in a number of cases and the Courts have resolved the disputes between the taxpayers and the department through authoritative pronouncements. Apart from the judgment relied upon by the learned AR of the company, we have been able to lay hands on the case reported as (1998) 77 Tax 2004 wherein the department itself classified the following items as part of the salary:-- ' Overtime CLA/SD Charge All Officiating All ' Ad hoc All ' Leave Encashment ' Bonus ' In this judgment the honourable Bench held that the amount paid/payable in compliance with Provincial Legislation was to be treated as part of the salary and not perquisite. In this case the taxpayer maintains a canteen in compliance with the West Pakistan Canteen Rules, 1959.
20. Having gone through the working made by the. Taxation Officer as well as the Board's Circular referred to by the learned AR, we are of the considered view that the matter needs reconsideration in the light of Board's circular as well as case law referred to above. We, therefore, set aside the orders of both the authorities below and remand the Taxation Officer for fresh decision in the light Board's instructions as well as the case law cited hereinabove.
(v) Profit and loss expenses
21. The Taxation Officer has summarily disallowed expenses on account of tax consultancy charges (Rs,80,000), custom clearing charges (Rs,17,991) and petty production expenses (Rs,13,403). On examination of the amendment order we feel that the explanation submitted by the taxpayer before the Taxation Officer was arbitrarily rejected and no reason whatsoever was recorded for not accepting the taxpayer's contention. We are unable to subscribe to this practice whereby the defense taken before the Taxation Officer is brushed aside without assigning any reason. There is plethora of case law wherein the Courts have held that an order has to be a speaking order and each and every contention of a taxpayer has to be considered and dealt with carefully. In the instant case, all the principles laid down by the Courts have been disregarded. Under such a situation we cannot approve of the disallowances, which are hereby deleted.
22. Through ground No,10 the taxpayer seeks directions from this Tribunal for the Taxation Officer to carry out apportionment of expenses after taking into account various disallowances and additions as made at the time of passing of the amendment order. The request of the taxpayer appears to be reasonable and justified. Accordingly we direct the Taxation Officer to make apportionment of expenses in accordance with law at the time of passing the appeal effect order.
DEPARTMENT'S APPEAL
(a) Initial depreciation allowance on assets with vendors
23. Upon scrutiny of underlying records, the Taxation Officer concluded that initial depreciation allowance amounting to Rs,94,05,000 was wrongly claimed by the taxpayer as these assets were put to use for the first time in the preceding year. In arriving at this conclusion the Taxation Officer inter alia relied upon two things, (i), that the order for the purchase of goods was placed in March, 2005 which falls within the tax year 2005 and (ii) the items of machinery related to discontinued model meaning thereby that this machinery had no relevance with the current year. The learned first appellate authority, while dealing with the appeal of the taxpayer, however, observed that there was no economic effect of the matter because if initial depreciation was allowed in the preceding year, refund would become due to the taxpayer which would offset the impact of disallowance in the current year. The learned DR while objecting to the findings of the first appellate authority argued that the principles of taxation do not recognize the concept of economic effect and affairs of every year have to be dealt with independently.
24. We have given due consideration to the rival arguments but do not find any substance in the departmental ground. The order of the Taxation Officer is faulty on various counts. How does placement of order for the acquisition of an item of machinery in the preceding year also proves that the said asset was also put to business use in the preceding year. The argument relating to discontinued model is equally ill-founded. No doubt the model is the discontinued one, but manufacture of parts of an older model would essentially continue as a part of after sale activity.
Consequently the basis adopted by the Taxation Officer is misconceived. It is a fact on record that the taxpayer in the preceding year disclosed the amount as capital work in progress in the audited statements of accounts which could not be brushed aside casually on the basis of whims, conjectures and surmises. If the Taxation Officer had acted judiciously he would have simultaneously allowed initial -depreciation in the preceding year by resorting to provisions of section 221 of the Ordinance, but unfortunately he has not adhered to principle of equity and justice. Under these circumstances no exception can be taken to the finding of the first appellate authority, which is maintained.
(b) Warranty parts
25. Through ground No, 3 the department has assailed the order of the first appellate authority pertaining to the import of spare parts, to the extent these were utilized in warranty services and held to be not covered by the final tax regime. Both the parties have reiterated their submissions made earlier before the authorities below.
26. We have given due consideration to the findings recorded by the first appellate authority and feel inclined to agree with him because. It is the final consumption which is relevant for determining the mode of their taxation. If these parts have not been resold but provided free of cost as replacement under warranty scheme the tax collected at import stage would not constitute a final tax. This will clearly be covered by the exception of section 148(7) cited supra being import of equipment for own use. The order of the first appellate authority is upheld.
(c) Provision for customs duty
27. The taxpayer's claim on account of provision for customs duty amounting to Rs,167 million was disallowed by the Taxation Officer on the ground that the provision did not meet the requirement of section 34(3) of the Ordinance. Besides, this was in the nature of a T penalty which is not an allowable expense in terms of section 21(g) of the Ordinance. The first appellate authority vacated the order of the Taxation Officer by placing reliance on the decision of this Tribunal dated 29-11- 2007 in the taxpayer's own case for the immediately preceding tax year.
28. The learned DR while objecting to the findings of the first appellate authority argued that irrespective of the fact that the Tribunal has settled the matter to the extent of section 34(3) of the Ordinance the claimed deduction remains inadmissible because no finding has been recorded by the Tribunal in respect of section 21(g) of the Ordinance. It was, therefore, submitted that the earlier decision was not a valid precedent in all respects and matter is open to challenge with reference to the provisions of section 21(g) of the Ordinance. The AR responding to the aforesaid objection placed before us the notice, referred the amendment order for the preceding year and submitted that in the preceding year the Taxation Officer showed intention to disallow the so-called penalty under section 21(g) of the Ordinance at the assessment/ amendment stage but upon being satisfied by the reply of the taxpayer, wherein it was pleased that the subject amount was neither a fine nor a penalty but was a provision for the principal amount of customs duty, did not adverse inference against the taxpayer. On this basis the AR argued that the twist the author of the order and the DR are trying to give is nothing but a misconceived notion. He further submitted that the issue having already been examined thread bare in the preceding year has gained finality.
29. We have examined the record and documents placed before us and have also gone through the judgment recorded by our learned brothers in the taxpayer's appeal for the immediately preceding year. The issue emanating from the order of the Taxation Officer has already been thrashed out in the preceding year in favour of the taxpayer. After going through the judgment, we are persuaded to hold that the disputed amount is neither in the nature of a fine nor a penalty; rather it is a provision on account of principal amount of customs duty. There being no difference in facts and circumstances of the two years, we do not feel inclined to interfere with the order of the first appellate authority and the same is maintained.
(d) obsolete plant and machinery written off
30. Through ground No, 5 the department has assailed the order of the first appellate authority whereby the claim of the taxpayer on account of loss from writing off of obsolete plant and machinery has been held to be an admissible deduction.
31. It is the contention of the Revenue that when an asset is disposed of, the department has the authority to compute sale consideration on the basis of fair market value. Since the taxpayer company had ignored the fair market value of the so-called obsolete machinery and claimed deduction of the amount representing the book value of machinery, the Taxation Officer was justified in disallowing the deduction. The taxpayer on the other hand contended that once write- off is treated as disposal under section 75(3A) of the Ordinance, the general principle of fair market value is inapplicable and in this respect relied upon decision in I.T.A. No, 1003/LB of 2008, dated 19- 5-2009 wherein following findings were recorded by our learned brothers on the matter/issues:-- "We are in agreement with the proposition canvassed by the AR that the provisions of section 78 of the Ordinance, whereby the tax authorities have a mandate to adopt fair market value instead of actual sale consideration, would become operative only where an actual sale takes place. Where an item is treated to have been disposed of by a fiction of law, like under section 75(4A) of the Ordinance, the provisions of section 78 of the Ordinance would not attract. In the undisputed facts that in the present case no actual sale has taken place and the taxpayer has treated the items as disposed of in terms of deeming provisions of section 75(3A) of the Ordinance, we hold the Taxation Officer erred in disallowing the claim. Resultantly, the addition is deleted and the treatment itself given by the taxpayer is restored."
32. The aforesaid finding by our learned brothers contains a complete and conclusive answer to the controversy. The matter having already been decided in favour of the taxpayer, we uphold the order of first appellate authority and dismiss the departmental appeal on this ground.
(e) Advertisement expenses
33. Through ground No, 6 the department has contested the direction of the first appellate authority to curtail the disallowance under the head advertisement by Rs,1,472,243 and thus restricting the disallowance to Rs,7,429,836. There is no dispute between the parties that the identified expenditure of Rs,8.9 million pertained to final tax regime. A perusal of the order of the first appellate authority shows that he, after ascertaining the factual position from the relevant documents it agreed with the taxpayer that addition to the extent of Rs,1,472,243 had been made twice and annulled the order to that extent. The DR before us could not establish the existence of any error or legal infirmity in the impugned order. There being no mistake in the order of the first appellate authority, the same is upheld and confirmed on this point.
(f) Attribution of common expenses
34. In the computation of income the taxpayer allocated certain expenditure to other income earned during the year. This treatment was based upon the provisions of section 67 of the Ordinance. The taxation. Officer while making amendment rejected the computation and held that no expenses could be allocated to "other income".
' The first appellate authority, however, placing reliance on the order of this Tribunal dated 29-11- 2007 recorded in the taxpayer's own case for the immediately proceedings year cancelled the addition. Since the treatment meted out by the first appellate authority is based upon on existing binding precedent, we do not find any irregularity in the appellate order. No interference is called for and the impugned order is upheld on this score.
(g) Carry forward of minimum tax
35. Through ground No, 8 the department has challenged the decision of the first appellate authority on determination of amount of minimum tax that could be carried forward under section 113(2)(c) of the Ordinance, which reads as under:--- "where tax paid under subsection (1) exceeds the actual tax payable under Part I, Division II of the First Schedule, the excess amount of tax paid shall be carried forward for adjustment against tax liability under Part I, Division II of the First Schedule of the subsequent tax year: ' Provided that the amount under this clause shall be carried forward and adjusted against tax liability for r five tax years immediately succeeding the tax year for which the amount was paid."
36. In the context of the aforesaid provisions of law, the taxpayer, submitted that in respect of the tax year, 2005, it was liable to pay minimum tax Q 0.5% of turnover and this amount aggregated to Rs,85,486,701. On the other hand tax liability under Part I of Division II of the First Schedule amounted to Rs,50,874,356. The difference between the two amounts was carried forward which the first appellate authority has confirmed to be correct. We have gone through the above quoted provision of the Income Tax Ordinance, 2001 and have also examined the record but have not been able to figure out the grievance of the department especially when there is no disagreement on the numbers or the provision of law. There being no confusion in the language used A in the statute, the action of the Taxation Officer is held to be illegal, which has been rightly vacated by the CIT(Appeals).
(i) Refund adjustment
37. In the computation of income the taxpayer claimed adjustment of certain refunds relating to prior years which was not allowed by the Taxation Officer. This omission was agitated by the taxpayer before the first appellate authority which held that it was a rectifiable matter. The appellant (Taxpayer) was directed to pursue the matter through filing a B rectification application which Taxation Officer would dispose of in accordance with law after affording appropriate opportunity to the taxpayer. These instructions have been challenged through ground No,9. We are unable to understand as to what is wrong with these directions and how department is aggrieved by them. The learned DR also could not make out a case for our interference. Resultantly the appeal on this ground is also rejected.
38. Both the appeals stand disposed of in the manner and to the extent discussed above.