' The taxpayer is a scheduled banking company registered under the Banking Companies Ordinance, 1962 and working under rules and regulation framed by the State Bank-of Pakistan from time to time. Cross appeals have been filed, which are being disposed of through this consolidated order. These appeals arise from orders of Commissioner (Appeals) adjudicating orders passed under section 62 of the repealed Income Tax Ordinance, 1979 (hereinafter "the repealed Ordinance") for assessm ent years 1996-1997 to 2002-2003, orders made under section 122(5A) of Income Tax Ordinance, 2001 (hereinafter "the Ordinance") for tax years 2003 to 2008 and 2010, order under section 121 of the Ordinance for tax year 2009 and order under sections 161/205 of the Ordinance for tax year 2007. The Authorised Representative (AR) of appellant-bank on previous dates of hearing provided a detailed chart showing issues involved and copies of relevant case- law for comments by the learned Departmental Representative (DR). The learned DR also submitted Department's point of view on all issues in writing and provided copies of case-law relied upon by him. After examining the impugned orders, written averments of both the sides and case-law cited, the titled appeals are adjudicated as under:
2. Before deciding appeals on merits, we deem it proper to decide legal grounds first having impact for many years under appeal: ' ASSUMPTION OF JURISDICTION UNDER SECTION 122(5A) OF INCOME TAX ORDINANCE, 2001 [TAX YEARS 2003 TO 2007 AND 2010]
3. This has been a controversial issue as many conflicting judgments were in the field. The honourable Islamabad High Court in a recent judgment has decided the issue in favour of the department in Writ Petition No,2412 of 2009 dated 27-4-2012. No contrary decision of Lahore High Court or any other High Court is available at the moment. In fact, it was conveyed by the learned AR that the honourable Sindh High Court also decided the matter in favour of the Department through a short order. We appreciate the assistance rendered by the learned AR in bringing all the cases decided against taxpayers to our knowledge at the outset of the hearing and providing copies of the same. The AR argued that on the basis Of latest orders by Sindh High Court and Islamabad High Court the Tribunal had to decide the matter accordingly but arguments advanced and adjudicated against assumption of jurisdiction by the Additional Commissioner in 2010 PTD 705 (Trib.) and in 625/IB of 2010 should be considered as integral part of this order so that appellant-Bank could agitate the matter in Lahore High Court where many writs and appeals on the same issue were pending. We have no objection to this argument and thus following the judgment of honourable Islamabad High Court (supra), we dismiss all the appeals of the appellant-bank on this issue and allow that of Department.
' ASSUMPTION OF JURISDICTION UNDER SECTION 121 OF INCOME TAX ORDINANCE, 2001 (TAX YEAR 2009)
4. Facts of the case are that return for tax year 2009 was filed on 30-9-2009 which was taken to be assessm ent order under section 120(1) of the Ordinance. The case was selected for audit under section 177 of the Ordinance. Subsequently, Deputy Commissioner Inland Revenue passed assessm ent order under sections 121/177 of the Ordinance. The appellant-bank contested before Commissioner (Appeals) that assessment order under section 121 was illegal in the presence of order under section 120(1) holding the field. In support of his argument, the AR before the CIT (A) cited the following judgments:
(i) (2010) 101 TAX 153 (Trib.) = 2010 PTD (Trib.) 2602 [Full Bench]
(ii) 2010 PTD (Trib.) 30
(iii) 2010 PTD (Trib.) 1067
(iv) 2010 PTD (Trib.) 1473
(v) 2010 PTD (Trib.) 819
(vi) 2011 PTD (Trib.) 1552
5. The department, however, argued before learned Commissioner (Apeals) that by insertion of subsection (10) of section 177, the ratio decided by this Tribunal in the above cases lost its relevance as the said subsection provided that assessment treated to have been made on the basis of return or revised return shall be of no legal effect while making best judgment assessment under section 121. The appellant-bank before the learned CIT (A) argued that said insertion through Finance (Amendment) Ordinance; 2010, promulgated on 6-2-2010, could not be applied in respect of already completed assessm ents under section 120 of the Ordinance. It could only be applied in respect of assessm ents treated to have been made under section 120 after insertion of the said subsection. The learned Commissioner of Appeals, however, did not accept the arguments of appellant-bank and held, that the order under section 121 was valid in view of section 177(10).
6. Before us the learned A.R. Pressed for adjudication on merit notwithstanding the above cited judgments. Accepting his request, the legal ground is disposed of not been pressed and adjudication is made on merit alone for tax year 2009.
' MERITS
7. Banks appeals for assessm ent years 1997-1998 and 1998-1999 have already been decided by this Tribunal vide order in I.T.As. Nos.4579 and 4580/LB/2003 dated 24-3-2005 whereas departmental appeals for these are pending before this tribunal for adjudication. Similarly, appeal of the appellant-bank for tax year 2008 has already been decided in I.T.A. No,306/LB of 2009 dated 8-8- 2009 wherein order under section 122(5A) of the Ordinance dated 29-11-2008 has been annulled.
9. Summary of issues pending for adjudication in departmental and cross appeals for assessment years 1996-97 to Tax year 2010 are tabulated as under:-- S. No.Issue Year Appellant
1. Taxation of interest on securities on accrual basis1999-2000 to 2002- 2003 and 2003Bank
2. Loss on diminution in value of investment1999-2000 to 2002- 2003,2006,2009 and 2010Bank
3. Taxation of 'other provisions'/provisions against other assets1999-2000 to 2007, 2009 and 2010Bank
4. Set aside of disallowance of expenses under the head Optional Retirement Scheme'2001-2002 Bank
5. Disallowance of contribution towards Superannuation (Pension) Fund2001-2002 and 2002-2003Bank
6. Disallowance of compensated absences2002-2003,2006 and 2007Bank/department
7. Disallowance of Post Retirement Medical benefit2001-2002,2002- 2003, 2005 and 2006Bank/department
8. Disallowance of penalties paid to State Bank of Pakistan2001-02, 2002-03 and 2003Bank
9. Short allowance of tax credits in respect of tax paid in Azad Kashmir and tax deducted under section 50(2)2001,2002 and 2002-2003, 2003 and 2004Bank
10. Allocation of expenses 2001-2002,2003 Bank/department relating to capital gain and PTR incomeTo 2005,2009 and 2010
11. Set aside of addition on account of transfer of assets to Allied International Bank PLC a joint venture company2002-2003 Bank
12. Reversal of provision against non- performing loans2007 2009 and 2010Bank/department
13. Reversal of provision against other assets2007 and 2010 Bank
14. Reversal of provision against Off Balance Sheet Items2007 and 2010 Bank/department
15. Reversal of provision for diminution in value of investment2007 Bank
16. Set-aside of amortization of Expenses2003 Bank
17. Provision against Off Balance Sheet Items2004, 2006, 2007 and 2009
18. Set-aside of addition under the head "acquisition of assets in settlement of non-performing loans"2004 Bank
19. Amount written of 2005, 2007, 2009 and 2010Bank/department
20. Loss in respect of lease operations2007 Bank
21. Computation in violation of Seventh Schedule2009 and 2010 Bank
22. Unrealized loss on revaluation of investment2010 Bank
23. Disallowance of Defined Benefit Plan2003 and 2004 Bank
24. Deletion of addition of gratuity fund, benevolent fund, postretirement medical and contribution to pension fund2005 and 2009 Department
25. Amortization of expenses 2004, 2008 and 2010Department
26. Non-issuance of notice under section 128(1)2003 and 2004 Department
27. Depreciation expenses 2001-2002,2002- 2003,2003,2004 and 2007Bank/department/Cross
28. Disallowance of additions under section 241996-1997 Department
29. Taxation of dividend at concessional rate1997-1998 to 2002- 2003Department
30. Set aside of Bad debts and unrealized interest written off.1997-1998 to 2002- 2003Department
31. Deletion of provision for bad debts1997-1998 to 2009 Department
32. Deletion of Profit and Loss additions1997-1998 to 2002- 2003Department
33. Deletion of addition on a/c of contribution towards unapproved superannuation fund2000-2001 Department
34. Amortization of premium on investment2000-2001 Department
35. Disallowance of 50% depreciation on vehicles due to use of directors2003 to 2006 Department
36. Deletion of addition on the issue of adjustment of loss of Ibrahim leasing Co.2006 Department
37. Expunging the remarks of concealment of income under the head "income on foreign currencies"2005 Department
38. Remanding the case to Taxation Officer to allow Foreign Tax Credits and credit under section 61 subject to qualification under the law.2007 and 2008 Department
39. Recalling of order in I.T.A. 306/LB of 2009 dated 8-8-2009(MA (Rec.)
242/LB of 2009)2008 Department
40. Allowance of provision for non- performing advances at 1% of gross advances instead of net advance (MA (AG) 33/LB of 2010)2010 Department
41. Credit of compensation against admitted liability under section 137(1)2010 Department
42. Computation of compensation for tax year 2008 on the basis of law as amended by Finance Act, 20092008 Department
43. Invoking of sections 161/205 on payment of profit on debt and P&L expenses2007 Bank ' Issue-wise adjudication is made as under:- (1). TAXATION OF INTEREST ON SECURITIES ON ACCRUAL BASIS [ASSESSMENT YEARS 1999-2000 to 2002-2003]
9. The learned Commissioner (Appeals) confirmed taxation of interest on securities on accrual basis in the light of decision of this Tribunal in (1994)-69 Tax 197 (Trib.) (sic). The learned AR, however, pointed out that this issue was subsequently decided in favour of taxpayers by this Tribunal in I.T.A. No,812(IB) of 2006 and 2003 PTD 1146 and by honourable Sindh High Court in Habib Bank Ltd. v. CIT 2009 PTD 443 (H.C. Kar.). By following its earlier reported judgment, the honourable Sindh High Court also rejected departmental appeals in I.T.As. Nos.145, 148, 149, 151, 152 and 154 of 1998 dated 13-10-2009. The learned DR supported the order passed by the taxation officer and Commissioner of Appeals relying on 1994 PTD (Trib.) 1051.
10. We have examined the case-law cited by parties. The case-law cited by learned AR later in time and that of High Court cover the issue in hand. The appeals are, therefore, accepted with the direction to the department to tax interest on securities on actual receipt basis and not on accrual basis.
(2) LOSS ON DIMINUTION IN VALUE OF INVESTMENT [1999-2000 TO 2002-2003, 2006, 2009 AND 2010]
11. The taxpayer claim is that these provisions were made as per prudential Regulations of State Bank of Pakistan which override Income Tax law vide section 91A read with .Section 35 of Banking Companies Ordinance, 1962 and sections 46B and 54A. Of State Bank of Pakistan Act, 1956. The learned AR argued that the Prudential Regulations are issued by the State Bank of Pakistan pursuance of powers vested in it under a special law. Sections 46B and 54A of State bank of Pakistan Act, 1956. He further argued that a cumulative reading of above sections shows that they override any conflicting provision of the Income Tax Ordinance, 1979. The banks are bound to prepare their accounts according to International Accounting Standards and Regulations issued by the State Bank. These accounts represent their regularly employed method of accounting as envisaged in section 32 of the repealed Ordinance. The department could not reject this method.
The department did not show any flow in this method of account. According to him, there is no prohibition in income tax law not to record closing stock at lower of cost or market price. The learned AR also pointed out that this issue has been decided by full bench of this Tribunal in 2010 PTD (Trib.) 679. The learned AR also argued that department in this case for tax year 2010 has allowed impairment loss.
12. The learned argued that this issue was decided in favour of the department in the following cases:-
(i) 2006 PTD 354
(ii) 2002 PTD 925
(iii) 2000 P (Trib.) 2668
(iv) (2002) 85 TAX 245
(v) I.T.A. No,3819/LB of 1997 dated 7-12-1999
(vi) I.T.A. No,400/LB of 2000 dated 10-12-2001
13. We have examined the arguments of both sides and also perused case-law cited by them. We are not persuaded to agree with the learned AR That provisions referred by him from the State Bank of Pakistan Act vis-a-vis Companies Ordinance, 1962 are of any help to the taxpayer. This issue has been dealt in detail in our judgment in 2006 PTD (Trib.) 356. As regards judgment of full bench of this Tribunal in 2010 PTD (Trib.) 679, that was passed with reference to Fourth 'Schedule to the repealed Ordinance is distinguishable as far as all the years before the enforcement of the Seventh Schedule to the Ordinance that made the assessments in the case of banks at par with insurance companies as held in 2011 PTR 222 (Trib). The additions made by the department, for assessm ent years 1999-2000 to 2002-2003 and 2006 are upheld. The department is; however, directed to allow impairment loss, if any, at the time of actual sale as it had done itself for tax year 2010.
14. For tax years 2009 and 2010, the learned AR contended that disallowance of provision for diminution in the value of investment for these years was against Rule 1 of the Seventh Schedule to the Ordinance as held in the case of another bank reported as 2011 PTR 222 [Tribunal] He reiterated that from tax year 2009, the Seventh Schedule to the Income Tax Ordinance, 2001 read with section 100A overrides all other provisions as far as computation of income and tax payable in the case of banks were concerned. According to AR, the department could make adjustments and additions in net profit as per books of account that were specifically mentioned in Rule 1(a) to Rule 1(h) of the Schedule. The learned DR contended that this provision was inadmissible as per Rule 1(g) of the Seventh Schedule. The AR refuted this claim saying, that International Accounting Standards 39 and 40 mentioned in Rule 1(g) was still not implemented in Pakistan and therefore reliance on the said Rule was irrelevant.
15. We have examined the record and found that in the impugned orders there is no mention of any Rule of the Seventh Schedule or section of the Ordinance under which this disallowance was made before the Commissioner of Appeals, the appellant-bank relied on the Full Bench judgment of this Tribunal reported as (2010) 101 Tax 73 (Trio.). This judgment was adjudged by Commissioner of Appeals as irrelevant being related to insurance companies. It is obvious that Commissioner of Appeals had not appreciated the fact that assessment of banks with effect from tax year 2009 had become at par with the assessm ents of insurance companies. The language of section 100A read with Seventh Schedule is exactly the same as section 99 read with the Fourth Schedule to the Income Tax Ordinance, 2001. This issue has already been decided in favour of taxpayer in 2011 PTR 222 (Tribunal). By following our earlier judgment, we order deletion of this addition tor tax years 2009 and 2010.
(3) TAXATION OF 'OTHER PROVISIONS'/PROVISIONS AGAINST OTHER, ASSETS [1999-2000 TO 2007, 2009 AND 2010].
16. The claim of taxpayer is that these are ascertainable liabilities and not mere provisions. It is the substance that matters and not the mere nomenclature given to any transaction. In 2001 PTD 1427 and 2001 PTD 744 it has been elaborated that any ascertainable accrued liability is deductible under the mercantile system of accounts. According to him, even disputed liabilities are allowable under mercantile system, of accounting as held in 2001 PTD 3326. The legislature's intention is also very clear as it has provided that any subsequent recovery thereof would be offered for tax as per section 25(a) of the repealed Ordinance.-He also 'pointed that this issue was authoritatively decided by this Tribunal in 2006 PTD (Trib.) 356, I.T.As. Nos. 1012 and 1014/IB of 1995 dated 18-7-2006 and 2011 PTR 222 (Trib.).
17. The learned DR argued that in I.T.A. No, 565 of 2000 in the case of Grindlays Bank, the honourable Sindh High Court held that provisions were not allowable deductions. The learned AR, in reply argued that the said judgment was passed with reference to provision for bad debts and that too on the basis of distinguishable facts as held by the five-member bench in 2011 PTR 165 (Trib.). He further argued that in a recent judgment in ITRA No,219 of 2009 re: CIT v. Security Leasing Corporation, the honourable Sindh High Court allowed provision for bad debt and this case was followed by the larger bench in 2011 PTR 165 (Trib.).
18. We have examined the arguments of both sides and case-law cited by him. We agree with the learned AR that it is substance that matters and not the nomenclature given to any transaction. A liability cannot become unascertainable if it is named as provision. This was F explained by the honourable Sindh High Court in Habib Bank v. CIT reported as 2009 PTD 443. The case-law cited by learned AR applies on all fours. The department is, therefore, directed to allow this deduction.
(4) SET ASIDE OF DISALLOWANCE OF EXPENSES UNDER THE HEAD 'OPTIONAL RETIREMENT SCHEME'
(20012002)
19. Deduction under the 'Optional Retirement Scheme' was disallowed on the ground that bank failed to prove that tax was deducted on these payments. The Commissioner (Appeals) observed that except for certain employees who did not draw their salaries, tax was deducted and deposited into government treasury. It was argued that after making this factual finding, the action of setting aside the issue was not justified. While strongly contesting the remanding of the case back to department, the AR argued that it would unnecessarily force the taxpayer to another round of cumbersome proceedings. In this respect, he referred to judgments of honourable Sindh High Court in Ayeshbee (Pvt.) Ltd. v. Income Tax Appellate Tribunal and others 2002 PTD 407 and this Tribunal in 2006 PTD (Trib.) 356. The learned D.R., however, supported the order of Assessing Officer and argued that addition was rightly made.
20. We have examined the arguments of taxpayer and Department, case-law cited and orders available in appeal papers. We agree with the learned AR that once Commissioner (Appeal) observed that tax was duly deducted on payment, he should have deleted the addition instead of subjecting the taxpayer to another round of cumbersome proceedings. Such practice has been deprecated by higher courts in cases cited by learned AR. In view of this position, the order of CIT(Appeal) on this issue is vacated and department is directed to allow this expense.
(5) DISALLOWANCE OF CONTRIBUTION TOWARDS SUPERANNUATION (PENSION) FUND [2001-2002 and 2002-2003]
21. These appeals have been filed by the appellant-bank. Facts of the case are that appellant-bank estimated Rs,1,806,386,000 as short fall in the pension fund for past service liability. This short fall was provided in five years. The appellant-bank made additional contribution towards superannuation fund at Rs,1987.480, approval of which was, granted by Commissioner vide Letter No,7193/J dated 8-4-2002 subject to amortization in 10 equal installments. As per information provided at assessm ent stage, the appellant bank amortized additional contribution of Rs,1,806,135,000 over five years. Amortization for assessment years 2001-2002 and 2002-2003 was at Rs,361,227,000 for each year. Since additional contribution was approved by Commissioner with the condition that it would be amortized in ten equal installments against five equal installments claimed by the appellant, the department disallowed 180,613.000 each for assessment years 2001- 2002 and 2002-2003. In appeal before CIT(A), the appellant-bank did not press these additions as approval of Commissioner and condition attached thereto was accepted by the appellant-bank.
22. In view of above factual position, there appears no justification for agitating the additions again before this Tribunal. Appeals of the appellant-bank are, therefore, dismissed.
(6) DISALLOWANCE OF COMPENSATED ABSENCES [2002-2003, 2006 AND 2007]
23. According to learned AR this claim represents ascertained liabilities that are allowable as expense and merits acceptance as per ratio decidendi of judgement of honourable Supreme Court of Pakistan in CIT v. Oriental Dyes and Chemicals Co. Ltd. (1992) 65 Tax 254 (S.C. Pak.) holding that any such liability is an allowable expenditure on accrual basis. According to him, by following the above judgment of apex court, the honourable Sindh High Court has specifically adjudicated this issue in Commissioner Legal Division, v. Civil Aviation Authority 2008 PTD 647 as under:-- "This Income Tax Reference application- has been filed the Commissioner of Income Tax under section 133 of the Income Tax Ordinance, 2001, seeking the opinion of this Court on the following proposed question:-- "Whether on the facts and in the circumstances of the case, the learned ITAT was justified in law to hold that provision made in the books of account of compensated absences was allowable expenses even though it was not based on the demand in this regard?"
"We have also examined the judgment of Honourable apex Court reported in the case of Commissioner of Income Tax v. Oriental Dyes and Chemical Co. Ltd. Reported in (1992) 65 Tax 254 (S.C. Pak.) = 1992 SCMR 763 in which the Honourable Apex Court had held that the provision for gratuity being an ascertained liability is an allowable expense even, though not actually paid during the year"
"Respectfully following the above judgments we uphold the judgment of the Income Tax appellate Tribunal and since the matter has already been adjudicated by the Honourable apex Court, we refuse to answer the proposed question."
24 The learned DR supported the order of assessing office and argued that it is not an ascertained liability and thus not allowable under the law.
25. We have examined the, arguments of both sides and case-law cited. Following the ratio of the judgments of the honourable higher courts cited above, we hold that there was no justification for disallowance of this deduction. It should be allowed as such as also held in our recent judgment reported as 2011 PTR 222 (Trib.) .
(7) DISALLOWANCE OF POST RETIREMENT MEDICAL BENEFIT [2001-2002, 2002-2003, 2005 AND 2006]
26. The claim of taxpayer is that these are ascertainable liabilities and not mere provisions. It is the substance that matters and not the mere nomenclature given to any transaction. In 2001 PTD 1427 and 2001 PTD 744 it has been held that any ascertainable accrued liability is, deductible under the mercantile system of accounts. According to him, this issue has already been decided by this Tribunal in its decision in I.T.As. Nos.1516 to 1520/KB of 2003 dated 23-11-2005.
27. The learned DR supported the order of Assessing Officer and argued that instead of providing employee-wise detail of expenses on actual basis, the bank provided total figure worked out by actuaries.
28. We have examined the arguments of learned AR and case-law cited by him. We agree with the learned AR that it is substance that matters and not the nomenclature given to any transaction. A liability cannot become unascertainable if it is named as provision. The cases cited by learned AR squarely cover the issue in hand. The department is, therefore, directed to allow this deduction.
(8) DISALLOWANCE OF PENALTIES PAID TO STATE BANK OF PAKISTAN [2001-2002, 2002-2003 AND 2003]
29. This issue has been decided by honourable Supreme Court of Pakistan against the taxpayer in CIT v. Premier Bank Ltd. And another (1999) 79 TAX 589 (S.C. Pak.). We need not to dilate further on this issue. In the light of the judgment of the honourable Suprcme Court (supra), we confirm the order of learned CIT(A) on this issue.
(9) SHORT ALLOWANCE OF TAX CREDITS IN RESPECT OF TAX PAID IN AZAD KASHMIR AND TAX DEDUCTED UNDER SECTION 50(2) [2001-2002; 2002-2003, 2003 AND 2004]
30. For assessm ent years 2001-2002 and 2002-2003, the appellant-bank did not press the ground before learned CIT(A). Agitation of this issue again before this Tribunal is not justified. Appeals for assessm ent years 2001-2002 and 2002-2003 are, therefore, dismissed.
31. As regards tax years' 2003 and 2004, the appellant-bank is aggrieved by the curtailment of tax credit in respect of taxes paid in AJK. It was argued that Department has been allowing the total amount of taxes paid for doubly taxed income and curtailment was unjustified. We direct the Department to allow the credit in full as there is no dispute about the quantum and evidence of payment of taxes in AJK. The FBR has already instructed vide Circular No, 1 of 2003 that any tax paid in AJK should be allowed in Pakistan in totality.
10. ALLOCATION OF EXPENSES RELATING TO CAPITAL GAIN AND PTR INCOME [2001-2002, 2003 TO 2005, 2009 AND 2010]
32. The department disallowed expenses for alleged relatedness with exemption capital gain and dividend. The learned AR argued that department failed to appreciate that passive incomes, namely capital gain and dividend, were received out of self-generated-resources, hence, no apportionment was attracted on account of financial charges. According to learned AR, Not a single investment was made from borrowed funds. Investment made out of own funds resulted in either capital gain or dividend income without incurring any financial cost. As regards allocation of administrative expenses, the learned AR submitted that branch network or head office was not at all engaged in placement of funds. The investment portfolio was handled exclusively by Treasury Department that was also responsible for a number of assignments such as:--
(i) Carryover transactions (COT)
(ii) Money market transactions
(iii) Repo with other banks
(iv) Shares and Equities
(v) Government Securities (FIB, PIB, MTB)
(vi) Dealing with State Bank of Pakistan (statutory requirement etc.)
(vii) Forex transactions
33. According to learned AR, there are number of functions performed by the Treasury Department, out of which dealing in shares through brokerage houses is one part. The funds are provided by the banks-a passive activity-and deals are executed by experts engaged by members of stock exchange. The Treasury Department of the bank thus virtually incurs no administrative cost for this purpose. There was, therefore, no justification to add any amount out of administrative cost on pro-rata basis.
34. The bank receives dividend warrants and realizes capital gain without incurring any cost- financial or administrative as explained above. In these activities neither branch network nor head office was engaged, hence, the question of allocation of general and administrative expenses also does not arise. The apportionment of expenses against dividend or any exempt income, he argued, could not be made in view of the judgment of the honourable Lahore High Court in 2006 PTD 2678.
In the presence of this judgment and issue already adjudicated in favour of the banks in 2006 PTD (Trib.) 356 and 2005 PTD (Trib.) 2041, apportionment was not justified. In 2005 PTD (Trib.) 2041, the issue was decided against the department and it did not file reference against this issue, which had attained finality.
35. The learned AR further argued that Rule 1 of the Seventh Schedule to the Ordinance did not permit any such allocation. He further argued that section 67 of the Ordinance read with Rule 13 of Income Tax Rules, 2002 had no implication because Rule 6 of Seventh Schedule providing that "Income computed under this Schedule shall be chargeable to tax under the head "income from business...." All incomes are to be taxed under the head 'Income from Business' as far as Seventh Schedule is concerned. This dismantles the very basis of addition as held in 2011 PTR 222 (Trib.).
36 The learned DR, while supporting the order of the taxation officer, relied on the following cases:--
(i) 2005 PTD 2161 (Trib.)
(ii) 2005 PTD 2599 (H.C. Lah.)
37. He further argued that in "view of Rule 9 of the Seventh Schedule, section 67 was rightly invoked.
38. We have examined the arguments of both sides and cases quoted by them. We are afraid that interpretation of department that such allocation can be made under Rule 9 is untenable under the law. Rule 6 of the Seventh Schedule specifically provides that all. Income should be taxed in the case of banks under the head "income from business". In the presence of this unambiguous provision of law, resort to section 67 read with Rule 9 of the Seventh Schedule is legally untenable as held in 2011 PTR 222 (Trib.). The issue has already been decided in favour of banks by Tribunal in 2011 PTR 222 (Trib.), 2006 PTD (Trib.) 356, 2005 PTD (Trib.) 2041 and by the honourable Lahore High Court in 2006 PTD 2678. In view of factual position narrated above and cases cited and discussed above, we order deletion of allocation of expenses to dividend and capital gains for all the years under appeal.
(11) SET-ASIDE OF ADDITION ON ACCOUNT OF TRANSFER OF ASSETS TO ALLIED INTERNATIONAL BANK PLC A JOINT VENTURE COMPANY [2002-2003]
39. The facts of the case are that under a scheme of corporatization, Habib Bank Limited and the appellant amalgamated the banking business in United Kingdom to form a limited company in UK to meet local statutory requirement. According to department, assets were not transferred on fair market value. The department estimated income on this transaction at Rs,100 million without any definitive basis. The learned AR argued that learned CIT(Appeals) observed that shares were acquired by both the banks according to the net worth of their branches in UK and there was no question of earning any income from this transaction. According to him, the learned Commissioner of Appeals, 'after narrating the correct nature of transaction was not justified to set-aside the issue.
It is held in various judgments that set-aside should not be a routine matter. The basis of set-aside was elaborated in 2006 PTD (Trib.) 356 as under:-- ... Remand of case is a routine matter nor it should adopted as a tool to allow a party or an authority to improve the case re: 1996 SCMR 230. Further, the Honourable Lahore High Court in Ch. Muhammad Sadiq v. Income Tax Officer and others 1988 PTD 1014, also strongly disapproved setting aside of cases in a cursory manner in the following words: "The power to remand is discretionary in nature. But such discretion is to be exercised reasonably and fairly indicating the reasons for remand. The impugned order does not satisfy this test. Upon the facts obtaining on record, there is no valid ground to send back the case to the Income-tax office for fresh assessm ent. The direction given by the Tribunal in this respect is wholly illegal and most likely shall expose the petitioner to another round of cumbersome proceedings and unnecessary harassm ent. Such a direction is liable to be struck down in exercise of constitutional jurisdiction of this Court."
' Still further, the Honourable Sindh High Court in Ayeshee (Pvt.) Ltd. v. Income Tax Appellate Tribunal and others 2002 PTD 407 expressed it in the following words: "A remand order would have meant that the assessee would have been subjected to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow a party to improve his case or to fill in the lacuna".
40. The department made addition on the assertion that assets were transferred at higher amount than the book value whereas it lacked any evidence to this effect. This was a case of amalgamation of the existing businesses as narrated in page 21 of the impugned order. In view of this undisputed position of transaction involving no element of income accrual in the hands the appellant-bank, we hereby vacate the order of learned CIR(A) of setting aside the matter and order that addition made by the department shall stand deleted.
(12) REVERSAL OF PROVISION AGAINST NON-PERFORMING LOANS [2007, 2009 AND 2010]
(13) REVERSAL OF PROVISION AGAINST OTHER ASSETS [2007 AND 2010]
(14) REVERSAL OF PROVISION AGAINST OFF BALANCE SHEET ITEMS [2007 & 2010]
(15) REVERSAL OF PROVISION FOR DIMINUTION IN VALUE OF INVESTMENT [ 2007]
41. The department taxed reversal of provision against nonperforming loans, other assets, off balance sheet items and diminution in value of investment treating them as income. The learned AR argued that appellant-bank already offered reversals for tax when it reduced the charge for the year by that amount. The AR pointed out that this issue was adjudicated in favour of the appellant bank by this Tribunal in I.T.A. No,306/LN/09 dated 8-8-2009 wherein it was observed that taxation of reversals amounted to double taxation. The Department, he pointed out, did not file reference against the said order which had attained finality a provided in section 183(10) of Ordinance. This issue, it was pointed out, was decided in favour of another bank in 2011 PTR 222 (Trib.).
42. The learned DR argued that addition was justified for which detailed reasons were given by the taxation officer.
43. We have examined the arguments of both sides and cases relied upon. This issue has already been decided by this Tribunal in I.T.A. No,306/LB/09 dated 8-8-2009 and 2011 PTR 222 (Trib.) in favour of banks. Thus by following our earlier judgments, we direct that additions should be deleted.
(16) SET ASIDE OF AMORTIZATION OF EXPENSES (2003)
44. Facts of the case are that appellant-bank claimed an expense of Rs,617,157,000 under the head "Amortization of Deferred Cost" in administrative expenses for tax year 2003. As per Note 11.1 to the Final Account it represented Golden Handshake costs incurred by the appellant-bank in prior years. The department observed that appellant-bank already claimed the entire amount in tax computation for assessm ent year 2001-2002 under the "Optional Retirement Scheme". However, the same was disallowed for the reason of non-deduction of tax and only Rs,194 million was allowed to be amortized for assessm ent years 2001-2002, 2002-2003 and 2003. The department disallowed the claim of Rs,617.157,000 million and allowed only amortization of Rs,65,428,637 resulting net addition of Rs,551,728,363. Learned CIR(A) set-aside the addition as addition under the head "Optional Retirement Scheme" for assessment year 2001-02 was also set-aside.
45. We have examined the record. We have also adjudicated appeal of the appellant-bank for assessm ent year 2001-2002 (S. No,4 above) wherein disallowance made by the department has been disapproved. Since this claim has been allowed in assessment year 2001-2002, the claim of Rs,617,157,000 for tax year 2003 is not allowable.
(17) PROVISION AGAINST OFF BALANCE SHEET ITEMS (2004, 2006, 2007 AND 2009)
46. The appellant-bank claimed provision against 'Off Balance Sheet Items' as deduction from income. The department disallowed this claim and learned CIR(A) confirmed this addition on the ground that the same was a provision. And not an actual expense. According to the department, an expense could only be claimed if all the events that determine liability had occurred and the amount of liability could be determined with reasonable accuracy. The learned AR argued that this provision was as per prudential Regulations of SBP which was allowable vide section 91A read with section 35 of Banking Companies Ordinance, 1962 and sections 46B and 54A of State Bank of Pakistan Act, 1956. It was also argued that this was ascertainable liability and not a provision.
According to AR, it was the substance that matters and not mere nomenclature given to any transaction. In 2001 PTD 1427, 2001 PTD 744 and 2006 PTD (Trib.) 356 it has been held that any ascertainable accrued liability is deductible under the mercantile system of account. The AR contended that even disputed liabilities were allowable under mercantile system of account as held in 2001 PTD 3326. The legislature's intention, he said, was also very clear as it had provided that any subsequent recovery would be taxed under section 70 of the Ordinance.
47. The learned DR supported the orders of taxation officer and CIT(A) arguing that it is not an ascertainable liability.
48. We have examined the orders passed by taxation officer and Commissioner of Appeals, arguments of rival parties and cases cited. We agree with the arguments of learned AR that this is an ascertainable liability. In view of cases cited supra, we direct deletion of additions for all the years under appeal.
(18) SET ASIDE OF ADDITION UNDER THE HEAD `ACQUISITION OF ASSETS IN SETTLEMENT OF NONPERFORMING LOANS' (2004)
49. The department made addition of Rs,1,126,786,000 on the ground that acquisition of assets in settlement of non-performing loans was a recovery out of non-performing loans which were earlier charged to Profit & loss account. The learned AR drew our attention to wards the order of CIT(Appeal) wherein he observed that cost of properties in settlement of advances was only Rs,670,886,000 whereas remaining amount of Rs,455,902,000 represented only legal expenses incurred on transfer of assets, addition to assets and revaluation surplus created after acquisition in subsequent years. He also observed that amount representing assets acquired in settlement of non-performing advances was never charged as provision against non-performing advance. In support of his claim, the appellant-bank provided copies of ledger of parties whose properties were acquired in settlement of non-performing loans and advances. He further observed that the provisions shown was "NIL" which demonstrated that the provision originally created stood reversed to the extent of originally created against the amount of advances less the amount of liquid assets and forced sale value of assets. He further argued that the addition was based without appraisal of factual position. The learned AR argued that after making above observations, the learned CIR(A) should have deleted the addition instead of remanding the case back to Assessing Officer. In this respect, he referred judgment of this Tribunal in 2006 PTD (Trib.) 356 wherein following observation was made:- "...Remand of case is a routine matter nor it should adopted as a tool to allow a party or an authority to improve the case re: 1996 SCMR 230. Further, the Honourable Lahore High Court in Ch. Muhammad Sadiq v. Income Tax Officer and others 1988 PTD 1014, also strongly disapproved setting aside of cases in a cursory manner in the following words: "The power to remand is discretionary in nature. But such discretion is to be exercised reasonably and fairly indicating the reasons for remand. The impugned order does not satisfy this test. Upon the facts obtaining on record, there is no valid ground to send back the case to the Income-tax Office for fresh assessm ent. The direction given by the Tribunal in this respect is wholly illegal and most likely shall expose the petitioner to another round of cumbersome proceedings and unnecessary harassm ent. Such a direction is liable to be struck down in exercise of constitutional jurisdiction of this Court."
' Still further, the Honourable Sindh High Court in Ayeshee (Pvt.) Ltd. v. Income Tax Appellate Tribunal and others 2002 PTD 407 expressed it in the following words:- "A remand order would have meant that the assessee would have been subjected to another round of cumbersome proceedings which is deprecated in law and such order should not be passed in a routine manner to allow a party to improve his case or to fill in the lacuna".
50. The learned AR further submitted, that even otherwise this issue was decided in favour of the appellant-bank in I.T.A. .No,306/LB of 2009 dated 8-8-2009 wherein following observation was made:-- "We also endorse the point of view of the taxpayer that even otherwise it was double taxation as reversals/recoveries related to non-performing loans were offered for tax and value of properties were included in those amounts"
51. The learned DR supported the order of taxation officer and argued that addition was rightly made.
52. After examining the arguments of both sides and cases cited by him, we endorse the argument of learned AR that after observing that addition was not warranted by facts of the case, the learned CIR(A) should have deleted the addition instead of subjecting the taxpayer to another round of litigation. Even otherwise, this issue was decided in favour of the appellant in I.T.A. No,306/LB of 2009. Thus following this judgment, we order deletion of addition.
(19) AMOUNT WRITTEN OF [2007, 2009 AND 2010]
53. For tax years 2005 and 2007, amounts of Rs,29,129,000 and Rs,124,454,000 shown in Notes 9.3 and 11.3 of audited accounts respectively as "amount written off" was disallowed. This disallowance was confirmed by learned CIT(A). The learned AR argued that this amount was shown in audited accounts only for disclosure purposes. Income for the years was not reduced by that amount.
54. For tax years 2007, learned CIT(A) confirmed this addition whereas for tax years 2005, 2009 and 2010, the learned CIR(Appeal) deleted the additions. We have also examined the record. The amount shown in the audited accounts for tax years 2005, 2007, 2009 and 2010 were only for disclosure purposes and never claimed as expense. The income was not reduced by the said amounts. We, therefore, delete the addition for tax year 2007 and confirm order of learned CIR(Appeals) for tax years 2005, 2009 and 2010.
20. LOSS IN RESPECT OF LEASE OPERATIONS [2007]
55. This loss was disallowed with the following observations by the Assessing Officer:-- "Keeping in view the fact that initial depreciation is claimed on vehicles which are not plying for hire, the proper depreciation schedule indicating the restricted values of vehicles is not filed and also that total sale proceeds are not adopted for determining the gain or losses on terminated lease, the loss declared under the head leasing operation as Rs, 33.562 (m) is disallowed."
56. The Commissioner of Appeals endorsed the order of the Assessing Officer holding that:- "The A.R. While arguing the issue stated that the Taxation has ignored and overlooked provisions of section 22(13) (c) of the Income Tax Ordinance, 2001 as well as section 77(4) of the Income Tax Ordinance, 2001. The A.R. Further argued that through legal fiction, sale proceed is restricted to residual value, hence observations of the Taxation Officer regarding termination charges, penalty, additional mark-up are not relevant for the purpose of determining sale proceedings.
' After considering all material available and presented in the matter of this ground I am satisfied and convinced that the Taxation Officer made a dispassionate examination of the loss claimed by the appellant and proceeded to disallow the same on very sound legal grounds. The treatment is, therefore, upheld and confirmed."
57. The AR drew our attention towards section 22(1)(c) of Income Tax Ordinance, 2001 which reads as under:-- "(c) any asset owned by a leasing company or an investment bank or a modaraba or a schedule bank or a development finance institution and leased to another person is treated as used in the leasing company or the investment bank or the modaraba or the schedule bank or the development finance institution's business;"
58. The learned AR also referred section 77(4) of the Ordinance which reads as under:- "(4) The consideration received by a scheduled bank, financial institution, modaraba, or leasing company approved by the Commissioner (hereinafter referred to as a "leasing company") in respect of an asset leased by the company to another person shall be the residual value received by the leasing company on maturity of the lease agreement subject to the condition that the residual value plus the amount realized during the term of the lease towards the cost of the asset is not less than the original cost of the asset.".
59. The learned argued that loss- in respect of lease operation was disallowed mainly on the ground that initial depreciation was claimed by the appellant-bank whereas the vehicles were not used by it for hiring. He argued that though the vehicle was used by the lessee yet by fiction of [law in accordance with section 22(1)(c) of the Ordinance], it was considered as used by the lessor. The learned AR further argued that learned Additional Commissioner made fishing enquiries in proceedings under section 122(5A) which was not permissible as held by this Tribunal in 2008 PTD (Trib.) 1491. He submitted that furnishing of depreciation chart was not the requirement of rule 34 of Income Tax Rules, 2002 as there was no annexure relating thereto.
60. The learned DR supported the orders of Additional Commissioner and Commissioner (Appeals) arguing that disallowance was strictly in accordance with law.
61. We have considered arguments -of learned AR and cases cited by him. We agree with the learned AR that in accordance with section 22(1)(c) of the Ordinance the asset is treated as used in the lessor's business, therefore initial allowance available on use of the assets is also available to it.
We also agree with learned AR that entire exercise conducted by the Additional Commissioner regarding depreciation chart and entries therein was fishing enquiries which are not permissible in revisionary proceedings under section 122(5A). In view of facts and law narrated above, we hereby delete the addition.
(21) COMPUTATION IN VIOLATION OF SEVENTH SCHEDULE [2009 AND 2010]
62. The learned AR contended that from tax year 2009 onwards, the banks are to be taxed in terms of section 100A read with the provisions of Seventh Schedule to the Ordinance, 2001. According to him, the scheduler assessm ent in the case of banks from tax year 2009 came at par with insurance companies taxed under the Fourth Schedule to the Ordinance. He further contended that Seventh Schedule did not permit re-computation of income as done by the department in view of explicit language of section 100A read with Rule 1 of the Seventh Schedule. The learned AR argued that the Department could made only permissible additions and adjustments as provided in the. Seventh Schedule itself. Relying on CIT Central Zone 'A' Karachi v. Phoenix Assurance Co. Ltd. 1991 PTD 1028, he argued under the scheduler assessments, the acceptance of accounts was a fait accompli for tax authorities. The learned DR contested this position and argued that provisions of section 100A are not overriding and in view of Rule 9 of the Schedule, all the provisions of the Ordinance were applicable and both the authorities below rightly interpret the law.
63. The learned AR further argued that this issue has already been decided in 2011 PTR 222 (Trib.) wherein following observation was made:-- "Section 100A read with Seventh Schedule to the Ordinance is a special non-obstante provision that overrides all other provisions as far as computation of income and tax payable by the banking companies is concerned. Tax authorities are bound to accept the audited accounts from tax year 2009 in the case of banks subject to specified additions and adjustments. This position of law has also been admitted and explained by FBR in Para 10 of its Circular No,1 of 2007 dated 2-7- 2007, Circular No, 2 of 2008 dated 28-2-2008, Circular No, 3 of 2009 dated 17-7-2009 and Circular No, 8 of 2009 dated 25-9-2009. These instructions are strictly as per law having binding force for all subordinate tax officials under sections 206(2) and 214(1) of the Ordinance. In the presence of unambiguous position of law and legally binding instructions, the Deputy Commissioner was bound to accept the balance of income as per audited accounts subject to additions/adjustments mentioned in Rule 1(a) to (h) of the Seventh Schedule. On the basis of misinterpretation of Rule 9 of the Seventh Schedule, as elaborated above, the authorities below concluded that Seventh Schedule is not a self-contained provision as far as computation of income is concerned in the case of banking companies. We disapprove this interpretation and hold that for computation of income of the banking companies, the Seventh Schedule to the Income Tax Ordinance, 2001 provides rules for computation of the profits and gains of a banking company and tax payable thereon. From tax year onwards, a banking company's income as disclosed in the annual accounts furnished to the State Bank of Pakistan, subject to specified adjustments, shall be taken as "Income from Business". Rule 9 in no way can be interpreted to unsettle this requirement laid down by the Legislature. It applies for things not provided for in the Seventh Schedule."
64. We have examined arguments of both sides and cases cited. By following our earlier judgment reported as 2011 PTR 222 (Trib.), we allow ground of appellant-bank for both the years under appeal.
(22) UNREALIZED LOSS ON REVALUATION OF INVESTMENT [2010]
65. The learned AR contended that disallowance of unrealized loss on revaluation of investment was against Rule 1 of the Schedule: He reiterated that from tax year 2009, the Seventh Schedule to the Income Tax Ordinance, 2001 read with section 100A overrides all other provisions as far as computation of income and tax payable in the case of banks were concerned. According to AR, the department could make adjustments and additions in net profit as per books of account that were specifically mentioned in Rule 1(a) to Rule 1(h) of the Schedule. The learned DR contended that this provision was inadmissible as per Rule 1(g) of the Seventh Schedule. He further argued that in the following cases this claim has been disallowed:--
(i) 2006 PTD 354
(ii) 2002 PTD 925
(iii) 2000 PTD (Trib.) 2668
(iv) (2002) 85 Tax 245
(v) I.T.A. No,3819/LB of 1997 dated 7-12-1999
(vi) I.T.A. No,400/LB of 2000 dated 10-12-2001
66. The learned AR argued that above cases were related to law before coming into force of the Seventh Schedule. He argued that after insertion of Seventh Schedule read with section 100A of the Ordinance, the above cases could not be applied for tax year 2009 onwards as law had changed.
The AR also refuted this claim saying that International Accounting Standards 39 and 40 mentioned in Rule 1(g) was still not implemented in Pakistan and therefore reliance on the said Rule was not justified.
67. We have noted that in the orders of the department there is no mention of any Rule of the Seventh Schedule or section of the Ordinance. The language of section 100A read with Seventh Schedule is exactly the same as section 99 read with the Fourth Schedule to the Income Tax Ordinance, 2001. This issue has already been decided by in favour of banks in 2011 PTR 222 (Trib.) and following the same we order the deletion of the addition.
(23) DISALLOWANCE OF DEFINED BENEFIT PLAN [2003 and 2004]
(24) DELETION OF ADDITION OF GRATUITY FUND, BENEVOLENT FUND, POST RETIREMENT MEDICAL AND CONTRIBUTION TO PENSION FUND [2005 & 2009]
68. For tax years 2003 and 2004 disallowance of 'Defined Benefit Plan' was confirmed by learned CIR(A) whereas for tax years 2005 and 2009. The disallowance was disapproved. According to the AR, these are F contributions to the approved funds and both the authorities erred in holding that these were inadmissible. He cited the following case in support of his contention:- "Commissioner of Income Tax, Companies Zone I, Karachi v. M. M. Silk Mills Ltd. (2006) 93 TAX 339 H.
C. Kar.).
' A perusal of above provisions shows that a well-designed mechanism has been devised under law in respect of approved gratuity fund. If any assessee claims a deduction on account of gratuity without establishing an approved gratuity fund he defies the law and consequently, cannot be allowed the benefit."
69. He said in respect of approved funds, the Department could not make additions as it was possible in respect of un-approved funds. As regards 'Post-Retirement Medical Benefit', he argued that it was allowable in the light of judgment of this Tribunal in I.T.As. Nos.1516 to 1520/KB of 2003 dated 23-11-2005 and 2011 PTR 222 (Trib.).
70. The learned DR could not produce any judgment overriding the above judgments of this Tribunal by any High Court.
71. We have examined the impugned orders and cases cited by the AR. It is undisputed that payments were made to approved funds and law recognises if it allowability. We also agree with the learned AR that 'Post-Retirement Medical Benefit' is an allowable deduction as already explained in detail in our earlier judgments, namely, in I.T.As. Nos.516 to 1520/KB of 2003 dated 23-11- 2005 and 2011 PTR 222 (Tribunal). We, thus, order allowance of these deductions.
(25) AMORTIZATION OF EXPENSES [2004, 2008 AND 2010]
72. For tax years 2004 and 2008, the appellant-bank claimed amortization amounting to Rs,10,102,000 and 13,344,667 respectively. This amortization was claimed by adopting life of computer software as three years. The Additional Commissioner adopted life as 10 years as he was of the view that life of computer software could not be determined. He disallowed amortization at Rs,7,015,500 and 5,975,000 for tax years 2004 and 2008 respectively. The learned CIR(A) vacated the additions on the ground that estimation of the life of the intangible asset was to be determined by the taxpayer. The learned AR argued that section 24(3) uses the terms "normal useful life in whole years" that is three years in appellant's case. According to him, application of ten years comes into play where a normal life of an intangible is more than ten years or where the same is not ascertainable. In those conditions, it will be restricted to ten years as per section 24(5) of the Ordinance. The learned DR supported the order of Additional Commissioner and argued that the intangible asset was rightly amortization to ten years.
73. We have considered the argument of both sides. The learned AR is right in saying that application of 10 years comes into play where a normal life of an intangible is more than ten years or where the same is not ascertainable. In the case of appellant-bank, the life of computer software was only three years which cannot be stretched to 10 years. In the present world technological advances are so fast that even before three years such a programme becomes outdated. In view of this fact, the additions made are not maintainable. We, therefore, confirm the order of learned CIR(A) for these years.
74. For tax year 2010, the Additional Commissioner made addition of Rs,25,815,000 on the ground that in the computation chart of taxable income accounting amortization of Rs,1,359,000 was added instead of actual accounting amortization of Rs,27,174,000. Before the learned CIR(A), the learned AR pointed out that actually, the total of accounting depreciation and accounting amortization was the same but accounting amortization was mistakenly taken as Rs,1,359,000 instead of Rs,27,174,000. He pointed that there was also an error wherein accounting depreciation was added at Rs,631,696,000 instead of actual figure of Rs,605,882,000. The learned CIR(A) after examination of audited accounts and computation chart, deleted the addition.
75. Before us, the learned AR supported the order of learned CIR(A). He argued that Additional Commissioner failed to examine Note 29 of audited accounts where accounting depreciation/amortization has been shown at Rs,633,056,000 as a part of administrative expenses.
He also failed to examine Note 11.2 of audited accounts wherein accounting depreciation was shown at Rs,605,882,000. The position of accounting depreciation/amortization shown in audited accounts and added by the appellant in computation chart is as under:-- As per audited a/c Amounted added Accounting depreciation 605,882,000 631,696,000 Accounting amortization 27,174,000 1,359,000 Total 633,056,000 633,056,000
76. He submitted that for the purpose of allowance of depreciation in accordance with income tax law, accounting depreciation/amortization of Rs,633,056,000 was added. Therefore, no loss of revenue occurred.
77. We have examined the record. The learned CIR(A) was right in deleting the addition. The learned DR could not refute the factual position narrated above. We, therefore, confirm the order passed by the learned CIT(A) .
(26) NON-ISSUANCE OF NOTICE UNDER SECTION 128(1) [2003 AND 2004]
78. The learned DR argued that. Appeals for these years were decided by learned CIR(A) without issuing notice to the department. The AR said that CIT(A) issued notice to both the parties and Department opted not to appear. This fact is available on the record. Since the Department did not provide any evidence in support of its claim, we, dismiss the appeals.
(27) DEPRECIATION EXPENSES 2001-2002, 2002-2003, 2003, 2004 AND 2007]
79. Depreciation allowance for assessment years 2001-2002 and 2002-2003 was disallowed at Rs,10,000,000 for each year on the ground that the detail of individual assets and depreciation thereon was not provided by the appellant. The contention of the bank is that it maintained the system of charging depreciation on same methods as prescribed in the Third Schedule to the repealed Ordinance. The charged depreciation on the same rate as prescribed in Third Schedule.
The contention of the department is that in absence of assets-wise details I t could not be ascertained whether statutory limit of claiming depreciation for vehicles has been maintained or not. The learned Commissioner (Appeals) observed that except for vehicles, there was no material difference between accounting and tax depreciation. He therefore reduced the addition from Rs,10 million to 8 million. Cross appeals have been filed on this issue.
80. We have examined contentions of both sides. We agree with the observation of the CIT(A) that except for vehicles, there is no material difference between accounting and tax depreciation. The order of the CIR(Appeals) is unexceptionable and hereby maintained.
(29) DELETION OF ADDITION UNDER SECTION 24(c) [Assessment years 1996-1997]
81. For assessm ent year 1996-97, the department disallowed the following expenses under section 24(c) of the repealed Ordinance on the ground that bank failed to prove that tax was deducted thereon:-- ' Interest expense 139,237,300 Rent expenses 7,370,950
82. The learned Commissioner (Appeals) observed that these payments had already been subject to tax under section 52 of the repealed Ordinance. He, therefore, in the light of decision of this Tribunal in (2002) 87 Tax 23 (Trib.) deleted the additions. Department, has filed appeal against deletion of this addition. We have examined order under sections 63/132 dated 29-6-2001 and order of CIT(Appeals) dated 1-6-2004. In our view, once the department exercised the option to charge amounts of certain payment to tax under section 52 by holding the assessee-as-default then the same sums could not be disallowed under section 24(c) as per ratio laid down in (2002)
87 Tax 23 (Trib.). We, therefore, confirm the order of learned CIT(Appeals) and Departmental appeal is accordingly dismissed.
(29) TAXATION OF DIVIDEND AT CONCESSIONAL RATE (1997-1998 to 2002-2003)
83. The bank offered dividend income as per rate prescribed under the law. The Assessing Officer, however, taxed it at normal rate holding it to be part of composite business income. The learned CIR(Appeals) accepted appeal of the bank and directed to apply concessionary rate on dividend income. Department has filed appeals against these decisions. Apart from various judgments of this Tribunal, the issue has authoritatively been decided by honourable Lahore High Court in CIT v.
Bank of Punjab 2011 PTD 53 (High Court Lahore) with the following observation:-- "... The question of law raised before us is answered in the affirmative and it is held that the Tribunal was correct in granted the benefit of power tax on dividend income of the assessee/Respondent Bank."
84. In view of the above judgment, departmental appeals stand dismissed.
(30) SET ASIDE OF BAD DEBTS AND UNREALIZED INTEREST WRITTEN OFF. [1997-1998 TO 2002-2003]
(31) DELETION OF PROVISION FOR BAD DEBTS [1997-1998 TO 2009]
85. This has been a controversial issue in the cases of banks as many conflicting judgments were in the field. In order to resolve the conflict, a five-member bench of this Tribunal was constituted wherein the following question was taken up for adjudication:- "Whether on facts and in the circumstances of the case receivable amount could be written off by debiting it in the Profit and loss account as expenditure with the nomenclature "provision for bad debts' or not."
86. The larger bench after examining various judgments decided the issue in favour of banks vide its order dated 10-2-2011, reported as 2011 PTR 165 (Trib.), with the following observation:-- ......We have no doubt in our mind that there is n reason for disallowance of the claim of bad debt for the banks under discussion. The only criteria is adoption of rules fixed by the State Bank. If there is no deviation, of the Prudential Bank Regulation, the claim of bad debt cannot be disallowed.
Since it is not the case of the department that there is deviation, the claim of bad debt of the banks are hereby allowed in full."
87. A large number of appeals of various banks were taken upon for adjudication by five-member bench out of which the following departmental appeals relate to this case:-- ITA No year I.T.A. No,4063/LB of 2004 2001-2002 I.T.A. No,4064/LB of 2004 2002-2003 I.T.A. No,6029/LB of 2005 2003 I.T.A. No,6022/LB of 2005 2004 I.T.A. No,1146/LB of 2006 2005 I.T.A. No,651/LB of 2008 2006
88. For tax year 2007, this addition was confirmed by learned CIR(A) against which appeal of the appellant bank in I.T.A. No,305/LB of 2009 was also adjudicated by honourable Five-Member Bench.
89. Judgment of five-member bench dated 10-2-2011 covers the above appeals. By following this judgment, the issue is also decided in favour of taxpayer in all other appeals which were not put before five-member bench. These appeals are listed as under: I.T.A. No,5061/LB of 2003 1997-98 I.T.A. No,5062/LB of 2003 1998-99 I.T.A. No,627/LB of 2009 2009
90. In view of above, all the departmental appeals fail and that of taxpayer for tax years 2007 and 2009 succeed.
(32) DELETION OF PROFIT & LOSS ADDITIONS {1997-98 TO 2002-2003]
91. Various additions were made from Profit & Loss account. The learned CIR(A) deleted the additions with the observation that those were made on arbitrarily by using stock phrases "unverifiable" and "un-vouched" without pointing out specific instances. He also observed that in this case, in preceding years the Tribunal in 2003 PTD (Trib.) 1189 deleted the addition with the following remarks:- "This is not the case of a street shopkeeper. Its accounts do not suffer from any lacuna, as any un- verifiability therein would amount to as offence chargeable under various laws of the land. Add backs in such cases can only be wherein the payment is not covered within the language of relevant provisions. The additions are not covered by section 23 or any other similar provision.
These additions, therefore also stands deleted."
92 The learned DR while supporting the order of Assessing Office argued that additions were made for want of supporting vouchers.
93. We have examined the record. Apart from this case, this issue also came up for adjudication in the case of another bank in I.T.A. No,1913/KB of 1998 dated 19-7-1999 and 2006 PTD (Trib.) 1292 wherein after making almost the same observations, additions were deleted. By following our earlier judgments and keeping in view the factual position elaborated by the learned Commissioner of. Appeals, the additions are deleted.
(33) DELETION OF ADDITION ON A/C OF CONTRIBUTION TOWARDS UNAPPROVED SUPERANNUATION FUND [2000-01]
94. During the period relevant to assessment year 2000-2001, the taxpayer contributed extra amount of Rs,1987.480 towards the superannuation fund and expense out the same in six consecutive years. An amount of Rs,99.374 (m) was charged for this year, which was disallowed by the assessing office on the ground that prior permission for the contribution was not obtained from the Commissioner. It was submitted before the CIT(Appeals) that bank applied for approval of the extra contribution which was granted by the Commissioner vide letter No,7193/J dated 8-4-2002.
The learned CIT(A) deleted the addition as approval of extra contribution was granted by Commissioner on the basis of the report of Assessing Officer. The department has contested this relief allowed by CIT(Appeals).
95. After the approval letter No,7193/J dated 8-4-2002 issued by Commissioner, we find no reason for interference is order of learned CIT(Appeals) which is confirmed.
(34) AMORTIZATION OF PREMIUM ON INVESTMENT [20002001] The department disallowed amortization of premium on investment on the ground that expenditure paid on acquiring the securities is capital in nature. The learned AR argued that the taxpayer purchased secondary market government securities at premium. The amount of premium paid was amortized over the life of securities. The learned CIT(Appeals) allowed amortization of premium. Department has contested this allowance.
96. We have examined the record. The issue in hand was decided by this Tribunal in (2004) 90 TAX 116 (Trib.) with the following observation:-- "It is observed that premium paid on purchase of FIB is a cost incurred by the assessee for the purpose of business of the Bank and has to be allowed during the period in which it is incurred.
This is in form of a prepaid expenses which is spread over the period to which it relates.
' After hearing the learned counsel for both the parties and in the light of discussion as well as case-law cited at Bar, we are of the considered view that department has got no case hence we are not included to interfere in the impugned order passed by the learned CIT(A) which is hereby maintained.
' Resultantly the appeal of the department on this issue fails."
97. By following the above judgment, departmental appeal is dismissed.
(35) DISALLOWANCE OF 50% DEPRECIATION ON VEHICLES DUE TO USE OF DIRECTORS [2003 TO 2006]
98. Up to 50% depreciation of vehicles was disallowed for personal usage of vehicle by the employees. The learned AR argued before learned CIR(Appeals)' that the disallowance was based on misreading of law. According to AR, the department failed to appreciate the following:--
(i) These vehicles are given to employees as per terms and conditions of their services. Had this perqusite been monetized and paid in cash, could any part have been disallowed not being salary? The answer is NO. The mere fact that benefit is given in kind does not mean that it is not wholly and exclusively for business purposes: Your intention to disallow proportionate depreciation is totally misconceived because the Bank provides vehicles to employees as a salary package under contract of their employment which is an allowable expense. The use of cars by some employees, both for private and business use, does not disentitle the Bank from the depreciation allowance in question. Taxation of the same in the hands of an employee is altogether a different subject which has no bearing on deductibility in the hands of the employer.
(ii) There is ample case-law on the issue confirming that conveyance provided to the employees (partly for business and partly for private use) is an allowable expenditure as it is meant wholly and exclusively for business.
(iii) We draw your attention towards finding of the learned ITAT on the issue in the following cases:- - I.T.As. Nos.36 to 38/LB of 2003 "The CIT(A) observed that the vehicles have been provided to the employees according to the terms and conditions of the service and addition on account of provisions of vehicle can be made in the hands of the employees for excess perquisites and, therefore was no justification for curtailing the depreciation in the hands of the company and deleted the addition made under this head. We have also considered the arguments of the AR of the assessee on this issue. The observation of the CIT(A) that vehicles have been provided to the employees in accordance with the terms and conditions of service and addition could be made in the hands of employees for perquisites is sound. The order of the CIT(A) on this issue is not interfered with and upheld."
2005 PTD (Trib.) 2041 [own case] "The CIT(A) after considering the arguments of AR of the assessee observed that there was no justification of the treatment given by the Assessing Officer on account of conveyance provided by the employer and addition if any can be made in the hands of the employee as per Income Tax Rules or addition may be made under section 24(i) of the Income Tax Ordinance, 1979 on account of excess perquisites but there was no justification for curtailment of depreciation claimed. The CIT(A), therefore, deleted the addition made on this issue.
' We have also considered the arguments of AR of the assessee on the issue. We agree with the findings of the CIT(A) that addition can be made in this case under the Income Tax Rules or under section 24(i) of the Income Tax Ordinance, 1979. Therefore, addition out of depreciation claimed on account of personal use cannot be endorsed. The order of the CIT(A) on this issue is upheld."
99. The learned CIR(A) by following above judgments deleted the addition.
100. The learned DR argued that depreciation was rightly disallowed as vehicles were used by employees partly for their personal purposes.
101. We have examined arguments of both sides and above cases. We find that order of CIR(Appeals) is in accordance with law and no interference is called for. Departmental appeals are, therefore, dismissed.
(36) DELETION OF ADDITION ON THE ISSUE OF ADJUSTMENT OF LOSS OF IBRAHIM LEASING COMPANY [2006]
102. Facts of the case are that appellant-bank reduced the taxable income to the tune of Rs,76,659,831 claiming the same as "Loss carried forward (Ibrahim Modarba)". The department disallowed this loss on the ground that no evidence was produced. The learned AR strongly agitated before the CIT(A) that this disallowance was not confronted in notice under section 122(5A) of the Ordinance. According to learned AR, invoking of section 122(5A) on an issue without issuance of notice on that issue is not justified. On merit, it was explained that evidence had already been filed with the return. The CIT(A) deleted the addition with the observation that addition without providing an opportunity of bearing is unjustified.
103. Before us, the learned AR argued that no statutory notice under section 122(9) of the Ordinance was issued on this issue. He referred subsection (9) of section 122 which is reproduced below for reference:-- "(9) No assessment shall be amended, or further, amended, under the section unless the taxpayer has been provided with an opportunity of being heard."
104. According to learned AR, by using word "shall", the legislature has made issuance of notice as mandatory requirement of law. He also referred decision of honourable Supreme Court of Pakistan in Collector, Sahiwal v. Muhammad Akhtar 1971 SCMR 681 wherein it has been held that where the giving of a notice is provided for by the statute itself then the failure to give such a notice is fatal. In that case the honourable Apex court observed as under:-- "The principle, so far as this country is concerned, is accordingly well-settled that where notice required to be given by the statute is a mandatory notice, then the failure to comply with such a mandatory requirement of the statute would render the act void ab initio as being an act performed in disregard of the provisions of the statute. Furthermore any further action taken on the basis of such a void order would also be vitiated"
105. According to learned AR, since no notice under section 122(9) was issued on this point, the disallowance is illegal.
106. The learned DR on the other hand argued that Additional Commissioner was justified in disallowing the claim as no evidence was provided.
107. We have examined the orders and argument of both sides. We agree with the observation of learned CIT(A) that any addition without issuing statutory notice is unlawful. In this case undisputedly no notice Y required under section 122(9) was issued. The order of learned CIR(A) Y is, therefore, confirmed on the basis of judgment of the honourable Supreme Court (supra) which applies to facts of the case in hand.
(37) EXPUNGING THE REMARKS OF CONCEALMENT OF INCOME UNDER THE HEAD 'INCOME ON FOREIGN CURRENCIES [2005]
108. Facts of the case are the appellant-bank, while declaring income, deducted exchange gain from its accounting income. The department not only included this income but also treated it as concealment of income. The appellant-bank argued that exchange gain is a notional income. The learned CIR(A) confirmed the addition. However, he expunged the remarks of Taxation Officer regarding concealment. The department has agitated expunging of these remarks.
109. Before us, the learned AR argued that there is plethora of case-law confirming that exchange gain is only a notional income and is not taxable under the income tax law. He referred judgment of this Tribunal in (2005) 91 Tax 517 (Trib.) = 2006 PTD 288 wherein exchange gain was held not taxable. In view of this position, there was no justification of initiation of concealment proceeding for exclusion of this notional income from its accounting income. We, therefore, confirm the order of learned Commissioner of Appeals.
(38) REMANDING THE CASE TO TAXATION OFFICER TO ALLOW FOREIGN TAX CREDITS AND CREDIT UNDER SECTION 61 SUBJECT TO QUALIFICATION UNDER THE LAW [2007 AND 2008]
110. The department disallowed foreign tax credits and credit under A section 61 In appeal learned CIR(Appeals) directed to allow these credits subject to qualification under the law. We find no infirmity in order of learned CIR(A) and the same is hereby confirmed.
(39) MA.(REC.) 242/LB OF 2009 - RECALLING OF ORDER IN I.T.A. NO.306/LB OF 2009 DATED 8-8-2009 [2008]
111. The department agitated order passed on 8-8-2009 in I.T.A. No,306/LB of 2009 contesting that reliance was wrongly made on decision of honourable Lahore High Court in PTR. No,540 of 2007 and that main order in field was 2007 PTR 279 (Trib.).
112. We have examined the contents of Miscellaneous Application. There was no overlooking of a binding judgment as claimed by the department. All the judgments were considered and commented upon. We cannot review our own judgment. The scope of section 221 cannot be extended to matter where new arguments are to be considered and deliberation is to be made afresh. There is no mistake apparent from record. Following the judgments of honourable Supreme Court in CIT v. National Food Laboratories 1992 SCMR 687 = 1992 PTD 570 and CIT v. Shadman Cotton Mills, Karachi 2008 SCMR 204 = 2008 PTD 253, we hereby reject miscellaneous application.
(40) MA.(AG.) 33/LB/2010 - ALLOWANCE OF PROVISION FOR NON-PERORMING ADVANCES AT 1% OF GROSS ADVANCES INSTEAD OF NET ADVANCES [2010]
113. The learned CIR(Appeals) made following observation in his Oi.Der No,20 dated 31-3-2011 with reference to allowability of provision for non-performing loans in accordance with Rule 1(c) of Seventh Schedule to the Ordinance:-- "The ACIR computed the 1% provision for bad debts by taking into consideration net advances of Rs,237,344,038,000. The learned AR submitted that the total advances, as shown in the printed accounts, were Rs,249,886,703,000. In brief, the objection of the learned AR is that the computation of 1% of the gross receipt is incorrect. As it is rectifiable matter the ACIR is directed to correct the amount."
114. Subsequently, it was pointed by the department that there occurred an error in making above observation. The learned CIR(Appeals), therefore, in his Order No,34-A dated 27-4-2011 'Made clarification as under:-- "As per rule 1(c) provision for advances and of balance sheet items is allowable up to a maximum of 1% of total advances. It is directed that provision be computed accordingly on the value of total advances of Rs,249,886,703,000 as per accounts at the time of appeal effect."
115. Since appeal against original order of learned CIR(A) dated 31-3-2011 was pending before this Tribunal, the department instead of filing a fresh appeal against order of learned CIR(Appeals) dated 27-4-2011 filed a miscellaneous application for raising additional ground contesting the above observation of learned CIR(A).
116. We have examined the order of learned CIR(Appeals) and relevant provision of law. We find that observation of learned CIR(Appeal) is in accordance with Rule 1(c) of Seventh Schedule that mentions "total advances". We confirm the order of CIR (Appeals) .
(41) CREDIT OF COMPENSATION AGAINST ADMITTED LIABILITY [2010]
117. The appellant-bank claimed credit of compensation under section 171 of the Ordinance for delayed payment of refund for tax year 2008 against its admitted tax liability under section 137(1).
The D department disallowed the claim as no order under section 171 was D passed. The learned CIR(Appeal) observed that department could not take benefit of its own wrong. On the one hand it did not issue order under section 171 and on the other hand took benefit of its own wrong by not allowing credit against tax liability. He therefore directed to allow credit of compensation due to the appellant-bank under section 171 of the Ordinance.
118. We have examined the record. It was the legal obligation of the department to give compensation on delayed payment of refund. We find the order of learned CIR(A) in accordance with law. The departmental appeal fails.
(42) COMPUTATION OF COMPENSATION FOR TAX YEAR 2008 ON THE BASIS OF LAW AS AMENDED BY FINANCE ACT, 200912008]
119. A refund of Rs,2,819,772,698 was determined on 17-8-2010 as a result of order of appellate order for tax year 2008. This refund was subsequently adjusted against demand of the appellant-bank.
The appellant-bank claimed compensation on delayed refund under section 171 of the Ordinance.
The department allowed the amount of compensation vides its order under section 171 of 20-6-2011.
The department, however, calculated compensation @ 6% instead of KIBOR rate on the basis that the said rate prevailed for tax year 2008. The appellant-bank preferred appeal wherein it was argued that since refund became due on 17-8-2010, the compensation should have been calculated as per rate prevalent on the due date of refund became due. According to learned AR, KIBOR rates were made applicable vide Finance. Act, 2009, therefore, said rates should have been applied instead of 6%. The learned CIR(A) accepted the appeal and directed to allow compensation on the basis of law as amended vide Finance Act, 2009. The department has filed appeal against this observation.
120. The learned AR argued that order of learned CIR(A) is strictly as per law. The learned AR also pointed out that the department itself the following cases applied rate of 6% after 1-7-2004 for assessm ent/tax years prior to promulgation of Finance Act, 2004 through which rate was reduced from 15% to 6%:--
(i) Order tinder section 171(1) of the Ordinance dated 30-5-2006 in the case of Prime Commercial Bank Limited for assessm ent years 2000-2001 to 2002-2003 and tax years 2003 and 2004.
(ii) Order under section 171(1) of the Ordinance dated 30-5-2006 in the case of The Bank of Punjab for assessm ent years 2000-2001 to 2002-2003 and tax years 2003 and 2004.
121. According to learned AR, the mala fide of the department is clear from above treatment. When rate of compensation was reduced the department adopted rate prevalent during the period compensation accrued and when rate of compensation was enhanced, it refused to apply rate prevalent during that period and took just opposition position that rate prevalent during tax year 2008 was applicable. The department failed to appreciate that refund became due on 17-8-2009 therefore rat applicable on that date was to be applied.
122. We have examined the arguments of learned AR and relevant provision of law. We endorse the observation of learned CIR(App that also compensation, under section 171 is allowable on rate prevalent time the refund became due. The departmental appeal fails.
(43) INVOKING OF--SECTIONS 161/205 ON PAYME T OF `PROFIT ON DEBT' AND PROFIT AND LOSS EX ENSES (2007)
123. The department invoked sections 161/205 of the Ordinance for tax year 2007 and asked the appellant-bank to reconcile the payment of tax with that of expenses show in its audited accounts.
After examining reconciliations and supporting documents filed by the appellant-bank, the department passed order under sections 161/205 dated 27-6-2007 by treating the bank as assessee-in-default in respect of following tax deductions:-- S. No. Section Nature of payment Amount
(i) 151 Profit on debt 5,050,250
(ii) 153 Advertisement & publicity 2,232,193
(iii) 153 Repair and maintenance expenses 71,831
(iv) 153 Legal and Professional charges 44,734
(v) 153 Stationery and Printing 13,553
(vi) 233 Brokerage and Commissioner 463,599
(vii) 153 Security Service Charges 82,680
(viii) 153 Computer Expenses 34,346 Total 7,993,186
124. Additional tax of Rs,1,002,196 was also charged. This order was confirmed by learned CIR(Appeals) against which appellant-bank has filed this appeal.
125. The learned AR argued that proceedings under section 161(1A) of the Ordinance were void ab initio inter alia for the following:--
(a) Section 161 could only be invoked where a person has failed to collect tax or after deduction of tax has not deposited it into government treasury. In appellant's case no such failure was established. In the absence of any default, established by showing incontrovertible proof of failure on the part of the Bank to collect and paid the tax, proceedings under section 161(1A) for recovery was without any lawful authority.
(b) In the present case on the one hand intention for recovery for default under section 161 was shown and on the other reconciliation and evidence was demanded from the Bank. Section 161 says where a person fails to collect tax, as required under Division II of this Part or Chapter XII or deduct tax from a payment as required under Division III of this Part or Chapter XII or as required under section 50 of the repealed Ordinance" or fails to deposit such tax after collection or deduction in the government treasury, he shall be personally liable to pay the amount of tax to the Commissioner who may pass an order to that effect and proceed to recover the same. The department did not establish any lapse under section 160 or 161 by the Bank, hence, proceedings under section 161 were based on mere supposition is unlawful.
126. According to learned AR the Department was in possession of all the prescribed statements filed by the appellant as required under the law that could have been obtained/ checked through internal system. For the year valid assessment was in the field and department had already amended the original order treated to have been made under section 120(1). Invoking provisions of section 161(1A) in such circumstances amounted to violating the sanctity of a completed assessm ent as a vested, right has already accrued to the taxpayer which cannot be destroyed in such a light manner. The allow ability of expenditures, for which deduction or collection at source was involved, was certainly done after satisfying the provisions of section 21(c) of the Ordinance.
Therefore, it was argued proceedings under section 161(1A) for the same was totally uncalled for.
' On merits, learned AR made following submissions:--Profit on debt.
127. The appellant filed proof of tax deduction and reconciled it with the figure of interest expense shown in the return. Major clients of the appellant were government institutions which were exempt from deduction of tax. The appellant filed detail of 173 clients on which tax was not deducted being Federal Government, Provincial Government or exemption available to them under the law. The appellant furnished detail of 97.02% clients out of which department also made sample checking and no adverse inference was drawn. It was argued that furnishing of complete detail in respect of 742 branches was not possible. It was also submitted that there were some minor accounts of government institutions located in remote areas detail of which could not be prepared due to paucity of time. 'But these arguments did not find favour of the department, The department treated appellant as assessee-in-default Rs,50502 (m) against total claim of Rs,1,695.637 (m) which is highly unjustified. The AR argued that in the case of banks due to large operations of branches all over Pakistan, demand of each and every evidence was unjustified when onus even otherwise was on the department to show any default. In this case 97.02% claim was verified as per own admission of the department. Reason for not furnishing detail of balance 2.98% claim was also submitted but ignored by the department. Therefore, there was no justification of treating appellant as assessee-in-default.
Profit and loss expenses
128. The appellant has been treated as assessee-in-default in respect of Profit and loss expenses without being confronted with specific instances. Had specific instances been confronted the appellant could have easily explained the short fall. The department als.o failed to take into account the threshold for tax deduction in respect of supplies and services.
Additional Tax
129. The department has charged additional tax on hypothecation. The department has charged additional tax from 10-7-2006 without establishing the exact period of default. Charging of additional tax on surmises is highly unjustified and merits deletion.
130. The learned AR also referred judgment of this Tribunal in 2012 PTD (Trib.) 122 wherein following observation has been made:- I am persuaded by opinion of the learned Commissioner (Appeals)., I agree his observation that without identifying names and addresses of the parties or persons from whom and how much tax was to be deducted, provisions of section 161 could not be invoked."
131: The learned DR argued that proper opportunity was provided to the appellant-bank but it failed to provide evidence of tax deducted.
132. We have examined the record and arguments of learned AR and DR. There is force in the arguments of learned. AR that order: under sections 161/206 both on legal and factual grounds is not sustainable. The veracity of compliance of withholding provisions were proved. After verification of 97.02% of the claim of profit on debt expenses, disallowance of remaining claim of 2.98% was unjustified, especially when the Department did not cite any instance of non-deduction of tax. The .Department failed to point out even a single instance where it possessed evidence to show tax was not deducted. The invoking of section 161 in respect of profit on debt expenses of Rs,5,050,250 is, therefore, disapproved.
133. All the appeals are disposed of accordingly.