' Through this Appeal the Appellant Company has objected against the impugned order of the learned CIRCA) dated 25-2-2014 on the following grounds:---
(1) That the order of CIR (Appeals I) ,Karachi is bad in law and on facts.
(2) That the (CIR Appeals I) has misdirected himself in confirming the addition of Rs, 704,875 under section 21(1)/21(c) as the amounts exceeding minimum threshold of taxable salaries Oki without deduction of tax, as the said amount represents the salaries of two employees each below Rs, 350,000, if we exclude medical allowances of these two employees included in their gross salaries for 2012, copies of pay roll proved it beyond doubt.
(3) That the C1R(Appeals I) misdirected himself in confirming estimate of sale value of a motor vehicle which not being a very common and popular model had no sale value. The Assessing Officer should have accepted the sale value in the absence of any parallel case. The CIR failed to appreciate that if the appellant had not produced satisfactory documents, the assessing officer had no basis to estimate it at Rs, 20,00,000 either. His action was unjustifiably confirmed by the CIR (Appeals-1).
(4) That the CIR (Appeals I) was unjustified in confirming major amounts of bad debts written- off, covering 19 debtors, with a sweeping generalized statement.
(5) That the CIR (Appeals 1) was totally unjustified in observing that the conditions of section 29 were not fulfilled on the contrary all the conditions have been fulfilled, namely: Amounts of bad debts were previously included in the appellant's income from business chargeable to tax; the bad debts were written off in the accounts of the appellant in the tax year 2012; there were reasonable grounds that the debts were irrecoverable.
(6) That the CIR (Appeals I) was not justified in confirming disallowance merely on the assumption that legal action was not taken against the debtors, as it was not the basic condition of section 29.
(7) That the Auditors have certified that conditions as laid down in sub-sections (1) (a) & (b) have been duly fulfilled as per audited accounts.
(8) That the condition laid in sub-section(1)(c) is of general nature and circumstances of each case differ and as such each case be decided on its merits.
(9) That the CIR (Appeals I) was not justified in treating all cases equally and rejecting the plea in a sweeping statement that legal action was not taken, which was not even a condition under section 29.
(10) That the legal action is not the only recourse to recover bad debts, as held by the higher Courts. Instead it is always avoided even by ramose the banks being very tedious lengthy and cost MAK:1k effective, beside spoiling good reputation of satisfietoth litigants.
(11) That every case las its reasonable grounds for write off, which were explained to the officers betow and can be submitted before the honorable Tribunal.
(12) That in view of the above it is prayed that orders of the officers below may please be quashed on the above issues and relief be allowed to the appellant."
2. Brief facts of the case as gathered from the record are that the appellant is a Private Limited Company engaged in manufacturing ard sale of medicines. For the tax year under review i,e, 2012 to return which was deemed to have been assessed under section 120(1) was amended under section 122(5A) of In mme Tax Ordinance, 2001 by the Additional Commissioner Inland Revenue, Audit Range-B Zone-II, L.T.U, Karachi and tax demand of Rs, 10,672,755 was created vide order dated 30-10-2013. This order was challenged before the learned Commissioner Inland Revenue (Appeal-I)
Karachi, who allowed some relief but confirmed assessing officer's order on certain issues vide the impugned order dated 25-2-2014. Hence this appeal before this Tribunal.
3. Mr. Agha Kafeel Barik, Advocate High Court along with Mr. Muhammad Athar, Advocate have appeared for the appellant and argued the case with main emphasis on the following issues:---
(A) Addition of Rs, 704,875 out of salaries for non-deduction of tax.
' It was argued that it was the total sum of salaries of two employees, whose annual income was below the threshold of 350,000, if their medical allowance was not added in it, as it was exempt from tax. Certificate of salaries were produced to, prove that net salary paid to each of them was below 305,000 in a year, hence below taxable limit for tax year 2012.
(B) According to learned A.R. The main issue was allowance of bad and doubtful debts amount to R. 20,902,761 written off by the app41146tyi it .Book of accounts. Out of 65 of titese partiet 46.Are .Such.Parties against whom bad .Debts amoutits, to less than Rs, 100,000. The learned C,I.R (Appeals) has already allowed these amounts below Rs, 100,000, except those Which pertained to government departments with the remarks that business still continued with these departments which were active.
(C) On the issue of valuation of Audi Car the ground of appeal has not been pressed as the learned C.I.R (Appeals) has already remanded it to the Assessing Officer for proper valuation as per section 122(10) & (13). Therefore, appeal on this ground is dismissed being not pressed.
' Explaining the facts of the case the learned Counsel argued that the learned C.I.R. (Appeals) was not justified to confirm the disallowance with the reason that the conditionalities of section 29 were not fulfilled, and that legal action was not taken against the debtors in default. He referred to the provision of section 29 and argued that there are three conditions laid down in it for write off and that all these conditions were duly fulfilled. According to him there was not a word about "legal action" to be taken against the defaulters which appears to be mere presumption of the officers below. The conditions as laid down in section 29 are as under:- 29(1)
(a) The amount of debt was:\
(i) Previously included in the person's income from business chargeable to tax,
(b) The debit or part of the debit is written off in the accounts of the person in the tax year, and
(c) There are reasonable grounds that this debit is irrecoverable.
' The learned A.R. Submitted that the Higher Courts have held th:t things should be done as law require them to be done and not otherwise. He submitted that conditions mentioned above at (a) and (b) above were fulfilled in word and spirit as the accounts of the appellant company are audited by a Chartered Accountant Company and a Certificate has also been submitted in respect of conditions at (a) and (b) having been fulfilled. As regards condition at (c) having reasonable grounds for believing that this debt is irrecoverable, he argued that as a prudent businessm an, every effort has been made to recover every penny owed to it by its customers. In certain cases e.g. In Kanwal Traders Quetta, civil suit filed by the appellant was withdrawn on the ad ice of its Counsel as the local administration had taken it to a JIRGA, which only resulted in partial recovery. In the case of some Government departments such as AFMSD he subrhitted record of several, in fact 8-9 reminders for recovery, but in vain as they disputed the amounts on various pretext. The learned A.R also refuted the observation of the learned C.I.R (Appeals) that business still continued with these parties and submitted that the ledger accounts of these parties which simply proves that while only partial recoveries were made during last several years. He has submitted that further transactions were not made with these parties, even with Government departments, and after writing off bad debts, these accounts were finally closed.
' According to learned A.R. The aging factor was also important, it was argued that as these accounts were outstanding from these parties for last 5 to 10 years. Some parties such as Jalal Fakhri of Peshawar an Afghan national against who amount of Rs, 4,194,955 were due since 2006 fled to Afghanistan leaving no trace in Pakistan. Similar was the position of M.J. Traders Badin from whom Rs,103,089 was receivable, who disappeared one day. Learned A.R. Submitted company record to show that due efforts were made in each and every case for recovery of dues by the appellant and it was after concerted efforts that the appellant was convinced that there are reasonable grounds to believe that amounts were irrecoverable and were so actually written off.
' It was argued that it is not for the revenue to tell a businessman how to run his trade, as he knows it in a better way being diligent and prudent. Further it was argued that since the business was being conducted with these 'parties for several years before they became defaulters, the amount written off was nominal in proportion to the gross transactions made with them over the years. This is quite apparent from the books of accounts of the company it was submitted. On the basis of these arguments learned A.R. Has requested to allow the appeal.
4. The learned D.R. On the other side supported the impugned order of the officers below. He rebutted the arguments of the learned A.R. And submitted that legal action should have been taken in all such cases before write off. Learned D.R. Has also supported the impugned order on the basis of reasons given in the impugned order of the officers below.
5. We have heard both the parties and have also perused the impugned orders of the officers below, relevant provisions of law and the available record. In respect of the conditionality's of write off, it is observed that the officers below were not justified in focusing only on the legal action as a condition, which evidently was not a specific condition under section 29. At the same time while two conditions i,e, amount of debt been previously included in the person's income and also actually written off are verbatim fulfilled and certified by the company's auditors and G.M. Finance.
All parties are well-known persons and old customers of the appellant with whom business has been transacted for several years and apparently these business relations were adversely affected due to non- payments of dues after the business ties were snapped there was no recourse but to write off. In many cases particularly Government departments record of correspondence mainly reminders for payments were presented before the Bench to support the claim that the third and last condition was also fulfilled. It also appears that the assessing officer did not examine the books of accounts, and relied only on the details submitted before him. He should have examined ledger accounts of all the defaulters with a specific purpose before arriving at any conclusion.
' In view of the above, the addition of Rs, 20,902,761 is hereby ordered to be deleted. As regards addition of Rs, 704,875 out of salaries, we have reason to believe on the basis of salary certificates, that the salaries of the two employees, namely Mr. Faisal Mehmood and Mr. Mushstaq Ahmed Siddiqui, were below taxable limit of 350,000 in 2012, before addition of medical allowance which was exempt. Hence this addition is also ordered to be deleted.
' The appeal succeeds to the extent of the above issues however, the Appeal on the remaining grounds is dismissed being not pressed by the learned counsel of the appellant.