1. Through these six cross appeals, (three filed by each of the party) the two separate impugned orders of the learned CIR(A) dated 24-12-2013 bearing No.113/2013 for the tax year 2010 and the consolidated order dated 16-1-2014 bearing Nos. 114 and 115/2013 for the Tax Year 2011 and 2012 have been objected on the following grounds:-- The taxpayer contested the appeals on the following grounds and prayer:-- TAX YEAR 2010
(2) "That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of provision for employees post retirement benefit amounting to Rs. 326,654,000 which has wrongly been made which is liable to be deleted.
(3) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of recoveries amounting to Rs.3,614,606,121 which has wrongly been made which is liable to be deleted.
(4) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of commutation to employees amounting to Rs.677,821,000 which has wrongly been made which is liable to be deleted.
(5) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of unpaid liabilities of markup payable amounting to Rs.385,502,000 which has wrongly been made which is liable to be deleted.
(6) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of unpaid liabilities of markup payable amounting to Rs.385.502,000 which has wrongly been made in violation of 7th Schedule to the Income Tax Ordinance, 2001 which is liable to be deleted.
(7) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of properly income amounting to Rs.27,986,000 which has wrongly been made which is liable to be deleted.
(8) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of reversal of amortization of deferred income amounting to Rs.71, 112,000 which has wrongly been made which is liable to be deleted.
(9) That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of provision claimed non-performing loan amounting to Rs.
2. 285,254,000 which has wrongly been made which is liable to be deleted.
3. (10)That Commissioner of Income Tax (Appeals) is not justified .By not adjudicating the ground regarding addition on account of reversal against provision tax years 2010 to 2012 amounting to Rs.
4. 2,245,262,000 which has wrongly been made which is liable to be deleted.
5. (11)That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on account of impairment amounting to Rs.263,000 which has wrongly been made which is liable to be deleted.
6. (12)That Commissioner of Income Tax (Appeals) is not justified by not adjudicating the ground regarding addition on accent of provision against other assets amounting to Rs.53,088,000 which has wrongly been made which is liable to be deleted.
7. (13)That tax on PTR amounting to Rs.5,353,000 has wrongly been added in the tax payable.
8. (14)That credit of tax paid / deducted on rent amounting to Rs.862,585 has not been given by the Additional Commissioner Inland Revenue. The assessing officer may be directed to give credit.
9. It is therefore respectfully prayed that order under section 122(5A) may kindly be cancelled or such other relief granted as permissible under the law."
10. TAX YEAR 2011
(2) "That proceedings under section 122(5A), of Income Tax Ordinance, 2001 have wrongly been initiated and have wrongly been confirmed by Commissioner Inland Revenue (Appeals) hence order is liable to be cancelled.
(3) That order under section 122(5A) dated 30-9-2013 is liable to be cancelled as the case was not fixed for hearing on 30-9-2013. .The Commissioner Inland Revenue (Appeals) is not justified to reject the contention of the taxpayer.
(4) That addition on account of provision against non performing loans/substandard loans amounting to Rs 209,335,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(5) That addition on account of provision against non performing loans and advances amounting to Rs. 76, 744,190 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(6) That addition on account of reversal against provision amounting to Rs.1,742,186,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted. The Commissioner Inland Revenue (Appeals) could not order to conduct inquiry while remanding the order as the same was not permissible in the tax year 2011.
(7) That addition on 'account of property income amounting to Rs.30,824,000 has wrongly been made and had wrongly been confirmed by the Commissioner Inland Revenue (Appeals) which is liable to be deleted. Income from property is liable to be taxed under section 15 read with section 155 instead of under the provision of the 7th schedule.
(8) That addition on account of reversal of amortization of deferred income amounting to Rs.67,329,000 has wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(9) That addition on account of reversal of provision for compensated absences amounting to Rs.395,897,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(10) That addition on account of reversal of provision against other assets amounting to Rs.1,209,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(11) That addition on account of penalty to State Bank of Pakistan amounting to Rs.691,000 had wrongly been made and has wrongly been confirmed by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(12) That addition on account of recoveries amounting to Rs.728,697,000 has wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(13) That addition on account of unpaid liability of markup payable amounting to Rs.2,798,557,000 had wrongly been made and has wrongly been confirmed by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(14) That addition on account of unpaid liability of markup payable amounting to Rs.2,798,557,000 has been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) in violation of 7th Schedule to the Income Tax Ordinance, 2001 which is liable to be deleted.
(15) That addition on account of commutation to employees amounting to Rs.11,063,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(16) That surcharge amounting to Rs. 131,290,543 had wrongly been imposed and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(17) That credit of refund adjustment related to assessment year 2001-2002 amounting to Rs.452,201,854 has not been given by the Additional Commissioner Inland Revenue. The assessing officer may b.e directed to give credit. The Commissioner Inland Revenue (Appeals) is not justified to remand the issue to the assessing officer.
11. It is therefore respectfully prayed that order under section 122(5A) may kindly be cancelled or such other relief granted as permissible under the law."
12. TAX YEAR 2012
(2) "That proceedings under section 122(5A) of Income Tax Ordinance, 2001 have wrongly been initiated and have wrongly been confirmed by Commissioner Inland Revenue (Appeals) hence order is liable to be cancelled.
(3) That order under section 122(5A) dated 30-9-2013 is liable to be cancelled as the case was not fixed for hearing on 30-9-2013. The Commissioner Inland Revenue (Appeals) is not justified to reject the contention of the taxpayer.
(4) That addition on account of provision for post-retirement medical benefit amounting to Rs.15,272,000 had wrongly been made and has wrongly been remanded to the assessing officers by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(5) That addition on account of provision against non performing loans/substandard loan amounting to Rs.449,380,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(6) That addition on account of reversal of provision against other assets amounting to Rs.2,966,431,000 has wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted. The Commissioner Inland Revenue (Appeals) could not order to conduct inquiry while remanding the order as the same was not permissible in the tax year 2012.
(7) That addition on account of property income amounting to Rs.29,768,000 has wrongly been made and had wrongly been confirmed by the Commissioner Inland Revenue (Appeals) which is liable to be deleted. Income from property is liable to be taxed under section 15 read with section 155 instead of under the provision of the 7th schedule.
(8) That addition on account of reversal of amortization of deferred income amounting to Rs.51,024,000 has wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(9) That addition on account of reversal of provision for compensated absences amounting to Rs.454,479,000 had wrongly been made and has wrongly been, remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(10) That addition on account of incorrect claim of provision against NPLA amounting to Rs.1,851,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(11) That addition on account of unpaid liability of markup payable amounting to Rs.3,345,240,000 had wrongly been made and has wrongly been confirmed by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(12) That addition on account of unpaid liability of markup payable amounting to Rs.3,345,240,000 had been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) in violation of 7th Schedule to the Income Tax Ordinance, 2001 which is liable to be deleted.
(13) That addition on account or penalty to State Bank of Pakistan amounting to Rs.2,280,000 had wrongly been made and has wrongly been confirmed by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
(14) That addition on account of commutation to employees amounting to Rs.41, 182,000 had wrongly been made and has wrongly been remanded to the assessing officer by the Commissioner Inland Revenue (Appeals) which is liable to be deleted.
13. It is therefore respectfully prayed that order under section 122(5A) may kindly be cancelled or such other relief granted as permissible under the law."
2. While the Department in the cross appeals has contested the appeals on the following grounds.
14. TAX YEAR 2010
(2) "That the learned CIR(A) was not justified to annul order of the assessing officer passed under section 122(5A) by observing that earlier amendment order under section 122(1) dated 28-6-2013 should have been amended instead of original assessment order which stood finalized under section 120(1) of Income Tax Ordinance, 2001 notwithstanding the fact that subsection (4) of section 122 of the ITO, 2001 stipulates that where an assessment order has been amended under subsections (1), (3) or (SA) of section 122 of the Commissioner may further amend the original assessm ent order under section 120 of the Income Tax Ordinance, 2001.
(3) That the learned CIR(A) was not justified to annul order of the assessing official passed under section 122(5A) by observing that earlier amendment order under section 122(1) dated 28-6-2013 should have been amended instead of original assessment order which stood finalized under section 120(1) of the Income Tax Ordinance, 2001 by ignoring principal settled by Honourable Islamabad High Court in reported judgment 2010 PTD 1506 wherein it was held that the Commissioner may amend the original assessment order passed under section 120(1) of the Income Tax Ordinance, 2001.
15. TAX YEAR 2011
(2) "That the learned CIR(A) was not justified to remand back the case to the assessing officer with the direction to check the assertion of the taxpayer for deletion of addition made under the head provision against non performing/substandard loan at Rs.209,335,000 as the same was disallowed strictly in accordance with terms of Rule 1(d) of 7th Schedule of the Income Tax Ordinance, 2001.
(3) That the learned CIR(A) was not justified to direct to allow the deduction on account of addition made under the head provision of post retirement medical benefitin the light of reported ATIR judgment 2012 PTR 124 as the same was disallowed strictly in chargeable to tax under section 70 of the Income Tax Ordinance, 2001.
(4) That the. Learned CIR(A) was not justified to remand back the case to the assessing officer with the direction to allow deduction on account of addition made under the head reversal of provision against assets after verification/clarification in the light of reported ATIR Judgment 2012 PTR 124 despite the fact that same was chargeable to tax under section 70 of the Income Tax Ordinance, 2001.
(5) That the learned CIR(A) was not justified to remand back the issue to the assessing officer with the direction to allow deduction on account of addition made under the head unpaid liability of markup after verification/clarification despite the fact that same was chargeable to tax under section 34(5) of the Income Tax Ordinance, 2001.
(6) That the learned CIR(A) was not justified to remand back the issue to the Assessing Officer for proper evaluation on account of addition made under the head commutation to employees despite the fact that same was rightly disallowed under section 1(c) of the Income Tax Ordinance, 2001.
(7) That the learned CIR(A) was not justified to remand back the issue to the assessing officer for getting clarification of the taxpayer on account of addition made under the head provision for non performing loans and advances despite the fact that same was rightly disallowed strictly in accordance with terms of Rule 1(c) of 7th Schedule of the Income Tax Ordinance, 2001.
(8) That the learned CIR(A) was not justified to direct to get explanation of taxpayer to allow the deduction on account of addition made under the head reversal against provision as the same was rightly disallowed and chargeable to tax under section 70 of the Income Tax Ordinance, 2001.
(9) That the learned CIR(A) was not justified to remand back the issue to the assessing officer for re-calculation of the amount on which tax was not paid on account of addition made under the head recoveries despite the fact that same was rightly disallowed strictly in accordance with law after considering explanation of taxpayer.
16. TAX YEAR 2012
(2) "That the learned CIR(A) was not justified to remand back the case to the assessing officer with the direction to check the assertion of the taxpayer for deletion of addition made under the head provision against non performing/substandard loan at Rs.209,335,000 as the same was disallowed strictly in accordance with terms of Rule 1(d) of 7th Schedule of the Income Tax Ordinance, 2001.
(3) That the learned CIR(A) was not justified to direct to allow the deduction on account of addition made under the head provision of post retirement medical benefit in the light of reported ATIR judgment 2012 PTR 124 as the same was disallowed strictly in accordance with terms of section- 34(1)(d) of the Income Tax Ordinance, 2001.
(4) That the learned CIR(A) was not justified to remand back the case to the assessing officer with the direction to check the assertion of the taxpayer for deletion of addition made under the head reversal of amortization of deferred income despite the fact that same was chargeable to tax under section 70 of the Income Tax Ordinance, 2001.
(5) That the learned CIR(A) was not justified to remand back the case to the assessing officer with the direction to allow deduction on account of addition made under the head reversal of provision for compensated absence in the light of reported ATIR judgment 2012 PTR 124 despite the fact that same was chargeable to tax under section 70 of the Income Tax Ordinance, 2001.
(6) That the learned CIR(A) was not justified. To remand back the case to the assessing officer with the direction to allow deduction on account of addition made under the head reversal of provision against assets after verification/clarification in the light of reported ATIR Judgment 2012 PTR 124 despite the fact that same was chargeable to tax under section 70 of the Income Tax Ordinance, 2001.
(7) That the learned CIR(A) was not justified to remand back the issue to the assessing officer with the direction to allow deduction on account of addition made under the head unpaid liability of markup after verification/clarification despite the fact that same was chargeable to tax under section 34(5) of the Income Tax Ordinance, 2001.
(8) That the learned CIR(A) was not justified to remand back the issue to the assessing officer for proper evaluation on account of addition made under the head commutation to employees despite the fact that same was rightly disallowed under section 21(c) of the Income Tax Ordinance, 2001.
(9) That the learned CIR(A) was not justified to remand back the issue to the Assessing Officer for getting clarification of the taxpayer on account of addition made under the head provision for non performing loans and advances despite the fact that same was rightly disallowed strictly in accordance with terms of Rule 1(c) of 7th Schedule of the Income Tax Ordinance, 2001.
(10) That the learned CIR(A) was not justified to direct to delete addition made under the head provision of Post Diminution in investment in the light of reported ATIR Judgment 2012 PTR 124 as the same was disallowed strictly in accordance with terms of Rule 9 read with sections 32 and 34 of the Income Tax Ordinance, 2001.
(11) That the learned CIR(A) was not justified to direct to delete addition made under the head provision against other assets in the light of reported ATIR Judgment 2012 PTR 124 as the same was disallowed strictly in accordance with terms of section 34(5) of the Income Tax Ordinance, 2001.
3. Regarding the appeal for the Tax Year 2010 filed by the department, the learned DR argued that learned CIR(A) is not justified to annul the order on the basis that order has already been amended under section 122(1) of Income Tax Ordinance, 2001 on 28-2-2013 and order under section 120(1) was not in the field. It is contended that as per section 122(4) of Income Tax Ordinance, 2001, the Commissioner has been given the power to amend and further amend as many times as may be necessary the original assessm ent order. As order was amended under section 122(5A) of Income Tax Ordinance, 2001 taking into consideration the earlier amended order therefore annulment of the. Order under section 122(5A) of Income Tax Ordinance, 2001 by the learned CIR(A) is against the provision of section 122(4) of the Ordinance.
17. On the other hand the learned AR of the taxpayer has supported the impugned order of the learned CIR(A) on the ground that the order under section 120 of Income Tax Ordinance, 2001 was not in the field land could not be amended by the Additional Commissioner.
18. After considering submissions of both the parties we are in agreement with the learned DR that annulment of the assessm ent order by the learned CIR (A) is not justified therefore appeal of the department for the tax year 2010 against annulment of the assessment order is accepted. The appeal of the taxpayer is being decided on merits of the case as the common issues are involved in all the appeals.
4. The issue of Post-Retirement Medical Benefit is the subject matter of Appeal filed by the Tax Payer for the Tax Year, 2010 being not adjudicated by the learned CIR(A) in the impugned order and has been agitated by the Department for the Tax Years 2011 and 2012 as the learned CIR(A) had deleted the addition for these two years.
19. We have found that in tax years 2011 and 2012 the learned CIR(A) has deleted the addition on the basis of case-law reported as 2012 PTR 124 (Trib) = 2013 PTD 246 (Trib). (Page 3 of the impugned Order). Relevant portion (point 7 paras. 26, 27, 28) of the order of Appellate Tribunal is reproduced as under:- "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".
20. The learned AR submitted that even otherwise order passed being in accordance with law laid down by the Tribunal vide order dated 15-5-2012 has wrongly been treated as erroneous by the Additional Commissioner vide order under section 122(5A) dated 30-9-2013.
21. He has argued that apart from above, the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule. There is no provision in the 7th Schedule wherein disallowance of this expense can be made.
22. Reliance is placed on case-law reported as 2012 PTD 1055 (Trib.) relevant para is reproduced hereunder:-- "Section 100 A read with seventh schedule to the Ordinance is a special non-obstante provision that overrides all other provisions as for as computation of income and tax payable by 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 addition 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 for 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 of the Income Tax Ordinance, 2001 provides rules for computation of the profits and gains of a banking company and tax payable thereon. Form tax year on wards, 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 unsettled requirement laid down by the legislature. It applies for things not provided for in the seventh schedule." (underline is for emphasis)
23. On the other hand the learned DR and the Author of the order supported the amended order Passed under section 122(5A) of the Ordinance and argued that provision for post-retirement Medical benefit has been disallowed as the Tax Payer failed to file the license of the value company, history of the value company and estimate has been made by the Taxation officer on the basis of case-law referred and the learned CIR(A) has deleted the addition without any justification.
24. After considering the arguments of both the parties and prevising the available ripcord and the case-laws referred by the learned counsel of the taxpayer supra we are of the view that addition under the head post-retirement medical benefit made by the assessing officer are not in accordance with law laid down by this Tribunal reported as 2013 PTD 246 (Trib.) hence the same is directed to be deleted for the Tax Year 2010 and the impugned orders of the learned CIR(A) on this issue for the Tax years 2011 and 2012 are upheld. We are of the view that th e additions in this respect is also not maintainable for the reason that it does not come under the ambit of seventh Schedule of the Income Tax Ordinance, 2001.
5. The issue of Recoveries is the subject matter of appeals filed by the Tax Payer for the Tax Year 2010 where in the issue has not been adjudicated by the learned CIR(A) and for the Tax Year, 2011 where in the learned CIR(A) has remanded back the issue to the Taxation officer for fresh decision and for this year i.e. 2011 the Department has also filed appeal against the remanding of the issue back to the Taxation officer.
25. Regarding the Tax Year 2010.
26. The learned AR argued that total recoveries during the Tax Year 2010 were. Rs.4,287,158,000 as mentioned in note No. 25 of audited accounts. Detail is as under:-- 25 Other Income 2009 2008 Rupees 000 Rent of property - KSSL 9,743 2,071 Rent of Property - others 16,151 12,473 25,894 14,544 Recoveries of charge off amounts 4,287,1584,817,050 Recoveries against loans written-off under Government relief packages480,000 Net profit on sale property and equipment1,566 19,428 Loan application fee 473,382 308,829 Net credit relating to defined benefit plans546,902 354,130 Deferred income amortization 71,112 81,579 Others 185,504 181,560 6,071,5185,777,.120 The learned AR submitted that out of Rs.4,287,158,000, a sum of Rs.672,551,879 was offered for taxation and recoveries amounting to Rs.3,614,606,121 were claimed as exempt relating to the period when income was not taxable i.e. Upto Tax Year, 2007. The Additional Commissioner Inland Revenue without any evidence on record has treated the recoveries as taxable. The learned AR argued that addition of Rs.3,614,606,121 is liable to be deleted.
27. The learned AR of the taxpayer contended that addition on account of recoveries is liable to be deleted as this amount relates to the period upto tax year, 2007. The income of the taxpayer was not liable to tax up to Tax Year, 2007 as decided by this Tribunal vide order dated 9-6-2010. Hence, the learned Commissioner Inland Revenue (Appeals) should have deleted the addition.
28. It is argued that the Assessing Officer has not denied the fact that recoveries claimed as exempt relate to exempt period. In view of this position addition made is liable to be deleted.
29. It is submitted that even otherwise recoveries relate to exempt period or not is a matter which needs inquiry which could not be done during the relevant tax year (2010) under section 122(5A).
30. The learned AR argued that apart from above the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
31. Regarding Tax Year, 2011 the learned AR of the taxpayer submitted that total recoveries during the Tax Year, 2011 were Rs.2,947,065,000 out of which Rs.2,218,368,000 were offered for taxation and recoveries amounting to Rs.728,697,000 were claimed as exempt relating to the period when income was not taxable i.e. Upto tax year 2007. The Additional Commissioner Inland Revenue without any evidence on record has treated the recoveries as taxable.
32. The learned AR of the taxpayer further submitted that addition on account of recoveries is liable to be deleted as this amount, relates to the period up to Tax Year, 2007. The income of the taxpayer was not liable to tax up to Tax Year, 2007. Hence, Commissioner Inland Revenue (Appeals) wrongly remanded the issue to the assessing officer. The Commissioner Inland Revenue (Appeals) should have deleted the addition.
33. The learned AR of the taxpayer argued that apart from above the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
34. On the other hand learned DR argued that Recoveries of charge off amounts has rightly been added in the income of the Tax Payer as the Provisions on account of Non-performing Loan and Advance (NPL) has been allowed to the Tax Payer. It is contended by the learned DR that there was no justification for remand of the case.
35. After going through the available record and keeping in view the above submistion made by the Parties regarding the addition on account of recoveries, we are of the considered opinion that the assessing officer has made additions under the head recoveries without any evidence/ material establishing that recoveries do not relate to the period upto Tax Year, 2007 (uptill that time income of the taxpayer was exempt). Even otherwise, this addition does not come under the ambit of Seventh Schedule to the Income Tax Ordinance, 2001 therefore, the same is directed to be deleted for Tax Years 2010 and 2011.
6. The addition made by the Taxation Officer under the head commutation to employees is the subject matter of the appeal of Tax Payer for all the Three years under review. In the Tax Year, 2010 being not adjudicated while in the Tax Years 2011 and 2012 the matter has been remanded back and both the Tax Payer and Department are in appeal.
36. Regarding the Tax Year, 2010 the learned AR of the taxpayer argued that the assessing officer had made addition under section 21(c) on account of payment made under the head commutation to employees amounting to Rs.677,821,000.
37. The Assessing Officer observed that "as per rules prevalent in this regard such payments are made by the fund itself therefore there seems no justification in claim of such expense by the company in its account. (Page 3 of assessment order)"
38. It is argued that as per page 21 of the assessment order the assessing officer issued another notice wherein it was confronted that addition is liable to be made for the reason that expense is of capital nature.
39. While making addition the same has been made on the allegation that tax was not deducted.
40. According to learned counsel of the taxpayer firstly, it was alleged that expense is not admissible as the payment was made by the fund itself. Subsequently, it was asserted that expense cannot be allowed as the same is of capital nature and tax has not been deducted.
41. From above it is clear that assessing officer is alleging three contradictory reasons for disallowance of expense i.e.:-
(i) Payment has been made by the fund itself.
(ii) Expense is of capital nature.
(iii) Tax has not been deducted.
42. The three observations of the Assessing Officer establish that he wants to make an inquiry in order to disallow the expense. Tax has been deducted or not is the matter of inquiry which could not be conducted as per law available on the statute book for Tax Year, 2010 and the addition is not maintainable for this reason.
43. It is submitted that total amount payable was Rs.1,493.970 Million, out of which Rs.803,280 Million was paid by the employees fund itself and the balance amount Rs.690,693 Million was to be borne by the bank.
44. The learned AR argued that expense was also disallowed on the ground that taxpayer failed to provide the proof of deduction of tax at source which attract the provision of section 21(c).
45. It is contended that the assessing officer has not considered the fact that tax had been deducted of which detail had also been provided to the assessing officer. Besides that assessing officer has ignored the fact that payment made to the employees working in Branches situated in remote area and below taxable limit payments are not liable to deduction of tax.
46. The learned AR submitted that the assessing officer has not pointed out a single instance wherein tax had not been deducted. The learned AR argued that addition being without any information/material is liable to be deleted. Tax was duly deducted at the time of making the payment, therefore, does not attract the provisions of section 21(c) of Income Tax Ordinance, 2001.
47. Regarding Tax Years, 2011 and 2012 the learned AR of the taxpayer submitted that the assessing officer had made addition under section 21(c) on account of payment made under the head commutation to employees at Rs.11,063,000 in the tax year, 2011 and at Rs.41,182,000 in the tax year, 2012.
48. It is contended that the assessing officer observed that "as per rules prevalent in this regard such payments are made by the fund itself therefore there seems no justification in claim of such expense by the company in its account. (Page 6 of ITO order)"
49. It is argued that out of total amount payable Rs.1,493.970 Million of Rs. 803,280 Million was paid by the employees fund itself and the balance amount Rs.690,693 Million, was to be borne by the bank.
50. The expense was disallowed on the ground that taxpayer failed to provide the proof of deduction of tax at source which attract the provision of section 21(c).
51. It is submitted that the assessing officer has not considered the fact that tax had been deducted of which detail had also been provided to the assessing officer. Besides that assessing officer has ignored the fact that payment made to the employees working in Branches situated in FATA and PATA are not liable to deduction of tax. The assessing officer has not pointed out a single instance wherein tax had not been deducted. The addition being without any information/material is liable to be deleted.
52. The learned AR of the taxpayer submitted that the learned CIR(A) remanded the issue to the assessing officer (Page No. 4 of the learned CIR(A) order) on the basis that "since the issue has not properly been tackled by the OIR therefore remitted back for proper evaluation after confronting the appellant".
53. The learned AR of the taxpayer contended that tax was duly deducted at the time of making the payment, therefore does not attract the provisions of section 21(c).
54. The learned AR of the taxpayer argued that apart from above the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
55. On the other hand learned DR argued that the same has been disallowed for the reason that the payment were made by the fund and Tax was not deducted and it is also the expenses of capital nature. It is contended that there was not justification for remanding the matter back to assessing officer.
56. We have heard both the sides and have perused the available record. We are of the view that the submissions of the learned AR of the taxpayer are correct that assessing officer has been changing his contention time and again (payment has been made by the fund itself, expense is of capital nature, tax has not been deducted). The assessing officer has been trying to justify addition for one reason or the other. Addition based on the circumstances is not maintainable under section 122(5A) of Income Tax Ordinance, 2001 which requires that assessing officer should establish that order to be erroneous and prejudicial to the interest of revenue therefore the same is directed to be deleted for all the three years.
7. Addition made regarding unpaid liability of Markup is the subject matter of all the appeals. For the Tax Year, 2010 issue has not be adjudicated while in the reaming two years the learned CIR(A) has remanded back the matter to Taxation Officer for fresh consideration.
57. The learned AR argued that addition has been made amounting to Rs.385,502,000 as unpaid liability of markup under section 34(5) of Income Tax Ordinance, 2001 by the assessing officer in the Tax Year, 2010.
58. It is submitted that section 34(5) of Income Tax Ordinance, 2001 has wrongly been invoked. The computation of Income of the taxpayer had to be made in accordance with the 7th schedule to the Income Tax Ordinance, 2001 from tax year, 2009 and onward. Relevant Rule relating to unpaid liabilities is Rule 2 which does not allow additions of unpaid mark up. Only unpaid liabilities mentioned in Rule 1 can be added in the income of the tax payer in the first year following the end of three years. As these liabilities were never allowed in Rule 1. Hence, addition is not maintainable under the law.
59. The learned AR of the taxpayer placed reliance on case-law reported as 2012 PTD 1055 (Trib) relevant page has already been referred in the above para of this order.
60. The additions in this regard have been made amounting to Rs.2798557000 for the Tax Year 2011 and amounting to Rs.3345240000 for the Tax Year, 2012 as unpaid markup us 34(5) of the Ordinance.
61. On the other hand learned DR contended that liability relates to borrowing from State Bank of Pakistan, the mark up has not been paid therefore the same attract the provision of section 34(5) of the Ordinance, 2001 and the addition made in this respect should have to be confirmed.
62. After considering the rival arguments we are of the view that addition made in this respect is beyond the scope of Seventh Schedule and is not in accordance with the principle of law laid down by this Tribunal in the case reported as 2012 PTD 1055 (Trib). The same is therefore directed to be deleted for all the three years under appeal.
8. The issue of Reversal of amortization of deferred income which is the Grant of Asian Development Bank is also subject matter of all the appeals. In this regard the learned AR submitted that according to the Assessing Officer it represents reversal of amortization claimed as deduction in previous years. Hence, constitutes recouped expenditure.
63. It is contended that the Assessing Officer was informed by the taxpayer that deferred income comprises of grants from the Asian Development Bank for Rural Support Development Finance Projects (RSDFP) as mentioned in Note No. 18.4.1 of the audited accounts, which reads as under:-- 18.4Deferred Income Note2009 2008 Rupees000 Balance as at January 1 207,1129,375 Additions during the year 279.316 Amortization during the year25 (71,112)(81,579) Balance as at December 3118.4.1136,000207,112 18.4.1 Deferred income comprises of the grants from the Asian Development Bank via Government of Pakistan for Rural Support Development Finance Project (RSDEP).
64. It is submitted that the copies of the Audited Accounts were available on record and it was very much clear from the note No. 18.4.1 of Audited Accounts that it is a grant from Asian Development Bank. Hence, not liable to tax, the taxpayer rightly claimed exemption from income. The learned AR placed reliance on case-law decided by Tribunal vide I.T.A. No.112/LB/2011 dated 18-2-2011. Relevant para reads as under:-- "4. The particular issue for this appeal is charge of grant received from UNO for using such machinery which is beneficial for human and does not create problem for human, health. This is statedly an incentive and it has been received Obviously without having any business transaction or relationship from the said organization. The revenue case, on the other hand, is that this is as result of the regular business relationship. This, therefore, is a part of its income, hence there is no question of not charging it otherwise. Moreover, the assessee itself had added this amount in the income in the tax year 2008. So far as the claim of the revenue that it is result of business relationship is concerned, there is nothing on record which favours their claim. As per information provided to this court, the assesse had opened L.C. For import of machinery. For the purpose of protection of environment, it received information from its suppliers and consequently it changed the nature of the machinery. The loss which occurred to the assessee, as a result of this change was compensated by UNO through the said grant. Such a transaction obviously cannot be held to be a business transaction. The assesse obviously is not a donation receiving organization, hence addition of this grant is not as per law and rules. The same, therefore, is hereby deleted."
65. The learned AR requested that addition on account of amortization of deferred income is liable to be deleted as it is grant from Asian Development Bank and grant is not taxable income under the income Tax Ordinance, 2001.
66. The learned AR argued that apart from above the addition is not maintainable as the same does not come under theambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
67. Detail of audited accounts relevant to Tax Years, 2011 and 2012 is as under:- Note No.18.4.1 of the audit accounts 18.4Deferred Income Note2011 2010 2009 Rupees '000 Balance as at January 1 68.671 136,000 207,112 Additions during the year Amortization during the year (51,024)(67,329) (71,112)
68. Balance as at December 3118.4.117,647 68,671 136.000 18.4.1 Deferred income comprises of the grants from the Asian Development Bank via Government of Pakistan for Rural Support Development Finance Project (RSDEP).
69. On the other hand learned DR has argued that it represents reversal of amortization claimed as deduction in previous years hence constitutes recouped expenditure therefore the same has rightly been disallowed and there was no justification to remand back the matter. It is therefore requested by the learned DR that the impugned order of the learned CIR(A) in this respect to be vacated.
70. After considering the arguments from both the sides and perusal of the available record of the case we are of the view that addition is not maintainable in view of the referred decision of this Tribunal dated 18-0-2011 in I.T.A. No.112/LB/2011. Even otherwise the addition is beyond the scope of Seventh Schedule to the Income Tax Ordinance, 2001. The addition made in this regard is therefore deleted for all the three year under appeal.
9. The issue of provision of Non-Performing loans and advances is also the issue in all the three years. In this respect the learned AR submitted that the Assessing Officer for the Tax Year, 2010 issued notice that as per profit and loss account of the year, you have claimed provisions against non-performing loans at Rs.2,224,674,000 however, as per details provided at note No. 10.3 charge for the year at Rs.4,489,728,000 was set off against reversals and charge off at Rs.224,526,000 and Rs.2,648,938,000 respectively. The above set off gives a positive figure of income of Rs.404,518,000 which have been offered as income in profit and loss account instead doing this an amount of expenditure to the tune of Rs.2,224,674,000 has been taken to the profit and loss account as deduction. This accounting treatment leads to three errors in declaring income for the tax year under reference one excess deduction of provisions against non-performing loans is inadmissible secondly income at Rs.404,518,000 is liable to be added all in your income for year and thirdly balance sheet for the year suffered from omission of an amount to furnishing of incorrect particulars in terms of section 111 of the Income Tax Ordinance, 2001.
71. It is contended by the learned counsel of the taxpayer that in response it was explained that the taxpayer did not claim expense of Rs.2,264,674,000. However the taxpayer has already added the provision for NPL amounting to Rs.2,264,674,000 as per computation chart of taxable income and provision on account of NPL has been claimed @ 1% of advances as provided under Rule 1(c) of Seventh Schedule to the Income Tax Ordinance, 2001. It was assented that the Notice is factually incorrect. Hence order issued under section 120 of Income Tax Ordinance, 2001 is neither erroneous nor prejudicial to the interest of revenue.
72. The learned AR submitted that addition amounting to Rs.285,254,000 is liable to be deleted as the same has not been confronted to the appellant through notice under section 122(5A) read with section 122(9) of Income Tax Ordinance, 2001.
73. "Reliance is placed on case law reported as:-- 20,10 PTD 704 in the case of Commissioner of Income Tax, Special Zone, Corporate Region, Karachi v. Shaista Estate (Pvt.) Limited. Relevant para is reproduced as under:- "Mr. Khaleeq Ahmed, learned counsel, appeared on behalf of the respondent, and submitted that no question of law is arising from the order passed by the ITAT, as the ITAT has given the decision after going through the entire facts and circumstances of the case. He invited our attention to para 5 of the ITAT's order and submitted that the learned ITAT had categorically observed that the A.C.
74. Has not only misconstrued the facts of the case but has made the addition without giving specific notice to the respondent company. He therefore submitted that the order passed by the ITAT was based on pure and simple appreciation of the facts of the case hence, no question of law requiring opinion of this Court is warranted in the said reference application which may be dismissed accordingly.
75. The A.C. Further observed in his order that certain liabilities were paid off by the respondent company for which sufficient funds were not available with the company, however while making the addition in respect of this alleged discrepancy nonotice as required under the law has been issued by the A.C. It is a trite, law that before making any addition the aggrieved party has to be given an opportunity of hearing as enunciated in the principle "audi alteram pertem'. As no such notice was given by the A. C. The learned Tribunal was justified in deleting the said addition made under the provisions of section 111(1) (c) of the Ordinance by the A.C."
76. Reliance is also placed on case decided by the Tribunal vide I.T.A. No. 1468/LB of 2009 dated 23-1- 2010 for tax year, 2007. In this case addition was not confronted to the taxpayer, which has been deleted by Tribunal. Relevant para is reproduced as under:- "The learned DR explaining the defect stated that the figure confronted is higher than the figure adopted implying thereby that the Assessing Officer was justified in manipulating the figures of his liking. In our view, the law does not permit this treatment. We, therefore, hold that the amount proposed to be adopted must be the one confronted to the assessee under notice. The failure on the part of the assessing officer shall vitiate the addition altogether as running against spirit of the in section 122(9) of the Income Tax Ordinance, 2001."
77. The learned AR further submitted that even otherwise assessing officer worked out addition of Rs.285,254,000 in the following manner:- Page 26 of the assessm ent order.
78. "Increase in provision reduced by decrease due to reversals gives the figure of expense chargeable to profit and loss account under the head. In the above case it comes to (4,189,682,000 - 2,245,262,000) = 1,944,420,000 Whereas the taxpayer has taken Rs.2,224,674,000 to the profit and loss account. The excessively carried amount comes to Rs.285,254,000"
79. The learned AR argued that the assessing officer was not justified in making addition due to the reason that taxpayer had added whole of amount of Rs.2,224,674,000 at the time of filing of return as per tax computation chart. Even if according to the assessing officer there was some excessive claim, the provision of section 122(5A) cannot be invoked due to the reason that whole amount of Rs.224,674,000 has already been included in taxable income in computation chart of taxable income filed with the income tax return.
80. The learned AR submitted that the assessing officer in the Tax Years, 2011 and 2012 observed that in terms of Rule 1 (c) of the 7th schedule the deduction under this head is allowed upto a maximum of 1% of total advances which comes to Rs.847,925,000 hence Rs.517,098,100 is liable to be added in tax year, 2011 and comes to Rs.679,672,000 hence Rs.1,851,000 is liable to be added in tax year, 2012.
81. It is argued that the assessing officer was informed that the taxpayer has already added provision for NPL as per computation chart of taxable income and has claimed deduction c 1% of total advances as provided in Rule 1(c) of the seventh schedule.
82. The calculation of 1% made by the assessing officer is incorrect as total advances for both years are as under:-- Tax YearAdvances 1% of Advances 2011 92,466,919,000924,669,190 2012 92,032,077,000920,320,770 The learned AR submitted that the assessing officer instead of considering the total advances for calculation of 1% has wrongly adopted figures at Rs.84,792,594,000 for tax year, 2011 and Rs.679,620,000 for tax year, 2012. The additions for tax years, 2011 and 2012 are only due to wrong figures of advances taken by Additional Commissioner are liable to be deleted.
83. It is contended that the assessing officer in tax year, 2011 made addition of Rs.76,744,190 for which no notice under section 122(5A) was issued.
84. According to the learned AR of the taxpayer the learned CIR (A) wrongly remanded the issue to the Assessing Officer. He should have deleted the addition as the tax payer has rightly claimed the deduction as provided in Rule 1(c) of the 7th Schedule.
85. It is further argued that apart from above the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to Seventh Schedule.
86. Reliance is placed on case-law reported as 2013 PTD (Trib) 246 relevant page 296 para 116.
116. We have examined the order of learned CIR (Appeals) and relevant provision of law. We find that observation of learned CIR(Appeals) is in accordance with Rule 1(c) of Seventh Schedule that mentions "total advances". We confirm the order of CIR(Appeals).
87. On the other side regarding provision on account of Non-Performing Loans and Advances (NPL), the learned DR argued that provision under this head has not been claimed in accordance with Rule 1(c) of the Seventh Schedule, the deduction under this head is allowed maximum 1% of the advances and the learned CIR(A) has wrongly remanded this issue to the Assessing Officer.
88. After considering the contentions from both the sides we are of the view that provision on account of Non-Performing Loan and Advances has already been added in taxable income in accordance with Rule 1(c) of the Seventh Schedule to the Income Tax Ordinance, 2001 and 1% of the total advances has been claimed as deduction by the taxpayer. The addition made by the assessing officer is not in accordance with law laid down by this tribunal in case-law reported as 2013 PTD (Trib.) 246, hence addition is ordered to be deleted for all the three years.
10. Reversal against provision is the issue agitated in the Tax Years, 2010 and 2011. In this respect the learned AR submitted that the Assessing Officer observed through show cause that as per note No. 10.3 of the accounts you have reported reversals of provisions claimed during previous years amounting to Rs.2,245,262,000. This amount stood allowed to your company as deductions against income for previous years. Since, these amounts have been reversed in the accounts therefore, said amount should have been offered for tax as recouped expense as the same is taxable as recoveries or reversals of earlier deductions that are taxable in accordance with section 70 read with Rule 9 of the seventh schedule to the Income Tax Ordinance, 2001. Reversals of provision is liable to be added to balance of income for the year, as per Rule 1 of the schedule, in terms of Rule- 9 of 7th schedule read with section 70 of the ordinance.
89. It is argued that in response it was explained that Provision is made on client to client basis in one case there may be reversal of provision but in another case provision is required to be made as required under Prudential Regulation issued by State Bank of Pakistan. The net amount is claimed as expense in profit and loss account which has duly been added back / offered for taxation at the time of filing of return for the years under consideration in accordance with the Seven Schedule.
90. The learned AR submitted that the taxpayer has never claimed provision of Non-Performing Loan
(NPL) in profit and loss account as well as computation of taxable income. Hence there is no error in financial statements therefore provisions of section 111 of Income Tax Ordinance, 2001 are not applicable.
91. In this respect the following Reconciliation has been placed before this bench which according to learned counsel has already been furnished before Assessing Officer and learned CIR(A):-- PARTICULARS 2010 2011 2012 Non performing loans Charge for the year4,489,682 3,107,670 3,646,103 Reversals (2,245,262)(1,742,186)(2,966,431)
92. Staff advances Opening provision (40,514) (20,767) (20,307)
93. Closing provision 20,767 20,307 22,159 (19,747) (460) (1,852)
94. Net charge in Profit and Loss account The learned AR submitted that deemed orders under section 120 of Income Tax Ordinance, 2001 are neither erroneous nor prejudicial to the interest of revenue.
95. The learned CIR(A) should have deleted the addition as the taxpayer did not claim expense.
96. Reliance is placed on case-law reported as 2013 PTD 246 (Trib.) (Relevant pages 277-278):- "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 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 1. 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."
97. The learned AR, submitted that apart from above the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
98. The learned AR of the taxpayer submitted that for the tax year, 2011 the assessing officer issued notice stating that as per Note No. 10 to the Financial Statement provision claimed and allowed has been reversed to the tune of Rs.1,742,186,000 the impact of reversal against provision claimed in previous year has not been offered for tax.
99. The learned AR submitted that net amount Rs.1,365,024,000 is claimed as expense in profit and loss account which has duly been added back and offered for taxation at the time of filing of return in accordance with 7th schedule.
100. On the other side Regarding reversal against provision, the learned DR argued that reversal claimed as per Note No. 10 of the audited accounts has not been offered for taxation as recouped expenses as the same are taxable as recoveries or reversals of earlier years deductions that are taxable in accordance with section 70 of the Ordinance and learned CIR(A) is not justified to remand this issue to the assessing officer.
101. Regarding the addition on account of reversals against provisions, we are of the considered opinion that reversal against provisions has not been claimed as deduction by the taxpayer. The addition made by the assessing officer is not in accordance with law laid down by this tribunal in case-law reported as 2013 PTD (Trib.) 246, hence, ordered to be deleted for Tax. Years, 2010 and 2011.
11. The issue of provision against other Assets is the subject matter of appeal for the, tax year, 2010 being not adjudicated by the learned CIR(A) and the tax payer has raised the issue while the department in the appeal for the tax year, 2012 has objected the deletion of additions. In this regard the learned counsel of the tax payer submitted that according to the Assessing Officer this amount represent reversal of provisions claimed as deduction in previous years, hence, constitutes recouped expenditure in terms of Income Tax Ordinance, 2001. (Page 6 para 1 of assessment order).
102. It is argued that the taxpayer did not claim that the expense as reversal has been made during the year. Therefore, the order is neither erroneous nor prejudicial to the interest of revenue.
103. According to the learned AR provision against other assets has already been allowed by the Tribunal in the tax years, 2006 and 2007 vide order dated 9-6-2010.
104. It is argued that claim of expense is in accordance with the order of Tribunal and cannot be treated as erroneous by the Additional Commissioner. Hence, addition under this head is liable to be deleted.
105. The learned AR submitted that apart from above, the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
106. We are of the view that as the learned CIR(A) has deleted the addition in the tax year, 2012 in this respect placing reliance on the decision of this Tribunal dated 9-6-2010 for the tax years, 2006 and 2007 no interference is required in the impugned order on this issue as the learned DR is unable to distinguish the case from those years. Addition made in this respect for the tax year, 2010 in therefore also deleted.
12. Addition made by the assessing officer in respect of impairment loss amounting to Rs.2, 63,000 is the subject matter of appeal for the tax year, 2010. In this regards the learned AR argued that the assessing officer observed that a person shall incur expenditure when it is payable by the person and as per subsection (3) of section 34 such amount shall be payable when all events with determined liability have occurred and the amount of liability can be determined with reasonable accuracy. The provisions under reference do not clarify this condition and is notional, hence, cannot be allowed.
107. It is contended that the taxpayer rightly claimed impairment under the section 34 subsection (3).
108. Therefore, the order is neither erroneous nor prejudicial to the interest of revenue.
109. The learned AR submitted that apart from above, the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to Seventh Schedule.
110. The above contention of the learned AR of the tax payer is reasonable and addition made in this respect is therefore also deleted.
13. The issue of addition made by the taxation officer in respect of Reversal of Provision against other assets has been objected in cross appeals by both the tax payer and the department as the learned CIR(A) has remanded back the matter for fresh consideration in the tax years, 2011 and 2012.
111. The learned AR of the taxpayer submitted that according to the assessing officer this amount represents reversal of provisions claimed as deduction in previous years, hence, constitutes recouped expenditure in terms of Income Tax Ordinance, 2001. (Page 4 para 10 of ITO order Tax Year, 2011), (Page 3 para 4 of ITO order Tax Year, 2012).
112. It is contended that the taxpayer did not claim the expense as reversal has been made during the year. Therefore, the order is neither erroneous nor prejudicial to the interest of revenue.
113. It is submitted that the learned CIR(A) remanded back the issue to the assessing officer with the reason that "the wording used are confusing and giving different connotation. Hence, this is also remanded back for clarification from the appellant and then taxation according to the decision of ATIR as stated above"
114. According to the learned AR the taxpayer did not claim the expense for tax year, 2011 on account of provision but offered for tax during the year, 2011 under the head other income. Therefore, the order is neither erroneous nor pre-judicial to the interest of revenue and disallowance of expense and remand by the CIR(A) is not justifiable.
115. For the tax year, 2012, it was submitted that this expense has already been allowed by Tribunal in tax years, 2006 and 2007 vide order dated 9-6-2010.
116. The learned AR of the taxpayer argued that apart from above the addition is not maintainable as the same does not come under the ambit of seventh schedule. Business income has to be computed under the seventh schedule as specifically provided in Rule 6 to the Seventh Schedule.
117. After considering the submissions made from both the sides we are of the view that as the reversal of provision against other assets has not been claimed as deduction by the taxpayer and the issue has already been decided in the previous years i.e. 2006 and 2007 by this Tribunal therefore addition made in this respect is deleted for the tax years, 2011 and 2012.
14. Addition made in respect of property income in all the three years under appeal, provision against non-performing loans and substandard loans, and reversal against provision on account of comprested absences being subject matter of appeal for the tax years, 2011 and 2012 and the surcharge amounting to Rs.131290543 for the tax year, 2011 are remanded back to the assessing officer as these issue require further adjudication, clarification and evidence to be placed on record. The assessing officer is directed to pass fresh order in this respect on these four issues after affording the reasonable opportunity of being heard to the tax payer.
15. Addition made in respect of the penalty paid to State Bank of Pakistan for the tax years, 2011 and 2012 is upheld as it is inadmissible under section 21(g) of the Ordinance.
16. The learned AR of the taxpayer has submitted that there is mistake in total of additions made by the assessing officer amounting to Rs.50,000,000 in Tax Year, 2012. It is directed that at the time of appeal effect, the assessing officer will rectify this mistake after giving hearing to the taxpayer, if so required.
17. These six cross appeals for Tax Years, 2010 to 2012 filed by the taxpayer and the department are decided to the extent and in the manner as indicated above.