' CH. ANWAAR. UL HAQ (JUDICIAL MEMBER).---The titled .Appeal pertaining to tax year 2010 has been preferred at the instance of taxpayer, against order dated 13.06.2013, passed by the learned CIR(A), Gujranwala.
2. None appeared on behalf of taxpayer despite proper service of hearing notice while Ms. Bushra Fatima, represented the department. The appeal is decided in the absence of registered person ex parte on merits.
3. Through memo. Of appeal, the appellant contested the order of the CIR(A) on the following grounds:- ' The CIR(A) is unjustified to upheld the re-assessment order under section 122(5A) framed by the Additional Commissioner Tax Year, 2010 on the grounds which is baseless and not have legal value in the eye of law. Ii. The CIR(A) is also unjustified to upheld the addition under section 40(1) of the Income Tax Ordinance, 2001, as well totally failed to understand the provision of section 40(1) of Income Tax Ordinance, 2001. iii. The CIR(A) is totally unjustified to upheld the addition under section 21(c) of the Income Tax Ordinance, 2001.
4. The relevant facts in brief are that the taxpayer in this case is a private limited company, engaged in the business of manufacturing and sale of printing and dyeing of cloth but had leased out its assets. Return for the tax year 2010 was filed declaring income of Rs,4,059,000/- against which operating expenses under various heads had been claimed at Rs,2,861,348/-. Subsequently, it was found by the department that the deemed assessment is erroneous insofar as prejudicial in the interest of revenue in as much as the taxpayer had declared lease rentals under the head "income from other sources" and expenses claimed were not allowable against such income under section 40 of the Income Tax Ordinance, 2001. Accordingly proceedings under section 122(5A) were initiated and statutory notices were issued by the assessing authority. Since, the taxpayer, failed to convince the assessing authority, .Proceedings were completed under section 122(5A) whereby an aggregate addition under section 40(1) amounting to Rs,1,495,436/- under the head "operating expenses", addition under section 40(3) under the head "depreciation" at Rs,101,974/- and addition under section 21(c) under the head "auditor remuneration" amounting to Rs,70,000/-, were made.
As a result, net income for the year was re-computed at Rs,2,858,843/-. On appeal filed, the learned CIR(A) upheld all the additions made by the assessing authority.
5. I have considered the arguments of the learned DR, perused the grounds of appeal and gone through available record. After due consideration, I find no infirmity in the impugned orders which warrants interference. Admittedly, the taxpayer had leased out all its assets and derives only lease rentals. The operating expenses claimed against the said income is not allowable as these had no direct nexus while earning such income. Here, I deem it appropriate to reproduce section 40(1) of the Income Tax Ordinance, 2001, which reads as under: - "40. Deductions in computing income chargeable under the head "Income from Other Sources". - (1) Subject to this Ordinance in computing the income of a person chargeable to tax under the head "Income from Other Sources" for a tax year, a deduction shall be allowed for any expenditure paid by the person in the year to the extent to which the expenditure is paid in deriving income chargeable to tax under that head, other than expenditure of a capital nature. "
' As per above provisions of subsection (1) of section 40, the appellant is only entitled to claim those expenses which have directly been attributable to such income. Therefore, I am satisfied that the learned CIR(A) has rightly upheld the addition made under section 40(1). Similarly, the addition made under section 40(3) under the head "depreciation" has rightly been upheld by the CIR(A) as the taxpayer has failed to point out any nexus of the assets used in earning income declared during the year. The matter of addition made under section 21(c) is remanded to the assessing officer for verification as the auditor remuneration paid to a Chartered Accountant firm is subject to deduction of tax or not? . Order accordingly.
6. The appeal is disposed of in the above manner.