MUHAMMAD JAWED ZAKARIA, JUDICIAL MEMBER.---Above captioned appeals relating to the tax years 2009 and 2010 respectively have been filed by the Department challenging the impugned orders dated 30-11-2011 passed by the learned Commissioner Inland Revenue (Appeals-I), Karachi on the following common ground:-- "..2. That the learned Commissioner of Inland Revenue (Appeal-1) was not justified to delete addition of bad debts written off on the ground that pro Vision of bad debts have been added back in income in preceding years despite the facts the conditions for admissibility of bad debt expense as laid down in section 29 are not fulfilled."
2. Brief facts of the case are that the taxpayer is an unlisted public limited company incorporated in Pakistan in 1992, under the Companies Ordinance, 1984 and is engaged in manufacturing, marketing and selling of lubricants, greases and especially all kinds of petroleum products. The returns of total income were e-filed for both the years 2009 and 2010 on 30-09-2009 and 30-09- 2010 respectively under Section 114 of the Income Tax Ordinance, 2001 declaring loss for the year 2009 under Normal Law at Rs.3,048,129/- and after including brought forward loss of Rs.34,945,870/-, total loss has been declared at Rs.37,993,999/- and declaring loss for the year 2010 under Normal Law at Rs.54,009,484/- and after including brought forward loss of Rs.56,154,707/-, total loss has been declared at Rs.2,145,223/-. Besides, receipts in terms of commercial imports, covered under FTR, have been declared for the year 2009 at Rs.280,626,073/- with final tax liability working thereon at Rs.13,136,989 and for the year 2010 at Rs.66,550,715/- with final tax liability working thereon at Rs.2,086,650. The returns so filed were deemed as assessment orders under section 120 of the Income Tax Ordinance, 2001. However, the said assessments were considered erroneous and prejudicial to the interest of revenue and requiring amendment under Section 122(5A) of the Ordinance. The ACIR, in this regard, issued a notice under section 122(9) to the taxpayer. In response the taxpayer furnished replies vide letter bearing Nos.DT 305 dated 26.08.2011 and DT 646 dated 09.09.2011 for the tax year 2009 and letter bearing Nos.DT 4131 dated 18.04.2011 and DT 4400 dated 26.04.2011 for the tax year 2010, which were found unsatisfactory by the ACIR, therefore, he amended the deemed orders under Section 122(5A) of the Income Tax Ordinance, 2001. Taxpayer being aggrieved by the action of ACIR, filed appeals before the learned CIR(A), who vide his impugned order allowed the appeals of the taxpayer by deleting the addition of bad debts written off by observing as under: - "Regarding the adhoc disallowance of claim of write off against non performing loans, I have observed that in the previous years the provision was not allowed. Further, the contention of AR that the charge on account of provision for non-performing advances was voluntarily offered for tax in the return of income is also important in this context.
In my considered opinion the amount disallowed earlier cannot be disallowed again at time of its write off/reversal as it amounts to double taxation of the same amount."
The Department being dissatisfied with the impugned order of B the learned CIR(A), preferred the present appeals before this Tribunal.
3. Mr. Zulfiqar Ahmed Memon, learned DR argued that the learned Commissioner of Inland Revenue (Appeal-I) was not justified to delete addition of bad debts written off on the ground that provision of bad debts have been added back in income in preceding years despite the facts the conditions for admissibility of bad debt expense as laid down in section 29 are not fulfilled. He further argued that the taxpayer has not submitted any evidence for reasonable ground of believing that the debt is irrecoverable, if they can submit to the satisfaction of the Department, it will be allowed. He further requested that this case may kindly be remanded back as this is purely decided on legal plain and facts has not been ascertained whether the taxpayer has taken any reasonable steps for the same, therefore, this may be remanded back to verify the factual aspects of the case and there will be no prejudice caused to the taxpayer if this matter is remanded back to further verify and ascertain the true and real facts.
4. Syed Shabbar H. Zaidi, FCA, appeared on behalf of the taxpayer/respondent. He supported the order of learned CIR(A). During the course of hearing, he relied upon the case law reported as 2011 PTD (Trib.) 1716 by saying that this decision although relates to the 23(i)(x) of the Repealed Ordinance, is relevant as the said provisions are similar to section 29 of the Income Tax Ordinance, 2001 and in facts and circumstances of the debtors of the company as discussed. The relevant portion of the above said case law is reproduced as under:-- "63 ... ....Debt has invariably been treated to be bad when it becomes irrecoverable and the eventuality of irrecoverability rests upon the fact when the debtor is in bad financial position and is unable to repay the debt, either wholly or in part or it may be that the debtor is in sound financial position but the denies his liability to pay or it is otherwise prudent and expedient for the assessee not to seek to recover the debt. Further so far as the steps to recover the debt are concerned, it is not always essential that the creditor should go to a court of law to enforce his claim and that he could write off the debt as irrecoverable only after he failed in court. It may happen that on an examination of the circumstances and after taking appropriate legal advice the creditor may come to a conclusion that resort to a court of law would only result in his throwing good money after bad or that his chances of recovery are doubtful and slender, therefore in such circumstances, may claim the debt as a 'bad debt'. As to what point of time a debt become a bad debt, it, is a question of act and there is not general rule or universal test.
Decision had to be arrived at after considering all the facts and circumstances of each case........."
66... ....Thus, the assessee when it came into being might in the light of above discussion make a decision as to when these debts should be written off of as having become irrecoverable and prove this fact before the tax officer. Resultantly, it seems necessary to vacate the findings of both the forums below in all the years under consideration and after remanding the cases to Taxation Officer direct that in view of above findings, the issue of bad debts be decided afresh understandably of course while living within the parameters laid down by the relevant law."
The AR urged that they have already submitted a brief write-up regarding the recovery efforts of the company, if this case is remanded back, the appellant will again submit all the recovery efforts made by the company. The learned AR further submitted that the amount has been written off from provision created in prior years as is evident from note 7.2 to the financial statement submitted before OIR/ACIR. He added that it is the practide of the company to offer to tax the provision made in the year of charge and claim the reversal/write off is subsequent period. He further added that this is apparent from the returns of preceding period and such provision was offered to tax on creation and, therefore, any disallowance would result in doubly disallowance.
While responding he next pointed out that under Section 29 of the Ordinance bad debt shall be allowed a deduction if following conditions are satisfied:-- a) the amount of the debt was previously included in the person's income from business chargeable to tax; b) the debt or part of the debt is written off in the accounts of the person in the tax year; and c) there are reasonable grounds for believing that the debt is irrecoverable.
While, finally, concluding his arguments, the AR gave his consent that he has no objection if the matter is remanded back and the taxpayer will submit the factual details of the case.
5. We have heard the arguments advanced by both the parties and perused the relevant record.
We have carefully considered the submissions made by both the parties and with the consent of both the parties, the issue of bad debts written off is remanded back to the Assessing Officer/ACIR for de novo proceedings. The Assessing Officer is directed to re-do the assessment proceeding on the above issue and proceed accordingly after careful examination of the facts of the case and considering the evidence produced by the taxpayer strictly in accordance with law within sixty (60) days of receipt of this order after affording the proper opportunity of being heard to the taxpayer.
6. Before taking apart from this judgment, though both the parties have given their consent for remanding back, however, we constraint to observe that while determining whether the expenditure is wholly and exclusively laid out for the purpose of the business, the reasonableness of the expenditure should be considered from the point of view of the businessman and not from the point of view of outsiders including the Income-tax Officer. The view-point of the businessman is all the more important under the present set-up, when the 'difficulties of running a business are more pronounced.
7. Consequently, both the appeals are disposed off to the extent and in the manner as referred above.