Income Tax Ordinance (XXXI of 1979)---

----Ss. 22 & 32(3)---Income from business ---Additions---Assessee contested different additions made by assessing officer such as made under the head of financial charges, under S.24(ff) of the Ordinance, in charity and donations and P & L. Account--C.I.T. (A) granted some relief wherever he found proper ---Assessee, feeling aggrieved, came up for further appeal-- Entitlement---As regards financial charge, department had not been able to dislodge that nexus of the expenditure towards business as the loan advanced to the sister concern of the assessee was claimed to have been from its own sources and not from the borrowed capital---Situation needed re examination---Case was set aside on that issue and it was observed that if loan advanced was not relatable to the bank-borrowing, the assessee was entitled to allowance in full---Addition under S.24 (ff) was also set aside as the same had been heard by another Bench and order was still awaited-- Decision in the previous year as such would apply on the present year also-- Other add-backs called for no interference being reasonable and as per history of the case.

1986 SCMR 968 ref.

Naeem Akhtar Sheikh, FCA for Appellant.

Muhammad Akram Tahir, D.R. for Respondent.-

Date of hearing: 12th January, 1997.

ORDER

KHAWAJA FAROOQ SAEED (JUDICIAL MEMBER). ---Various grounds have been taken for adjudication but at the time of hearing the issue regarding addition under the head of financial charges, addition under section 24(ff), addition in charity and donation and addition in P&L Account is being contested.

2. The ground regarding disallowance of the provision of bad and doubtful debts has been withdrawn by the assessee through his A.R. before us. The A.R. has argued that the disallowance of financial charges are based on the presumption that the amount advanced to sister concern is from borrowed capital on which the impugned company is paying interest. He said that besides the fact that the assessee company is also receiving income from that borrowed capital in term of interest from the sister concern which is more than 1 % of Standard Bank rate. The amount has not been advanced from the borrowed capital; it is from the-personal capital of the assessee. He has argued that the Courts have already directed to delete such additions if the company has extended loan from its own sources and not from the borrowed capital. In favour of his arguments, he has referred a judgment cited as 1986 SCMR 968. Regarding add-back- under section 24(ff) he said that the same was exclusively used for business purpose. The add-backs made by the department is without any reason and support. It was obtained in travellers cheques from the bank and were spent during the foreign journey which was in connection with the business of the company hence disallowance was uncalled for. He also challenged the add-backs made on the basis of stock phrases and without making reference to the evidence given by the assessee with regards thereto.

3. Contrary to this the learned D.R. has supported the orders of the subordinate officers and said that the learned CIT(A) has already allowed relief wherever it was available under law and on the basis of facts and circumstances of the case. Both the parties have been heard and record have been perused. We find force in the arguments of the A.R. of the assessee to the extent of disallowance of financial expenses. The department has not been able to dislodge the nexus of the expenditures towards business as the loan advanced to sister concern is claimed to have been from own sources and not from the borrowed capital. This situation needs re-examination and set aside the case on this issue so as to determine that the

amount advanced of sister concern was from the borrowed capital or the same was from the personal capital of the company. In case the same is not relatable to the bank borrowing, the assessee is entitled to allowance of the same in full. Regarding issue of disallowance under section 24(ft) the same is also set aside as the A.R. has informed that the same has been heard by another Bench of this Tribunal and the order is still awaited. The decision in the previous year as such, shall apply on the present year also. The ITO shall give effect to the same. The add-backs made by the department are reasonable and as per history of the case. The same does not call for any interference at this stage. The order is accordingly allowed in the manner and to the extent as mentioned above.

C.M.S./415/Trib. Order allowed.