2000 P T D (Trib.) 2668

[Income-tax Appellate Tribunal Pakistan]

Before Muhammad Mujibullah Siddiqui, Chairman and Muhammad Mahboob

Alam, Accountant Member

I. T. A. No. 126/KB of 1999-2000, decided on 11/04/2000.

(a) Income Tax Ordinance (XXXI of 1979)---

----S.23---Deductions---Penalties and fines---Financial charges/interest/ mark-up---Admissibility---Principles.

(b) Income Tax Ordinance (XXXI of 1979)---

--S. 23(vii)---Foreign Exchange Regulation Act (VII of 1947), S.20(3)-- Admissible deduction---Interest/mark-up---Penalties and fines ---Assessee was a public limited company deriving income from refining crude oil into various petroleum products ---Assessee paid additional amount to State Bank of Pakistan for delayed deposit of counter part rupee fund and claimed as an expense under the head "financial charges'; Assessing Officer disallowed such expenses treating them as penalty levied by the State Bank of Pakistan-- Validity---Payment of excess amount was automatic and was charged by mere calculation and issuance of a calculation sheet and State Bank had not resorted to the provisions contained in the Foreign Exchange Regulation Act, 1947 for imposition of civil or criminal penalty---Excess amount charged was not in the nature of any fine or in consequence of penalty order by any Competent Authority in exercise of discretion vested in the Authority---No infringement of any statute law had been made---Excess payment was wholly and exclusively for business consideration and neither these payments were in the nature of penalty nor fine---Excess payment having been incurred for business consideration, was an admissible expenditure under S.23 of the Income Tax Ordinance, 1979---Addition made was deleted by the Appellate Tribunal.

Atherton v. British Insulated and another (1926) 10 Tax Cas. 155; Commissioner of Income-tax, Cos. II v. General Tyre and Rubber Company of Pakistan Limited 1993 PTD 383; Radio Picture Limited v. Commissioner of Inland Revenue 22 Tax Cas. 106; CIT v. Messrs Alpha Insurance Co. Limited PLD 1981 SC 293; Beecham Pakistan Ltd. v. 1995 PTD 577; CIT, Jagannath Kissonlal (1961) 41 ITR 360; Triveni Engineering Works Limited v. CIT, Delhi (1993) 144 ITR 732; Govind Choudhry & Sons v. CIT (1971) 79 ITR 493; 123 ITR 429 and CIT v. Naintial Bank Ltd. 55 ITR 707; Maddi V. & Co. (Pvt.) Ltd. v. CIT (1988) 229 ITR 534; (1983) 144 ITR 373; ACIT v. Rustam Jehangir Vakil Mills Limited (1976) 103 ITR 298; (1979) 120 ITR 321; Nanhoomal Jyoti Prasad v. CIT (1981) 123 ITR 269; (1960) 2 Tax 389; Mahalakshmi Sugar Mills Co. v. CIT (1980) 123 ITR 429 (SC); (1972) 85 ITR 320 and CIT, Karnataka v. Mandya National Paper Mills timited (1984) 150 ITR 27 ref.

CIT v. Premier Bank Limited 1999 PTD 3005 distinguished.

Shabbar Zaidi, F.C.A. for Appellant.

Muhammad Farid and Anisul Hasnain Mausvi, D.R. for Respondents.

Date of hearing: 29th March, 2000.

ORDER

MUHAMMAD MUJIBULLAH SIDDIQUI (CHAIRMAN).--This appeal at the instance of assessee is directed against the order dated 31-5 1999 by the learned CIT(A), Zone-V, Karachi in I. T. A. No. 1292/V relating to the assessment year 1998-99. The appellant has raised following objections in the grounds of appeal: ---

"(1) The learned CIT (A) erred in maintaining the disallowance of interest paid to State Bank of Pakistan amounting to Rs.305 million.

(2) The learned CIT (A), erred in maintaining the disallowance of 'Development Surcharge' on feed stock amounting to Rs.395.187 million.

(3) The learned CIT (A) erred in setting aside the disallowance of Borrowing cost' of Rs.26.194 million.

(4) The learned CIT (A) erred in not allowing claim for diminution in value of investment amounting to Rs.-10,851 million and charge for irrevocable debts amounting to Rs.1, 267 million."

2. Heard Mr. Shabbar Zaidi, FCA, learned representative for the appellant and Mr. Muhammad Farid, learned counsel for the respondent/department assisted by Mr. Anisul Hasnain Mausvi, the learned D.R.

3. The first issue relating to disallowance of interest paid to State Bank of Pakistan amounting to Rs.305 million arises under the following circumstances: ---

4. The appellant is a public limited company 'deriving income from refining crude oil into various petroleum products. During the course of assessment proceedings the Assessing Officer discovered that the appellant has claimed expenses under the head financial charges paid on account of penalties and, therefore, confronted the appellant on the point that the expense was not admissible deduction. The appellant submitted a detailed explanation, which has been incorporated in the assessment order and reads and follows: ---

"(1) We refer to the notice under section 61 of the Income Tax Ordinance, 1979 and Letter No.DCIT/Cir/08/Cos.V/ both, dated March 18, 1'999 through which various details were required by your goodself. We have already filed all required details, except interest paid to State Bank of Pakistan and now we enclose details of interest along with our arguments in respect of allowability of such interest.

(2) At the outset we would submit that the reference of penalty is misnomer in the instant case, as it is not penalty. State Bank of Pakistan uses this in place of interest/mark-up. Secondly, the amount of Rs.382, 361, 000 mentioned in your letter is not correct as the correct amount is Rs.305, 00,000 as reflected in the Note 29 to the Audited Account under the head of Financial Charges.

(3) To give you a background of the charge we would submit that during the year crude oil was imported under the Islamic Development Bank Jeddah Loan. As per S.B.P procedures, counter part rupee fund are required to be deposited with S:B.P. within 10 days of disbursement of funds by I.D.B.. The refinery did not deposit the counter part fund with S.B.P., for which they charged interest. So, this is not in fact penalty, it is penal interest. The amounts paid to the S.B.P. were not in respect of any criminal infraction of law but an additional amount for non-conformity with certain agreed principles. It is submitted that the above expenditure was incurred for the purposes of the company's business.

(4) It was for the company to decide as to which course should be adopted keeping in view the interest of its business as a whole. It is well-established in the context of the taxation laws that the appellant has the right to decide on how to conduct its business and the tax authorities cannot penalize him for adopting a particular course. The amount paid was on grounds of commercial expediency to facilitate carrying on its business. In these circumstances, the amount paid to the State Bank of Pakistan is a business expense incurred in the interest of the business. In the famous case of Atherton v. British Insulated and Helsby Cables Limited reported as (1926) 10-Tax Cases 155 it was held that any expenditure made on the grounds of commercial expediency and in order indirectly to facilitate the carrying of the business may yet be expended wholly and exclusively for the purpose of the trade.

(5) Such payments are integrally connected with the business of the assessee and, therefore, such expenditure can be allowed as a lawful deduction. Reliance is first of all being placed on a judgment of Superior Court in the case of the Commissioner. of Income-tax, Cos. II, v. General Tyre and Rubber Company of Pakistan Limited (1993 PTD 383). In this case, the assessee claimed deduction on account of technical assistance fee remitted by it to its parent company on accrual and the amount was increased to some extent due to devaluation of Pakistan currency. The Income-tax Officer disallowed the claim of deduction, which had accrued due to failure of the assessee to remit the amount in the earlier assessment year, holding that the same cannot be treated as a revenue expenditure. Ultimately, following the view taken in the case of Radio Picture Limited v. Commissioner of Inland Revenue (22 Tax Cases 106) it was held by Supreme Court that the large amount paid by the assessee could still be treated as permissible allowance, despite the extra cost incurred to discharge such liability.

(6) The view taken earlier by Supreme Court in CIT v. Messrs Alpha Insurance Co. Limited (PLD 1981 SC 293) was more or less the same. The facts of this case indicate that the assessee had exceeded the ceiling fixed in respect of the insurance companies expenses vide Rule 40 of the Insurance Rules. It was held that such expenditure was not in the nature of penalty, fine or forfeiture and, therefore, it was allowable under section 10 of the Income-tax Act.

(7) Similar line of reasoning was adopted by the High Court of Sindh in Beecham Pakistan Ltd. v. 1995 PTD 577. The question was, whether the expenditure incurred by the assessee in excess of ceiling provided by Rules 33 of the Drugs (Licensing Registration and Advertising) Rules, 1976, could be allowed as a legitimate deduction. The question was determined in favour of the assessee, notwithstanding the infringement of law committed by it.

(8) Supreme Court of India in the case of CIT, Bombay City v. Jagamiath Kissonlal (1961) (XLI ITR 360) where the assessee had to pay to the concerned bank the whole of the principle amount with interest for loan taken by "him jointly with another. He claimed deduction in respect of loss suffered by him on account of joint and several liability. The Supreme Court while agreeing with the High Court held that, the assessee was entitled to deduct. the loss suffered by him in the transaction.

(9) Reference may also be made to a Full Bench judgment of the Allahbad High Court in the case of Triveni Engineering Works Limited v. CIT, Delhi (1993) 144 ITR 732, wherein, in case of interest paid by the assessee on sugarcane purchase tax arrears, it was held that, the same was revenue expenditure laid out wholly or exclusively for the purpose of business, as distinguished from a penalty paid for infraction of law and, therefore, it could be allowed as admissible expense.

(10) Similarly, in Govind Choudhry & Sons v. CIT (1971) 79 ITR 493, it was held that although penalty paid by the assessee for supply of inferior quality of paddy paid by the assessee expenditure under section 10(2)(xv) .of the Indian Income-tax Act, but such payment being integrally connected with the income itself under section 10(1) of the Income-tax Act.

(11) Therefore, the view which appears to have generally prevailed with the Courts is that, revenue expenses incurred by the assessee wholly and exclusively for the purpose of his business can legitimately be claimed by him as an allowable deduction under section 10(2)(xvi), but expenditure incurred as penalty or fine paid on account of infraction of law cannot be permitted as expenditure laid out wholly or exclusively for the purpose of the business of the assessee. However, in case of expenditure which, although has been incurred by the assessee on account of infringement of a provision of a statute, but is not in the nature of admissible under section 10(2)(xvi) or not, would depend upon the circumstances of the case.

(12)The decision of the Supreme Court of India in the case reported as 123 ITR 429 also supports the contention of your assessee, where interest was paid on arrears of cess payable. The High Court had held that the interest paid was by way of penalty for infringement of the Cess Act. The Supreme Court reversing the decision of the High Court, held that the interest paid under the Cess Act, was not a penalty for infringement of the law and was an allowable deduction.

(13) The Supreme Court of India in CIT v. Nainital Bank Ltd. 55 ITR 707 observed, that a loss or payment is not deducitble unless it is incurred in carrying out the operation of the business and is incidental to the operation. The Court also observed that the question, whether the loss was incidental to the operation of the business is a question to be decided on the facts of each case having regard to the nature of the business carried on and the nature of risk involved in carrying them out. The degree of the nexus of the business is material.

(14) In the light of above, it is prayed that the amounts paid to S.B.P MI , should be allowed as an allowable deduction ...." .

5. The Asses-zing Officer did not accept the contention by placing reliance on the judgment of Supreme Court of Pakistan in the case of Premier Bank Limited reported as 1999 PTD 3005. The Assessing Officer cited the following extract from the judgment of Hon ble Supreme Court of Pakistan: --

"As has been pointed out earlier, the payments made by the respondent were in the nature of fine, therefore, in any case, they cannot be held to have been laid out wholly exclusively for the purpose of its business. Therefore, it cannot be excluded as allowable expenditure for the purpose of determining profits or gains of the business carried on by the said respondent. Consequently, such expenditure appears to have been rightly excluded by the Income-tax Officer from the deductions claimed by respondent."

6. The claim was, therefore, disallowed and the amount was added to the total income of appellant. The appellant preferred first appeal contending that the amount paid to the State Bank of Pakistan was actually not a penalty but interest mark-up. It was submitted that the amount was paid to the State Bank of Pakistan in accordance with the permissible procedure for delayed deposit of counter part rupee fund. The learned CIT (A) did not accent the contention and held that issue is clinched with the ratio of decision of Hon'ble Supreme Court of Pakistan in the case of Premier Bank Limited. The learned CIT (A) further placed reliance on the judgment of Supreme Court of India in the case of Maddi & Co. (Pvt.) Ltd. v. CIT (1988 229 IIR 534) wherein it was held that if an assessee is penalized under one Act for its infraction, he cannot be allowed to claim it as an allowance against his income under another Act because that will be frustrating the entire object of imposition of penalty. It was further observed by the Supreme Court of India that business can be carried on without violation of law and it will be against public policy to allow the benefit of deduction under one statute if any expenditure is incurred in violation of the provision of another statute or any penalty imposed under another statute. With these observations the learned CIT (A) upheld the disallowance. Being still dissatisfied the appellant has preferred this second appeal before us.

7. Mr. Shabbar Zaidi learned counsel for the appellant has reiterated the relevant facts and law before us, as agitated before the learned two officers below. We are of the opinion that the relevant facts are sufficiently reflected in the explanation furnished by the appellant before the Assessing Officer and reproduced by us in the earlier part of this order, therefore, they are not required to be repeated. We have found that the Assessing Officer mainly placed reliance on the ratio of judgment of the Hon'ble Supreme Court of Pakistan in the case of Premier Bank Limited reported as 1999 PTD 3005. The learned CIT (A) has further placed reliance on the judgment of Hon'ble Supreme Court of India in the case of Maddi Venkataraman & Co. (Pvt.) Ltd. v. CIT (1988) 229 ITR 534). The pith and substance of the above judgment is that any penalty or fine imposed as a result of infraction of law is not to be allowed as deduction. The learned counsel for the appellant has also placed reliance on the above judgment, in addition to some other judgments. Mr. Shabbar Zaidi has heavily relied on the following observation of Hon'ble Supreme Court of Pakistan in the case of Premier Bank Limited:---

"However, in the case of expenditure which, although has been incurred by the assessee on account of infringement of a provision of statue but is not in the nature of penalty, the question whether such expenditure is admissible under section 10(2)(xvi), or not, would depend upon the circumstances of each case. "

8. In the case of Maddi & Co. the relevant facts were that the assessee acted in flagrant violation of the provisions contained in the Foreign Exchange Regulation Act of India (which is similar to the Foreign Exchange Regulation Act, 1947 of Pakistan). On receiving information about infringement of law, the Enforcement Directorate conducted search of the office of assessee and found the assessee was indulged in transaction in violation of provisions of the FERA. The proceedings were taken against the assessee for infringement of section 4(2) and 5(l)(e) of the FERA and ultimately a penalty of Rs.35, 000 was imposed under section 23(1)(a) read with section 23(c) of the above Act. On the basis of these facts, it was held by the Supreme Court of India that the expenditure incurred was illegal and the penalty was also imposed for indulging in illegal transaction, therefore, the expenditure was not admissible. It was observed by the Supreme Court of India, "the expenditure incurred for evading provision of the Act and also the penalty levied for such evasion cannot be allowed as deduction." Further observations were made on which the learned CIT (A) has placed reliance.

9. Mr. Shabbar Zaidi,-Learned counsel for the appellant has raised several pleas. First, the Hon'ble Supreme Court of Pakistan and Supreme Court of India have held that any expenditure on account of infraction of law is not to be allowed. In the present case the amount under consideration has been paid to the State Bank of Pakistan in pursuance of an administrative direction and not in pursuance of infraction of any statute law rules framed thereunder, Notifications issued by Federal Government of Pakistan or notification issued by the State Bank of Pakistan under the Foreign Exchange Regulation Act, 1947. Thus f the contention of Mr. Shabbar Zaidi is that the expression law is confined to the Legislative Act, sub-ordinate legislation in the nature of rules and the notifications issued under the authority of the Legislative Act. The executive direction issued by the State Bank of Pakistan from time to time and the Foreign Exchange Manual complied by the State Bank of Pakistan does not fall within the purview of law. The second contention of Mr. Shabbar Zaidi is that there is no infringement, transgress, violation of infraction of law as the excess amount paid by the appellant to the State Bank of Pakistan is permissible under the executive direction of the State Bank of Pakistan. The course adopted by the appellant is on account of business expediency.. The course adopted is wholly and exclusively for the purpose of business and the option has been exercised which is permissible under the executive direction of the State Bank of Pakistan itself. Elaborating his point of view he has submitted that the infringement or violation of any law shall take place if there is any commission or omission not warranted in law or a course is adopted, which is not permissible under the relevant provisions. However, if the provisions of any law itself envisaged different courses of action and option is available to a person to adopt any one of the courses then it' would not amount to infraction or violation of law but would come within the rescinds and premises of law. Any of the courses open to a person under the law shall be deemed to be compliance of the law and not the infraction or violation thereof. The third contention of Mr. Shabbar Zaidi is that the amount paid to the State Bank of Pakistan for delayed deposit of the counter-part funds in Pakistan rupee is in the nature of compensation for delayed payment and not in the nature of penalty or fine. In support of this contention Mr. Shabbar Zaidi has submitted that neither any penalty or fine order has been made separately nor any such proceedings were ever initiated under the Foreign Exchange Regulation Act. He has submitted that the extra amount paid is automatic and the relevant direction contained in para. 44 of Chapter XIII of the Foreign Exchange Mannual, States that in the event of delay fine shall be paid to the State Bank of Pakistan @ Rs.4/per day per Rs.10, 000 or part thereof for the period of delay, but in fact it is in the nature of the interest/mark-up because when this amount is deposited in the Government treasury the head of account itself contains a description showing the payment on account of interest/mark-up. For the sake of convenience para. 44 referred to above is reproduced below: ---

"In the event of delay in depositing counter-part funds with the -State Bank of Pakistan within the prescribed period, the concerned Authorised Dealer will pay to the State Bank of Pakistan fine @ Rs.4/per day per Rs.10, 000 or part thereof for the period of delay."

10. On the other hand the learned representative for the department have contended that after the judgment of Hon'ble Supreme Court of Pakistan in the case of Premier Bank Limited the amount of fine paid by the appellant to the State Bank of Pakistan is not an admissible expenditure. They have further submitted that the directions issued by the State Bank of Pakistan under subsection (3) of section 20 of the Foreign Exchange Regulation Act was the force of law and the infraction thereof shall make the amount paid to the State Bank of Pakistan an inadmissible deduction.

11. We have carefully considered the contentions raised by the learned representatives for the parties. We have gone through the relevant provisions contained in the Foreign Exchange Regulation Act, the Foreign Exchange Mannual containing directions issued from time to time by the State Bank of Pakistan under subsection (3) of section 20 of the Foreign Exchange Regulation Act, for short hereinafter referred to as FERA and the judgments relied upon by the parties.

12. In view of the discussions to follow presently, we are of the opinion that the first issue if the executive directions issued by State Bank of Pakistan under subsection (3) of section 20 of the FERA has the force of law or not, does not require adjudication in this appeal and, therefore, finding on this point is left to be given in some other appropriate case. The issue under consideration can be decided on consideration of other contentions raised by Mr. Shabbar Zaidi. A perusal of FERA shows that, the statute contains specific provisions for levy of penalty and fine for the contravention of the provisions contained in FERA or any rule or direction issued under the provisions contained in FERA. There are specific provision for imposition of criminal and civil penalties both. The provisions in respect of imposition of criminal penalty and the procedure is contained in section 23 of FERA which reads as follows: ---

"23(1) Whoever contravenes, attempts to contravene or abets the contravention of any of the provisions of this Act or of any rule, direction or order, made thereunder other than the provisions of subsections (2), (3) and (5) of section 3, subsection (3) of section 4, section 10, subsection (1) of section 12 and subsection (3) of section 20 or any rule, direction or order made thereunder shall notwithstanding anything contained in the Code of Criminal Procedure, 1898, be tried by a Tribunal constituted by section 23-A, and shall be punishable with imprisonment for a term which may extend to two years or with fine or with both, and any such Tribunal trying any such contravention may, if it thinks fit, and in addition to any sentence which it may impose for such contravention, direct that any currency, security, gold or silver, or goods or other property in respect of which the contravention has taken place shall be confiscated.

(2) Notwithstanding anything contained in the Code of Criminal Procedure, 1898, any offence punishable under this section shall be cognizable and non-bailable for such period as the Federal Government may from time to time, by notification in the official Gazette, declare.

(3) A Tribunal shall not take cognizance of any offence punishable under this section and not declared by the Federal Government under the proceeding subsection to be cognizable for the time being or of an offence punishable under sections 122 and 150 of the Income Tax Ordinance, 1979 (XXXI of 1979), as applied by section 19, except upon complaint in writing made by a person authorised by the Federal Government or the State Bank in this behalf.

Provided that where any such offence is the contravention of any of the provisions of this Act or any rule, direction or order made thereunder which prohibits the doing an act without permission and is not declared by the Federal Government under the proceeding subsection to be cognizable for the time being, no such complaint shall be made unless the person accused of the offence has been given an opportunity of showing that he had such permission.

(3A) A person authorized under subsection (3) to make a complaint in writing shall, if he is not a public servant within the meaning of section 21 of the Pakistan Penal Code (Act XLV of 1860), be deemed to be a public servant within the meaning of that section.

(4) Where the person guilty of an offence under this Act is a company or other body corporate every director, manager, secretary and other officer thereof who is knowingly a party to the offence shall also be guilty of the same offence and liable to the same punishment."

13. The provisions pertaining to the constitution of Tribunal' and its power are contained in section 23-A which are not required to be reproduced. The provisions regarding imposition of civil penalty are contained in section 23-B and the relevant provisions are contained in subsections (4) and (9) which are reproduced below: ---

"(4) Save as provided in subsections (5) and (6), if any person contravenes or attempts to contravene or abets the contravention of the provisions of subsections (2) (3) and (5) of section 3, sub section (3) of section 4, section 10, subsection (1) of section 12 or subsection (3) of section 20 or any rule, direction or order made thereunder, he shall be liable to such penalty not exceeding five times the amount or value involved in such contravention or five thousand rupees, whichever is more, as may be adjudged by the Director or Additional Director of Adjudication or any other Adjudicating Officer having jurisdiction under subsection (8) to take cognizance of such contravention, and, if he persists in such contravention, or where the contravention or default is a continuing one, to a further penalty which may extend to two thousand rupees for every day during which the offence or, as the case may be, the contravention or default continues.

(9) For the purpose of determining whether a person has contravened any of the provisions of subsections (4), (5) or (6), the Adjudicating Officer shall hold an enquiry in the manner prescribed, if any, after giving such person a reasonable opportunity for making a representation in the matter and if, on such inquiry, he is satisfied that the person has committed any contravention, he may impose the penalty provided for in this section. "

14. Section 23-C deals with the constitution of Appellate Board competent to hear appeals against the order of Adjudicating Officer made under subsection (4), subsection (5) or subsection (6) of section 23-B. The Tribunal constituted under section 23-A is empowered to impose criminal penalty enjoys the powers of Magistrate of First Class in relation to criminal trials and is required to follow as merely as may be, the procedure provided in the Code of Criminal Procedure, 1898 for trial before such Magistrate. The Adjudicating Officer and the Appellate Board appointed under sections 23-B and 23-C have all the powers of the Civil Courts under the Code of Civil Procedure 1898 while trying a suit. The proceedings before Tribunal and Adjudicating Officer shall be deemed to he judicial proceedings within the meaning of sections 193 and 228 of the Pakistan Penal Code and the Adjudicating Officer and Appellate Board shall be deemed to be a Court for the purposes of sections 480 and 482 of the Code of Criminal Procedure, 1898 (section 23-A (4) and section 23(F). Under section 23-A subsection (5) the powers of a Tribunal shall be as extensive as those of a Court of Session in respect of sentences of fine.

15. The head of account under which the excess amount has been deposited by the appellant under the directions of the State Bank of Pakistan contained in its Letter No.SB/I.C.A./748/99, dated 30th June, 1999 is as under: ---

"Govt. Deposit Account Central-1 Non Food Major Head 1100000 Minor Head 1130000 and detailed Head 1139803 Interest .on late payment of Government duties."

16. In this letter addressed by Chief Manager, State Bank of Pakistan to the Accountant-General Pakistan Revenue, Foreign Aid Section, Islamabad, it is specifically stated that the amount has been deposited by the National Refinery Limited for late deposit of counter-part funds. In the head of account the nature of deposit is described as interest while in the letter it is described as penalty.

17. On the other hand in the Foreign Exchange Manual which is updated up to 30-9-1994 the head of -account for depositing of penalty is given on pages 84 and 92 as follows: ---

"1000 Non tax Receipts 1300 Miscellaneous Receipts 1390 others Fees, Fines and Forfeitures."

18. Mr. Shabbar Zaidi has explained that the excess amount paid by the appellant on account of delay in depositing counter-part funds is actually in the nature of interest/mark-up. He has submitted that originally this payment was described as interest but subsequently when so-called Islamization of economy and financial matters was undertaken by the then Government the nomenclature was changed and the terms fine, penalty and penal interest were used inter-changeably in loose manner to describe the nature of amount paid for delayed depositing of counter-part funds with the State Bank of Pakistan. He has pointed out that in this background a simple amount of interest which was charged for delay in depositing counter-part funds and which was actually in the nature of compensation, was described differently. In para. 44 of Chapter XIII of the Foreign Exchange Manual which is under consideration in the present appeal it has been described as fine. The Foreign Exchange Circular No.64, dated 26-9-1974 the Senior Deputy Director of the State Bank of Pakistan, Exchange Control Department it is stated that under Circular No.81, dated 15-8-1967 the penal interest is to be recovered from the Authorised Dealer on account of late depositing of rupee counter part funds with the State Bank of Pakistan. Again in Circular Letter No. 14 dated 27-5-1975 issued by Senior Deputy Director, Exchange Control Department, Central Directorate, State Bank of Pakistan, Karachi addressed to Head Offices all designated Banks it is stated that the designated Banks shall pay penalty interest at the rate notified vide Foreign Exchange Circular No.64 of 1974. However, after purported Islamization the amount paid in the event of delay has been described in para. 44 Chapter XIII of the Foreign Exchange Manual as fine and in the letter dated 28-5-1998 issued by Foreign Exchange Department, Central Directorate, State Bank of Pakistan addressed to National Refinery limited it is stated that if the counter-part funds are not deposited within 10 days from the date of disbursement by the Islamic Development Bank the penalty shall be recovered at the prescribed rate viz, Rs.4/per day per Rs.10,000. Mr. Shabbar Zaidi has produced a Letter No.GD/ICA/4107/748-99, dated 9-6-1999 issued by Chief Manager, General Department, State Bank of Pakistan which says that the calculation sheet of penalty was forwarded with the advise to deposit the penalty amount with the State Bank of Pakistan. The calculation sheet of penalty does not contain any fine or penalty order by any authority empowered to impose fine or penalty but it is mere calculation on the basis of formula contained in para.44 of Chapter XIII of the Foreign Exchange Manual.

19. Now we proceed to examine the cases on which the parties have placed reliance. The first judgment is by the Hon'ble Supreme Court of Pakistan in the case of CIT v. Premier Bank Limited on which both the parties have placed reliance. The revenue has placed reliance on the following passages from the judgment of Hon'ble Supreme Court of Pakistan: ---

"Expenditure incurred as penalty or fine paid on account of infraction of law cannot be permitted as expenditure laid out wholly or exclusively for the purpose of the business of the assessee."

"However, whether liability is incurred in the form of penalty or in the form of penal interest the main question, would be, whether such payment were closely related to the business of the respondent. In the present case, the expenditure on account of penal interest was necessitated because of the failure of the respondents to maintain the required level of their credit balance. Such expenditure, therefore; was not incurred in the normal course of business of the respondents but it was in the nature of penalty."

"As have been pointed out earlier, the payments made by the respondents were in nature of fine, therefore, in any case, they cannot be held to have been laid out wholly or exclusively for the purpose of its business."

20. On the other hand the learned counsel for the assessee has placed reliance on the following observation of Hon'ble Supreme Court of Pakistan: ---

"However, in case of expenditure which, although, has been incurred by the assessee on account of infringement of a provision of a statute, but is not in the nature of penalty, the question whether such expenditure is admissible under section 10(2)(xvi), or not, would depend upon the circumstances of each case. "

21. Thus, the contention of learned counsel for the assessee is that the ratio of the judgment of Hon'ble Supreme Court of Pakistan in Premier Bank Ltd. is that every expenditure on account of infringement of a provision of a statute is not to be disallowed. Only such expenditure is to be disallowed which on account of infringement of a provision of a statute falls within the purview of fine or penalty. For the purposes of ascertaining if any expenditure not in the nature of fine or penalty in infringement of any provisions of law is laid out wholly and exclusively for the purpose of business and if it is so the expenditure is to be allowed as admissible deduction and if it is not for, business consideration and is in the nature of penalty or fine the expenditure is not to be allowed, the facts of each case are to be examined. Mr. Shabbar Zaidi has submitted that while examining the relevant law, its purpose and the nature of business conducted by a banking company it was held that the penal interest charged under section 36(4) of the State Bank of Pakistan Act, 1956 was in the nature of penalty and, therefore, the expenditure was not incurred in the normal course of business of the assessee. Mr. Shabbar Zaidi has submitted that the specific finding of the Hon'ble Supreme Court of Pakistan was confined to the case of a banking company. The facts and circumstances of the business conducted by a banking company and the nature of penal interest charged under section 36(4) of the State Bank Act, 1956 are absolutely different and distinguishable from the facts and circumstances of the present case and, therefore, under the law of precedent the specific finding of the Hon'ble Supreme Court of Pakistan is not attracted to the facts of the present case. Mr. Shabbar Zaidi has submitted that, however, the ratio of the judgment of Hon'ble Supreme Court of Pakistan is general in nature and is applicable to the facts of the present case i.e. an expenditure incurred by an assessee on account of infringement of a provision of a statue, which is not in the nature of penalty and is for business consideration shall be an admissible expenditure. Elaborating his point of view Mr. Shabbar Zaidi contended that in the present case an agreement under the caption Import Trade Financing Agreement' was executed between the Islamic Development Bank, the "President of Islamic Republic of Pakistan, National Refinery Limited and State Bank of Pakistan. The Government of Islamic Republic of Pakistan requested Islamic Development Bank to finance the purchase for the beneficiary (National Refinery Limited) a quantity of crude oil. The request was accepted against security of a guarantee from gauranter (State Bank of Pakistan). The purchase price was paid by the Islamic Development Bank and the State Bank of Pakistan as gurantor undertook to make payment to Islamic Development Bank on demand irrespective of the fact whether the amount was recoverable from beneficiary or not. In pursuance of this agreement the crude oil was imported. The payment was made by the State Bank of Pakistan and the appellant (beneficiary) was required to deposit counter-part funds with the State Bank of Pakistan within the specified period. The appellant had no fund and, therefore, instead of arranging funds on interest the appellant adopted the course permissible under the Foreign Exchange Manual and choose to deposit excess amount of Rs.4/per day per Rs.10, 000 as a business expediency.

22. Mr. Shabbar Zaidi has submitted that in the above circumstances the excess amount paid by the appellant was for business consideration. It was in the nature of compensation paid to the gauranter/State Bank of Pakistan on account of delay in depositing the counter-part funds, because of paucity of funds and the course adopted was permissible under the Foreign Exchange Manual. The excess amount paid was automatic and was in contemplation of the parties, therefore, notwithstanding the describing of excess amount as fine or penalty or penal interest in various circulars/letters/directions issued by the State Bank of Pakistan and because mere use of certain words or wrong nomenclature shall not change the nature of a transaction which is to be determined and gauged on the basis of substance of the matter. He has contended that if any excess amount is automatic and is within the contemplation of the parties it has to be treated as compensation and not a fine or penalty or in the nature of fine or penalty.

23. Mr. Shabbar Zaidi has next contended that the ratio of judgment of the Indian Supreme, Court in the case of Maddi & Company (supra) is not attracted to the fact of the present case. He has, therefore, submitted that the reliance placed by the learned CIT (A) on this judgment is misplaced. The relevant facts in this case were that the assessee entered into an agreement in contravention of the provision contained in FERA. On receiving information necessary investigation was made and it was found that the assessee had indulged in transaction in violation of the provision of the FERA. The proceedings were taken against the assessee for infringement of sections 4(2) and 5(1)(e) of the FERA and penalty was imposed under section 23(1)(a) read with section 23-C of the FERA. The assessee claimed expenses, which he had incurred in the course of transaction in violation of the statute. The Assessing Officer disallowed the claim for the reason that the payment was not genuine and it contravened the provision of FERA. The Tribunal held that claim was admissible. The High Court of Andhra Pradesh vide judgment reported as (1983) 144 ITR 373 held that if an assessee is penalized under one Act he cannot claim that amount to be set off against his income under another Act because they will be frustrating the entire object of imposition of penalty. The Supreme Court of India upheld the decision of Andhra Pradesh High Court and held that the assessee had indulged in transaction in violation of the provision of FERA and the penalty was also levied under the provisions of FERA, therefore, it was against public policy to allow the benefit of deduction.

24. Now we will consider some other judgments from Indian Jurisdiction, which have bearing on the issue under consideration. In the case of ACTT v. Rustam Jehangir Vakil Mills Limited (1976) 103 ITR 298) (Gujrat High Court), the assessee was a limited company manufacturing cotton textile. The Textile Commissioner under the provisions of the Cotton Textile (Control Order) directed the assessee to produce certain types of cloth in the quantity set out in the direction. The assessee did not manufacture that type of cloth and, therefore, under clause 21-C (1)(b) the assessee was called upon to pay different amounts from time to time. The assessee paid the amount to Textile Commissioner and claimed this amount as allowable expenditure on the ground that it was expended wholly and exclusively for the purpose of business. The I.T.O. did not allow the deduction. The Appellate Assistant Commissioner allowed the claim. The revenue took the matter in further appeal to Tribunal. The Tribunal confirmed the decision of A.A.C. The revenue filed reference in Gujrat High Court. The Gujrat High Court held that under the law the assessee has option to make payment in lieu of manufacturing of minimum quantity of cloth and, therefore, the payment was not in the nature of infraction of law and the amount paid was neither penalty or akin to penalty. Similar view was taken in the judgment reported (1979) 120 ITR 321. In (1981) 123 ITR 269 (Al1.H.C.) Nanhoomal Jyoti Prassed v. CIT it has been held that the demurrage charged- by Port Authority is compensation for the delay in clearance of goods in godown from the Port Authorities and is a business expenditure, which is admissible. It was held that the commercial expediency dictated and required the assesssee to take delivery of the goods from the Port Authorities after paying compensation to them for use of their dock facility beyond the free period allowed under the rules. The demurrage paid by the assessee was not line for infraction of any law and, therefore, it was an admissible expenditure. It would be pertinent to refer that the Income-tax Appellate Tribunal of Pakistan has held vide judgment reported as (1960) 2 Tax 389 that demurrage is neither a fine nor penalty and is to be allowed as admissible expenditure.

25. In the case of Mahalakshmi Sugar Mills Co. v. CIT (1980) 123 ITR 429) (SC) the facts were that the assessee was engaged in the business of manufacture and sale of sugar. A claim of deduction was made on account of interest paid on arrear of Cess due under the U.P. Sugar Can Cess Act, 1956. The I.T.O. disallowed the claim but the A.A.C. held that it was a permissible deduction and the Income-tax Appellate Tribunal affirmed the view. The reference was preferred in Dehli High Court. The Delhi High Court vide judgment reported as (1972) 85 ITR 320 held that the amount was paid by way of penalty for an infringement of the Act and, therefore, the claim was not admissible. The assessee preferred appeal before the Supreme Court of India. The Supreme Court of India considered sections 3 and 4 of the Sugar Can Cess Act, 1956 which read as follows: ---

"(3)Imposition of cess.---(1) The State Government may by notification in the Official Gazette impose a cess not exceeding four annas per maund on the entry of the case into the premises of a factory for use, consumption or sale therein ....

(2) The cess imposed under subsection (1) shall be payable by the owner of the factory and shall be paid on such date and at such place as may be prescribed.

(3) Any arrear of cess not paid on the date prescribed under sub section (2) shall carry interest at 6 per cent per annum from such date to date of payment.

(4)The State Government may for the purpose of assessment and collection of the cess, appoint officers and authorities and may also prescribe the manner in which the cess shall be assessed and collected.

(5) Where any person is in default in making the payment of the cess, the officer or authority empowered to collect the cess may direct that in addition to the amount of the arrears and interest a sum not exceeding 10 percent. thereof shall by way of penalty be recovered from the person liable to pay the cess.

(6)The officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector shall proceed of land revenue.

(7)Any sum imposed by way of penalty under subsection (5) shall be recoverable in the manner provided in subsection (6) for the recovery of the arrear of cess.

4. "Penalties.--- If any person defaults in the payment of cess imposed under subsection (1) of section 3, or, contravenes any provision of any rule made under this Act, he shall without prejudice to his liability, therefore, under subsection (5) of section 3, be liable to imprisonment up to six months or to a fine not exceeding rupees five thousand or both and in the case of continuing contravention to a further fine not exceeding rupees one thousand for each day during which the contravention continues."

25. The Supreme Court of India observed that under section 3(2) the payment of cess is to be made on the date prescribed under the rules. Rules 4 of the UT. Sugar Cane Cess Rules, 1956 provides that the cess due on the sugar cane entering into the premises during the first fortnight of each calendar year must be deposited in the Government treasury by the 22nd day of that month and the cess due for the remainder of the month must be deposited before the seventh day of the next following month. If the cess is not paid by the specified date, then by virtue of section 3(3) the arrear of cess will carry interest at the rate of 6 % per annum from the specified date to the date of payment. The Supreme Court of India further observed that under subsection (5) of section 3 additional sum was recoverable by way of penalty from a person who defaults in making payment of cess. The Supreme Court of India held that the entire interest and arrear of cess under section 3(3) is in reality part and parcel of the liability to pay cess. It is an accretion to the cess. It was observed as follows: ---

"The arrear of cess 'carries' interest; if the cess is not paid within the prescribed period a larger sum will become payable as cess. The enlargement of the cess liability is automatic under section 3(3). No specific order is necessary in order that the obligation to pay interest should accrue. The liability to pay interest is as certain as the liability to pay cess. As soon as the prescribed date is crossed without payment of the cess, interest begins to accrue. It is not a penalty, for which provision has been separately made by section 3(5). Nor it is a penalty within the meaning of section 4, which provides for a criminal liability and a criminal prosecution. The penalty payable under section 3(5) lies in the discretion of the collecting officer or authority. In the case of the penalty under section 4 no prosecution can be instituted unless, under section 5(1), a complaint is made by or under the authority of the Cane Commissioner or the District Magistrate. There is another consideration distinguishing the interest payable under section 3(3) from the penalty imposed under section 3(5). Section 3(6) provides that the officer or authority empowered to collect the cess may forward to the Collector a certificate under his signature specifying the amount of arrears including interest due from any person, and on receipt of such certificate the Collector is required to proceed to recover the amount specified from such person as if it were an arrear of land revenue. The words used in section 3(6) are 'specifying the amount of arrears including interest', that is to say that the interest is part of the arrear of cess. In the case of a penalty imposed under section 3(5), a separate provision for recovery has been made under section 3(7). Although the manner of recovery of a penalty provided by section 3(7) is the same as the manner for recovery provided by section 3(6) of the arrear of cess, the legislature dealt with it as something distinct from the recovery of the arrears of cess including interest. In truth, the interest provided for under section 3(3) is in the nature of compensation paid to the Government for delay in the payment of cess. It is not by way of penalty. The provision for penalty as a civil liability has been made under section 3(5) and for penalty as a criminal offence under section 4. The Delhi High Court proceeded entirely on the basis that the interest bore the character of a penalty. It was, according to the learned Judges 'penal interest'. The learned judges failed to notice section 3(5) and other provisions of the Cess Act...In our opinion the interest paid under section 3(3) of the Cess Act cannot be described as penalty for an infringement of the law."

In the case of CIT, Karantaka v. Mandya National Paper Mills Limited (1984) 150 ITR 27 Karnataka High Court) a reference was made if the amount paid by an assessee as penalty for non-payment of sales-tax is an allowable deduction. The relevant facts were that the assessee committed default in payment of tax under the Karnataka. Sales Tax Act, 1957. Consequently, it had to pay penalty under section 13(2) of the said Act. The said amount was claimed as allowable deduction and the Assessing Officer disallowed to claim holding that it was not a business expenditure. It was urged before the Tribunal that the penalty collected under section 13(2) of the said Act should not be construed as penalty levied for any infraction of law as it represented only damages paid to the Government for the belated payment of tax due. The contention was accepted and the addition was deleted. It was held by the Karnataka High Court that the amount payable by the assessee was a statutory liability and it was not for the infraction of any law. It was further held that the Act gives no discretion to the authorities to waive or reduce the penalty. Obligation is cast on the defaulting assessee to make payment of the penalty computed in the manner provided by section 13(2). Reliance was placed on the judgment of Supreme Court of India in the case of Mahalakshmi (1980) 123 ITR 429) wherein it was held that the interest paid on arrears of cess under section 3(3) of the U.P. Sugar Cane Cess Act, 1956 was accretion to the cess and not a penalty payable for infringement of any law. Ultimately it was held that the penalty paid under section 13(2) of the Karnataka Sales Tax Act, 1957 was not a penalty in the real sense of the term and it was only a compensation for delay in payment of the tax due. It was thus held as an allowable deduction.

27. We have carefully examined and considered the ratio of judgment in the case of Premier Bank Limited by the Hon'ble Supreme Court of Pakistan and the other judgments cited before us. We draw the following inferences from the ratio of judgments cited before us.

(1) An expenditure incurred on account of fine or penalty or in the nature of fine or penalty is not to be allowed as deduction.

(2) An expenditure which although has been incurred by an assessee on account of infringement of a provision of a statute but not in the nature of fine or penalty can be allowed as admissible deduction provided it is incurred wholly and exclusively for the purpose of business.

(3) The question whether any expenditure on account of infringement of any provision of law is for the purpose of business and is an admissible expenditure shall depend on the facts and circumstances of each case.

(4) If any expenditure is claimed on a transaction in flagrant violation of the provisions contained in any law and the transaction, act/omission is liable to the levy of fine or penalty by way of criminal or civil sanction and the competent Authority has imposed civil or criminal penalty provided in the law then expenditure incurred on illegal transaction as well as penalty for indulging in such illegal transaction both shall be inadmissible expenditure.

(5) If there are various provisions in any law providing for automatic enhanced/excess payment on commission of a default or delay and there is a provision for imposition of penalty/fine as well within the discretion of authorities competent under a law and the provisions for imposition of fine or penalty within the discretion of competent authorities have not been invoked and an enhanced/excess amount is charged for any default/delay, such enhanced excess amount shall be deemed to be part and parcel of the original liability.

(6) If the excess amount paid by an assessee in the normal course of business and wholly and exclusively for business purposes on account of any delay or default is within the contemplation of the parties and the excess amount paid is automatic which requires mere calculation it would be in the nature of compensation paid for delay or default and- it shall not be deemed as penalty or fine, or in the nature of penalty/fine or akin to the penalty or fine.

(7) If any excess amount is paid by an assessee for any delay or default in performance of an act and the excess charge is fixed and not in the discretion of any competent Authority in law and no separate proceeding is required for charging the excess/enhanced amount and no separate order is required to be made and there is no requirement of framing any charge or confronting the - defaulting party and seeking explanation then the amount so charged would not be deemed to be penalty/fine.

(8) Mere use of word penalty or fine shall not make an amount to be in the nature of penalty or fine untill and unless in the substance the amount charged is penalty or fine or in the nature of penalty or fine.

(9) The payment of such amount only shall be treated as penalty/fine which is charged as a result of infraction/transgression/violation which is imposed by an authority competent in law and an amount paid by an assessee on its violation/discretion/option available in law for the consideration of business purposes in pursuance of commercial expediency and not with the intention of flouting the mandatory provision of law shall not be deemed to be penalty/fine and shall be deemed to be extension of liability permissible in law and/or compensation for delay/default contemplated by the patties and permissible in law.

(10) The demurrage paid to the Port and Railway authorities which is in excess of the original liability, likewise surcharge for delayed payment of utility bills such as, electricity bill, gas bill, telephone bill, property tax, water tax, municipal taxes, motor vehicle taxes, arms licence fee, late payment fee for examination, late payment fee for renewal of various licences so and on so forth are not in the nature of penalty or fine, as all of these payments are automatic without initiation of any separate proceedings and without any separate order and exercise of any discretion by any competent authority on the consideration of facts and circumstances of each case.

(11) In the case of Mahalakshmi (Supra) the Supreme Court of India has dealt with the issue elaborately. Under section 3(3) of the Sugar Cane Cess Act, 1956 the payment of interest at 6 % was automatic for which no separate or specific order was required and the obligation to pay interest was to accrue automatically and, therefore, payment of such amount was held to be part of the original liability and not penalty or fine. The excess amount was held to be compensatory in nature. Under subsection (5) of section 3 of the same Act the officer or authority empowered to collect the cess may direct for payment of additional tax and such amount was held to be penalty it was not automatic or a mere matter of calculation without discretion. In, the case of Premier Bank Limited the Hon'ble Supreme Court of Pakistan has held the payment of penal interest under subsection (4) of section 36 of the State Bank Act, 1956 in the nature of fine. A perusal of subsection (4) of section 36 of the State Bank Act, 1956 shows that the penal interest was to be made by order of the bank. It was not automatic. The words used in subsection (4) of section 36 are, "schedule bank may be ordered by the bank to pay to the bank". Thus, it was within the competence and discretion of the State Bank of Pakistan to order for the payment by schedule bank. Once it is provided that a separate and specific order is to be made than it will not make any difference if the rate of penal interest is fixed.

28. Applying above principles to the present case we find that the appellant, imported crude oil under the loan advanced by Islamic Development Bank, Jeddah. The State Bank of Pakistan was also a party to the agreement in the capacity of a guarantor. As per State Bank of Pakistan procedure counter-part rupee fund was required to be deposited with State Bank of Pakistan within 10 days of disbursement of fund by Islamic Development Bank. Due to paucity of funds the appellant could not deposit the counter-part fund with State Bank of Pakistan and, therefore, on account of this delay the appellant was required to pay to the State Bank of Pakistan an additional sum of Rs.4 per day per Rs.10, 000 which has been described in the Foreign Exchange Manual as fine. The payment of excess amount is automatic and has been charged by mere calculation and issuance of a calculation sheet. For the purpose of charging the excess amount the State hank of Pakistan has not resorted to the provisions contained in the Foreign Exchange Regulation Act for the imposition of civil or criminal penalty. The head of account under which the excess amount has been deposited by the appellant under the direction of the State Bank of Pakistan has described the deposit as interest on late payment of Government duties. There is a separate head of account for depositing of penalty in which the nature of deposits are described as, fine and forfeiture. The officials concerned in the State Bank of Pakistan are themselves not clear about the nature of excess amount deposited by the appellant as they have described this amount differently on different occasion. The nature of excess amount has been described on different occasions as penalty interest, fine and penalty. The excess amount charged by the State Bank of Pakistan is not in pursuance of any fine penalty order by any competent authority in exercise of discretion vested in the said authority and after compliance of the necessary procedure prescribed in law and application of mind. There is no infringement of any statute law as in the case of Premier Bank Limited decided by the Hon'ble Supreme Court of Pakistan. In the case of Premier Bank Limited the penal interest was charged under section 36(4) of the State Bank of Pakistan Act, 1955 which provides that if at the close of business on any day the balance held at the bank by any scheduled bank is below the minimum fixed by subsection (1), such scheduled bank may be ordered by the bank to pay to the bank penal interest. Thus the charging of penal interest under section 36(4) of the State Bank of Pakistan Act, 1956 is not automatic but it is within the discretion of the State Bank of Pakistan an order is to be made in this behalf. On the other hand neither any provision in the FERA have been brought to our notice nor in the instructions issued by the State Bank of Pakistan under subsection (3) of section 20 of the FERA any description is vested in any authority. As already discussed above the contravention of provisions contained in subsection (3) of section 20 or any rule, direction or order made thereunder is liable to the levy of penalty under section 23-B of the FERA and no such penalty has been levied by the competent authority.

28. The appellant has proved up to the hilt that excess payment was made wholly and exclusively for business consideration, the excess payment is neither in the, nature of penalty nor fine and, therefore, the principle laid down by the Hon'ble Supreme Court of Pakistan in the case of Premier Bank Limited on which both the parties have placed reliance is not applicable. The Hon'ble Supreme Court has held that in the case of expenditure which, although, has been incurred by the assessee on account of infringement of a provision of a statute but is not to the nature of penalty, the question whether such expenditure is admissible or not would depend upon the circumstances of each case. In the present case the expenditure is for business consideration and, therefore, we are of the considered opinion that the excess payment having been incurred for business consideration, in exercise of option available to the appellant in contemplation of the parties is an admissible expenditure under section 23 of the Income Tax Ordinance, 1979.

29. As a result of above finding it is held that the learned two officers were not justified in disallowing the claim on account of excess amount paid to the State Bank of Pakistan at Rs.305 million. The addition stands deleted and the Assessing Officer is directed to allow the claim.

30. The second objection is not pressed as the issue already stands decided against the appellant. The impugned finding of learned CIT (A) in respect of disallowance of development surcharge on feedstock is, therefore, upheld.

31. So far the third objection is concerned, Mr. Shabbar Zaidi has submitted that the issue already stands decided in favour of appellant. The learned representative for the department is not able to rebut the contention. The impugned order of learned CIT (A) setting aside the issue is, therefore, vacated. The disallowance made by the Assessing Officer is hereby deleted. The Assessing Officer is directed to allow the claim.

32. This brings us to the last objection raised in the grounds of appeal. A perusal of the assessment order shows that a provision was made for diminution in the value of investment at Rs.1,08,51,000. The Assessing Officer disallowed the claim for two reasons, first, it was a mere provision and was, therefore, not allowable and secondly, the investment made was capital in nature and, therefore, was not admissible. The learned counsel for the appellant is not able to show any provision of law under which the claim is admissible. The findings of the learned two officers below are, therefore, not-open to any exception. Likewise, the claim on account of provisions for doubtful debt was disallowed and the learned counsel for the appellant has conceded that the law as contained in the Income Tax Ordinance does not permit the admissibility of any claim on account of mere provision. Only which such bad debt can be claimed which has been actually written off. The findings of the learned two officers below are, therefore, not open to any exception, which hereby upheld.

33. The appeal stands disposed of as above.

C. M. A. /M. A. K./31/Tax(Trib.)Appeal disposed of.