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

‑‑‑‑S.17‑‑‑Interest on securities‑‑‑Accrued interest ‑‑‑Taxability‑‑ Contention of assessee that charge of tax on accrued interest was contrary to provisions of S.17 of the Income Tax Ordinance, 1979 which authorises levy of tax on Government securities on receipt basis was rejected by the Tribunal in the light of judgments reported as (1994) 69 Tax 1992 (Trib.) and 1998 PTD (Trib.) 1878.

3 iTR 464; 22 ITR 12 and 1962 Tax (Supplement) 2 ref.

1994 PTD (Trib.) 1051 and 1998 PTD (Trib.) 1878 rel.

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

‑‑‑‑S.23(1)(x)‑‑‑Deduction‑‑‑Bad debts‑‑‑Concept of premature writing off as bad debt‑‑‑State Bank not agreeing for such treatment ‑‑‑Effect‑‑ Bad debts claimed by assessee, a Bank to have been written off was disallowed on the ground that the accumulated bad debts was a provision hence could not be called as actually written off and .the same was also without certification from the State Bank‑‑‑Validity‑‑‑Disallowance made and confirmed‑ under the argument that the State Bank of Pakistan had not confirmed it was not a valid reason as law did not impose any such restriction‑‑‑ Such argument might be used as a support but could not be considered as an embargo ‑‑‑Bank/assessee itself was the best judge to determine as to what part of its bad debt required written off‑‑‑Under no stretch of imagination a businessman of an ordinary prudence specially a bank would write off a debt only to save the taxes as that way he would loose more than what he appeared to gain‑‑‑Provision of law protects it in a very rightful manner i.e. if such written off bad debts were subsequently received they could be added in income and were taxable‑‑ Appellate Tribunal directed that bad debts claimed by the assessee should be allowed.

CIT v. Jwala Prasad Tiuwari (1953) 24 ITR 527 (Bom.); Associated Banking Corporation of India Ltd. v. CIT (1958) 35 ITR 557 (Bom.); Begg Dunlop & Company Ltd. v. CEPT (1954) 25 ITR 276; CIT v. National Bank of Pakistan (1967) 34 Tax 158; Grindlay Bank Ltd 's case 1991 PTD 569 and 158 ITR 102 ref.

Begg Dunlop and Ltd. v. CEPT (195.4) 25 ITR 276 (Cal.); CIT v‑ Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom.); Vithaldas H. Dhanjibhai Bardanwala v. CIT (1981) 130 ITR 95 (Guj.); CIT v. Srivinayaga Pictures (1986) 161 ITR 65 (Mad.); CIT v. Union Carbide India Ltd. (1995) 78 Tax 605 (Cal.) and Punjab Natiohal Bank v. IAC (1989) 30 ITD 245 (Delhi) rel.

(c) Income‑tax‑‑‑

‑‑‑‑Addition‑‑‑Interest credited t suspense account‑‑‑Assessee contended that amount of interest credited to suspense account had already been offered for taxation while the department pleaded that actual accounts submitted did not prove assessee's contention‑‑‑Appellate Tribunal set aside the finding on the issue observing that same required appreciation of accounts which could be decided at the stage of Assessing Officer‑‑ Assessing Officer was directed by the Tribunal to decide the issue after due consideration of the condition of the assessee on the basis of account and if, the assessee's claim of having shown the same in accounts was correct, there was no reason for making the addition again.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑-‑First Sched., Part V, para. D(a)‑‑‑Rate of income‑tax for companies‑ Dividend‑-‑Taxability‑‑‑Charge of tax @ 30%, which had earlier been set aside by the First Appellate Authority, was directed by the Tribunal, to be reduced to 5 %.

I. T. As. Nos. 1,7 and 18/LB of 1998,99 rel.

(e) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S.‑ 24 (i) & Second Sched., Part IV, Cl. (3)‑‑‑Deductions not admissible‑‑‑Allowance of perquisites paid by certain Corporations‑‑ Allowances and perquisites‑‑‑Addition of‑‑‑Bald estimation ‑‑‑Validity‑‑ Addition was set aside by the Tribunal being estimate of Assessing Officer and merely bald and rather just an arbitrary one and Assessing Officer was directed to call for the details and only then addition would be made which came within the purview of S.24(i) of the Income Tax Ordinance, 1979 or any other such provision.

(f) Income‑tax‑‑‑

‑‑‑‑Accrued interest‑‑‑Deduction at source‑‑‑Tax liability was created without giving effect to deductions at source made on accrued interest‑‑ Validity‑‑Once interest income was to be assessed in the hands of the assessee on accrual basis the deduction at source made on this amount up to 30th June of the relevant assessment year shall be allowed as a deduction‑‑‑Assessing Officer was directed to allow the same after verification of the challans etc.

I..T.As. Nos.3056/LB and 3057/LB of 1998‑99 ref.

Ikramul Haq for Appellant.

Sh. Muhammad Hanif, D.R., Shafqat Mehmood Chohan, L.A. and Dr. Samra Ashraf, DCIT for Respondent.

Date of hearing : 11th September, 1999.

ORDER

In this appeal preferred by the assessee‑Bank, a number or points have been taken for adjudication. The same are disposed of separately.

2. Firstly the assessee challenged charge of tax on accrued interest and argued that it is contrary to the provisions of section 17 which authorizes levy of tax on Government securities on receipt basis. In this regard the emphasis is on the argument that section 32 is subsurvient in its character and it cannot override or overrule the provisions of the charging sections i.e. section 17. The argument of learned A.R. remained, that the expression used in section 17 is receivable' which in the opinion of Courts refer to actual receipt. His reliance was on 3 ITR 464 and 22 ITR 12 and 1962 Tax (Supplement) 2. He further said that the charging provisions are always to be given the upper hand than the ordinary provisions. In any case he said that the interpretation of fiscal statutes Where two interpretations are possible require favour to the, assessee. It was pointed out to him that longstanding arguments on this issue may not be of much help unless he is in a position to distinguish from the decided judgments of the I.T.A.T. He frankly conceded that he neither have any distinguishing circumstances nor any judgment but, however, he requested that his arguments may be registered so that he may'be able to take up the matter in the higher Courts. Since we have already mentioned his arguments above we only hold that in the presence of 1994 PTD (Trib.) 1051 which subsequently have been confirmed in 1998 PTD (Trib.) 1878, we cannot take a different view.. However, for ready reference we produce here, the. para. from the judgment :‑‑‑

"The Supreme Court of India explained the system in two other cases (1) (1953) 24 ITR 53‑‑‑524 and (2) (1971) 82 ITR 835 to the effect that, income accrues, when it 'falls due' i.e. to say, when it becomes legally recoverable whether it is actually received or not'. 'Accrued income' is that income which the assessee has a legal right to receive."

3. The other ground which in fact is the main issue in this appeal is in relation to bad debts claimed to have been written off by the bank under section 23(1)(x). In this regard the brief facts are that the return oftotal income for the assessment year 1997‑98 was filed declaring Rs.16,63,972 and assessment was finalized under section 62 of the Income Tax Ordinance, 1979. On 28‑5‑1998 the I.T.O. made an assessment determining income of the askessee at Rs.26,52,39,064. Later the I.T.O. rectified its order dated 9‑6‑1998 under section 156 as a result of which the income was determined at Rs.20,65,53,064 on which tax was calculated at Rs.11,98,077. The disallowance was made by considering that this accumulated bad debts was a provision hence cannot be called as actually written off. Further the provision being still without certification from the State Bank was not covered strictly under the definition‑of actually written off. Before the First Appellate Authority the argument of the assessee could not find favour who strictly relied upon the 'word' actually written off and considered the provision to be against the 'requirement of law. He therefore, confirmed the treatment given by the First Appellate Authority.

4. The learned A.R. of the assessee has argued that both the authorities below have not appreciated the true facts of the case. The confirmation of addition of Rs.28.130 million in his opinion is factually as well as legally incorrect. Describing the facts of the case he said that this amount was actually written off from the accounts. The expression he said firstly was used in Repealed Income‑tax in section 10(2)(xi) which is pera materia to section 23(1)(x) of the Income Tax Ordinance. 1979 and section 36(2)(ii)(b) of the Indian Income Tax Act, 1961. In these provisions this expression is common and the word 'actually written off' has been explained by the Courts and the C.B.R. in the following manner:‑‑‑ .

"The expression 'write‑off' is a technical term current in the commercial world and has been defined as 'to transfer the balance of an account previously regarded as an asset to an expense account or to profit and loss account' (Dictionary for Accountants by Eric L Kohler, 5th Edn., p.497), or as 'to transfer a bad debt to ,the debit side of profit and loss account' (Dictionary of Business Management by K.C. Parikh, page 348). It means that noting or recording in books of account or financial statements the deduction of money or the cancellation or annulment‑of the sum of money due. It refers to the act of raising a debit entry. The most significant way of raising such debit would be in the profit and loss account and that indeed would be the only and proper place to write off. When the profit and loss account is so debited there would be a 'write‑off in the complete sense of the word. In the case of Vithaldas II Dhanjibhai Bardanwala v. CIT (1981) 130 ITR 95 (Guj.) and Sarangpur Cotton Mfg Co. Ltd. v. CIT (1983) 143 ITR 166 (Guj.), the assessee had written off the concerned bad debts inits books of account and the moment it was decided to write off these." ‑

The A.R. then argued that when one talks of `write‑off, one is not concerned with the credit entries made to adjust debit entry. Such credit beatifies may be made either (i) in the personal account of the debtor; or (ii) in a suspense account: or (iii) in a reserve account for bad and doubtful debts; or (iv) in any other account. such as relating to persons who are civily or financially dead, etc. These credit entries would all be merely ad iustment entries to balance the debit (CIT v. Jwala Prasad Tiuwari (1953) 24 ITR 527 (Bon); Vithaldas H. Dhanjibhai Bardanwala v. CIT, supra and Associated Banking Corporation of India Ltd. v. CIT (1958) 35 ITR 557, 563 (Bom.) and they would be relevant only as throwing light on the genuineness of the fear entertainer d by the businessman of non‑recovery of the debt The absence of credit entries would not therefore effect in any sense the fact of `write off'. (Underlined for emphasis).

The view of the C.B.R. also is in favour of the assessee, the learned A.R. remarked. The Board has given its opinion in the following words:‑‑‑

"So far as the requirement of writing off is concerned, the Board is of the view that there is no authority in law under which an assessee should be required to write off the debt or loan in theaccount of the debtor. The assessee‑bank would be within its right to claim the deduction under section 10(2) (xi) if it so chooses by debiting the profit and loss account and crediting any other account maintained for the purpose, such as suspense account or an irrecoverable loans account. This view is in' conformity with the decision cited as Begg Dunlop & Company Ltd. v. CEPT (1954) 25 ITR 276‑C.B.R.'s Letter No.C. No .13(26). Further reliance has been placed upon following judgment:‑‑‑

IT/I/74, dated July 2, 1975.

Further judgment of the Honourable High Court, Karachi in CIT v. National Bank of Pakistan (1967) 34 Tax 158 wherein it was held:‑‑‑

"I am unable to accept the submission, but I agree with Mr. S.A. Nusrat that the burden of proving that a debt had become irrecoverable was on the respondent. Mr. S.A. Nusrat then submitted that a debit was recoverable as long as there was a ray of hope for recovering it, and in support of this proposition, he referred us to the judgment of a FullBench ofthe Lahore High Court reported in Messrs B.C.G.A. (Punjab) Ltd. v. Commissioner of Income‑tax, Punjab, N.‑W.F. and Delhi Provinces AIR 1937 Lah. 338. As I agree with the proposition advanced, it is not necessary to examine the case cited. But when can it be said that there is no ray of hope for recovering a debt Mr. S.A. Nusrat said that the question always was of the facts and circumstance of the case, and because human estimates are necessarily fallible, the respondent's claim and or its books of account cannot be rejected, merely because it maintains a system of accounts, which permits it, in the event of windfall from the debtor, so to say, to reverse the earlier entries writing off a debt as irrecoverable. Then on the unexpected realisation of the debt, the bank would have to reverse its earlier entry in the Bad Debt Provision Account and make an entry in its income account for the amount unexpectedly received by it. But merely because of this reversal of entries, it cannot possibly be said that the earlier end in the Bad Debit Provision Account was provisional entry. However, that is what the Income‑tax Officer held and this finding was reversed by the Tribunal.

I 'cannot, therefore, agree,. with the view. taken by the Income‑tax Officer, and Mr. Ali Athar stated that the view. was contrary to the books on the methods of account‑keeping. As the system of accounting maintained by the respondent, I would quote here a passage from Kanga in his Commentary on Income‑tax (Fourth Edition). The learned author observes at page 165:‑‑‑.

"Proviso. Final Adjustment in the year of Recovery. The allowance under this clause is necessarily based upon a mere estimate. Ultimately a larger or smaller portion of the debt or loan may be recovered than was estimated to recoverable at the time of making the allowance under this clause. In such a case the excess would be taxed as profit of the year in which it so realized, to make up for the excessive allowance in former year ....

I agree with these observations of the learned author, and, in my humble opinion, the Income‑tax Officer erred in holding that the respondent's entries about its bad debts 'show that the debts have been written off in the accounts provisionally'. The inference drawn by the Income‑tax Officer is both incorrect and contrary to long established practice, and I agree with the Tribunal's view, the more so, as it does not involve any loss to the exchequer."

Above decision was upheld in the case of Grindlay Bank Ltd. 1991 PTD 569 as under:‑‑‑

"The A.R. for the appellant (contended) that the consistent practice is that a provision is made every year and the liked bad debts are taken to this account. Subsequently if any recoveries are made, those amounts are ploughed back and offered for taxation. It was contended that this system was in consequence with the practice normally followed by banks. The A.R. drew our attention to the Tribunal's consolidated decision dated 8‑‑1978 on I.T.As. Nos..636 to 638 (KB) of 1977‑78 as also I.T.A. No.36 of 1969‑70, dated 19‑12‑1975 and further to Karachi High Court decision In re: National Bank of Pakistan 1976 PTD 237. In all these decisions similar method of accounting for writing off the bad debt, as by the appellant, was approved.

In the face of the above authorities and m view .of the elaborate system of accounting maintained, as explained by us there seems no possibility of any subsequent recovery, out of amount of bad debts already written off escaping charge of tax in succeeding years. We, therefore, vacate the order by the learned A.A.C. and direct the Assessing Officer to admit the claim".

The department's case however is that this is a provision and the provision is not admissible under the income Tax Ordinance. The Assessing Officer who herself was present to support her order said that according to section 23(1)(10) only those bad debts which have been actually written off are allowable as deduction. She added that C.B.R has issued Circular that the debts certified by the State Bank of Pakistan as bad debts may be allowed but in this case assessee never produced any certificate from the S.B.P. so the provision was added back. Similarly, she added, unrealized mark‑up/interest of Rs.6.697 (M) on classified advances were taken to the suspense account. This account being also liable to addition have also been added. She said that this has so been done in keeping view the finding in 158 ITR 102. In addition to above she said that the assessee did not provide list to the department which also shows that his claim was doubtful. Regarding circular of C.B.R. she pointed out that the same has been withdrawn subsequently by another Circular vide No.F.13(26)IT.1/79, dated April 17, 1980. She concluded her arguments with the remarks that assessee neither have actually written off this bad debts claim nor have fulfilled the requirements of prudential regulations. Besides, the list having been produced at appellate stage is an additional evidence hence cannot be entertained.

The learned A.R. in his rejoinder‑said that, the Circular he referred has not been withdrawn the C.B.R. has only withdrawn a part of it while the para. referred by him is still intact.

Before giving our verdict it will be relevant to mention the provision of law under discussion which, says:‑‑‑

"S.23: Deductions.‑‑‑(1) In computing the income under the head `Income from business or profession', The following allowances, and deductions shall be made, namely:‑‑‑

23(1)(x): In respect of bad debts, such amount (not exceeding the amount of actually written off by the assessee) as may be determined by the. (Deputy Commissioner) to be irrecoverable."

The plain reading says that the bad debts are an allowable expenditure and the same shall be allowed after determining them to be irrecoverable by the D.C.I.T. The words in bracket place an embargo by saying that such amount shall not exceed the amount which the assessee has actually written‑off. This way the words "actually, written off" and "irrecoverable' are the keywords. So far as irrecoverable is concerned there is no dispute about the same. However, the word `Actually written off' is the one which requires consideration. If we see it in the light of the Circulars of C.B.R. referred by the assessee as well as the D.R. it does not settle the issue. The one referred by learned A.R. has already been mentioned by us supra. The other one which the learned D.R. says has come in supersession to the earlier speaks as follows:

"Clause (x) of subsection (1) of section 23 of the Income Tax Ordinance, 1979 provides that in computing business income of a taxpayer, deduction is admissible in respect of bad debts which is determined by the Deputy Commissioner of Income-tax to be irrecoverable and which is actually written off

2. In view of certain special circumstances, the Central Board of‑ Revenue vide Letter No. 1(48) IT‑1/82, dated 8‑8‑1983, had given certain concessions to nationalized banks in respect of their loans that had turned bad. It is decided that in the cases of debt for allowing such claim but would for the purpose rely on the findings in this regard given by the State Bank of Pakistan.

3. Vide C:B.R. Letter No.13(26) IT‑1/74, dated 21‑9‑1992, this facility was further extended to all those privatized, private and foreign banks which are legally subject to the regulatory framework of State Bank of Pakistan.

4. In the present changed circumstances the previous instructions have been reviewed and it has been decided that:

(i) The existing facility may be provided to only those banks which are wholly owned by the Government; and

(ii) The names of account holders and the amounts considered as bad debt in each case may be indicated in the certificate issued by the State Bank of Pakistan.

5. This decision has been conveyed to the Governor State Bank of Pakistan and Chairman, Pakistan Banking Council for necessary action. Copy of the letter is enclosed. The Assessing Officer may be directed to henceforth complete assessments of banks in the light of these instructions."

Above circular speaks extending the facility to only those banks which are wholly owned by the Government and where the names of the account holders who have turned bad are mentioned in the certificate issued by the State Bank. Since the bank before us is not a nationalized or otherwise a Government‑owned bank this circular is not applicable in this case. However, this circular does not debar other banks of claiming bad debts if they are actually written off from the accounts. The issue, therefore, is whether the amount in question is 'actually written off' or not. This word has not been defined in Income Tax Ordinance, however, there is a lot of case‑law some of which has been mentioned by us above.

The requirement of law, therefore, is that the debts have to be 'written off' as irrecoverable from the accounts of the assessee. In accountancy parlance, by writing off we understand, treating of an item, considered an asset, to be of no value and the same being treated as an expense (and written off) by debiting to the profit and loss account. The act of writing off is a result of recognizing that the asset has ceased in all probability to be of any useful value to the business and reduces the profitability of the organization to that extent. The particular asset being written off reduces the worth of the business and the assets are reflected at the get value in the balance‑sheet of the business. Such writing off can be done in the following ways in the books of account of the business :

(i) The amount to be written off can be reduced directly from the account of the particular asset; or

(ii) A provision may be created to the extent of amount required to be written off and the assets are reflected at the net value after reducing the amount of provision created.

In case the second approach is adopted for writing off of debts (the first approach being accepted by the department), the particular account of the debtor is not squared off, however, the value of total debts is reflected at the net value, subsequently, at the time. the debtor's account is squared off, the amount is adjusted against the provisions for bad and doubtful debts and no charge is made in the profit and loss account. In this regard' in addition to above following judgments are pertinent to the issue in consideration:

(1) Begg Dunlop and Ltd. v. CEPT (1954) 25 ITR 276 (Cal.).

(2) CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom.).

(3) Vithaldas H. Dhanjibhai Bardanwala'v. CIT (1981) 130 ITR 95 (Guj.).

(4) Sarangpur Cotton Mfg. Co. Ltd. v. CIT (1983) (sic).

(5) CIT v. Srivinayaga Pictures (1986) 161 ITR 65 (Mad.).

(6) CIT v. Union Carbide India Ltd. (1995) 78 Tax 605 (Cal.).

The first judgment is under the 1922 Act wherein, in the context of section 10(2)(xi) (corresponding to section 36(1)(vii), it was held that there was no requirement of the section that a debt which the Assessing Officer may treat as irrecoverable must be written off. In the second judgment, the assessee had claimed in the course of assessment that certain debts had become doubtful of recovery. The assessee had in fact written off the debts in the profit and loss account by credit to the suspense account. The Income‑tax Authorities held that as the individual accounts of the debtors in the books of the assessee had not been credited with the amount, the debits had not been written off as required by the section. The High Court held that the requirement of writing off had been satisfied and that section 10(2)(xi) did not demand that individual ledger entries writing off debts claimed to be bad or doubtful should be posted. In the case of Vithaldas. Dhanjibhai (supra) the Gujarat High Court went into the meaning of 'writing off. as required under the condition prescribed in section 36(2)(I)(b). It held that posting of debit entries in the profit and loss account and credit entries in bad debt reserve account is sufficient compliance with the condition of writing off of debts as irrecoverable in the accounts of the assessee and that there was no necessity to post corresponding entries in the ledger account of the concerned parties and squaring off their accounts. In arriving at its decision the High Court followed the Bombay decision in CIT v: Jawala Prasad. Tiwari's case (supra). Again in Sarangpur Cotton Mfg. Co.'s case (supra), the Gujarat Nigh Court hats occasion to consider' this issue and reiterated its abovementioned view. The Madras High Court, following the Bombay and Gujarat High Court decisions, held that a debt may be written off as irrecoverable in the individual accounts of the debtor in the assessee's books or by making appropriate entries in the profit and loss account. In either case, the condition relating to writing off in subsection (2) of section 36 is satisfied. In the case of Union Carbide India Ltd. (supra) the Calcutta High Court held that the debiting in profit and loss account and corresponding credit in provision for doubtful debts account sufficient for claiming bad debts, as such crediting amounted to writing off of bad debts in the accounts of the assessee".

The provision has been so framed to provide a remedy and 'in fact‑ the Courts have unanimity in opinion that debiting to profit and loss account and crediting to a provision/reserve for doubtful debts account would be sufficient compliance with the condition of writing off the bad debts. The squaring off the individual accounts for such claim has been considered as unnecessary. The department's objection that actual written off would mean debit of this amount from the capital of said debtor for all purposes and all times. This stage in their opinion comes when after all due efforts the assessee finally comes to the conclusion that this amount is not receivable at all. Further that the same is not receivable should be confirmed by the State Bank of Pakistan. As already mentioned by us in detail above this situation has not been approved by the higher Courts and there is almost unanimity that the determination of all probabilities of receipt of amount have seized, is prerogative of the assessee only, being aware of the circumstances and the efforts he has taken. This obviously 'includes various formalities as are required under the prudential regulations of the State Bank of Pakistan and/other laws of the country. In this regard in the various judgments referred by us earlier, the Courts have considered written off as irrecoverable from the individual account of the debtor in the assessee book or by making appropriate entries in the profit and loss account to be enough a requirement. In many cases the squaring of the individual account for such a claim have been considered as unnecessary. Similarly creating a provision for the doubtful debt alone has been considered as enough and sufficient for the claim of bad debt in :one of the referred earlier judgment in term of Union India Limited. It will be unnecessary here to repeat all we have already mentioned but, however, at no place the honourable higher Courts have held that if an assessee having some hope of recovery, keeps the amount as provision it debars him from claiming a bad and doubtful debt with reference to the provision of law under discussion. It shall hardly require further emphasis that the department can insist .upon demonstration of infallible proof that the debts have become bad. Even non‑initiation of legal proceedings against the debtor for the recovery claim before writing off in some of the cases may not be necessary. Further even if a debt is reduced on the basis of some subsequent agreement with the debtor it becomes irrecoverable and bad debt. This is where mentioning of the judgment reported as Punjab National Bank v. IAC (1989) 30 ITD 245 (Delhi) may also be very relevant. The learned Judge while dilating upon the issue in the case of a bank said that the concept of premature written off cannot be brought in to disallow claim for bad debts.

In view of above we hardly have any reason to disagree with learned A.R. The disallowance made and confirmed under the argument that the State Bank of Pakistan had not confirmed it is not a valid reason as law does not impose any such restriction. This agreement may be used as a support but cannot be considered as an embargo. The bank itself is the best judge to determine as to what part of its bad debt requires writing off. Under no stretch of imagination a businessman of an ordinary prudence specially a bank would write off a debt only to save the taxes as this way he looses more than what he appears to gain. Further the other provision of law protects it in a very rightful manner i.e. if such written off bad debts are subsequently received they can be added in income and are taxable.

As a result of above discussion we hold that the action of the I.T.O. as well as of the CIT is not based upon correct appreciation of the facts and law. The same, therefore, is disapproved. This obvious concludes that the bad debts claim of the assessee shall be allowed.

Now we come to the other grounds. It has been challenged that the additions made by learned D.C. on account of interest credited by the assessee to suspense account being relateable to irrecoverable advances, was not justified. It was also contended that the assessee had already offered this amount for taxation. In this regard he produced a report from the State Bank which confirmed that Bank wrongly placed said amount in profit and loss account instead of suspense account which was violation of Regulation No.8. It was said that it was in compliance to above audit objection that the same was added in the income and was offered for tax. The D.R., however, did not agree to it. She said that the calculation produced by the learned A.R. does not give the true picture. This amount has been claimed in P&L and the net income declared in return does not obtain any re‑adjustment .of this disputed amount of Rs.6.967 million. The appeal on this issue is quite interesting. Both the department as well as the learned A.R. agrees that this credit is taxable. The controversy is that the assessee claim having offered the same for tax while the department says that the actual accounts submitted do not prove assessee contention. This issue practically requires appreciation of the accounts. The controversy, therefore, can only be resolved after detailed examination of the accounts which can only be done at the stage of the Assessing Officer. If the assessee claim of having shown the same in accounts is correct there is no reason of making the addition again. We, therefore, set aside this case on this point. The learned Assessing Officer shall decide this issue after duly considering the condition of the assessee on the basis of accounts.

The next issue argued by the counsel in fact is now a settled issue so far as I.T.A.T. is concerned. The issue has been decided in I.T.As. Nos. 17 and 18/LB of 1998‑99 wherein at page 11 of its order it is said that "since for the purpose of taxability of dividend on a fixed rate company has been excluded, it would follow that even banking public companies are assessable to tax at concessional rates". In the present case the learned CIT has set aside the case on this issue which in view of unequivocal finding was unnecessary. The charge of tax on dividend income is at reduced rate of 5 % under para. (D)(a), Part V of 1st Schedule. We, therefore, modify the findings of the First Appellate Authority to this extent as no contrary judgment has been produced by the department. The charge of tax @ 30% which has earlier been set aside by the CIT (Appeals) is hereby directed to be reduced to 5%.

The next ground relates to addition on account of excess allowances and perquisites. It was contended that this addition under section 24(i) besides being erroneous on factual premises is also illegal. The main emphasis is on the language of section 24(i) which speaks as follows:‑‑‑

Section 24(i) it exceeds five thousand rupees, through a crossed cheque or transfer to the employee's bank account, or

Our attention was further drawn to clause (3), Part IV of the Second Schedule of the Income Tax Ordinance, 1979 which speaks as follows:‑‑‑

"Clause 3.

The provisions of clause (i) of section 24 shall not apply to any expenditure incurred by a banking company or a financial institution owned and controlled by the Federal Government on the provisions of perquisites, allowances or other benefits to any employee in pursuance of any law."

The learned counsel also provided figures saying that allowances and perquisites given to employees during the relevant period did not exceed 50 % of salary. So far as legal argument is concerned the provisions of section 24(I) has been made inoperative where the employer banking company or financial institution. is owned and controlled by Federal Government. The word "and" used above was introduced in substitution through the Finance Act, 1995 for the word "or" as a result of which the banks which are owned as well as controlled by the Government are entitled to this facility. So far as the control is concerned it is obvious that the same is under strict Government supervision. However, this bank is not a Government owned institution. This provision is not a blanket chit for all banking companies and financial institutions. It is only for the banks which are owned and controlled by the Government. The provision, therefore, does not apply on facts of the present case. On facts the learned D.C.I.T. says that the assessee was asked either to offer voluntarily addition under this head or to produce detail of the salary and perquisites. The assessee in compliance produced copy of the annual return filed under section 139 in respect of one of the 25 branches in the country. In addition it was contended that this information cannot be produced within the stipulated time. The I.T.O., therefore, formed an opinion and made addition of Rs.25,00,000 which in his opinion was to cover both the aspects of sections 24(c) and 24(i) The addition has been made in a very surprising manner as for this addition of 2.5 million the Assessing Officer has not made any effort in any manner. Practically speaking, attitude of the Assessing Officer is careless while of the assessee is evasive. It is very surprising that the bank in this modern age is not in a position to produce details of its salaried employees and of perquisites paid to the Income‑tax Department. On the other hand the Assessing Officer also goes for an estimate which is just a leap in the dark and is not supported by any argument, whatsoever, It is not the case of a street shopkeeper but that of a financial institution. The accounts of such institutions are under supervision of the State Bank and the same are audited by internal and external auditors on regular basis. Any addition made in such circumstances requires some proof in hand. It is true that the bank also did not produce complete details before the Assessing Officer, however, they objected to the time allowed though in a lukewarm manner. This style of reply on the part of the bank also cannot be appreciated. However, since the estimate of D.C.I.T. is equally bald and rather just an arbitrary one, we hereby set aside the case on this issue. The Assessing Officer shall call for the details and only that addition shall be made which comes within the purview of section 24(1) or any other such provision.

The next ground of learned A.R. is against tax liability for the year which has been created without giving effect of deductions at source amounting to Rs.56,31,283 made during the period from 1‑1‑1997 to 30‑6‑1997 on accrued interest brought to tax in the year under appeal. The First Appellate Authority has set aside the assessment on this issue. In this regard the learned A.R. has pointed out that the I.T.A.T. has already decided this issue in favour of the assessee in I.T.As. Nos.3056 and 3057/LB of 1998‑99 in the case of present assessee. It is said that the learned Tribunal while deciding this issue has directed that once interest income is to be assessed in the hands of the assessee on accrual basis the deduction at source made on this amount up to 30th of June relevant to the assessment year under discussion shall be allowed as a deduction. This point is unexceptionable and from department side no plausible argument or judgment has been produced. In view of this unequivocal situation' the I.T.O. is directed to allow the same after verification of the challans etc. It is further directed that our instructions in I.T.A. Nos. referred to above may be followed in letter and spirit.

This decides all the appeals filed by the assessee on all the issues in the manner and to the extent as mentioned above.

C.M.A./M.A.K./274/Tax(Trib.)

Order accordingly.