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

‑‑‑‑S. 23(1)(viii)‑‑‑Deduction‑‑‑Bonus, disallowance of ‑‑‑Assessee a banking company‑‑‑Amount of bonus was disallowed on the ground that it was merely a provision and not actual payment ‑‑‑Assessee contended that bonus payable to assessee's staff was an ascertainable liability and same was admissible under mercantile system of accounting even if not paid in the same year‑‑‑Validity‑‑‑Provision for bonus could not just be disallowed‑‑‑Department having no case with regard to its non verifiability or that it was not as per terms of the employment or that it was against the previous practice of the assessee or a part of which had not been paid in the subsequent year, could not disallow the same under the garb that it was only a provision‑‑Amount of bonus halving properly been claimed as per terms of employment with the employees and being normal practice of the asse9see and also for the reason that the assessee had mercantile method of accounting was allowed in full‑‑‑Addition was deleted by the Appellate Tribunal being illegal.

1985 PTD 413 and 1990 PTD 248 ref.

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

‑‑‑‑S. 66‑A‑‑‑First Sched., Part V, Para. A‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑‑Dividend income was assessed @ 5 % as separate block of income‑‑ Taxation of, at the rate applicable to normal business income by the Inspecting Additional Commissioner was cancelled, by the Appellate Tribunal and original order was restored.

1996 PTD 276; 1974 PTD 41 and 2000 PTD 507 rel.

(c) Income Tax Ordinance (XXXI of 1079)‑‑‑

‑‑‑‑Ss. 66‑A, 12(19) & Third Sched., R.1‑‑‑Powers of Inspecting Additional Commissioner to revise Deputy Commissioner's order‑‑ Lease income‑‑‑Allowance of ‑depreciation‑‑‑Lease rent ‑‑‑Assessee contended that Inspecting Additional Commissioner worked out the amount of lease rental primarily on hypothetical basis without looking at the lease rentals actually recorded in the books of the assessee and ignored to allow corresponding tax depreciation‑‑‑Validity‑‑‑Appellate Tribunal set aside the orders with the directions to provide an opportunity to the assessee to provide details of actual lease rentals received and with further direction to allow tax depreciation legally admissible under Third Schedule of the Income Tax Ordinance, 1979.

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

‑‑‑‑Ss. 17 & 32‑‑‑Interest on securities‑‑ ‑Method of accounting‑‑ Addition‑‑‑Government securities‑‑‑Addition to total income accrued on Government securities on accrual basis was confirmed by the Appellate Tribunal, whereas the assessee had offered such income on actual receipt basis.

1994 PTD (Trib.) 1051 rel.

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

‑‑‑‑Third Sched., R.7‑‑‑Depreciation allowance ‑‑‑Assessee, a Bank‑‑‑Ad hoc disallowances were made for the reasons that no tax depreciation schedule was provided at the time of assessment and that the claim of depreciation was much higher than the preceding year ‑‑‑Validity‑‑ Accounting depreciation was as per Third Schedule of the Income Tax Ordinance, 1979‑‑‑Claim was there and the requirements of law had been fulfilled ‑‑‑Assessee apparently had failed to calculate the additions chargeable under Cl. (7) of the Third Schedule of the Income Tax Ordinance, 1979‑‑‑Impression came from the contention that the assessee had not claimed depreciation statedly on the assets that have been sold during the year which aspect required further study of the issue‑‑‑Add backs could not be supported unless the same were proved to be as not covered by the provisions of law ‑‑‑Assessee must be confronted before making additions in his accounts, with specific reference to the figure and relevant law‑‑‑Creation of demand by resorting to the discretionary powers was neither the spirit of law nor could be appreciated by the administrative or judicial Authorities of the country‑‑‑Depreciation allowable to the assessee, a Bank in ordinary circumstances should not be a matter of controversy as law in this regard was clear and unambiguous‑‑‑Issue was set aside with such directions by the Appellate Tribunal.

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

‑‑‑‑S. 23‑‑‑Deductions‑‑‑Provisions for gratuity, bonus and bad debts Allowability‑‑‑parameters‑‑‑Liability should be an ascertained one; it should be as per rules and regulations and terms of agreement relatable to said entry and should be as per normal method of accounts maintained by such organization.

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

‑‑‑‑S. 23‑‑‑Deductions‑‑‑Banking company‑‑‑Bad and doubtful debts‑‑ Disallowance of‑‑‑Validity‑‑‑Provision for bad and doubtful debts having been made by the Bank after being convinced that it was not recoverable under his own method of accounts and Bank regulations under which the Bank was operating itself was not to be disallowed.

1976 PTD 237; I.T.As. Nos. 42/KB to 44/KB of 1977‑78; I.T.A. No.776/KB of 1975‑76; I.T.As. Nos. 1897 to 1899/KB of 1973‑74 and I.T.As. Nos.2758/LB to 2761/LB of 1996 rel.

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

‑‑‑S. 24‑‑‑Deductions not admissible‑‑‑Excess perquisite ‑‑‑Disallowance ‑Working produced was not controverted ‑‑‑Appellate Tribunal remanded back to re‑compute the working of excess perquisite.

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

‑‑‑‑S. 23‑‑‑Deductions‑‑‑Bonus and workers welfare fund‑‑ Disallowance‑‑ Validity‑‑‑Entire amount of bonus' was ascertained and had been paid in the subsequent year which was not disputed‑‑‑Neither the method of accounting was challenged nor the Department doubted its validity‑‑‑Workers Welfare Fund was also an allowable expense under the law‑‑‑Additions made were not maintained by the Appellate Tribunal.

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

‑‑‑‑S. 23 & Second Sched., Part I, Cl. (91)‑‑‑C.B.R. Letter 1(231) T‑77, dated 1‑1‑1977‑‑‑Deductions‑‑‑Banking company‑‑‑Donation to approved institution‑‑ Disallowance of‑‑‑Ad hoc disallowances under the heads communication, staff service charges, general travelling expenses, motor vehicles, entertainment and Qarz‑e‑Hasna‑‑‑ Validity‑‑‑Donations paid to approved institutions were exempt under Cl. (91) of the Second Schedule of the Income Tax Ordinance, 1979‑‑‑Assessing Officer was left to determine as to which institution was approved out of the list provided by the assessee‑‑‑Issue was set aside by the Appellate Tribunal for determination of the exemption to that extent by the Assessing Officer.

1984 PTD 225 and 1996 PTD (Trib.) 1104 ref.

Khaliq‑ur‑Rehman, F.C.A. for Appellant/Assessee.

Mian Ashiq Hussain for Respondent/Department.

Date of hearing: 2nd March, 2002.

ORDER

KHAWAJA FAROOQ SAEED, (JUDICIAL MEMBER).‑‑‑The appeals have been filed by the Bank anti this is the second round of litigation. The appeals are as sailed against the disallowances made in the orders passed under sections 62/135. In the first round of litigation the learned CIT(A), had set aside the disallowances with the directions to the Assessing Officer to provide an opportunity to the appellant to show that the amounts‑of the claim represented ascertained liabilities on the date of closing of accounts and the specific directions were given to make the allowance in each year to the extent of sum ascertainable and disbursed in the next year. The learned ITAT maintained the order of the learned CIT(A). In re‑assessment proceedings the Assessing Officer once again repeated the disallowances in assessment years 1995‑96 and 1996‑97 of the amount of Rs.50,000,000 and Rs.58,300,000 .in each of the assessment years respectively under the head bonus on the ground that it is merely a provision. The primary contention of the learned AR was that the assessee‑bank maintains accounts under mercantile system and further that the bonus payable to the assessee's staff is an ascertained liability. He said that he presented branch‑wise details of the payments made in the subsequent years and vehemently argued that despite the specific directions by learned CIT(A) to make allowance to the extent of actual payments in the subsequent year and its confirmation by the ITAT the Assessing Officers once again has made the addition. He said the higher Courts have already allowed this claim in other cases. Reliance was placed on the judgment reported as 1985 PTD 413 that the ascertained liability under mercantile system of accounts is admissible even if not paid in the same year.

On the other hand, the learned L.A. argued that the assessee did not present the details of actual payment thus the Assessing Officer was not in a position to establish whether or not actual payments were made in the subsequent year. He also said that unlike gratuity bonus is not regulated by law. The provision of bonus, therefore, cannot be equated with provision of gratuity. Moreover, a provision in any case is not an allowable expense. He argued that even the judgment referred by A.R. is of no help, as the same also does not permit allowance of pure provision. The gratuity has been held to be allowable where it is an ascertained liability.

The argument of learned DR does create a doubt in the manner that the gratuity is covered within the general clause of section 23. It has not been mentioned as an item in said section and is allowed under the language "laid out and expended for the purposes of earning such income". The bonus, on the other hand, is covered under section 23(1)(viii). The language used in said section is "any sum paid to an employee as bonus". The word "paid" has prominently been used and the same does create an impression in favour of the learned DR until one finds that the Legislature by way of an explanation itself has defined the word "paid" in the following manner:

"23(1)(xxii)(b)

(b) The expression 'paid', as used in this section and sections 18, [ ] 24 and 31, means actually paid or incurred according to the method of accounting upon the basis of which the income is computed."

This provision has further been explained with reference to Income Tax Act (repealed). The allowance therein was permissible under section 10(2)(x) and was defined in section 10(5). In above referred judgment which is reported as 1990 PTD 248, the Honourable Judges Mr. Justice Saleem Akhtar and Mr. Justice Allah Dino Memon discussing the above two provisions found that word "paid" has been assigned more meanings than its normal dictionary meanings. It includes' actually paid or incurred according to the method of accounting on the basis of which the profits and gains are computed under the relevant provision of law. This way it has been held that the expense allocated for the purposes of a defined and ascertained payment on the basis of the normal business requirements, agreement between the employer and the employee and obviously following the system of accounts is covered within the definition of word "paid".

In this regard the important factors are that if this amount is not allowed this year the assessee is partially disturbed because of his system of accounts, however, in the year of payment the same will have to be allowed. If otherwise for any reason a part of this provision is not paid in the subsequent year it is obviously reverted back as income. The practical effect of such a disallowance, therefore, especially in the case of a banking company where the tax is chargeable in only one slab and not in different slabs is `nil'. In fact, the judgment referred by us above has dealt with almost all the relevant issues on the subject. The relevant para. wherefrom speak as follows:‑‑‑

"The respondent is employing mercantile system therefore, the liability will be incurred the moment, any expense or payment is entered in the books of account. The respondent has made provision for payment of bonus and thus incurred the payment in terms of section 10(5). The judgment of the Supreme Court is completely distinguishable and cannot be applied to the facts of the present case as in section 16(2) the word `paid' has not been used in the wide sense as used in sections 10(2) and 10(5).

We may further observe that actual payment, made afterwards in the next assessment year will deprive the assessee for the benefits of section 10(2)(x) provided he has adopted mercantile method of accounting and entry has been made during the relevant assessment year. In this context reference can be made to Commissioner of Income Tax v. Nagri Mills Co. Ltd. (1958) 33 ITR 681. We therefore, answer in the affirmative,"

The provision for bonus in the present case, therefore, cannot just be disallowed. The department having no case with regard to its un verifiability or that it is not as per terms of the employment or that it, is against the previous practice of the Bank or a part of which has not been paid in the subsequent year, cannot disallow the same under the garb that it is only a provision. The Legislature having taken care of such eventualities through the proviso mentioned by us above and further on the strength of the judgment of‑ the High Court of Sindh we are unable to give our consent in favour of the department. The amount of bonus, therefore, having properly been claimed as per terms of the employment with the employees and normal practice of the Bank and also for the reason that the bank has mercantile method of accounts is allowed full. The parameters fixed by us in the above paras., therefore, leave no doubt in holding that the addition was illegal. The same is hereby deiced.

Appeals under section 66‑A assessment years 1994‑95 and 1995‑96 on the issue of dividend income.

The appeals have been filed against the two orders of the Inspecting Additional Commissioner of Income‑tax/Wealth Tax Range‑II, Companies Zone I, Lahore. The IAC has taxed dividend income at the rate applicable to normal business income after revising the order passed by the DCIT under section 66A. The assessment orders passed by the DCIT under section 62 has been held as erroneous as the DCIT has taxed the dividend income @ 5 percent. as a separate block of income of the rates prescribed in Para. A of Part V of the First Schedule to the Income Tax Ordinance, 1979. Challenging the treatment the A.R. states that the orders are neither erroneous nor pre‑judicial to the interest of the Revenue as in case of other banking companies the learned Income Tax Appellate Tribunal has settled this issue that dividend is to be taxed as a separate block of income at the rate prescribed in Para A of Part V of the First Schedule to the Income Tax Ordinance, 1979. Reliance has been placed on the judgments reported as 1996 PTD 276, 1974 PTD 41 and 2000 PTD 507. The learned L.A. fairly said that he is aware of the latest judgments on this issue by the ITAT. However, since the Department wishes to take this issue before the superior Courts he supported the Departmental version. His argument was that this is a part of regular business income of the assessee which is banking copy hence is chargeable to normal tax rates.

This issue practically stands settled, as we have already followed these judgments in a number of cases. Following the same we hold that there was no error in the order. Especially on the day when section 66‑A has been invoked the above judgments of the Tribunal were in the field. The cancellation, therefore, is disapproved and original order is restored.

Appeals under section 66‑A in respect of leasing income assessment years 1995‑96 and 1996‑97

In these two further appeals against the revision of assessment under section 66‑A passed by the I.A.C., Range II, Companies I, Lahore the assessee assails that leasing income of the assessee bank was properly taxed according to the legal provisions contained in section 12(19) of the Income Tax Ordinance, 1979 which the I.A.C. has not properly appreciated. The learned A.R. made pleading before the Bench candidly conceding that the assessment was in fact erroneous and admitted that correct provisions of law were not followed in order under section 62 and also still have not been applied while passing assessment under section 66‑A related to correct amount of lease rentals and allowance of depreciation under the Third Schedule of the Income Tax Ordinance, 1979. He pointed out that the amount of lease rentals are to be taxed under section 12(19) and presented schedules of gross lease rentals for each of the years at Rs.47,606,463 and Rs. 39,861,179 as against the lease rentals taxed by the learned ACIT at Rs.100,302,137 and Rs.106,536,006 respectively. It is submitted that the learned IACIT worked out the amount of lease rental primarily on hypothetical basis without looking at the lease rentals actually recorded in the books of the assessee bank. He presented party‑wise details of gross lease rentals during the course of the hearing and emphasized that the lease rentals are strictly worked out on the basis of amortization schedules attached with the lease agreements (a few specimen of which were also provided by him during the course of hearing). He continued to argue that the learned IACIT while revising orders of DCIT on the principle of erroneous only covered amounts of lease rentals to be taxed under section 12(19) but totally ignored to allow corresponding tax depreciation which the assessee is entitled to claim as lesser as admissible expenditure under the provisions of Rule 1 of the Third Schedule of the Income Tax Ordinance, 1979. It was explained that in order for any assessment to be free of legal error lease rentals are to be taxed but corresponding tax depreciation is to be allowed to the assessee‑bank enjoying leasing business in accordance with the provisions of Rule 1 of the Third Schedule which states that:‑‑

"1. Allowance for depreciation.‑(1) Whether, in any income year, any building, machinery, plant or furniture owned by an assessee is used for purposes of any business or profession carried on by him, in any income year commencing on or after the first day of July, 1982, any machinery or plant is given on lease by the assessee, being, a scheduled bank, a financial institution [or such Modaraba or leasing company as it] approved by the Central Board of Revenue for purposes of this Schedule, on such conditions as may be specified, an allowance for depreciation shall be made in computing the profits and gains of the business or profession of the assessee in the manner hereinafter provided."

On the other hand learned legal advisor of the Department supported the orders of the IACIT and stated that the assessee did not present the details of lease rentals to the ACTT due to which the orders were passed with the remarks subject to rectification. The learned L.A. did not rebut the arguments of learned AR as regards admissibility of tax depreciation. In the circumstances, we consider it appropriate to set aside the two orders with the directions to provide an opportunity to the appellant‑bank to provide details of actual lease rentals received and with further direction to the learned IACIT to allow tax depreciation legally admissible under the Third Schedule of the Income Tax Ordinance, 1979.

Appeal under section 62 for the assessment year 1995‑96

The second ground of appeal for the assessment year 1995‑96 relates to grievance relating to leasing income. The learned A.R. did not press the ground taken for the reason that the same was subject to action under section‑66A by the learned IACIT for which separate appeal has also been heard. Thus, the appeal filed under section 62 becomes infructuous.

The next common ground in respect of both, the years under appeal was addition to total income accrued on Government securities on accrual basis whereas the assessee bank has offered such income on actual receipt basis. The learned A.R. repeated his arguments raised before the two officers below but conceded that this issue has been decided by the Honourable Income Tax Appellate Tribunal against the assessee in a case reported as 1994 PTD (Trib.) 1051 which is being followed by the Honourable ITAT in other cases. The matter is settled so far as ITAT is concerned the additions, therefore, are confirmed.

The next common ground of appeal is in respect of ad hoc disallowances under the head depreciation of Rs.10,000,000 each for the assessment years 1995‑96 and 1996‑97 respectively. The disallowances were made for the reasons that no tax depreciation schedule was provided at the time of assessment and that the claim of depreciation was much higher than the preceding year. The learned A.R. argued that the claim of accounting depreciation is the same as would have been in tax depreciation. The assessee‑bank has adopted the same rates to depreciate its assets as are provided in the Third Schedule of the Income Tax Ordinance, 1979. He explained that premises are being depreciated @ 5 percent. furniture and fixture @ 10 percent. and vehicle @ 20 percent. Also the method of depreciation adopted to calculate accounting depreciation is diminishing balance method as is prescribed in the Third Schedule. Furthermore, the assessee has not claimed depreciation in the year of disposal of following the Third Schedule of the Income Tax Ordinance. As regards the increase in the amount, of depreciation from the preceding years concerned it was explained that the assessment year 1995‑96 comprised of 18 months whereas the assessment year 1994‑95 comprises of 12 months. Also additions to fixed assets in the assessment years 1995‑96 and 1996‑97 were to the extent of Rs.108,494 and Rs.133,931,660 respectively. Consequently the amount of depreciation will proportionally increase when compared with the previous years. The A.R. presented copies of the audited accounts to support his contention of increase in fixed asset. Thus, it was pleaded that the disallowances being without any justification are liable to deletion. On the other hand the learned L.A. commented that in the absence of a depreciation chart there is no reason to agitate the disallowance at this stage. Further, the assessee failed to provide the details of additions in assets and also the detail of sold assets during the year. This way he has concealed his gains under clause (7) of the Third Schedule.

The arguments of both the sides are equally strong. The A.R. contention that the claim and schedule of depreciation is very well on record is justified. The accounting depreciation is as per the Third Schedule hence to say that the Schedule has not been filed cannot be supported. The claim is there and the requirements of law have been fulfilled. However, assessee apparently has failed to calculate the additions chargeable under clause (7) of the Third Schedule. This impression comes from the argument that the assessee has not claimed depreciation statedly on the assets that have been sold during the year. This aspect requires further study of the issue, which can only be done at the stage of the Assessing Officer. We, therefore, set aside the case on this issue as well. However, we wish to add that this is not a case of a shopkeeper with casual records: It is a reputed bank which is being governed under special control of State Bank of, Pakistan with complete financial control in terms of internal and external audit and check and balance within its own sphere. The add backs in such cases cannot be supported unless they are proved to be as not covered by the provisions of law. Moreover the assessee must be confronted before making additions in his accounts with specific; reference to the figure and relevant law. Creation of demand by resorting to the discretionary powers in such‑like case is neither the spirit of law nor can be appreciated by the administrative or judicial authorities of the country. Depreciation allowable to bank in the ordinary circumstances should not be a matter of controversy as law in this regard is clear and unambiguous. While reviewing this issue the Assessing Officer should take care of these aspects.

The next common ground of appeal relates to disallowance under the head provisions of bad and doubtful debts. The disallowance was primarily based on the ground that the certificate of State Bank of Pakistan (SBP) was not produced, as the same was not available for privatized banks including the assessee bank. The learned A.R. argued that disallowance of Rs.634,260,000 and Rs.387,653,000 for the assessment years 1995-96 and 1996‑97 respectively were totally unjustified.

The learned AR explained that under tripartite argument between the Central Board of Revenue, Ministry of Finance and State Bank of Pakistan it was mutually agreed upon the year 1982 that for nationalized bank SBP would issue certificate for provision to be created for bad and doubtful debts which will be accepted by the Income Tax Department for the purpose of admissibility in bad debts. Such an arrangement stands withdrawn for privatized banks starting from assessment years 1995‑96 arrangement the admissibility for bad and doubtful debts is to be considered under banks the moment provision is created in the books for doubtful debts it

tantamounts to write‑off and in the year of recovery the mark‑up as well as principal amount is to be offered to tax. Thus it was held in the reported decision of High Court supra that this method of accounting has been prescribed by the C.B.R. way back in 1946 and the said C.B.R. circular still holds field having not yet been withdrawn. The AR argued that whenever the Bank realizes any amount of bad debts after having written off, the amount recovered is offered for tax. The AR said that the assessee‑bank has offered amount of Rs.797,552 and Rs.10,062.247 in the assessment years 1995‑96 and 1996‑97 respectively for tax being recovery from bad debts written off. He also produced party‑wise details during the course of hearing. It was pleaded that the disallowances are not justified and the same may be deleted.

On the other hand, the learned L.A. supported the order of DCIT and stated that the provision has been made under Prudential Regulations, which cannot be allowed admissible. He repeated that the assessments in a case are made under Income Tax Ordinance and for treatment of the bad debts the law relevant is the Ordinance itself. The relevant provision says that it is the Assessing Officer who shall decide that a debt has become bad or not the Prudential Regulations have got nothing to do with his working and authority.

This Tribunal has already dilated upon this issue in a number of earlier judgments. In this regard the Tribunal has relied upon mainly on the judgment reported as 1976 PTD 237, however, further support has been found from the judgment decided by Indian superior Courts. While deciding this issue in the case of Union Bank Ltd. the Tribunal found that this provision of bad debts is, in fact, not a provision. It is an actual write off, however, the Bank under law is not supposed to completely ignore this amount as the ray of hope remains and for that purpose it is kept in suspense account. This Tribunal, therefore, following the direction of the Hon'ble High Court Sindh has held that the day a bank believes that a part of its loan has become bad and charges it in its Profit and Loss Account it becomes an allowable expense. The Tribunal also felt that a banking company could never declare its loans to be as bad just to save the taxes as this way the company looses more than the apparent gains. The finding of the referred judgment being very relevant rather applicable on all fours on the facts and circumstances of this case is reproduced:‑‑‑

"I am unable to accept the submissions, 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 debt 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 Full Bench of the Lahore High Court reported in Messrs B.C.G.A. (Punjab) Ltd. v. Commissioner of Income Tax, Punjab, N.‑W.F.P. 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 way of hope for recovering a debt Mr. S.A. Nusrat said that the question always was of the facts and circumstance of the case. But, in my opinion, it would be more accurate to say that the question will, always be of the estimate of the facts and circumstances of a 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. I agree 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 doe not involve any loss t exchequer.

As already mentioned this Tribunal in the case of Union Bank has further discussed this issue and has given the following observations:‑‑

"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 individual account for such a claim has been considered as unnecessary."

At the time of deciding the' case of Union Bank certain cases were not before the ITAT, however, it has subsequently been produced before the Tribunal. It appears that this Tribunal in the case of I.T.As. Nos. 42 to 44/KB of 1977‑78 order dated 14‑6‑1978, I.T.A. No.775/KB of 1975‑76, dated 13‑3‑1978 and I.T.As. Nos.1897 to 1899/KB of 1973‑74 order, dated 12‑7‑1977 in the case of National Bank of Pakistan has held that the issue of provision for bad and doubtful debts stands clinched in favour of the assessee. In this regard they have found themselves convinced that it is the method of accounts employed by the Bank under which it is to be determined that the same loans had become bad and after having come to the conclusion under the system of accounts that the loan is unrecoverable and a proper debit entry is made in the accounts such a provision is an allowable expenses. In any case, the present case we have already mentioned a judgment from the High Court Karachi supra. These judgments have also been referred being on the same subject and to say that the view of the Tribunal even in earlier times was the same.

Practically speaking in the case of provisions for gratuity, provision for bonus and provision for bad debts, the opinion of the Honourable superior Court has remained almost identical. The parameters for allowing these provisions in said judgments are‑‑‑

(i) that it should be an ascertained liability;

(ii) it should be as per rules and regulations‑and terms of agreement relatable to said entry; and

(iii) that it should be as per normal method of accounts maintained by such Organization.

In the earlier para. of this order, we have allowed provision for bonus in the same analogy. Here; again we are‑convinced that provision for bad and doubtful debts having been made by the bank after being convinced that it is not recoverable under his own method of accounts and Prudential Bank Regulations under which the Bank is operating itself was not to be disallowed: In this regard saying that the Prudential Banks Regulations does not have any bearing on the Income Tax proceedings may be correct to the extent that it is an independent law. However, one cannot accept the argument that it is not allowable under the Income Tax law and the Prudential Banking Regulations only are in support of this right. Further the departmental contention that the Tribunal has confirmed a similar provision disallowed by the department, in the case of assessee in an earlier assessment year, is not of any help. The learned Tribunal in I.T.As: Nos. 2758 to 2761/LB of 1996 order, dated 26‑5‑1997 have confirmed the issue for the reason that it did not arise out of the order of the CIT(A). In any case, in view of the various other judgments of this Tribunal earlier and recent and more for the reason of the decision of the High Court Karachi we are convinced that these additions are liable to deletion. Without any hesitation, we order accordingly.

The next common ground of appeal is disallowance of excess perquisite under section 23(i) amounting to Rs.150,874,279 and Rs.125,065,356 in each of the assessment year i.e. 1995‑96 and 1996‑97 respectively. The AR assailed the impugned additions on the ground that the basis and ratio of additions in each of the assessment years were the findings for the assessment year 1994‑95. The learned AR pointed out various deviations from the base adopted by the department itself i.e. assessment year 1994‑95. It was exhlahted with the help of calculation of excess perquisites that in both the assessment years under appeal, excess perquisites were also applied on the component of house rent allowance which when reduced from basic salaries would reduce the addition. Consequently the learned AR only questioned the method and basis off working out excess perquisites. The learned DR did not controvert the working produced by the learned AR hence it is considered more appropriate to remand the case back to the Assessing Officer to re‑compute the working of excess perquisites on the basis and the lines ask worked out by his predecessor for the assessment year 1994‑95.

The next ground which is only for assessment year 1995‑96 is addition or provision in the amount of Rs.124,753,000. The learned AR presented break‑up of the amount by stating that out of the above Rs.124,753,000 an amount of Rs.114,000,000 relates to bonus which was actually an ascertained liability worked out under mercantile system of accounts and the disbursement of which took place in the subsequent year. The balance amount relates to Workers Welfare Rs.10,753,000 has actually been incurred by the Bank for the benefit of the employees and such cost cannot be disallowed being wholly and exclusively incurred for the purposes of the business and also being a part of staff related benefits.

So far as the amount of bonus is concerned the fact that the entire amount is ascertained and has been paid in the subsequent year is not disputed. Neither, the method of accounts is challenged nor the department doubts the validity. The addition, therefore, is not maintainable. Regarding W.W.F. the same is an allowable expense under law. The same also being undisputed figure also cannot be maintainable.

For the reasons given in earlier part of this order the provision for bonus disallowed is deleted. Similarly, W.W.F. being a statutory allowance and its payment being undisputed the additions are hereby deleted.

The next common ground of appeals relates to ad hoc disallowances out of profit and loss account in both the assessment years under the heads communication, staff service charges, general travelling expenses, motor vehicles, entertainment and Qarz‑e‑Hasna. The learned AR vehemently argued that not a single instance of unverifiability has been pointed out before making additions which is the requirement of proviso to section 62 of the Income Tax Ordinance, 1979 and also held in many reported decisions that the addition made without identifying the instance of unverifiability is not maintainable. Reliance was placed on C.&R. Letter 1(231) T‑77, dated 1‑1‑1977, 1984 PTD 225 (H.C. Kar.), 1996 PTD (Trib.) 1104 and 1984 PTD 225. It was argued that the Bank is still partly owned by the Federal Government and is subjected to internal and external audits. It has sound system of internal controls and no chances exist for unverifiability and coon‑business related payments. Thus there remains no justification on the part of the Assessing Officer to make disallowances in the case of the assessee‑Bank.

This is not the case of a street shopkeeper. Its accounts do not suffer from any lacuna, as any unverifiability therein would amount to an offence chargeable under various laws of the land. Add back in such cases can only be where the payment is not covered within the language of relevant provisions. The additions here are not covered by section 23 or any other similar provision. These additions, therefore, also stand deleted.

The next common ground of appeals relate to disallowance of donation of Rs.1,993,470 and Rs.12,352,600 for the assessment years 1995‑96 and 1996‑97 respectively. It was argued that the donations are made to entities duly approved under clause (91) of the Part I of the Second Schedule of the Income Tax Ordinance, 1979. The list provided to us indicates that he payments have been made to following Institutions.

ALLIED BANK OF PAKISTAN LIMITED

INV. & FUNDS MANAGEMENT DIVISOIN

CENTRAL OFFICE, KARACHI.

STATEMENT OF DONATION PAID DURING THE YEAR 1994.

The AR claims that the above institutions have been approved by the Ministry of Finance for exemption under clause (91) of the Second Schedule. He, however, has not produced the relevant notification. The clause does obtain some of them in its list provided under said clause (91), however, apparently all of them are not approved. In any case we in principle agree with learned AR that the donations paid to the Institutions which are approved under clause (91) are exempt from tax. However, we leave it for the Assessing Officer to determine that which Institution is approved out of the list provided by the assessee. For determination of the exemption to that extent, we set aside this issue.

As a result all the appeals filed by the assessee are decided in the manner and to the extent as mentioned above.

C.M.A./677/Tax (Trib.) Appeals decided, accordingly.