Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 23‑‑‑Deductions‑‑‑Profit and Loss Account‑‑‑Administrative and general expenses‑‑‑Disallowance since no business was carried out during the year‑‑‑First Appellate Authority directed the Assessing Officer to allow the claimed expenses in view of maintaining of office/staff to capture future prospects and propel maintenance of equipment already installed‑‑‑Validity‑‑‑Appellate Tribunal upheld the order of First Appellate Authority in view of the facts and circumstances of the case, assessee had to retain its office and incur certain expenditure even during the period it did not earn any income‑‑‑Appeal of the Department was rejected.

1969 ITR 118 rel.

Qaiser Ali, D.R. for Appellant.

Muhammad Riaz, C.A. for Respondent.

Date of hearing: 8th November, 2001.

ORDER

MRS. ABIDA ALI (ACCOUNTANT MEMBER).‑‑‑This departmental appeal is directed against the order of the learned Commissioner of Income Tax (Appeals), Peshawar, dated 8‑12‑1999 wherein assessee's appeal for assessment year 1997‑98 was accepted.

2. The Department has contested the impugned appellate order on the following grounds:‑‑‑

"(1) That the L/CIT(A) was not justified to direct to allow administrative and general expenses under the head legal professional and conveyance at Rs.1082,723. As at the time o f assessment no books of account, vouchers were produced being unverifiable the same were rightly disallowed.

(2) That financial charge at Rs.25,32,364 rightly is allowed as no business carried out during the period relevant to the assessment year."

3. Brief facts of the case, which have led to this appeal are that assessee/respondent a non‑resident company, derives income from contract of Penstock installation at Tarbela Dam Extension Project. Operating loss of Rs.36,15,087 was declared, which was arrived as:‑‑‑

Assessing Officer disallowed the administrative, general and financial expenses, for the reasons that no business activity took place during this period; and that no proof of this expenditure was provided, therefore, claim was not justified.

4. On appeal before the learned CIT(A), the learned counsel of assessee argued that the aforementioned expenses were disallowed on the premise that assessee had not conducted any business during the period relevant to the assessment year under appeal. It was contended that this action of Assessing Officer is totally unjustified because assessee company, being branch of Foreign Company, resident of Austria, is engaged in the supply and installation of penstock and manifold for power plants in Pakistan and for this purpose it has established a permanent place .of business to hunt for opportunities and prospects and to carry out the contracts awarded as a result thereof. Assessee was initially awarded a contract No.C‑24 by WAPDA for supply and installation of Penstock and Manifolds of Units 11 to 14 of Tarbella Hydro Power Third Extension Project. After the completion of the contract, assessee was under a legal obligation to ensure the proper maintenance and smooth operation of the equipment installed by them in the initial years of set up. To discharge her obligation, the assessee has maintained an office and specialized staff for taking care of any possible faults of the operation of, the equipments installed. Furthermore, office and staff had to be maintained in order to capture future prospects. Therefore, the expenses claimed by assessee are purely business expenses. His arguments were considered by the learned CIT(A) and directed that the expenses claimed by assessee should be allowed.

5. We have heard representatives of both the parties. The learned DR defended the assessment order whereas the learned AR of assessee reiterated his contention adopted at the first stage of appeal. After having heard their arguments; we are convinced that in view of facts and circumstances of the case, assessee had to retain its office and incur certain expenditure even during the period it did not earn any income from contract. Here we would like to refer to a case reported as (1969 ITR 118) (M.H.C.), relevant portion of which is reproduced as under:‑‑

"The company may not obtain or be able to execute a single business contract for months and yet it may be deemed td carry on its business, if during the period of lull and inactivity it is kept alive and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern, though it may for some time, be quiet and dormant. The mere fact that a businessman has not been in that sense dormant would not mean that it has ceased to exist, if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful. How long he shall remain in the hope and in what manner he must carry on his work to gain success is primarily his own concern. The mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purpose of his business."

8. In view of the aforementioned authority and facts of the case; we confirm the order of the learned CIT(A).

9. As a result, the departmental appeal fails and is hereby rejected.

C.M.A./676/Tax(Trib.)Appeal rejected.