I.T.A. No.1535/KB of 2005, decided on 26th January, 2007. VS I.T.A. No.1535/KB of 2005, decided on 26th January, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 1665 (2007)

(a) Income Tax Ordinance (XLIX of 2001)---

----S. 122---Income Tax Ordinance (XXXI of 1979), S.62---Amendment of assessment---Disallowance---Sales tax paid under Sales Tax Amnesty Scheme was disallowed on the ground that assessee breached provisions of Sales Tax Law and paid the Sales Tax for two earlier years as a consequence of breach of Sales Tax Law and any such expense which was tainted with illegality could not be allowed as a lawful expense---Validity---Sales tax paid for availing the benefit of the Sales Tax Amnesty Scheme was not in the nature of penalty nor due to any infringement/breach of law---No interference was called for in the order passed by the First Appellate Authority by the Appellate Tribunal directing that Sales Tax paid be allowed as business expense.

2005 PTD 165; I.T.A. No.1058/KB of 2003; 1998 PTD 1985 and 1973 PTD 442 held not relevant.

I.T.A. No.1058/KB of 2003 and I.T.A. No.1299/KB of 2003 rel.

(b) Income-tax---

---Penalty---Sales Tax paid under the Amnesty Scheme could not be equated with any penalty.

I.T.A. No.1299/KB of 2003 rel.

(c) Income-tax---

---No account case---Expenses---Expense could only be claimed and allowed in the year it was actually paid in a no account case.

Fahimul Haq, D.R. for Appellant.

A.H. Faridi for Respondent.

Date of hearing: 13th January, 2007.

ORDER

This appeal has been filed by the Department against the order of learned CIT(A), Zone-III, Karachi, under section 122 of the Income Tax Ordinance, 2001. The following grounds have been raised as under:--

"(1) The CIT(A) has passed order without application of her conscious judicial mind and evaluating the stance taken by the Department and is devoid of reason 2005 PTD 165.

(2) The grounds of disallowances of Sales Tax paid for the previous year assessment year 2002-2003. Tax year 2003 is based on the principles that the assessee liable to pay sales tax deliberately did not pay the same in the relevant year, i.e. Tax year, 2004, so it cannot be claimed as an expense in the subsequent years.

The amount of Sales Tax has to be related back to the past years and not to the Year when the payment was actually made (1973) PTD 442 (Lah.).

The CIT(A) is totally misguided in this context and has created a biased situation not sustainable under law.

(3) The relevance of quoted case-law refers to the principles of allowability in case of sales tax paid in previous years, the reliance placed by the CIT on unreported case I.T.A. No.1058/KB of 2003, dated 20-5-2005 is misconceived and out of context. The case of the assessee is not of any additional tax paid in subsequent year, rather it relates to actual sales tax paid which was required to be paid in the previous years. The assessee has twisted the facts to suit its convenience."

2. The learned representatives of both the sides are present and have been heard in detail. The only issue in the departmental appeal for our consideration is "whether in the instant case the amount of sales tax payable for the earlier years but paid in Tax Year, 2004 under a Sales Tax Amnesty Scheme of the C.B.R. is an allowable expense in the Tax Year, 2004 or not". The Taxation Officer/Additional Commissioner disallowed the claim of sales tax on the ground the assessee breached provisions of sales tax law and paid the sales tax for two earlier years as a consequence of breach of tax law and any such expense which is tainted with illegality could not be allowed as a lawful expense. In support of his stance, the Taxation Officer/Additional Commissioner cited the case reported as 1998 PTD 1985. On first appeal, the learned CIT(A) accepted the assessee's contention that the sales tax paid for availing the benefit of the Sales Tax Amnesty Scheme was not in the nature of penalty nor due to any infringement/breach of law. Accordingly, the first appellate authority relying on the decision in an unreported decision of the ITAT in I.T.A No.1058/KB of 2003, dated 20-5-2005 directed to allow the sales tax of Rs.2,724,051 paid by the respondent as a business expense.

3. Admittedly, the impugned amount of sales tax was paid under the Sales Tax Amnesty Scheme announced by the Central Board of Revenue through Notification S.R.O. No.500(I)/2003, dated 17th June, 2003. We have no hesitation in holding that the sales tax paid under the said Amnesty Scheme cannot be equated with any penalty. Our opinion also gets supports from the ITAT's Order, dated 20-5-2005 in ITA No.1299/KB/2003 (assessment year 2001-2002). The case-law cited by the Taxation Officer/Additional Commissioner has rightly been held by the learned CIT(A) as not relevant to the assessee's case. The case-law cited before us by the learned DR as 1973 PTD 442 also does not support departmental stand. In this case, the taxpayer a registered firm maintained its accounts on Mercantile System and that is why the Hon'ble High Court held that the sales tax paid had to be related back to the proper year and not to the year when the payment was actually made. Whereas in the case before us the taxpayer has been assessed in the status of an "Individual" with method of account as `No Account'. In a No Account case an expense can only be claimed and allowed in the year it is actually paid. The other case cited by the learned DR as 2005 PTD 165 is also not relevant in the instant case since the learned CIT(A) has passed a detailed order and cannot be termed as `non-speaking order'.

4. In view of the foregoing, we hold that no interference is called for in the order passed by the learned CIT(A). Accordingly the appeal filed by Department is dismissed being devoid of merit.

5. The departmental appeal is disposed of as indicated above.

C.M.A./34/Tax(Trib.)Appeal dismissed.