I.T.As. Nos. 846(IB), 847(IB), 857(IB) and 858(IB) of 2006, decided on 5th April, 2007. VS I.T.As. Nos. 846(IB), 847(IB), 857(IB) and 858(IB) of 2006, decided on 5th April, 2007., 2007 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 2173 (2007)

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

----Ss.62/132/135 & 129---Assessment on production of accounts, evidence etc.---Assessment order was partly set aside---Demand on the basis of partly confirmed order---Legality---Assessing Officer followed correct procedure by way of issuing an appeal effect order which was based on partly confirmed assessment---Assessing Officer was fully justified to subsequently undertake regular proceedings for adjudication of set aside issues---No infirmity existed in the proceedings conducted by the Assessing Officer for finalization of assessment on issues which were set aside in appeal, it was a legal right of the department to recover the demand from the assessee which was confirmed in appeal---Assessment order was partly confirmed in appeal---Department hats a right to make recovery of tax demand which was payable by the assessee as a result of partly confirmed order---Assessing Officer was legally right to issue the appeal effect order which was accompanied by demand notice---Assessing Officer was duty bound to adjudicate the issues which were partly set aside in appeal.

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

----S.50(1)---C.B.R. Circular No.15 of 1997 dated 6-11-1997---Deduction of tax at source---Voluntary Separation Scheme or Golden Handshake Scheme---Non-deduction of withholding tax from payments released on account of Voluntary Separation Scheme in view of decision of High Court in which it was held that withholding lax was not deductible from such payments during the period in which appeals were pending against such decision---Addition---Validity---At the material time when payments were released by the lssessee on account of Voluntary Separation Scheme judgment of High Court was in place which did not allow any deduction of tax---Assessee could not make any deduction on provisional or tentative basis as it was expressly provided in the judgment of High Court that withholding tax was not deductible from payments made under Golden Handshake Scheme---Specific constraint was placed by the High Court on deduction of tax from such payments---Assessee at the time of making such payments had reasonable grounds to follow the decision of High Court which was holding the ground and which clearly provided that during the period under consideration tax should not be deducted from payments on account of Voluntary Separation Scheme---Reversal of said order was made later on and that ,judgments had opposite effect subsequent in time---After pronouncement of those judgments assessee started making deductions from payments released under the Golden Handshake Scheme---Assessee was not under legal obligation to make deduction of tax during the period under appeal because judgment of High Court was in place which clearly prohibited from making- deduction of withholding tax and it was immaterial as to whether or not the assessee was a party to litigation on the issue---Assessee could not be required to fallow the decision of Courts given at subsequent stages because those decisions were announced during the period subsequent to the period under consideration---Said decision could not be retrospectively applied by the department---Assessee should not have been driven by prudence and had made deduction of tax in anticipation of judgments in favour of revenue--Orders of both the authorities below were vacated by the Appellate Tribunal and addition was deleted.

Writ Petition No.2086 of 1999; I.C.A. No.241 of 2000; Writ Petition No.15266 of 1998; W.P. No.1973 of 2001; (2002) 85 Tax 332; {1969) 20 Tax 1; I.T.A. No.951(HQ)/1990-91; (1996) 73 Tax 132 (Trib.) acid (1998) 78 Tax 1 ref.

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

----S.23---Deductions---Consumable stores written off---Addition---First Appellate Authority observed that stationery destroyed and claimed as "assets written off" in respect of "consumable stores" had rightly been added back because the assessee admitted that' it did not have any documentary evidence in respect of weeded out consumable stores---Validity---Appellate Tribunal agreed with the Assessing Officer as well with the First Appellate Authority that assessee had failed to prove its claim with the help of evidence and details---Orders of both the authorities were not interfered which were confirmed and appeal on this point was rejected.

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

----S.24(i) & Second Sched., Part-IV, Cl. (3)---West Pakistan Industrial and Commercial Employment (Standing Order) Ordinance (VI of 1968)--Deductions not admissible---Perquisites, allowances and benefits of the employee of the Banking company---Addition of being not exempt from tax---Validity---Provisions of S.24(1) of the Income Tax Ordinance, 1979 were not applicable to any expenditure incurred by a Banking Company or a financial institution controlled by the Federal Government on the provisions of perquisites, allowances or other benefits to any employee in pursuance of law---Assessee was a government controlled financial .institution and was established with the object to manage and extend financial assistance to small business enterprises against proper securities and guarantees---Assessee was entitled to exemption from provisions of S.24(i) of the Income Tax Ordinance, 1979, in the light of protection provided in terms of Cl. (3) of Part-IV of the Second Schedule of' the Income Tax Ordinance, 1979---First Appellate Authority was justified to hold that no addition could be made in the case of such assessee---Order of First Appellate Authority was upheld by the Appellate Tribunal and appeal of the. Department was rejected being devoid of any merit.

Mirza Anwar Baig, A.R, for Appellant (in I.T.As. Nas.846(IB) and 847(IB) of 2006).

Muhammad Mumtaz, D.R. for Respondent (in I.T.As. Nos.846(IB) and 847(IB) of 2006).

Muhammad Mumtaz, D.R, for Appellant (in I.T.As. Nos.857(IB) and 858(IB) of 2006).

Mizra Anwar Baig, A. R, for Respondent (in I.T. As. Nos.857(IB) and 858(IB) of 2006).

ORDER

These appeals, have been filed by the assessee as well as by the Department against order dated 9-3-2006 passed 'by learned C.I.T.(A), Islamabad.

2. As per facts, the Small Business Finance Corporation (SBFC) was established in 1972 with the object to manage and extend financial 'assistance to small business enterprises against proper securities and guarantees. Returns were filed declaring income of Rs.5,54,58,598 (adjusted against BF losses) for assessment year 2001-02 and Rs.19,38,847 (loss) for assessment year 2UU2-03. Original assessments were finalized tinder section 62 wherein legal additions were made on account of provisions for non-performing assets write off on account of consumable stores. Voluntary Separation Scheme (VSS) and excess perquisites. The assessee filed appeals and learned C.I.T.(A) vide his order dated 29-3-2004 (for assessment year 2001-02) and dated 16-7-2004 (for assessment year 2002-03) confirmed the addition on account of non-performing assets whereas the assessment was set aside with respect to other legal additions for reconsideration and re-adjudication. In pursuance to orders of learned C.I.T.(A) appeal effect order under section 129 was issued on 7-4-2004 wherein only add back on account of provisions for non-performing assets (which was confirmed in first appeal) was communicated and no observations were recorded in respect of other additions which were set aside in 'first appeal. Subsequently, regular proceedings were started for finalizing the assessment on the points which were set aside in first appeal and additions as per original assessments were repeated vide order under sections 62/132/135 dated 20-6-2005 and assessment of income was made in the following manner:---

3. The assessee filed appeal and learned C.I.T.(A) vide impugned order dated 9-3-2006 deleted the additions on account of excess perquisites added under section 24(i), whereas other additions with regard to Voluntary Separation Scheme (both the years) consumable stores written oft (assessment year 2001-02 only,) were confirmed. The addition on account of recovery incentive was set aside. The assessee filed second appeal against the aforesaid order on the following grounds : ---

(i) The C.I.T.(A) erred in confirming the assessment framed under sections 62/132/135 dated June 20, 2005 without appreciating that the effect to the directions issued earlier was already given by Taxation Officer vide order under section 129 dated April 7, 2004.

(ii) The learned C.I.T.(A) has erred in confirming the addition made on account of "Voluntary Separation Scheme" for alleged non-deduction of tax under section 50(1) of the repealed Ordinance and

(iii) The learned C.LT.(A) has inadvertently set aside the issue of "Recovery Incentives" instead of deleting the same.

4. The department has also filed Second appeal for both the years on the common ground of deletion of addition under section 24(i).

5. Legality of assessment proceedings.-- At the time of hearing learned A.R, raised preliminary objection about legality of assessment proceedings stating that previously the then learned C.I.T.(A) set aside the order of the Taxation Officer on the issue relating to payment under "Voluntary Separation Scheme (VSS)" "provision of non-performing assets" "consumable stores" and "excess perquisites" vide order dated 29-3-2004. The Taxation Officer passed the order under section 129 of the Ordinance dated 7-4-2004 keeping in view the directions/instructions of the learned C.I.T.(A). Later on the learned Taxation Officer framed assessment order under sections 62/132/135 of the repealed Ordinance dated 20-6-2005. The said order as appearing from its subject appears to be in consequence to the order of the Hon'ble Tribunal No.318(IB)/2004 dated 10-10-2004. However, it deals with issues which were not raised, adjudicated or subject-mater of appeal before the learned Tribunal. The impugned order is ab initio null and void as the same could not have been issued to effectuate the order of C.I.T.(A) bearing No.6793/2004 elated 29-3-2004 as the same had already been given effect vide order elated 7-4-2004 issued under section 129 of the Ordinance. Further the same could not have been issued in pursuance to order of ITAT as only the issue of provision for non-performing assets was subject-matter of appeal and the same has already been given effect in the above referred appeal effect order. As such the rule of merger is restricted to the extent of a point or an issue, which is subject-matter in appeal. In this context learned C.I.T.(A) observed that the contention of the appellant that the order under sections 62/132/135 is not tenable in the eye of law has been examined. Learned C.I.T.(A) was of the opinion that:---

"It was a matter of rectification of mistake apparent from record as the Assessing Officer realized that he had committed the mistake of non-compliance to the full directions of C.I.T.(A). The assessment order was also silent about the set aside issues as the directions of C.I.T.(A) was not considered and the appeal effect was given in a hasty manner on 7th April 2004 to the appellate order dated 29th March, 2004. Hence, the revised order passed, is upheld to be legally correct, however, the section under which this order is passed is quite misleading as the Assessing Officer on realizing this mistake also gave the appellant au opportunity of being heard on set aside issues as directed by the C.I.T.(A). Strangely, though it cannot be understood as to why and how appeal effect was given in the First placer in such haste without going through the facts and directions of the C.I.T.(A) in the appellate order. However, two wrongs do not make Inc right. "

6. It was stated by learned A.R. that assessment order issued wider section 129 of the Ordinance, 1979 was itself an evidence of finalisation of, assessment proceedings and any order issued thereafter is infructuous because the pending assessments stood completed by virtue of previous order. It was stated that in these circumstances the Assessing Officer cannot re-assess the income and issue a fresh order because the assessment attains finality once a notice of demand is served upon the assessee. Learned D.R, stated that the arguments of learned A.R. are totally misplaced because it is a general practice of the Department that when an assessment order is partly set aside on some issues, it means that the remaining part of the assessment has been confirmed by the appellate authority. The tax demand based on partly confirmed assessment is collectable. The assessee is thus liable to pay such tax demand. In order to require the assesses to make payment of tax demand on the basis of partly confirmed order an appeal effect order along with demand notice is communicated as per general practice on the department. It does .not mean in any case, that the issues which were set aside, cannot be adjudicated. The set aside issues can be adjudicated after providing opportunity of hearing to the assessee. For this purpose statutory notices are issued before adjudicating the issues which were set aside for re-consideration. In this case the same practice was followed and at first stage appeal effect order in respect of partly confirmed assessment order was communicated along with demand notice whereas for the purpose of adjudicating the issues set aside in appeal regular proceedings were undertaken. Specific notices were issued and assessee's viewpoint was also considered before finalisation re-assessment under sections 62/132/135. Learned D.R. asserted that the Assessing Officer .conducted the assessment proceedings on legally correct lines but learned A.R. is trying to twist the points in such a manner which is neither according to law nor does the same appeal to logic.

7. We have given the consideration to arguments of both the parties on this point and we are inclined to agree with learned D.R. that the Assessing Officer followed a correct procedure by way of issuing an appeal effect order which was based one partly confirmed assessment. The Assessing Officer was fully justified to subsequently undertake regular proceedings for adjudication of set aside issues. There is no infirmity in the proceedings conducted by the Assessing Officer far finalisation of assessment on issues which were set aside in appeal. It is a legal right of the department to recover the demand from the assessee which is confirmed in appeal. In this case the assessment order was partly confirmed in appeal. The department has a right to make recovery of tax demand which was payable by the asscssee as a result of partly confirmed order. The Assessing Officer was, therefore legally right up issue the appeal effect order which was accompanied by the demand notice. Similarly, the Assessing Officer was duty bound to adjudicate the issues which were partly set aside in appeal. Learned C.I.T.(A) did not properly appreciate legal position of the matter and gave a wrong observation that Assessing Officer realised that he had committed the mistake of non-compliance of the directions of C.I.T(A) and he gave the appeal effect in a hasty manner. These observations of learned C.I.T.(A) are misplaced Communication of appeal effect in written form is not an assessment order. Assessment was made by the Assessing Officer when tic adjudicated the issues which were set aside for re-adjudication. Written communication of appeal effect was simply a requirement from the assessee for payment of tax demand confirmed in appeal In fact the Assessing Officer followed correct procedure while giving appeal effect at first stage and deciding the set aside issue at the later stage. At bath those stages the Assessing Officer quoted proper sections of the Ordinance under which the orders were released. There was no mistake or infirmity in the proceedings conducted by the Assessing Officer. Hence proceedings concluded by him for assessment under sections 62/132/135 are also according to law. Assessee's appeal on this point for being without any merit is rejected.

8. Voluntary Separation Scheme (VSS) or Golden Handshake Scheme (GHS).---As per accounts of the assessee payment of Rs.28,62,56,531 was released on account of Voluntary Separation Scheme during the period relevant to assessment year 2001-02 and during assessment year 2002-03 out of total amount of Rs.19,56,79,240 a sum of Rs. 1,46,58,380 was paid and remaining amount of Rs.18,20,860 was shown as payable. The Assessing Officer found that tax withholding under' section 50(1) was not made from these payments. He, therefore, for the reasons recorded in the assessment order made addition of the total amount including the payable amount. The assessee filed appeal against this addition, which was rejected by learned C.I.T.(A) vide impugned order. The assessee has filed second appeal contesting that the C.I.T.(A) has erred in confirming the addition on account of Voluntary Separation Scheme for alleged non-deduction of withholding tax under section 50(1) of the Income Tax Ordinance, 1979 (repealed). It was stated by learned A.R. that the assessee had not deducted withholding tax from payments released during the period from 1-7-2001 to 31-12-2001 from payments made on account of Voluntary Separation Scheme because in view of decision of learned Lahore High Court, Rawalpindi Bench in Writ Petition No.2086 of 1999 the withholding tax was not deductible from such payments. At the time of making such payment the taxpayer had reasonable grounds to believe and follow the aforementioned decision wherein it was held that tax was not deductible from such payments and it was further ordered that the income tax already deducted by the employers from the payments made to their employees under Golden Handshake Scheme shall not be paid to the Income Tax Department and shall be immediately refunded to the employees as per their entitlement and in cases in which the amount of income tax had already been paid to the Income Tax Department the same shall be refunded to the employers forthwith for payment to the concerned employees.

9. It was stated by learned D.R. that the Assessing Officer placed reliance on decision of Division Bench of Lahore High Court in I.C.A. No.241 of 2000 whereby order of Single Bench given in Writ Petition No.15266 of 1998 was set aside. It was further stated that the department moved a civil petition for leave to appeal vide No.114/498 and the final settlement of the issue came vide decision of Lahore High Court, Lahore in W.P. No.1973 of 2001 decided on 31-10-2001 wherein payments made under the Golden Handshake Scheme (GHS) were held liable to tax withholding under section 50(1) of the Ordinance. The order relied upon by the taxpayer neither decided the finally of the issue nor was it absolutely binding on the taxpayer in view of I.C.A. No.241 of 2000 as well as observation of Supreme Court. Hence prudence and caution demanded deduction of tax at source. The matter was pending final settlement with various Courts and by no stretch of imagination, its fate could be decided by the deduction authorities who were just silent spectators but at the same time under obligation to do what was required by law, fill the final settlement of the issue. In case Pinal decision would have been that payment under GHS was not to be treated as salaries it would have been the concern of the revenue how to refund the tax deducted and not the deducting authority. The Courts were not approached by the deducting authorities but issue was agitated- by the affected persons. The taxpayer should have deducted the tax as it was not one of the parties approaching the Courts and that only some of the affectees were approaching the Court. Thus Circular No.15 of 1997 required that payment under Golden Handshake Scheme (GHS) should be treated as salary subject to tax withholding under section 50(1) of the Ordinance.

10. Learned A.R, stated that initially Circular No.15 of 1997 was declared ultra vires but subsequently this decision was reversed. Decisions about applicability of withholding tax were given by Courts in the following order/manner:--

11. It was stated by learned A.R. that during the period under consideration the order of the Court in W.P. No.2086, of 1999 was holding ground. The reversal of decision vide I.C.A. No.241 of 2000 and (2002) 85 Tax 332 (HC) were subsequent in time and were only issued after payment of Voluntary Separation Scheme by the appellant. It was asserted by learned A.R. that it can be established without a scintilla of doubt that the order relied upon by the appellant was the order in field at the time when appellant made the payments under the Voluntary Separation Scheme. It is an established principle that the law as prevailing in the assessment year shall be applicable. The same has been duly endorsed in the decision of the Hon'ble Supreme Court of Pakistan reported as (196)) 20 Tax 1. As at the lime of making the payments earlier judgment of the Hon'ble High Court was effective and subsequent reversal will not affect the action which was bona fide and valid at the time of making related payments. Judgments of higher Courts have the force of precedents and are therefore, binding until the same are modified by the apex Courts. It was contended by the learned A. R. that the Tribunal in its judgment in I.T.A. No. 951(HQ)/1990-91 dated 5-8-1991 and in a case reported (1996) 73 Tax 132 (Trib.) had settled the principle of law that an appeal filed against a certain decision does not affect its finality as the same will have the Force of precedent until the decision to the contrary is given in appeal.

12. Learned A.R. asserted that as per the doctrine of precedents the decisions of apex Courts arc absolutely binding on subordinate Courts and the same do not lose their authenticity in anticipation of a subsequent contrary decision. The relied case-law having the force of law clearly requires the employer not to withhold tax at source. Hence the action of the appellant was within the four-corkers of law. It was not only prudent but also according to the spirit of the law that tax should not be deducted at source at the relevant point of time.

13. Learned D.R. stated that deducting authorities were not party to litigation and they were under obligation to deduct lax, till final settlement of the issue and that in case final decision would have been that payments under Golden Handshake Scheme were not to be treated as salaries it would have been the concern of the revenue how to refund the tax deducted and not the deducting authority. Responsibility to deduct tax is an additional duty of the deducting authority whereby it acts on behalf of the revenue. The responsibility to deduct tax at source arises when the recipient is liable to tax. It was within the competence of Assessing Officer to decide as to whether the recipients were chargeable to tax or exempt Prom tax withholding regime. The withholding agents were required to act according to law. It was asserted by learned D.R. that in view of decision of the apex Court the Assessing Officer had the discretion to decide as to whether payments made on account of Golden Handshake Scheme were subject to tax withholding.

14. Learned A.R. stated that order relied by the Assessing Officer was subsequent in time to the order reported as (1998) 78 Tax 1 (HC), hence the former will hold ground and will have the force of law. The Taxation Officer wrongly concluded that the said order allowed the Adjudicating Officer to decide the issue of taxation of payments received under the Golden Handshake Scheme independently of Circular No.15 of 1997. No such findings were given by the Court. In Pact Court excluded the payments made under the said schemes from the purview of taxation leaving no undecided issues requiring the adjudication by the Assessing Officer. Learned A.R. asserted that the payments made under Voluntary Separation Scheme were made in compliance with the decisions of the Hou'ble High Court which were applicable at that time.

15.. It was stated in response by learned D.R. that assessee should have been susceptible about the decision passed by the Court as similar issue was pending adjudication at various Forums and it was prudent for the assessee to deduct tax at source. He stated that it was usually affectees who were approaching the Courts and not the deducting authorities. Therefore, the decisions of the Courts had relevance only to the parties to the proceedings. Since the assessee was not in litigation before any Court of Law, it could not claim that decisions given by Courts in the cases of other assessees were also applicable to it. It was further stated that many financial institutions were snaking deductions at the time of making such payments, hence the assessee should also have done the same. It was further stated that the Courts of law had simply clarified the legal position relating to tax deducting from payments made on account of Voluntary Separation Scheme. This clarification related to the law which was already in existence and eventually the Hon'ble Supreme Court of Pakistan had also decided the issue in favour of the 'revenue. Learned D.R, emphasized that ultimately the higher Courts held that payments on account of Voluntary Separation Scheme were liable to withholding tax and the ratio of these judgments was also applicable during the interim period.

16. We have given due consideration to arguments of both the parties and we arc inclined to agree with learned A. R, that at the material time when payments were released by the assessee on account of Voluntary Separation Scheme judgment from High Court was in place which did not allow any deduction of tax. The assessee could not make any deduction on provisional or tentative basis. It was expressly provided in the .judgment of the High Court that withholding tax was not deductible from payments made under the Golden Handshake Scheme. A specific constraint was placed by the higher Courts on deduction of tax from such payments. At the time of making such payments the assessee had reasonable grounds to follow the decision of the learned High Court in W.P. No.2086 of 1999 which was holding the ground and which clearly provided that during the period under consideration tax should g not be deducted from payments on account of Voluntary Separation Scheme. The reversal of this order was made later on through I.C.A. No.241 of 2000 and .judgment reported as (2002) 85 Tax 332 (H.C.). Both the judgments having opposite effect were subsequent in time. After the pronouncement of these judgments the assessee started making deductions from payments released under the Golden Handshake Scheme. The assessee was, therefore, not under legal obligation to make deduction of tax from payments released under the Golden Handshake Scheme during the period wider appeal because a judgment of High Court was in place which clearly prohibited from making deduction of withholding tax. The High Court had in fact declared C.B.R.'s Circular as ultra vices. Hence it is immaterial as to whether or not the assessee was a party to litigation on this issue. The assessee cannot be required by the department to follow 'the decision of Courts given at subsequent stages because those decision were announced during the period subsequent to the period under consideration. Those decisions cannot be retrospectively applied by the department. There is no appeal in logic of Assessing Officer that assessee should have been driven by prudence and should have made deduction of tax. in anticipation of judgments in favour of revenue. In the light of this position we hereby vacate the order of both the authorities below and delete the addition under this head for both the years. hi this manner assessee's appeal on this point for both the years is accepted.

18(sic) Recovery incentives-assessment year 2001-02.---It was stated by learned A.R. that in order to expedite recovery of long outstanding loans the assessee offered certain percentage of recovered amount as commission to the staff making such recovery. It was stated that this incentive was offered to the concerned staff in order to motivate there to take some extra interest in recovery of stuck-up loans. This step of the company yielded results and expeditious recovery of old loans was made by the staff. A payment of recovery incentives' amounting to Rs.15,584,265 was made but the Assessing Officer added this amount to assessee's income. Appeal was filed against this treatment and it was observed by the learned C.I.T. (A) that recovery incentive of 'Rs.15,854,265 is taxable which is actually in the nature of commission paid to employees for recovery and is apart of the salary of the employees. The C.I.T.(A) directed the Assessing Officer to examine the contention of the appellant for the purpose of computing the disallowance under section 24(i) as it is the part of the salary being commission paid to the employees. It was stated by the learned A.R. that the said incentive represents and is in the nature of commission paid on percentage basis to certain officials of the taxpayers for the recovery of outdated loans. The definition of' "salary" for the purpose of section 24(i) of the Ordinance includes the commission paid to the employees. It was contested by A.R. that in view of the above it is evident that the expenditure under reference is in the nature of salary and should be included in the same.

19. It was stated by learned D.R. that learned C.I.T.(A) has simply set aside the issue for re-examination and assessee's viewpoint will be re-examined by the Assessing Officer during the course of fresh assessment proceedings. He stated that no prejudice is caused to the interest of assessee by the order of the learned C.I.T.(A) because another opportunity has been provided to the taxpayer as well as the revenue for re-examination and re-adjudication of this point.

20. We have given .due consideration to arguments of both the parties and we are inclined to agree with learned D.R. that this issue has simply been set aside by the learned C.I.T.(A) for re-examination and re-adjudication on the basis of merit. The assessee will be at liberty to explain its viewpoint along with necessary evidence and documents before the Assessing Officer during the course of re-assessment proceedings. We do not find any reason to interfere with the order of learned C.I.T.(A) which is hereby maintained and assessee's appeal on this point, is rejected.

21. Consumable stores written off assessment year 2001-02.--The assessee claimed a Burn of Rs.15,97,233 as deduction on account of consumable stores written off. The Assessing Officer required the assessee to file evidence in support of this claim. If was stated by the assessee that certain classified documents were weeded out. Evidence could not be filed because of secrecy. The Taxation Officer disallowed an amount of Rs. 1,597,233 under head by stating in the assessment order that the assessee failed to substantiate its claim with the help of any evidence whatever despite specifically requested. The Taxation Officer observed that as the assessee is a government owned corporation, if is beyond comprehension as to how such an amount can be deleted and the stores can be destroyed .without permission/written approval of directions from competent authorities. The explanation of the assessee was, therefore treated unsatisfactory and was rejected. Assessee contested this addition in appeal. Learned C.I.T.(A) observed that .the stationery destroyed and claimed as "assets written off" in respect of "consumable stores" has rightly been added back by the Assessing Officer because the appellant admitted that it did not have any documentary evidence in respect of weeded out consumable, stores. The C.I.T.(A) observed that in the first round of litigation his predecessor vide order No.6793 dated 12-2-2004 directed that verification of the claim of write off in respect of consumable stores he made and in case of failure to file evidence, the ''amount should be added back. He observed that this is second round of litigation and it is strange to note that no evidence was produced before the Assessing Officer with regard to this claim. The appellant is a Government Organization where every item is ledgerized and properly maintained. Since the appellant could not produce any evidence, to justify the expense the addition was confirmed.

22. It was stated by the learned A.R. that the Assessing Officer disallowed an amount of Rs.1,597,233 under the above head for want of proof/evidence. In this respect, it was stated that the said stores constituted stationary in the shape of Application Forms and Brochures for Self-Employment Scheme, Self-Employment Program, National Self-Employment Scheme and Youth Investment Promotion Society etc. However, the loan schemes were withdrawn and consequently the related printed material became irrelevant. Write off on this account was inevitable in view of irrelevance of the material The taxpayer is owned and controlled by the Federal Government, therefore, the printed stationery cannot be sold but is required to be weeded out for security purposes in order to avoid negative repercussions. It was admitted that documentary evidence/proof cannot be furnished in respect of items which were weeded out. It was also admitted that even the details of such materials could not be disclosed because of secrecy.

23. It was stated by learned D.R. that the assessee is a Government controlled company and is subject to different types and layers of audit including internal and external audit. The onus is on the taxpayer to prove that certain expenditure/deduction is not only genuine but also admissible under the law. In this case the assessee did not file any evidence in support of deduction claimed under this head. Neither any detail was provided in support of this case:

24. We have given the consideration to arguments of both the parties on this point and we are inclined to agree with learned D.R. that the assessee has failed to establish its claim relating to this deduction. The assessce is a government controlled .organization and it is not possible to believe that evidence or details at least arc not available for examination of the Assessing Officer. Even if the record has been weeded out necessary details in this regard were supposed to be maintained for official record. In the assessee is not prepared to furnish even the details relating to this point, however it expect the revenue authorities to accept this claim. We are, therefore, constrained to agree with the Assessing Officer as weal learned C.I.T.(A) that assessee has failed to prove its claim with the, help of evidence and details. In these circumstances we do not find any reason to interfere in the orders of both the authorities below which are hereby confirmed and appeals for both .the years on this point are rejected.

25. Addition under section 24(i)-assessment years 2001-2002 and 2002-2003.---The Taxation Officer invoked the provisions of section 24(i) with the observation that provision of clause (3) of Part-IV of and Schedule pertain to perquisites, allowances and benefits paid in pursuance of any law. These do not pertain to allowances perquisites and benefits paid by the employer under the terms and condition of employment and for the purposes of business and not under the law. On assessee's appeal learned C.I.T.(A) deleted the addition with the observation that the provisions of section 24(i) of the Income Tax Ordinance, 1979 do not apply to a banking company or Financial Institution owned and controlled by the Federal Government with regard to perquisites allowance or other benefits. The same are exempt under clause (3) of Part-IV of 2nd Schedule of Income Tax Ordinance, 1979. The appellant is a financial institution and its employees' terms are governed under the Industrial and Commercial Employment (Standing Order) Ordinance, 1968. Therefore, it qualifies for exemption under clause (3) Part-IV of 2nd Schedule. The department filed second appeal against this deletion. It was stated by learned A.R. that interpretation of the learned Taxation Officer that the allowances under consideration ware not paid in pursuance to law is contrary to the facts of the case and she provisions of the Ordinance. The Industrial and Commercial Employment Standing Orders Ordinance was enacted in 1968 to specifically address the relationship between employer and employee and the contract of employment. The Ordinance applies to all industrial and commercial establishments throughout the country employing 20 or more workers anal provides for security of employment. The referred Ordinance requires every employer in an industrial or commercial establishment to issue a formal appointment letter at the time of employment of each worker. The obligatory contents of each labour contract, if written are confined to the main terms and conditions of employment, namely nature and tenure of appointment, pay, allowances and other fringe benefits, terms and conditions of appointment. It makes quite evident that an employer is bound by law to pay the remuneration as structured in the contract of employment. In the instant case all the employees have entered into valid contracts of employment and thee. salaries/perquisites/allowances arc being paid in pursuance to same as required by .Industrial acid Commercial Employment (Standing Orders) Ordinance hence the contention of the Assessing Officer that the referred expenses were not paid under the cover of any law is without any legal footing.

26. It was stated by learned D.R. that learned C.I.T.(A) was not justified to delete the addition on this account because the assessce is not entitled to exemption in terms of clause (3) Part-IV of 2nd Schedule. Learned D.R. reiterated that the Assessing Officer had properly taken into account all the relevant factors and after careful consideration of the; matter came to the conclusion that exemption as contained in clause (3) of Part-IV of the 2nd Schedule is not applicable to this assessee.

27. We have given due consideration to arguments of both the parties and we are inclined to agree with learned A.R. that provisions of section 24(i) are not applicable to any expenditure incurred by a banking company or a financial institution controlled by the Federal Government on the provisions of perquisites allowances or other benefits to any employee in pursuance of law. The assessee is a government controlled financial institution and was established with the object to manage and extend financial assistance to small business enterprises against proper securities and guarantees. The assessee was therefore, entitled to exemption from provisions of section 24(i) in the light of protection provided in terms of clause (3) of Part-IV of the 2nd Schedule. Learned Assessing Officer did not appreciate these legal provisions in a correct manner. Learned C.I.T.(A) was fully justified to hold that in the light of aforesaid provisions of law no addition could be made in the case of this assessee under section 24(i). In the light of these facts we do find any reasons to interfere with the order of learned C.I.T.(A) on this point and the same is hereby upheld. Departmental appeal on this point for both the years being devoid of any merit is rejected.

28. All the appeals are disposed of in the manner and to the extent as indicated above.

C.M.A./66/Tax(Trib.)Order accordingly.