2007 P T D (Trib
2007 P T D (Trib.) 2237
[Income-tax Appellate Tribunal Pakistan]
Before Khawaja Farooq Saeed, Chairperson and Liaqat Ali Khan, Accountant Member
I.T.As. Nos. 252/PB to 255/PB of 2004, 124/PB, 197/PB, 198/PB, 180/PB of 2003, 800/PB, 800-A/PB of 1999-2000, 294/PB of 2004 and 230/PB of 2003, decided on 21/12/2006.
(a) Income tax---
----Provision for ball debt---Addition of---Assessee, a Bank---Assessing Officer was directed to accept the appellant/bank's -claim of bad debts being the issue having finally settled by the Appellate Tribunal and the orders of two forums below were vacated.
1991 PTD 569; 2003 PTD (Trib.) 228; (2002) 85 Tax 245 (Trib.); I.T.A. No.1066 to 1073/LB, 1084 to 1091/IB of 2004, rel.
(b) Income tax---
----Income---Transactions---Assessee, a Bank---Accounting entries as a result of adoption of a certain method of accounting system by taxpayer was not the determining factor alone for certain transactions to become income but each case had to be distinguished by its own facts and circumstances.
I.T.As. Nos. 306, 308 of 1999 and 785 of 2000 rel.
(c) Income tax---
----Income accrued as a result of method of accounting---Assessee, a Bank---Where income actually had not been received but had accrued as a result of the method of accounting adopted by the assessee, same will not constitute income.
(d) Income Tax Ordinance (XXXI of 1979)---
----S.23---Deduction---Assessee, a Bank---Mark-up in suspense account (Non-performing loans)---Addition of---Outcome of amendment in S.23 of the Income Tax Ordinance, 1979 was realization by the legislature to provide relief to such legitimate claims of hardship, where actually no income had arisen to the assessee---Amount of mark-up in suspense account was liable to taxation merely on the basis of accounting +.entries---Addition made to assessee's income of the amount of mark-up placed in suspense account was ordered by the Appellate Tribunal to be deleted.
1992 SCMR 1652; 1993 SCMR 73; (2002) 85 Tax 245 (Trib.); I.T.A. No.3432/IB of 2000; I.T.A. No.2127/IB of 2000; I.T.As. Nos.341 to 340/IB of 2002 and I.T.As. Nos. 69 and 70/PB of 2001-02 ref.
(1962) 46 ITR 144 and I.T.As. Nos. 306, 308 of 1999 and 785 of 2000 rel.
(e) Income Tax Ordinance (XXXI of 1979)---
----S.23(xxi)---Deduction---Assessee, a Bank---Deletion of additional mark-up in suspense account---Appeal on the issue had no merit as the provisions of S.23(xxi) of the Income Tax Ordinance, 1979 stood amended w.e.f. 1-7-2000 by which a banking company was entitled for claiming such allowance as deduction.
(f) Income tax---
----Parameters for allowing provision for. gratuity, bonus and bad debts are that it should be ascertained liability; that it should be as per rules and regulation and terms of agreement relatable to said entity; that it .should be as per normal methods of account maintained by such organization and that any ascertainable accrued liability was deductible under Mercantile System of Accounting.
(2000) 87 Tax (Trib.) (sic) rel.
(g) Income Tax Ordinance (XXXI of 1979)---
----S.24(g)---Deductions not admissible---Assessee, a Bank---Provision of staff retirement gratuity---Disallowance of---Assessing Officer was not correct to disallow the provision of gratuity as inadmissible---Addition was deleted by the Appellate Tribunal in the light of decision and parameters fixed in this regard by the Appellate Tribunal.
(2000) 87 Tax (Trib.) (sic) rel.
(h) Income Tax Ordinance (XXXI of 1979)---
----S.24---Deductions not admissible---Assessee, a Bank---Disallowance of concessionary loan advance to members of staff---Addition was deleted by the First Appellate Authority---Issue had been settled and order of First Appellate Authority was confirmed by the Appellate Tribunal
I.T.As. Nos.1066 to 1073 and 1084 to 1091/IB of 2004 rel.
(i) Income tax---
----Allocation of expenses under the head exempt income---Assessee, a Bank---Expenses related to exempt income which the department objected to its deletion by the First Appellate Authority being inadmissible under the law and the assessee to prorating of expenses between exempt income and taxable income by First Appellate Authority through matching principle and addition under this head had been confirmed---Validity---Judgment referred was clear on the question of apportionment of expenses between exempt capital gain and income earned from the business operation---Departmental appeal failed and that of assessee's was accepted by the Appellate Tribunal.
I.T.As. Nos.1066 to 1073 and 1084 to 1091/IB of 2004 rel.
(j) Income Tax Ordinance (XXXI of 1979)---
----S.156---Rectification of mistake---Cancellation of order made under S.156 of the Income Tax Ordinance, 1979 was unjustified as the department was giving appeal effect to the decision of High Court through rectification order---Facts -were that while giving effect, the Assessing Officer had made addition to expenditure proportionately to normal income and income from NIT which resulted in curtailment of expenditure allowed in the original order under S.62 of the Income Tax Ordinance, 1979---First Appellate Authority found that there was no mistake floating on `the surface of record, which was unjustified rectification, but instead the Assessing Officer had changed his mind---Bank business being composite activity could not be bifurcated into sub-trade for computing income and expenditure could not be apportioned between two incomes---Order was held to be illegal and cancelled---Order of First Appellate Authority was confirmed by the Appellate Tribunal.
I.T.As. Nos.1066 to 1973 and 1084 to 1091/IB of 2004. 1975 PTD (Trib.) 63 rel.
(k) Income tax---
----Charge of concessional rate on NIT dividend income---Concessional rate @ 5 % on dividend income of bank from NIT was allowed by the First Appellate Authority---Order of First Appellate Authority being based on the decision of Appellate Tribunal was confirmed by the Appellate Tribunal.
I.T.As. Nos.17 and 18/PB) of 1998-99 rel.
(l) Income Tax Ordinance (XXXI of 1979)---
----S.62---Assessment on production of accounts, evidence etc.---Addition in Profit & Loss expenses---Expenses under Profit & Loss Account had been disallowed without pointing out any specified defects through notice under S.62 of the Income Tax Ordinance, 1979 which were responded to by providing of vouchers to the department---Assessing Officer was duty bound to point out defects---Arbitrary disallowance without giving any specific reasons or pointing specific defects was not permissible---Case of assessee-Bank was that where system of accounting was maintained and all payments were routed through the vouchers and strictly audited periodically with the element of unverifiability remote, treating it as a no account case was not proper---Additions were deleted by the Appellate Tribunal.
(m) Income tax---
----Sale of vehicle---Sales price was not accepted by the Assessing Officer being less than market as the sales had been made to employees to the bank both serving and retired---Addition of sale price was reduced by the First Appellate Authority---In view of conflicting claims, the matter needs to be looked into afresh ensuring that depreciation claimed on vehicle was not more than the prescribed cost and to follow the relevant provisions of law---Case was set aside on the point by the Appellate Tribunal.
(n) Income tax---
----Amortization of expenses deferred---Bank (assessee) claimed amortization of expenses @ 20% of total cost to be amortized in five years---Disallowance of---Assessee contended that it was State Bank of Pakistan's requirement to computerize the banks operations, such an expense was incurred and the amount was to be amortized over five years---Validity---Held, there was no provision in the Income Tax Ordinance, 1979 for amortization of expenses though the Income Tax Ordinance, 2001 had provided for the same---Claim of the assessee/bank had rightly been rejected by the Assessing Officer---Assessee/bank was at liberty to claim depreciation of such items under the relevant provisions of law.
(o) Income tax---
----Claim on account of short recovery from customers---Assessee, a Bank---Bank from one of its customers received a short recovery from his loan liability and the amount stood written off---Claim was disallowed---Validity---Held, the .amount stood written off and addition made was unjustified and the same was deleted by the Appellate Tribunal.
Abdul Ghafoor, F.C.A./A.R. for Appellant.
Muhammad Ali Shah, D.R. for Respondent.
ORDER
These 12 cross-appeals, seven by the appellant-Bank and five by the Department far assessment years 1994-95, 1995-96, 1996-97, 1997-98, 2000-01, 2001-02, 2002-2003 ara4 1996-97 under section 62 and 1996-97 under section 156 and 2000-01, 2001-OZ and 2002-03, respectively on the following grounds:---
Appellant's main grounds:---
*Provision for doubtful debts.
*Mark-up suspense account (Non-performing loan).
*Concessional rate of tax @ 5% on nit dividend income.
*Provision for staff retirement gratuity.
*Concessionary loan to staff members.
*Allocation of expenses to exempted income.
*Disallowance of profit and loss expenses.
* Remanded back the issue of addition under section 24(c) regarding payment of mark-up to non-resident Financial Institutions.
*Other income from auction of vehicles.
*Amortization of deferred cost.
*Actual bad debts on account of short recovery from customer.
Departmental objections:---
*To the setting aside of assessment on the point of addition under section 24(c) of the repealed Income Tax Ordinance, 1979.
*Setting aside of assessment on the disallowance under the head "payment of interest to foreign institutions".
*Setting aside of assessment on the status assigned to assessee.
*Deletion of addition under the P&L expenses.
*Cancellation of order under section 156 for A/year 1996-97.
*Direction for taxing NIT dividend income @ 5%.
*Deletion of addition on account of capital gains.
*Deletion of addition on account of interest free concessional loans to employees.
*Deletion of addition on account of interest free concessional loans to employees.
*Deletion of add-backs made under the head staff retirement benefits (Provident funds and gratuity).
*Remanding the case on the issue of non-performing advances.
*Deletion of add-backs in the P&L account.
*Deletion of interest credited to the suspense account.
*Deletion of addition from sale of vehicles.
*Deletion of addition under the Amortization of deferred cost.
2. Brief facts are that the appellant is banking company owned by the Government N.-W.F.P. The income declared and assessed as per assessment orders was contested before the C.I.T.(A)(A). Peshawar who disposed of these appeals in dispensing partial relief, setting aside and confirming some of the issues. Both parties having been aggrieved in appeal on the grounds narrated above. These cross-appeals are being disposed of by this consolidated order.
3. Both parties are represented. Mr. Abdul Ghafoor, F.C.A. for the appellant and Mr. Muhammad Ali Shah, D.R. for the department heard.
Provision for Bad Debt.
4. For the Assessment years 1997-98, 2000-01, 2001-02 and 2002-03, the appellant/Bank has assailed the order of C.I.T.(A)(A) for confirming addition of provision for bad debt by Assessing Officer. The L/AR of the appellant contended that in case recovery of loan becomes doubtful the banking companies are required to make provision of such doubtful/bad debts in their Financial statement. This provision is in line with prudential regulations of the State Bank of Pakistan. In case of recovery is either of full amount or part of it, the same is declared in the income tax return and offered for taxation in that year. It was also argued that while disposing of the case the two forums below had not appreciated the facts and law and wrongly disallowed the claim. The main focus of the A.R.'s argument was that it is now settled issue that provision for bad debts is an allowable deduction and the matter has been authoritatively decided in number of cases. Reliance has been placed in reported cases.
1991 PTD 569, 2003 PTD (Trib.) 228, (2002) 85 Tax 234 and I.T.As. Nos.1066 to 1073/LB of 2004
The issue having finally been settled in these cases as well as by order in the case of Muslim Commercial Bank vide I.T.As: Nos.1066 to 1073, A 1084 to 1091/IB of 2004 dated 22-12-2004; therefore, the orders of two forums below are vacated. The Assessing Officer is directed to accept the assessee/appellant's claim of the bad debts.
Mark-up in suspense account (non-performing loans)
5. The appellant/bank in these identical grounds pertaining to assessment years 1994-95 to 1996-97 and 2000-01 has claimed the admissibility of mark-up on non-performing loans, which has been disallowed by both forums below. 'This item of expense the A.R. explained was on account of Mark-up calculated on stuck up or sticky loans where chances of recovery are minimal. The bank instead of crediting these amounts to accrued income head credited it to with other liabilities under separate sub-head "Mark-up suspense Account" and on the other side debited other assets under the sub-head income mark-up recoverable. If subsequent at any stage the same mark-up is totally or in part recovered the same is offered for taxation in the year income in which it is received. This is an accounting arrangement, which is in compliance and in accordance with State Bank of Pakistan prudential regulations. The Taxation Officer and C.I.T.(A) the A.R. contended, 'had not appreciated the law and facts and wrongly disallowed it as expense under section 23(1)(xxi). It .was further argued that the amendment in the law w.e.f. 1st July, 2000 for allowing such mark-up as an expense could be applied retrospectively. Reliance was placed upon Supreme Court of Pakistan decision, (i) Order No.1992 SCMR 1652 and (ii) Order No. 1993 SCMR 73.
6. The other cases referred where markup on suspense account is treated as allowable deduction (i) (2002) 85 Tax. 245 (Trib.), (ii) I.T.A. No.3432/IB of 2000 (iii) I.T.A. No.2170/KB of 2000 and (iv) I.T.As. Nos.341 to 340(PB) of 2002 on the basis of these decisions the A.R. argued additions made under section 239(e)(xxi) may be deleted.
7. However, this stated position of the appellant's A.R. was discarded by the ITAT, Peshawar Bench in its own case for the assessment years 1998-99 and 1999-2000 in I.T.As. Nos.69 & 70(PB) of 2001-02, which fact the A.R. failed to disclose before this Bench at the bar. Discarding the application of beneficial amendment in section 23 of the repealed Income Tax Ordinance, 1979, retrospectively, it was held that since an effective date was given for its application, it could not be applied for the preceding years. The operative portion of the said order is reproduced--
"In the above quoted case-law it reveals that the insertions of subsection (6) to section 18A of Income Tax Act, 1922 and clause (8) of Part 1st of the 2nd Schedule to the Income Tax Ordinance, 1979 are of curative and clarificatory nature, through these no new rights or obligations have been created. Also the date of effectiveness has not been specified.
Whereas insertion of clause (xxi) to subsection (1) of section 23 to Income Tax Ordinance, 1979 not .being curative or clarificative but of substantive in nature with specific date of effectiveness i.e. on or after 1st day of July, 2000, with unambiguous intendment, whereas it is settled principle of law that the fiscal statute should be construed in its strict sense if a new enactment has been made or a new definition is added or a deeming provision is inserted or the scope of a provision particularly a substantive/charging provision is enlarged or extended it shall not have the retrospective effects until and unless specifically specified so by the legislature, whereas in the present matter the insertion being of substantive nature having specific date of operation i.e. on or after 1st day of July, 2000 leave no room of ambiguity about its date of operation. In this context we are of the view that it would operate prospectively. So in the light of above discussion we are not inclined to accept the plea of assessee, therefore, the impugned finding is upheld. "
Notwithstanding the fact that the above judgment does not favour the appellant but we are of the considered view that the factual legal-aspect of the case has not been considered adequately. The creation and maintenance of separate account under sub-heading "Suspense Account" is an accounting arrangement to separate the good debt from bad. This account represent the transferred amount of mark-up of cases of non-performing loans. Since there is possibility of recovery in future, this dormant accumulation remains on books, and not struck off totally. For the purpose of taxation, the amount in this account is irrecoverable amount of mark-up and not, income. Creation and maintaining such suspense account is in accordance with prudential regulations of the State Sank of Pakistan. The department on the other hand considered the amount of mark-up in suspense account as income as it has accrued due to the appellant adopting of mercantile system of accounting. This may be true theoretically, but realistically not to as the amendment to section 23- of repealed Income Tax Ordinance, 1979 was made with this realization in mind by the legislature to provide relief to such genuine hardship cases, as to allow mark-up in suspense account as an allowable .deduction. Insofar as the accounting entries are concerned, these are made, as a part of the requirement .for maintenance of the system of accounts adopted by the appellant mercantile in this case. The amount as a result of these entries is not the actual income, which can be offered for taxation. However, it does not prevent the taxation authorities from taxing such amount when it is received subsequently. This issue has been addressed in the reported case of the Indian Supreme Court cited as (1962) 46 ITR 144 (SC India), wherein it was held:
"Accounting entry cannot become income unless income has actually resulted. Income taxis a levy on income. No-doubt, the Income .Tax Act takes into account two points of time at which the liability of tax is attracted, vis-a-vis, the accrual of income or its receipts, but the substance of the matter is the income. If income does not result at all, there cannot be a tax even though in book keeping an entry is made about a `hypothetical income', which does not materialize where income has, in fact been , remained the income of the recipient even though given up, the tax may be payable. However, the income can be said not to have resulted at all there is obviously neither accrual nor receipt of income, even through an entry to that effect might, in certain circumstances, have been made in the books of account---"
The question of whether the accounting system adopted by the taxpayer would finally determined the taxability of certain transactions on its basis was thrashed out by the Sindh High Court in case reported as I.T.As. 306, 308 of 1999 and 785/2000, wherein it has been held, that apart from two systems of accounts i.e. mercantile system where receipts are considered on accrual and cash system where actual receipts forms' the basis of income, the taxpayer is at liberty to adopt or maintain a third system i.e. hybrid method where the element of both the systems are present. It is a recognized system and could be adopted. Therefore, while deciding cases of sticky loans, the yard stick for it would not be the certain system of account that has been adopted, mercantile in the case of bank but recoverability of debt is claimed on cash based system, the latter cannot be disallowed because of it. The tax authorities are required to determine the issue on case to case, basis by taking into consideration their individual facts and circumstances.
9. The above reported case has therefore, laid down the parameters, that accounting entries as a result of adoption of a certain method of accounting system by a taxpayer is not the determining factor alone for certain transactions to become income but each case has to be~ distinguished by facts and circumstances.
10. We have considered facts, the argument of the A.R. as well as perused the relevant case law in this regard and are inclined to agree to the reasoning offered above that in such cases where income actually has not been received but has accrued as a result of the method of accounting adopted by the appellant will not constitute income. The subsequent amendment in section 23 of the repealed Income Tax Ordinance, 1979 the outcome of which was realization by the legislature to provide relief to such legitimate claims of hardship, where actually no income has arisen to the appellant. Therefore, the amount of mark-up in the suspense account is liable to taxation merely on the basis of accounting entries. Hence, the addition made to the appellant's income of the amount mark-up placed in suspense account is hereby ordered to be deleted.
11. Regarding the departmental appeal on the deletion of additional mark-up in suspense account for assessment years 2001-02 by C.I.T.(A) has no merit as the provisions of section 23(xxi) stood amended w.e.f. 1-7-2000 by which a banking company is entitled far claiming such allowance as deduction. The departmental appeal fails.
Staff Retirement Gratuity (Assessment years 2000-01 & 2001-02).
12. The claim of provision of staff retirement gratuity has been disallowed by the Assessing Officer under section 24(g) of R.O. 1979 as a sum paid to an unapproved gratuity fund. The L/AR on the other hand contended that the Bank is running a staff retirement gratuity scheme and provision for it is made from year to year. From the 1-2-2001 a Gratuity Trust Fund was created and the amount lying in the gratuity account was being transferred to this Trust Fund's account. Moreover, the scheme has also been approved on 12-6-2003. The A.R. contended that the Assessing Officer was not justified to disallow this amount as this was allowable expense being an ascertained liability. Reliance was placed on reported case.
Case referred to (2000) 87 Tax (Trib.) (sic)
"Practically speaking in the case of provision for gratuity, provision for bonus and provision for bad debts. The opinion of the Hon'ble Superior Courts has remained almost identical. The .parameters for allowing these provision in the said judgment are:---
(i) That it should be ascertained liability.
(ii) It should be as per rules and regulation and terms of agreement reliable to said entity and
(iii) That it should be as per normal methods of account maintaining by such organization.
"That any ascertainable accrued liability is deductible under Mercantile System of Account."
The L/AR of the appellant further argued that the liability is not only ascertained liability but it is actual payment by the bank to the Gratuity Fund Account. Which is more than the concept of ascertained liability.
Viewed in the light of observations of the above decision and the parameters fixed thereto, we are inclined to agree with the contention of the A.R. that the Assessing Officer was not correct to disallow the provision of gratuity as inadmissible. The addition made is therefore, deleted.
Disallowance of concessionary loan advanced to members of staff:
Loans advanced to staff members amounting to Rs.119,220,123 under various heads were treated to be concessionary as different interest rates ranging from 11 % to 16% were charged. Such variation was treated to be concessional and discriminatory, which in rupee terms came to Rs.10,789,523 was added to the income of appellant/bank being the concession allowed. Interest free loan was not considered to be a facility which the bank could offer to its employees. The Learned C.I.T.(A) deleted the addition. A.R. has argued that it was concessional loan but not without interest, but different rates were charged. Loans to employees is the norm and not an exception. Both private and public sectors, have schemes to provide staff loans to its employee. In case of banks it is more prudent to advance loans, which is what banks do. Nevertheless in our culture of bank loan defaults it is more secure to advance to one's employee where recovery is more secure. This issue has been settled in the case I.T.As. Nos. 1066 to 1073 and 1084 to 1091/IB of 2004, dated 22-12-2004 and on this point order of learned C.I.T.(A) is confirmed and the departmental appeal fails.
Allocation of expenses under the head exempt income
14. The above relate to exempt income expenses which the department object to its deletion by C.I.T.(A) in 1996-97 being inadmissible under the law and the appellant/assessee to prorating of expenses between exempt income and taxable income by C.I.T.(A) through matching principle and addition under this head has been confirmed. Department has contended as grounds of appeal. The A.R. of the .appellant argued that matter has been decided in' the above reported case.
15. The above-referred case-law (I.T.As. Nos.1066 to 1073 and 1084 to 1091/IB) is crystal clear on the question of apportionment of expenses between exempt capital gain and income earned from the business operation. The department appeal for 1996-97 fails and that of assessee/appellant is accepted.
Cancellation of order under section 156:
16. The department for assessment year 1996-97 has assailed the order of learned C.I.T.(A) for cancelling the order made under section 156 being unjustified, as the department was giving appeal effect to the decision of Hon'ble High Court, Peshawar through this rectification order. Facts are that while giving effect, the Assessing Office, had made addition to expenditure proportionately to normal income and income from NIT. This resulted in curtailment of expenditure allowed in the original order under section 62 by Rs.76,425,267. The learned C.I.T.(A) while deciding the issue held that there was no mistake floating on record, which is unjustified rectification, but instead the .Assessing Officer had changed his mind. J Relying on the decision of ITAT in the appellant's case reported as 1975 PTD (Trib:) 63 held that bank business being composite activity cannot be bifurcated into sub-trade for computing income and expenditure cannot be apportioned between two incomes. This order was held to be illegal and cancelled.
We are persuaded to agree with the findings of learned C.I.T.(A) based on earlier decision cited as well as this Tribunal decision in the case of MCB I.T.As. Nos.1066 to 1073/IB of 2004 and confirm his order. The departmental appeal has no merit and fails.
Charging of Tax Concessional Rate of 5 %
on NIT Dividend Income (1996-97)
17. The department has challenged the order of learned C.I.T.(A) on the issue of allowing concessronal rate @ 5 % on dividend income of the appellant bank from NIT. The DR contested that it was unjustified action of the First Appellate Authority. The AR of appellant contended that this issue stands decided in the case of respondent-bank for the assessment year 1994-95 and it is strange to understand that when the department is following the ITAT decision for other years, why appeal has been filed for this year.
We have considered the facts and the order of learned C.I.T.(A) which is based on the decision of ITAT in the case cited as I.T.A. L No.17-18(PB) of 1998-99 in the appellant's own case and agree with its finding and therefore confirm his order. The departmental appeal fails on this point.
Addition/Deletion in Profit &Loss Expenses:
18. Expenses under P&L account have been disallowed without pointing out any specific defects through notice under section 62 which were responded to by providing of vouchers to the department. Assessing Officer was duty bound to point out defects. Therefore, arbitrary disallowance without giving any specific reasons or pointing specific detects is not permissible. Moreover, it is case of Bank where system of accounting is maintained and all payments are pouted through the vouchers and strictly audited periodically with the element of unverifiability remote. Hence, treating it as a no account case is not proper. The additions made are, therefore, deleted..
Addition under section 24(c) Regarding payment of Mark-up to Non-Resident Financial Institutions:
19. Payment of mark-up to non-resident financial institution; the department has challenged deletion of the C.I.T.(A). Reference has been made to I.T.As. Nos. 74 and 75(P) of 2001-02 regarding rulings on the issue. Before the matter is disposed of the status of foreign creditors may be ascertained and the case was set aside by the above ITAT order. Since nothing specific is being said in this year on the matter blanket addition and the matter still undecided. It would, therefore, again be proper to remand the case back to the Assessing Officer for fresh adjudication with direction that the requirements of the provisions of section 50(2A) as well as the relevant ante-dated Circular on the subject are taken into consideration before the matter is disposed off.
Issue of other income from auctioned vehicles:
20. Income from sale of vehicle under the head other income was declared, which the Assessing Officer did not accept the sale price being less than market as the sales had been made to employees of the bank both serving and retired. In appeal, the addition of sale price was reduced by the C.I.T.(A).
21. The learned A.R. of the appellant contended that entire proceedings pertaining to the disposal of the vehicle was done in a transparent manner by following all Codal formalities. The auction of the vehicles was advertised and sold to the highest bidder in an open auction in the presence of the auction committee constituted for this purpose by the bank. Therefore, fixing of prices is unjustified, when proper auction was conducted. Hence, the claim be allowed. Notwithstanding the fact that appellant assessee is the best Judge of its affairs and not the department to advise on to how to conduct its business. However, in view of the conflicting claims of both parties, the matter needs to be looked afresh ensuring that depreciation claimed on vehicle is not more than the prescribed cost and to follow the relevant provisions of law in this regard. The case on this point is set aside with the above directions.
Amortization of deferred:
22. Appellant-bank has claimed amortization of expenses @ 20 % of total cost to be amortized in five years. The taxation officer disallowed being inadmissible under the law. The C.I.T.(A) as per contention of the appellant did not give any finding. It has been argued at the bar that it is State Bank of Pakistan's requirement to computerize the banks operations. Hence, such an expense was incurred and the amount was to be amortized over five years. The matter has been considered. There was no provision in the repealed law for amortization of expenses though the new Ordinance has provided for the same. Therefore, the claim of the appellant has rightly been rejected. However, the appellant is at liberty to claim depreciation of such items under the relevant provisions of law.
Claim on account of short recovery from customers:
23. The AR of the appellant explained that the bank from one of its customers had received Rs.31,88,000 as short recovery from his loan liability and the amount stood written off. Both the officers below had disallowed the claim. However, the learned C.I.T.(A) before disposing of the appeal was required to ascertain that the liability, which had actually been written off therefore, could be claimed as an expense. The issue having been considered, as the amount stood written off and therefore, the addition made is unjustified, accordingly deleted.
As a result, these appeals are disposed of as indicated.
C.M.A./84/Tax(Trib.)Order accordingly.