2014 PLP (Trib (PTD)

JAWAID MASOOD TAHIR BHATTI, CHAIRMAN.

Through these two appeals the appellant Bank has agitated against the two separate impugned orders of the Learned CIR(A) dated 15-7-2010 for the Tax year 2006 and order dated 1-2-2013 for the Tax Year 2012. For the Tax Year of 2006 following grounds have been framed by the appellant:- "(2) The CIR(A) has erred in maintaining the action of invoking the provisions of section 122(5A) of the Ordinance. (3) The CIR(A) has erred in maintain the disallowance of provision for diminution in value of investments amounting to Rs.8,298,

000. For the Tax Year 2006 and Rs.153,872.000 for the Tax Year 2012. This is not in line with provision of section 100A read with 7th Schedule to the Ordinance. (4) The CIR(A) has erred in maintaining the disallowance of claim of write off against provision for diminution in value of investments amounting to Rs.11,237,000 for the Tax Year 2006. (5) The CIR(A) has erred in maintaining the disallowance of net other provisions amounting to Rs.249,033,000 for the Tax Year 2006. (6) The CIR(A) has erred in maintaining the disallowance of claim of write off against other provisions amounting to Rs.642,991,000 for the Tax Year (7) The CIR(A) has erred in maintaining the disallowance of provision against off balance sheet obligations amounting to Rs.128,851,000 for the Tax Year 2006. (8) The CIR(A) has erred in maintaining the action of allowing amortization of intangible to the extent of Rs.2,010,000 for the Tax Year 2006. (9) The CIR(A) has erred in maintaining the disallowance over a period of 10 years resulting in addition of apportionment of expenses of Rs.575,987,397 against exempt capital gains and expense of Rs.137,610,851 against dividend income for the Tax Year 2006. (10) Without prejudice to ground No. 9 above, the CIR(A) has erred in not considering the specific facts and thus non-consideration of common expenses of Rs.137,610,851 allocated by the appellant against dividend income for the Tax Year 2006. (11) Without prejudice to grounds Nos. 9 and 10 above, the CIR(A) has erred in non appreciation of facts and maintaining the action of apportioning common expenses against capital receipt of Rs.162,468,800 against notional gain of Rs.173,780,000 and against dividend income from subsidiary companies of Rs.42,112,000 for the Tax Year 2006. (12) The CIR(A) has erred in upholding the action of the Additional Commissioner Inland Revenue in making addition of Rs.6,154,260 to income under section 21(k) for loans provided to executives at concessional rates of interest for the Tax Year 2006. (13) The CIR(A) has erred in maintaining the disallowance of initial allowance claimed under section 23 of the Ordinance of vehicles given on lease for the Tax Year 2006. (14) The CIR(A) has erred in maintaining the disallowance of foreign tax credit in respect of Azad Jammu and Kashmir (AJ&K) of Rs.2,923,981,060, for the Tax Year 2006 (15) Without prejudice to the Ground No. 14 above the CIR(A) has erred in holding the income on which credit under section 103 of the Ordinance was claimed i.e. 'foreign source income' as 'Pakistan source income'."

2. For the Tax Year 2012 in addition to some of common grounds the following grounds have also been framed by the appellant:-- "(3) Without prejudice to ground No. 2 above, the CIR(A) has erred in upholding the action of invoking the provisions of section 122(5A) as there is no error prejudicial to the interest of revenue. (4) The CIR(A) has erred in not correctly appreciating the underlying concept that income profit and gains of banking companies is to be determined in accordance with section 100A read with the seventh schedule to the Ordinance. It does not provide for any addition to income as prepared for the purpose of the seventh schedule to the Ordinance. The decision of the High Court in the case reported as 2011 PTD 2042 has been incorrectly relied. (5) The CIR(A) has erred in maintaining the incorrect action of the ACIR whilst application of the provisions of Rule 1(c) to determine the charge for non-performing Loans. The amount had been determined on the basis of 1 percent and 5 percent of 'Total Advances' resulting in increase in income of Rs.636,777,000. (6) The CIR(A) has erred in maintaining the disallowance of Reversal Provision claim of Rs.1,231,410,000 (7) Without prejudice to ground of Appeal No. 6 above the CIR(A) has erred in not deleting the disallowance of the claim of Rs.816,117,000 under Rule 8A of the seventh schedule to the Ordinance. (8) The CIR(A) has erred in maintaining the disallowance of expense of Rs.2,755,439,000 on account of investment in Bank PHB Plc, Nigeria under the seventh schedule to the Ordinance. This has resulted in double taxation of amount as the related provision was disallowed in prior year. (9) The CIR(A) has erred in maintaining the disallowance of the charge for impairment of investments amounting to Rs.848,279,

000. This is not in line with provision of section 100A read with seventh schedule to the Ordinance. (10) The CIR(A) has erred in maintaining the disallowance of claim of reversal out of provision out of impairment in value of investment amounting to Rs.111,420,

000. This provision was disallowed in prior years hence resulting in disallowance in duplicate. (11) The CIR(A) has erred in misinterpreting the provisions of sections 21(e), (f) and 34(3) of the Ordinance resulting in maintenance of the disallowance of post employment medical benefits plan amounting to Rs.400,276,000. (12) The CIR(A) has erred in maintaining the disallowance of provision against other assets amounting to Rs.33,496,

000. This is not in line with provisions of section 100A read with seventh schedule to the Ordinance. (13) The CIR(A) erred in maintaining the disallowance of provisions for diminution in value of investment amounting to Rs.153,872,

000. This is not in line with provisions of section 100A read with seventh schedule to the Ordinance. (This ground has also been reproduced in above grounds for Tax Year 2006) (14) The CIR(A) has erred in maintaining the disallowance of the claim of foreign/tax credit amounting to Rs.534,789,000 made under section 103 of the Ordinance in respect of Azad Jammu and Kashmir operations of the Bank. (15) The CIR(A) has erred in maintaining the disallowance of Rs.320,000,000 out of legal and professional expenses made on ad-hoc basis. (16) The CIR(A) has erred in maintaining the levy of charge for workers welfare fund amounting to Rs.707,542,612."

3. For both the years following common additional grounds have also been filed by the appellant:-- "(1) That the Additional Commissioner has erred in indulging in fishing inquiries by issuing multiple notices under section 122(5A) of the Income Tax Ordinance, 2001. (2) That the Additional Commissioner has erred in seeking details, documents, explanations and evidences in the proceedings under section 122(5A) of the Income Tax Ordinance, 2001.

4. The learned Legal Advisor (LA) and the learned DR has at the very outset opposed the filing of additional grounds by the appellant. As according to them relevant provisions of income tax law or Appellate Tribunal's rules do not provide for admission of additional grounds and no new ground can be taken at the Tribunal level which are not the subject matter of appeal before the first appellate authority i.e. learned CIR(A):-- On the other hand the learned counsel for the appellant stated that the need to take additional grounds arose as the contention for agitating the departmental action under section 122(5A) at the lower forums was different. He stated that applicant had challenged the jurisdiction of the Addl. Commissioner, to revise/amend the order under section 120(1) taken to have been made by the Commissioner, whereas, now the applicant intends the amended order for the reasons that through notice under section 122(5A)/(9), the department had embarked upon making roving/fishing(asking for verification of an account) inquiries in order to evolve basis for action under section 122(5A).

5. We have considered the arguments of the learned representatives of the parties. In our view, plethora of case-law exists on the issue that legal grounds striking at the very basis of an action can be taken at any forum of appeal. We would also like to observe that there was no need of taking additional grounds because the appellant had already challenged the vires of the action under section 122(5A), per the original memo. of appeal and the above grounds are arising out of the proceeding of the case. Contention of the representatives of the respondent Department has not been found tenable when a lis is pending before a court or a judicial forum, entertainment of an additional ground should be a rule not an exception. We understand that a legal issue, if it arises from the order of the assessing officer or appellate authority can be taken up at any stage of appeal even without filing a formal application for additional ground. We have also observed that even otherwise ground No. 2 of the memo of appeal filed by the appellant bank sufficiently cover the issues agitated by the appellant through additional grounds. Therefore, additional grounds are allowed.

6. In order to substantiate additional grounds the learned representatives of the appellant have challenged the very basis of issuance of notice under section 122(5A)/(9) of the Ordinance and contended that throughout the proceedings under section 122(5A) the appellant was required by the Additional Commissioner to file various details, documents, explanations and record for his examination and verification.

7. This has been done without pin pointing anything erroneous and prejudicial to the interest of revenue in the deemed order under section 120 sought to be amended and whatever adverse inference drawn in the end has been drawn on the basis of details, documents, explanations and record provided by the appellant during the proceedings. In this regard the learned ARs have referred to various notices dated 1-2-2008, 19-4-2005, 20-5-2008 and 27-5-2008. In response thereto appellant submitted various details, documents, explanations vide their letters bearing No.KT-AA-2834 dated 15-3-2008; KT-AK-3019 dated 3-4-2008 and KT-AA-dated 9-5-2008; KT-AA-3453 dated 27-5-2008; KT-AK-3479 dated 30-5-2008. After evaluating the detail/documents/ explanations filed by the appellant, the officer embarked upon making additions/disallowances to the declared income and created a tax liability in the amended order. It contended that section 122(5A) does not permit the assessing officer to indulge in seeking details, documents, record and explanations as the same constitutes fishing and roving inquiries. In this respect notices of assessing officer calling for details documents, evidences and explanation such as notice dated 19-4- 2008 seeking following details, documents and evidences has been referred:-- "I have examined foreign tax credit and supporting documents furnished. You are required to substantiate your claim in the following manner: Country Comments Documents required USA Self prepared certificate. No evidence from treasury of finality payment Copies of assessment orders, evidences of tax deposition from the treasury division Sri Lanka Self prepared certificate evidences are in respect of advance tax paid or deducted on For Copy of assessment order Bangla Desh Evidences are in respect of advance tax paid or deducted on FDR. Evidences not translated Copy of assessment order Seychelles Evidence shows that it provisional tax copies are not legible Copies of the assessment order and legible copies of evidence of payment and finality of tax Fiji Island Evidence is with regard to payment of advance tax for tax year 2005 Copy of the assess-ment order and evidence of payment and finality of tax Afghanistan Copies are not legible even date & amount are not legible evidence appears to be in respect of tax deposition Copy of the assessment order and legible copies of evidence of payment and finality of tax Azad Kashmir Computation of income: how that in the global income some additions of local income has been made and even after that income was worked out at Rs.963,636(M) in which additions of Rs.6768.420(M) has been made with the narration income on the basis of settlement agreement to arrive at the taxable income of Rs.7,51.500(M). This shows that the taxable income arrived at in Azad Kashmir is not the accounting income which is doubly taxed. Therefore credit of tax claimed at Rs.2945.570(M) is not in accordance with law. The evidences attached are two challans of Rs.1450(M) and Rs.1.525(M) aggregating to Rs.1451.525(M). The working of double income tax relief furnished shows profit as per accounts at Rs.7694.687(M) which is not sup-ported by computa-tion of income. Please copies of the account of the branch and evidence of balance payment of tax. Please note in case of your failure credit would be restricted/disallowed as per law". It is contended on behalf of the appellant that the documents could at the most have been called under section 120(3) which relates to making up deficiencies but do not constitute erroneousness and prejudice to the interest of revenue. The erroneousness and prejudice to the interest of revenue, if any should be definitive and visible from the plain reading of the order sough to be amended by the assessing officer which is not the case here otherwise he did not have to issue a series of notices calling for details, documents, record and explanations from the appellant to establish erroneousness and prejudice in the order sought to be amended. In support of his arguments the learned counsel for the appellant referred to the recent unreported decision of the Tribunal in I.T.As. Nos. 1696, 1697, 1698, 1825, 1826, 1827 /LB/2012 for the tax years 2006 and 2007, passed on 9-1-2013. The learned counsel contended that the facts of the cited case were similar to those of the case in hand. In that case also the assessing officer had obtained various details under section 122(5A) and made additions under section 21/ 174(2)/111 of the Income Tax Ordinance, 2001. The Tribunal, after placing reliance on its earlier judgment, gave the following findings:-- "...We are of the considered view that addition under section 111(1)(b) cannot be made without making inquiry. Firstly, the assessing officer will have to ask the taxpayer to submit explanation regarding nature and source of the amount and after considering the explanation, then addition under section 1I1(1)(b) will be made. Asking for explanation means conducting of inquiry which is beyond the scope of section 122(5A). Hence, additions under section 111(1)(b) for tax year 1996 and 1997 are ordered to be deleted." Although the learned counsel for the appellant gave a detailed account of the additions made by the taxation officer, yet he concluded that when basis for action was beyond the scope of section 122(5A), then the super structures built on such defective, notices must crumble. Regarding Tax Year 2012 it has been contended by the learned ARs that a plain reading of the query shows that there was nothing concert or definitive with the assessing officer to treat the order under section 120 as erroneous and prejudicial to the interest of revenue. The Officer proceeded merely on guess work, assumption, apprehension and suspicion. He was also not sure as to under which provision of law the claim was inadmissible as was guessing to disallow it under sections 21(n) and 21(g) simultaneously without pinpointing the loss incurred, according to him to the revenue as a result of the claim. The AR went on to argue that similarly in respect of claim of direct income tax relief (DITR) under section 103 of the Income Tax Ordinance, 2001 the Additional Commissioner in his notice under section 122(5A) required the appellant to furnish supporting of claims and its allowability under the law. According to the AR there is a specific section i.e. section 120(3) in the Income Tax Ordinance, 2001 which authorizes the concerned officer to issue a notice to the taxpayer informing him of deficiencies and direct him to provide such information, particulars, statements or documents by a date specified in the notice. Evidences, if any, required in respect of DITR should have been called through a notice under section 120(3) and not under section 122(5A). By calling for supporting evidence in respect of DITR the officer has overstepped his jurisdiction under section 122(5A). It has further been contended by the AR that the legislature inserted the words "after making, or causing to be made, such inquiries as he may deem necessary" in section 122(5A) by Finance Act, 2012, has empowered the Additional Commissioner to travel beyond the assessment order that is sought to be amended by him. It has been contended by the AR that being detrimental to the interest of revenue this amendment will be effective from tax year 2013. In support of his contention the AR has placed reliance on the judgment dated 1-10-2010 of Hon'ble, Sindh High Court in I.T.R.A. No. 38/2010 (CIR Legal RTO v. Muneer Associates, Karachi) wherein the High Court held that provision of section 177(10), introduced in the Income Tax Ordinance, 2001 by Finance Act, 2010 allowing the assessing officers to make ex parte assessments under section 12.1 of the Income Tax Ordinance, 2001 in cases where taxpayers do not cooperate is detrimental to the interest of taxpayer and is not retrospective but will be applicable from tax year 2011. Therefore, even if for a moment it is accepted that Additional Commissioner can make inquiries from the tax payer on the basis of amendment in section 122(5A) he can do so in tax year 2013 not in 2012. However, at the same time it has been contended by the AR that this insertion could be treated as an authority granted to the Additional Commissioner make inquiries from the taxpayer. According to him if the Additional Commissioner is of the view that a certain claim or transaction in an assessment order is erroneous and prejudicial to the interest of revenue, he can make inquires at his end without seeking information, details, documents and evidences from the taxpayer. If the inquiries conducted by him fortify his resolve that the claim or transaction in the assessment order is erroneous and prejudicial to the interest of revenue only then he would proceed for issuance of notices under section 122(5A). According to the AR the methodology adopted by the Additional Commissioner in his order under section 122(5A) was against the spirit of the amendment brought about in section 122(5A) by Finance Act, 2012. Therefore, order under section 122(5A) is not maintainable on this score alone.

7. On the other hand the learned LA along with learned DR are supporting the impugned orders of the officer below. They have contended that notice under section 122(5A) is issued along with a prescribed notice under Rule 68 of the Income Tax Rules, 2002, which accompany the notice under section 122(5A) and is a mandatory requirement. According to them since it requires the taxpayer to produce or cause to produce books of accounts and necessary record for examination therefore taxpayer is under obligation to produce the details, documents records and book of accounts in response to a notice under section 122(5) of the Income Tax Ordinance, 2001 on the strength of rule 68 of the Income Tax Rules, 2002. They are therefore of view that the Taxation officer in this case has rightly called for record and there was nothing illegal in this case. The learned representative of the Department along with learned LA regarding Tax Year 2012 have maintained that the amendment adding words "after making, or causing to be made, such inquiries as he may deem necessary" in section 122(5A) by Finance Act, 2012 is procedural in nature. It has not put any extra burden or charge on the tax payer but simply enlarged the scope of existing provision, therefore, same is retrospective in nature and shall apply from tax year 2012 and years prior to that. It has further been contended by the LA that notice under section 122(5A) is issued along with a prescribed notice under Rule 68 of the Income Tax Rules, 2002. According to the LA the notice prescribed under rule 68 which accompany the notice under section 122(5A) is a mandatory notice and since it requires the taxpayer to produce or cause to produce books of accounts and necessary record for examination therefore taxpayer is under obligation to produce the details, documents, records and book of accounts in response to a notice under section 122(5) of the Income Tax Ordinance, 2001 on the strength of rule 68 of the Income Tax Rules, 2002.

8. We have considered the submissions of learned representatives and have perused the relevant record. From the perusal of the notices issued by the Additional Commissioner, order under section 122(5A) and marathon details, documents and replies filed during the proceedings under section 122(5A) by the appellant for both the years under review there is no doubt that in the instant case the Additional Commissioner was indulged in seeking details, documents, information and evidences on whims, surmises, assumptions, suspicion, guesswork and apprehensions which supports the contention of the appellant that the order sought to be amended was not erroneous in so far it is prejudicial to the interest of revenue. In our view the Additional Commissioner miserably failed to establish erroneousness or prejudice to the revenue through his initial notice. Similarly the Additional Commissioner not only issued/made multiple notices/requests but required the taxpayer to file supporting evidences and justify the allowability of claim which suggests that he had not been able to identify any erroneousness or prejudice to the interest of revenue in the order under section 120 sought to be amended. The additional data, information, document's or records were required by him to establish erroneousness and prejudice to the interest of revenue which falls clearly out of the scope of section 122(5A). We have found arguments of the learned A.Rs. convincing as the same are based on the 'ratio decidendi' of the following reported judgments of this Tribunal relied upon while delivering the judgment in I.T.As. Nos.1696, 1697, 1698, 1825, 1826, 1827/LB/2012, dated 9-1-2013. (I) 1999 PTD (Trib.) 2851, (II) 2009 PTD (Trib.)121, (III) 2010 PTD (Trib.) 111, (IV) 2012 PTD (Trib.) 1593 and (V) 2010 PTD (Trib.) 1111 In all these judgments the issuance of notices under section 122(5A) seeking information from the taxpayer for evolving the basis for amending the assessment order under the said section has been disapproved. It would suffice to quote, verbatim, the relevant portion at Para 13 on page 404 of the case-law cited as (2009) 100 Tax 390 (Trib.) which reads as under:-- The notice on the basis whereof the action under section 122(5A) has been upheld by the CIT(A) merely pointed out certain deficiencies in the return, while seeking information, explanations and evidence raising apprehensions. Therefore, we are of the view that initial notice was void, all subsequent proceedings orders of the superstructures built thereon have become void and the order passed by the Taxation Officer is not sustainable in the eyes of law, accordingly, the impugned order of flue learned CIT(A) is vacated and the order passed by the Taxation Officer under section 122(5A) is annulled and the deemed amended assessment under section 122(3) of the Income Tax Ordinance, 2001 is restored." Since the facts and circumstances of the case-law cited above are on all fours to that of the case at hand, therefore, following the principle of binding precedent, we declare both the impugned orders of the learned CIR(A) upholding the action of the Additional Commissioner who has invoked the section 122(5A) against the already settled principles by this Tribunal as not sustainable in the eyes of law. As regard arguments of learned LA that amendment adding words "after making, or causing to be made, such inquiries as he may deem necessary" in section 122(5A) by Finance Act, 2012 has retrospective character being procedural in nature and has not put any extra burden or charge on the tax payer but simply enlarged the scope of existing provision, we are of the considered opinion that a substantive change has been made by the legislature in section 122(5A) by adding the words "after making, or causing to be made, such inquiries as he may deem necessary" and it is settled that if a substantive provision is inserted enlarging or extending the scope of existing provision it shall not have retrospective effect until and unless specifically specified by the legislature. We are fortified in our finding by the judgment of Sindh High Court in the case cited as 2004 PTD

921. We also find ourselves in agreement with the contention of the AR that purpose of amendment in section 122(5A) enabling the Additional Commissioner to make or cause to make inquiry does not mean that he could make inquiry from the taxpayer. He instead, should make independent inquiries at his own end to strengthen that order sought to be amended is erroneous and prejudicial to the interest of revenue and then embark upon issuing the notice. Making inquiries or seeking information, details, documents and record from the tax payer is against the spirit of section 122(5A) even after the amendment by Finance Act, 2012. As regard arguments of learned LA that notice prescribed under Rule 68 mandatory allows calling of books of accounts, records and documents during proceedings under section 122(5A) it has been noticed that rule 68 refers to a notice prescribed under Part-II of First Schedule to the Income Tax Rules, 2002. A perusal of the said notice shows that it is format of a notice/letter under section 122 of the Income Tax Ordinance, 2001. It is not specific to section 122(5A). The purpose of this notice is to bring uniformity in the language to be used by field officers in notice under section 122 of the Ordinance. This format could be termed as mandatory by any stretch of imagination nor the learned LA or DR have been able to identify any provision of law or rule which could be said to have granted this format the status of a mandatory notice being prescribed under a schedule of the Income Tax Rules. Even otherwise this prescribed notice/letter does not override the provisions of main or principal statute i.e. section 122(5A) of the Income Tax Ordinance, 2001, which does not require production of books of accounts, records, documents and evidences. Therefore we do not find ourselves in agreement with the assertion of the counsel of the respondent Department and the DR that such a notice/letter empowers the assessing officers to call for books of accounts, record and documents and examination thereof under the provisions of section 122(5A) which in our view come into play only when erroneousness and prejudice to the interest of revenue is visible and definitive from the plain reading of the order sought to be amended. If current practice of calling for record, details, documents and evidences in the proceedings under section 122(5A) of the Income Tax Ordinance, 2001 is allowed to carry on, we are afraid that provisions of section 177 of the Income Tax Ordinance, 2001 would become redundant which could never be the purpose of legislature. Since in the instant case the Additional Commissioner has been undoubtedly indulged in calling for record, details, documents and evidence for examination, which constitutes fishing inquiries the very notice issued by him was void ab-initio and illegal. The order for the Tax Year 2012 framed in consequence thereof on this score is also without lawful authority hence not sustainable in the eyes of law.

9. Even otherwise on the merits of the case we have found that in the Tax Year 2006 the assessing officer has made disallowance regarding provision for diminution in value of investment for two reasons (i) it is a notional loss (ii) it is capital in nature and even if it was actual it would have been set off against capital gain only. The learned CIR(A) has upheld the disallowance for the reason that provision are not admissible under the Income Tax Ordinance, 2001. The appellant on the other hand as per the order of the learned CIR(A) has offered following justification for the admissibility of the claim:-- "The facts of the case are that when the customers to whom the bank gives loans and advances make default in repayment of such loans and advances some of the customers issue shares of their own company or debentures or term finance certificates etc. to discharge the debt. In such cases, the loans and advances to such customers is replaced by investment in shares and debentures etc. The value aforesaid investments decrease due to bad performance of such companies as well as due to market forces if the shares of such company are listed. When the value of such investment decreases, the banks record a provision for such loss on the basis of prudent accounting principles. The courts, have held that under no stretch of imagination, a businessman of an ordinary prudence specially a bank would write off amounts only to save the taxes as this way he loses more than what he appears to gain. The fact that the provision has been claimed in the audited accounts of the bank proves that the claim has been made on account of genuine loss suffered by the bank" It is evident from the above that both the officers below have failed to look into the issue in the perspective of the explanation offered by the appellant. As the provision is proved to be ascertainable it should be allowed as an admissible deduction. Likewise regarding the disallowance of claim of write off against diminution in value of investment perusal of the impugned order of learned CIR(A) shows that it was pleaded before him that similar disallowance was allowed by him in his order dated 15-4-2008 for the tax year 2005. He has, however, upheld the disallowance with the observation that in his predecessor's order relied upon by the appellant, write off of balance sheet obligations against the provision which has already been disallowed/added back in previous years was allowed. According to the learned CIR(A) the issue in the present appeal is different. However it has not been elaborated by the learned CIR(A) as to how the issue this year is different than last year. It has been contended by the AR that above amount was earlier claimed as provision and was disallowed by the Department being not admissible deduction. The DR has not denied this assertion. The same amount has been claimed this year as write off. While hearing appeal for the tax year 2012 in the appellant's case we have observed that on a number of grounds the learned CIR(A) has held that the amounts which were earlier disallowed by the Department as provisions should not be disallowed again at the time of claim of write off or reversal of provision as the same constitute double taxation of the same amount. During the hearing of said appeal it was pointed out by the learned AR that findings of learned CIR(A) in tax year 2012 have been accepted and have not been agitated by the Department before this Tribunal through further appeal. The same have thus attained finality. The DR has not been able to rebut this assertion. This being admitted position, it is directed that the claim of write off of Rs.11,237,000 against diminution in value of investment if already disallowed and add back as provision in earlier assessment/tax years the claim of the same amount should not be disallowed at the time of write off as the same constitutes double disallowance/taxation of the same amount. Regarding the disallowance of net other provisions we have found that the Additional Commissioner has disallowed these provisions with the observation that the same are not admissible under section 20 being mere provision and the learned CIR(A) has agreed with the contention of Additional Commissioner and has upheld the disallowance. A perusal of details of provisions appearing on page 9 of the impugned order of the learned CIR(A) shows that provisions have been made for the following reasons:--

1. Cases filed against bank expected to be decided against the bank 174.769

2. Provision for property of Liaquat Bazar Br. Quetta and fixed assets 9.626

3. Provision for overseas branches other assets 8.650 193.045

4. Legal and professional expense of UK branches 8.884

5. Legal and professional expenses of UK branches (New 2006) 46.278

6. Provision for old Nostro balances 7.486

7. Provisions for fraud and forgery (24.719)

8. Provision for excise duty (0.075)

9. Provision for legal expense (1.382)

10. Provisions for suit filed cases 0.212

11. Provision for overseas branches 34.276 55.988 249.033 We are of the view that both the authorities below fell in error in disallowing the claim under section 20 which states that only those expenses are to be allowed which have been incurred wholly and exclusively for the purposes of business. It nowhere says that an expenditure would be disallowed merely for the reason that it has been claimed as a provision. We are of the view that in case it fulfills the requirements of section 34(3) the claim should be allowed. Regarding the disallowance of claim of write off against other provisions it has been contended by the learned AR that the subject amount was earlier claimed as provision and was disallowed in the assessment order for assessment year 2000-2001. The same has been claimed this year as write off and has again been disallowed. The learned DR has not denied this assertion. While hearing appeal for the tax year 2012 in the appellant's case we have observed that on a number of grounds the learned CIR(A) has held that the amounts which were earlier disallowed by the Department as provisions should not be disallowed again at the time of claim of write off or reversal of provision as the same constitutes double taxation of the same amount. During the hearing of said appeal it was pointed out by the learned AR that findings of learned CIR(A) in tax year 2012 have been accepted and have not been agitated by the Department before this Tribunal through further appeal. The same have thus attained finality. The learned DR has not been able to rebut this assertion. Regarding disallowance of provision against balance sheet items we have noted that the Additional Commissioner has disallowed these provisions with the observation that the same are not admissible under section 20 being mere provision and the learned CIR(A) has agreed with the contention of Additional Commissioner and upheld the disallowance. We are of the view that both the authorities below fell in error in disallowing the claim under section 20 which states that only those expenses are to be allowed which have been incurred wholly and exclusively for the purposes of business. It nowhere says that expenditure would be disallowed merely for the reason that it has been claimed as a provision. Regarding allocation of expenses against exempt capital gain and to dividend income and non-consideration of common expenses against dividend income we have found that the Additional Commissioner on the basis of a formula has allocated expenses of Rs.575,987,397 and Rs.137,610,851 to exempt capital gain and dividend respectively. The expenses allocated include financial and administrative expenses. The formula based allocation and the quantum of disallowances made clearly shows that the allocation has not been made in accordance with section 67 which envisage that allocation should be on reasonable basis taking account of the relative nature and size of the activities to which the amount relates. Therefore this hypothetical basis to allocate expenses on whole sale basis cannot be approved. The appellant in its computation has already allocated a sum of Rs.21.836(M) to the income from capital gain, dividend, property and other sources and common expenses of Rs.137,610,351 against dividend income in accordance with section 67 of the Ordinance. The allocation appears reasonable. Regarding disallowance of foreign tax credit in respect of Azad Jammu and Kashmir operations we have found that the assessing officer has disallowed foreign tax credit of Rs.2,923,981,061 claimed by the appellant under section 103 of the Income Tax Ordinance, 2001 in respect of its AJ & K operations. Similar tax credit in respect of other countries like USA, Sri Lanka, Bangladesh, Seychelles, Fiji Islands and Afghanistan has been allowed by the Office. Explaining background of the foreign tax credit issue of AJ&K operations it has been explained that since inception the taxpayer furnishes its return in AJ&K on certain income which is disregarded by the AJ&K Tax Authorities. They enhance declared income and levy tax from year to year on that enhanced income. The taxpayer while furnishing its return of income in Pakistan declared its global income which includes income derived in foreign countries including AJ&K which is also treated a foreign territory for the tax purposes. Some of the banks including the appellant had dispute, with AJ&K tax authorities regarding their assessment of income and the Chairman AJ&K Council with the consent of Prime Minister of AJ&K formed a Committee to resolve the disputes between those banks and AJ&K tax authorities. The Committee constituted a Technical Group which prepared recommendations for resolving the disputes between the parties. Those recommendations were approved by the FBR and AJ&K Council and implemented. The technical Group thus mandated by the Prime Minister/ Chairman AJ&K Council's Committee came up with the following basis/formula: ACCOUNTS: The banks will prepare separate accounts of Azad Kashmir operations duty audited by auditors on the approved list of State Bank of Pakistan. The Accounts shall be prepared on the format approved by State Bank of Pakistan and Companies Ordinance. The audit will be of full scope expressing an opinion whether or not the Accounts are true and fair. ii. INCOME RECOGNITION The return from local advances shall be accepted at actual. The return on all surplus fund transferred to head office shall be recognized in audited Accounts on the following basis: The AK Operations of the banks would deploy the deposits raised locally for local advances and other local assets in AJ&K and the balance of funds will be considered as transferred to the head office as pool balance. The yield on pool balance will be based on banks global yield on its average earning assets, including investments, advance and leading to financial institutions as per each bank's audited accounts, excluding provisions. The yield rate so arrived at shall be applied on the month and pool balances of the AJ&K funds. iii. EXPENSE Establishment cost in AJ&K would be allowed at actual. Determinable and ascertainable liabilities for AK operations will be accounted for in such accounts. Contribution made to approved staff retirement funds in Pakistan will be allowed in AJ&K accounts to the extent of employees hired or/and deployed/transferred to A.K. operations only. Head offices expenses related to administrative and executive nature, to be allocated on the basis of provisions of section 105(3) of the Income Tax Ordinance, 2001. The above-agreed formula as per the counsel of the appellant was recommended by the Technical Group for application from tax year 2005 onwards i.e. prospectively. As for the previous two tax years, tax levied for the tax years 2003 and 2004, the mutually agreed rates would be 10% and 8.5% respectively and appropriate revision would be made under the law by the tax authorities. These five banks would subsequently make payments on the basis of above revision. The DTIR/foreign credit of the above would be allowed under the law in Pakistan. It was contended by the learned A.Rs. that the author of the order under section 122(5A) was one of the signatory of the above agreement. However while framing the assessment for the tax year in appeal he chose to ignore the above recommendation and disallowed almost entire claim of foreign tax credit of Azad Kashmir operations of bank for the following reasons:-- Markup income of Rs.1569.532(M) declared in AJ&K had two components viz on loans and advances to customers and employees of Rs.225.785(M) and Rs.1344.24(M) which was return on average pool balance. Thus a small part of the income was real (Rs.225(M) whereas major part of the income was notional based on return on average pool balance. An additional income of Rs.6768(M) was recorded to settle the disputes relating to 1982 to 2004. This income is also notional in nature and has nothing to do with the concept of actual income. Examination of AJ&K accounts and the disclosures therein and their comparison with global accounts show that both these notional income i.e. Rs.1344.247(M) and Rs.6768(M) were not included in the global accounts as per their declared revenue recognition policy in note 4.1 of the accounts. The Additional Commissioner accordingly concluded that the income declared as foreign source income related to AJ&K operations is Pakistan source income, no foreign tax credit in respect of AJ&K branches was available as there was no doubly taxed income. The appellant on the other hand has maintained that:- (i) For the purposes of determining income of AJ&K such 'income' is being recognized for tax purposes since inception in this case and in all other similar, cases. This has not been challenged at any stage by the department. In other words, there is a deemed income for AJ&K which represents "interest "on funds transferred to Pakistan. This treatment is valid for the reason that in substance, AJ&K Branches collect deposits which are not fully utilized in AJ&K and surplus is shifted to Pakistan. The corresponding charge for the same is a `debit' or cost of funds in Pakistan books. (ii) The whole dispute, in our view, is the misunderstanding of the recognition of income in AJ&K books and expense in Pakistan books in 2005 [in isolation as, in consolidation such amounts will be net off] on account of change is `estimate' for earlier years relating to 1982 to 2003. In our view, the primary consideration in this case is validity of the accounting treatment being any provision in the tax laws. The question to be answered is whether a revision in income for the earlier years on account of change in estimate represent an 'income' for the year or otherwise. In this connection, it is stated that there are clear accounting provisions on this matter in accounting standards. Even otherwise for tax accounting, the incremental income for all purposes would represent an income for the year for the primary reason that earlier years beyond a certain year are not eligible for reassessment. If that aspect is clarified then only the matter could be appreciated in its correct context. (iii) The matter of revision of estimate has been discussed in various accounting standards. The issue under consideration is that accounting of income of AJ&K was made on the basis of an 'estimate' with respect to rate of interest on deemed deposits or transfer of funds. That estimate of income was not accepted by the regulators in AJ&K specially tax regulators. In 2005 the bank revised the 'estimate' and booked a credit in the AJ&K that was duly taxed. Now the question is whether or not the effect of the change in 'estimate' for earlier years can be recorded as income/expense in one year. This matter in accounting term is 'changes in provisions' as per International Accounting Standard

37. The relevant paragraph is reproduced below:-- "Changes in Provisions

59. Provisions shall be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provisions shall be reversed.

60. Where discounting is used the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized as borrowing cost" (iv) For accounting purposes, the relevant issue is whether the revision for estimates for earlier years represents an expense /income for the year when such revision has been made or it represents a transaction requiring any other treatment. This aspect has further been elaborated as under: Total Income Rs. Pakistan Branches Rs. AJ&K Branches Rs. 100 90 10 (Regular Income prior to recording of revision of estimate) (Adjustment for revision of estimate for earlier years) (15) 15 100 75 25 (v) In the consolidated Pakistan Financial Statements, the Income will remain Rs.100 whereas in isolation the break-up is Rs.75 and Rs.25 for Pakistan and AJ&K respectively. We consider that there is no dispute on veracity of this treatment. The issue is whether recognition of Rs.15 in AJ&K in the current year is permissible or otherwise. The emphatic answer is affirmative in this case. If we analyse the contentions of the IAAC it appears that whole premise for disallowance has been built up on an improper understanding of the accounting treatment. The question with reference to Rs.15 in this illustration is whether such amount which represent an income of AJ&K and on which tax has been duly paid would even appear as income/expense in Pakistan. (vi) It has further been contended by the AR that there is no notional income as incorrectly assumed by the Additional Commissioner. The income transferred to AJ&K branches comprises of physical transfer of funds backed by payments of taxes and acceptance of this treatment by the Department since inception. (vii) The Additional Commissioner has not denied that tax on the income declared by the appellant in respect of AJ&K operations as per accounts/assessment orders submitted/finalized in AJ&K is paid. The rate of tax is also same. This represents real income on which taxes as per prescribed rates have been paid. (viii) The AR has also produced copy of the order of this Tribunal passed on 4-2-2010 vide I.T.As. Nos. 31-32/KB/2008 (Tax Year 2003-2004), I.T.A. No. 05/KB/2007 (Tax Year 2005), I.T.As. Nos. 349-350/2009 (Tax Year 2006-2007) in NPBs case. According to the AR the author of the order in NBPs case was also the same Additional Commissioner who authored the order in appellant's case. Foreign tax credit in the NBPs case was also disallowed on the same grounds and confirmed by the CIR(A) with the similar findings. The Tribunal vacated the order of CIR(A) with the observation that through the agreement a well thought mechanism was devised to readdress the grievances of the five commercial banks operating in AJ&K tax territory. The order of Tribunal further states that FBR was a signatory of the agreement through its designated officers and its approval by the Chairman FBR clearly provides for claiming the amount of tax credit as per terms of agreement. The Tribunal upheld the revision of its returns by the NBP in accordance with the terms of agreement. Contentions of the learned representatives have been examined. We have observed that the formula devised by the Technical Group was evolved to resolve the decades old difficulties being faced by the banks in AJ&K territory. The arrangement was aimed at, not only to redress the grievances of taxpayer banks but also to facilitate the collection of taxes in the AJ&K. It is however noted that Departmental officers particularly the officer who himself was the signatory of the agreement on behalf of the FBR, Islamabad used his presence in the meetings of the Committee/Technical Group to the disadvantage of the banks and upset the arrangement arrived at between the parties for amicable solution of an old problem relating to collection of taxes. We are of the view that having remained associated with the meetings of the Committee/ Technical Group setup to resolve the issue the officer himself should have refused to make assessment on ethical grounds. Unfortunately he acted otherwise. Not only this but according to learned A.Rs. he also threatened the appellant for initiating proceedings for furnishing of inaccurate particulars. We have observed that it has not been denied by the Departmental authorities that mechanism of determining income from AJ&K operations and tax payments thereon is being followed, recognized and accepted by the Department and foreign tax credit under section 103 of the Income Tax Ordinance, 2001/corresponding provisions of the repealed Income Tax Ordinance, 1979 is being allowed since inception. It is not the case of the Department that a departure from the practice accepted by the Department in the past as well in the years subsequent to the tax year in appeal has been made by the appellant which prompted the respondents to adopt a different treatment this year. It has been contended by the appellant at original and first appellate stage as well as before this Tribunal that not only in the past but in the years next following in the appellant's case and in cases of all other banks same treatment has been adopted and accepted by the Department. But a highly discriminatory treatment has been accorded to the appellant in the tax year in appeal and a couple of other tax years. The Departmental representatives have not been able to put up any solid defense against this assertion of the appellant/A.Rs. Thus the treatment meted out is arbitrary and discriminatory hence cannot be allowed to sustain. As regards the contention of Additional Commissioner that there is no doubly taxed income hence no foreign tax credit available to the appellant, we are not persuaded to agree with the, same as it is an admitted position that income is declared by the appellant in its returns filed is AJ&K. The, same is enhanced to a certain level by the tax authorities of AJ&K and taxes are paid on such declared/assessed income in AJ&K. The appellant on the other hand declared its global income in Pakistan which includes income that has been declared/assessed in AJ&K with taxes paid thereon. This is an undeniable position. The Additional Commissioner by refusing to allow tax credit on account of taxes paid on income declared/assessed in AJ&K has in fact caused a triple jeopardy to the appellant. On one hand he is not accepting the income declared in AJ&K as foreign income and treating it as Pakistan source income. Thus he intends to tax entire global income of the appellant including income declared/assessed in AJ&K in Pakistan. Secondly he has disallowed the foreign tax credit for the taxes paid in AJ&K and thirdly if income declared in AJ&K was not foreign source income then there is no justification for payment of taxes there and the Additional Commissioner should have devised some mechanism to refund the taxes paid in AJ&K by the appellant bank. We feel that the Committee/Technical Group set up to look into the difficulties faced by the banks in AJ&K in respect of payments of taxes was constituted with the consent of the Government of Pakistan and Government of AJ&K and its recommendations had the approval of the FBR and were binding on the assessing officers of the two countries. Any attempt on part of any officer to unsettle the arrangement arrived at between the two countries primarily aimed at resolving the old issues cannot be approved. Besides it was agreed that the five banks would subsequently make payments on the basis of above revision which have since been made. In view of foregoing we do not approve the treatment meted out by the two authorities below. It is directed that keeping in view the past practice and the treatment meted out in other cases of banks the foreign tax credit as claimed by the appellant be allowed.

11. For the Tax Year 2012 regarding computation of profits and gains of a banking company under 7th Schedule read with section 100A it has been contended by the learned AR that after insertion of the 7th Schedule of the Income Tax Ordinance, 2001 read with section 100A Department cannot make add back disallowances/additions except adjustments as per Rule 1(a) to (h), of the 7th Schedule of the Income Tax Ordinance, 2001, to the income, profits and gains declared by a banking Company in accordance with the provisions of the 7th Schedule of the Income Tax Ordinance, 2001. The income, profits and gains declared for the purposes of the 7th Schedule have to be accepted by the Department. The learned CIR(A) in the impugned order while relying on a judgment of the Hon'ble Sindh High Court reported as 2011 PTD 2042 [(CIR (legal) v. EFU Insurance Company Limited)] has maintained that due to presence of Rule 9, the 7th Schedule is different from 4th and 5th Schedules and has confirmed the action of the assessing officer to make various additions/disallowances to declared income of the appellant. The learned ARs on the other hand have argued that judgment of the Hon'ble Sindh High Court in EFU Insurance Company's case revolves around the concept of single basket income. In the cited judgment the assessing officer prorated expenses between normal income of the insurance company and exempt gains on sale of shares by invoking provisions of section 67 of the Ordinance. The Hon'ble High Court did not approve the proration of expenses and held that provisions of section 67 could not be applied so far as working out profits and gains of an insurance company under the 4th Schedule are concerned. As regard the observation of the Hon'ble High Court regarding Rule 9 of 7th Schedule it has been contended that questions answered by the Hon'ble High Court were in respect of applicability of section 67 to the profits and gains of an insurance company determined in accordance with Fourth Schedule. No questions were referred to the Hon'ble High Court nor were its findings required in respect of Rules 9 of 7th Schedule. The learned A.Rs. have referred the decisions of this Tribunal reported as 2012 PTR 124 and 2011 PTR 222 wherein according to him it has been held that section 100A 'read with 7th Schedule is a special non-obstante provision that overrides all other provisions as far as computation of income tax payable by the banking companies is concerned and tax authorities are bound to accept the audited accounts in the case of banks. It is contended that it has been held by the Tribunal that for computation of income of the Banking Companies, the Schedule to the Income Tax Ordinance, 2001 provides rules for computation of profits and gains of a banking company and tax payable thereon - Rule 9 in no way can be interpreted to unsettle this requirement laid down by the legislature. The learned Legal Advisor and the learned DR have supported the order of learned CIR(A). It has been contended that order of The Hon'ble High Court in 2011 PTD 2042 [(CIR (Legal) v. EFU Insurance Company Limited)] is binding on this Tribunal and should be followed in letter and spirit. The learned DR has stated that he is not contesting the sanctity of accounts as per decisions cited as 2012 PTR 124 and 2011 PTR 222 relied upon by the appellant. According to him Assessing Officer has made adjustments in the computation of income submitted by the taxpayer to the Department which was not submitted to the SBP. That additions have been made by the Department under section 34(3) and other relevant provisions of the Ordinance read with rule 9 of 7th schedule. We are of the view that the contention of the learned DR appears to be self contradictory. On one hand he says that sanctity granted by Rule of 7th Schedule to the accounts of the appellant is respected by the Department and on the other he insists that additions have been rightly made by the assessing officer under section 34(3) and other relevant provisions of the Ordinance read with Rule 9 of 7th schedule. It has also been contended by the learned DR that assessing officer has made adjustments in the computation of income submitted by the taxpayer to the Department which was not submitted to the SBP i.e. adjustments were made in a document which according, to the learned DR was not part of the accounts whose sanctity is accepted by the learned DR this assertion too is vague and unacceptable. If learned DR thinks that. computation was not part of the return and accounts which constitute deemed assessment order under section 120 then the entire exercise to amend the said deemed order under section 122(5A) through adjustments in computation would become illegal and void ab-initio and order under section 122(5A) becomes invalid. As regards judgment of the Hon'ble Sindh High Court in EFU Insurance case relied upon by the learned CIR(A) we agree with the contention of the learned AR that the same was on an entirely different issue. i.e applicability of the provisions of section 67 to the profits and gains of insurance companies and the Hon'ble High Court has answered the questions referred to it in this regard in negative. No question related to interpretation or scope of Rule 9 of 7th Schedule was referred to the Hon'ble High Court in the case of EFU Insurance Company relied upon by the learned CIR(A). It is a settled law that the judgment must be read as whole and the observation from the judgment have to be considered in the light of questions which were before the court as judgment or order of the court takes its colour from the question involved in the case. This is an admitted position that no question relating to interpretation, scope and applicability of Rule 9 of 7th Schedule was involved in the judgment of Hon'ble High Court in EFU Insurance Company's case. On the other hand this Tribunal has already made judgments on the issue of computation of profits and gains of banking companies. The learned AR has rightly pointed out that Department in its comments before the learned CIR(A) and the learned DR in his submissions has admitted that in decision reported as; 2012 PTR 124 (Trib.) and 2011 PTR 222 (Trib.) the plea of the banking companies that accounts prepared for SBP for the purposes of the schedule read with section 100A of the Ordinance have sanctity and department is under obligation to accept those accounts. Respectfully following the decisions of this Tribunal we also hold that the respondent Department is under obligation to accept the accounts prepared by the appellant for the purposes of 7th Schedule of the Income Tax Ordinance, 2001. Regarding non performing loan under Rule 1(c) it has been contended by the learned AR that the Additional Commissioner while determining the charge for non performing loans in terms of Rule 1(c) has worked out the same on the basis of one percent of corporate and 5% of consumer and SME "net advances" instead of 1% and 5% respectively of "total advances" as provided in Rule 1(c) which has resulted in an addition of Rs.636,777,000 to the income assessed of the appellant. The Additional Commissioner while assigning an arbitrary interpretation to the word "total advances" has maintained that advances appearing in balance sheet only have to be considered for the purposes of Rule 1(c). He therefore has restricted the claim to the "net advances". A plain reading of Rule 1(c) clearly shows that it is unambiguous and states that:-- "Provisions for advances and off balance sheet items shall be allowed up to a maximum of 1% of total advances; [and provisions for advances and off-balance sheet items shall be allowed at 5% of total advances for consumers and small and medium enterprises (SMEs) (as defined under the State Bank Prudential Regulations)] provided a certificate from the external auditor is furnished by the banking company to the effect that such provisions are based upon and are in line with the Prudential Regulations. Provisioning in excess of 1% '[of total advances for a banking company and 5% of total advances for consumers and small and Medium enterprises (SMEs)J would be allowed to be carried over to succeeding years: [Provided that if provisioning is less than 1% of advances, for a banking company then actual provisioning for the year shall be allowed.] [Provided further that if provisioning is less than 5% of advances for consumers and small and medium enterprises (SMEs) then actual provisioning for the year shall be allowed and this provisioning shall be allowable from the first day of July, 2010.] From the above it is evidently clear that assertion of the Additional Commissioner that while allowing provisions as per Rule 1(c), only balance sheet items are to be taken into account is misconceived and against the expressed provisions of Rule 1(c). Due weightage has to be given to the off balance sheet items as well. The learned CIR(A) has confirmed the treatment meted out by the Additional Commissioner on the basis of certain earlier, orders of his predecessor. The learned AR has also produced a copy of this "Tribunal decision reported as 2012 PTR 124 (Trib.), wherein in the similar circumstances finding of the learned CIR(A) has been confirmed by the Tribunal. "A per Rules 1(c) provision for advances and off balance sheet items is available up to maximum of 1% of "total advances" It is directed that provision be computed accordingly on the value of total advances of Rs.249,886,703,000 as per accounts" We are therefore keeping in view the above decision find no justification for disallowance of the claim. Regarding the reversal of provisions claimed the Additional Commissioner has disallowed a sum of Rs.1,231,410,000 being the difference between the gross and net provisions of non-performing loans (NPL) claimed by the appellant as reversal within the meaning of Rule 8A. The break-up provided in the orders of the two authorities below shows fallowing position:-- Specific Rs.401,036,000 General Rs.14,257,000 More than 5 years Rs. 816 117,000 Total 1,231,410,000 The details available in the orders also contain year-wise position of disallowance. It has been stated by the learned AR that the amounts were claimed earlier as provisions and were disallowed by the Department: Now the same have been claimed as reversal. It has been pointed out by the learned AR that the Additional Commissioner admits on page 19 of his order that after disallowance of provisions the amounts in question have been written off and claimed as reversal. However, Additional Commissioner has not allowed the same for the reason that the matter is in appeal. The learned AR has drawn our attention to the year-wise break down of such claims appearing on pages 16-17 of the orders of Additional Commissioner and the learned CIR(A) and states that similar claims were allowed in the tax year 2011. It has further been contended that the disallowance constitutes double disallowance and this Tribunal in identical circumstances in its decisions reported as 2012 PTR 124 (Trib.) and, 2011 PTR 222 (Trib.) has allowed such reversals as deductions. It has been argued by the learned AR that disallowance not only constitutes a double disallowance but has also been written off by the appellant. According to the learned AR the Hon'ble High Court of Sindh in its judgment in I.T.R.A. No.219/2008 dated 13-10-2010 has been pleased to hold that bad debts written off are admissible deduction. Following questions were referred to the Hon'ble High Court:-- (i) Whether on the facts and in the circumstances of the case, the learned ITAT was justified to hold that the amount of receivable could be written off by only creating the provision without actually crediting the accounts of debtors? (ii) Whether on the facts and in the circumstances of the case, the provision for receivables is an admissible deduction under section 29 of the Income Tax Ordinance, 2001 without crediting the said provision to the individual debtor's account? A perusal of the judgment shows that both questions have been answered in affirmative by the Hon'ble High Court. Even otherwise the amount being pertained to the periods prior to tax year 2008 qualify to be treated as admissible deductions within the meaning of Rules 8A of 7th Schedule. Regarding the disallowance on account of investment in bank PHB Plc Nigeria it is contend by the learned A.Rs. that the claim of write off of Rs.2,755,439,000 as reflected in note 8.7 of the Financial Statement is out of provision disallowed in tax years 2009 to 2011 as impairment loss. This is apparent from the following extract from the financial statements of the bank for the tax years 2008 to 2011:-- Tax year 2011 2010

In '000s 2009 2008 Opening Balance 3,747,037 2409,942 421,729 518,932 Charge/ (reversal) for the year 4,651 426,051 139,189 (84,310) Amount written off (3,293) (79,622) (187,907) (12,893) Charge for impairment loss 555,572 2,288,235 2,036,93 - Reversal of impairment loss (170,950) (1,326,933) - - Impairment (reversal)/ loss on Listed securities, subsidiary And associated (net) 384,622 961,302 2,036,931 Transfer to advances (262,633) 27,529 - - Exchange adjustment 1,834 - - Closing Balance 3,870,384, 3,747,037 2,409,942 421,729 According to the learned AR similar claims of reversals in the tax year 2010 has been allowed in the order dated December 28, 2010 framed under section 122(5A) of the Ordinance by the then officer. It has been contended that the Additional Commissioner has disallowed the amount assigning various reasons as per his order under section 122(5A) which were neither assigned at the time of original disallowance of the provision in tax years 2009 to 2011 nor were confronted during the proceedings under section 122(5A) in the tax year in appeal. It is submitted that reasons assigned constitute after thought. Disallowance was made in the years prior to tax year 2012 as provision of impairment loss. The same cannot be disallowed again assigning altogether different reasons. It is argued that investment resulted in the earning of foreign source dividend income which forms a major amount of the bank's earning. The amount of foreign source dividend as per the returns filed for the preceding years and current period is as under: Tax Year Rupees 2009 706,374,000 2010 76,985,000 2011 59,617,000 2012 74,269,000 917,245,400 However, due to circumstances beyond the control of the Bank whereby the said Bank was maintained by the Nigerian Government, during the month August 2011, the assets and liabilities of Bank PHB were transferred by Central Bank of Nigeria to a newly formed bank Keystone Bank Limited under new management and the Board. The banking license of Bank PHB was revoked. Due to no recourse available. Since HBL has written off its investment in Bank PHB and the related provisions of Rs.2,036,931,000 and 2,288,235,000 was disallowed in the orders framed under section 122(5A) of the Ordinance for tax years 2009 and 2010 dated December 30, 2009 and December 28, 2010 respectively as shown above, any subsequent claim is to be allowed in full. In any other case, this would lead to double taxation. The learned AR with reference to the orders of the two authorities below has further contended that notwithstanding this basic premise, one of the contentions for disallowance of provision of the claim in the aforesaid orders of the department was that with reference to Rule 2(3) of 7th Schedule the claim of the provision represents "normal loss" not allowable under Rule 9 read with sections 20, 32 and 34 of the Ordinance. Hence this claim is now allowable on the basis that on the occurrence of the event noted above, the loss has crystallized and is actual and is thus to be allowed to the Bank on the basis of loss of the banking asset. Any gain there from, which would have been taxable at the rate of 35 percent, under the Seventh Schedule to the Ordinance. Notwithstanding all the above since as per the tax officer contention that any claim is to generate out of profit and gains in the financial statements, submitted to the SBP, then the orders in which the disallowance were made in tax years 2009 and 2010 need to be rectified and provisions are to be allowed to the Bank. In this respect, it is at the outset stated that the ACIR has himself admitted on page 28 of the order that the amount was disallowed at the time of provision in prior years. The ACIR' s assertion of the write off being the same transaction shows complete misunderstanding of the facts as the write off in current year is reducing the amount of provision in the financial statements. Therefore disallowances of the same results in double disallowance. The learned DR in his submissions has repeated his stance as per the order under section 122(5A). The learned CIR(A) has maintained the disallowance by accepting the contention of the Department. Both the authorities below have relied on the case cited as Messrs Gears Hobbings v. CIT and others (2003) 88 Tax 38 (H.C. Kar.) to assert that loss was caused to the appellant due to its own faults for which no advantage can be taken. We have given serious consideration to the orders of the authorities below and arguments of the learned AR and DR have been considered. We find ourselves in agreement with the submissions of AR that the aggregate amount of Rs.2,755,439,000 was earlier disallowed by the Department as "provision of impairment loss" in tax years 2009, 2010 and 2011. This assertion has not been denied by the Additional Commissioner in his order under section 122(5A). Besides similar claim of reversal to the tune of Rs.1,326,933,000 was allowed by the Department in tax year 2010. There is no dispute that the appellant has claimed the same amount which has been earlier disallowed by the Department as provision for impairment. However, this time disallowance is being made for reasons different than those assigned at the time of original disallowance. We agree with the assertion of the learned AR that the reasons assigned in the impugned orders of the two authorities below are an afterthought. Same amount cannot be disallowed again with a different connotation, reason or nomenclature. Contentions of the department and the learned CIR(A) are not tenable. The learned AR has also shown us that a dividend of Rs.917,245,000 was also offered by the appellant for tax in the earlier years. The contention of the learned CIR(A) and Additional Commissioner that Bank PHB Plc Nigeria was penalised by the Central Bank of Nigeria due to fault of the management therefore, shareholders including the appellant bank are responsible is not borne out from record nor any evidence has been brought on record to substantiate this contention. This too is an afterthought as no such findings were given by the assessing officer at the time of original disallowance treating the provision for impairment as inadmissible. We have already held that Department cannot be allowed to disallow the provision for one reason and reversal for another. Reliance on the case cited as Messrs Gears Hobbings v. C.I.T. and others (2003) 88 Tax 38(H.C. Kar.) is misplaced as findings in the cited case to the effect that nobody can be allowed to take advantage of his own wrong was given for the reason that the tax payer chose not to file return and not to appear before the assessing officer, thus disentitled itself from the benefits which he could have availed by making compliance of the notice issued by the assessing officer. It was in this background that above observations were made by the Hon'ble High Court in (2003) 88 Tax 38(H.C. Kar.). There is no such non compliance in the instant case. The learned CIR(A) and the Additional Commissioner clearly fell in error in placing reliance on the case law which is not relevant in the present situation. In view of foregoing the disallowance of Rs.2,735,439,000 is not maintainable. The same is deleted. Even otherwise the learned CIR(A) has directed to allow the reversals if provisions have already been taxed earlier by the Department. By not agitating the directions of the learned CIR(A) Department has accepted the findings. The directions of the learned CIR(A) are squarely applicable on this disallowance as amount was admittedly disallowed earlier as provision. Regarding disallowance on account of diminution in value of investment it is contended that this issue already stands decided by this Tribunal in favour of the taxpayer in the decision reported as 2012 PTD (Trib) 1055 (Messrs Bank of Punjab v. CIR LTU, Lahore) and 2013 PTD (Trib.)

246. Respectfully following the decisions of this Tribunal the addition of Rs.848,279,000 on account of diminution in value of investment is deleted. Regarding the disallowance of reversal of Rs.111,420,000 out of provision for diminution in value of investment it has been pointed out that earlier this amount was disallowed as provision and the Additional Commissioner on page 29 of his order has admitted that reply of taxpayer regarding allowability of the reversal is as per law yet he disallowed and added back the reversal to income of the appellant causing a double/addition. The learned CIR(A) on the other hand has remanded the issue back to the Additional Commissioner to examine if the reversal is being made out of disallowed provision for diminution in value of investment if yes, then the reversal should be allowed as provision is already taxed. According to the learned AR in view of clear findings of the ACIR on page 29 of his order to the effect that contention of taxpayer is as per law i.e. the amount was disallowed as provision and has now been claimed as reversal there was no need to remand the matter back to ACIR. We have perused the orders of the two authorities below and found ourselves in agreement with the contention of the learned AR. In the presence of admission of ACIR in his order that amount of Rs.111,420,000 was earlier disallowed as provision there was no need to remand the matter back to ACIR Regarding the disallowance of Rs.400,276,000 under sections 21(e), (f) and 34(3) on account of post employment medical benefits plan it has been contended that accounts of the appellant bank are maintained on mercantile basis therefore every year certain contributions are made to the employees' retirement medical benefits plan as an ascertained liability. The Additional Commissioner vide his notice under section 122(9) relevant portion duly reproduced on page 36 of his order confronted the appellant for disallowance of Rs.162,985,000 on account of retirement medical benefits. However, after considering reply of the appellant has proceeded to disallow a sum of Rs.400,276,

000. This addition is not maintainable for the simple reason that appellant was never confronted for addition of Rs.400,276,

000. It has further been contended that similar disallowances have been declared by this Tribunal in its decision reported as 2012 PTD 1055 as allowable deductions. Regarding disallowance of provision against other assets the Additional Commissioner has disallowed the amount for the reason that it is not an ascertainable liability. The learned AR on the other hand has maintained that the provisions has been determined in accordance with the reasonable accuracy in terms of section 34(3) and this Tribunal in its decision reported as 2012 PTD 1055 has held that provision against other assets is an allowable deduction. Respectfully following the said decision and keeping in view facts and circumstances of the present case the addition on account of provision against other assets is deleted. Regarding non allowance of claim of foreign tax credit in respect of AJ&K operations, it has been contended by the learned AR that both the learned CIR(A) and the ACIR have disallowed the credit of taxes on the basis of order for tax year 2006. It has been contended that disallowance in tax year 2006 was made for different reasons whereas in tax years 2011 and prior to that in the circumstances similar to tax year 2012 the claim of foreign tax credit in respect of AJ&K operations has been allowed by the Department not only in the appellant's case but also in all other banks' cases. Even in tax year 2006 foreign tax credit in respect of AJ&K operations has been allowed to all other banks. Thus a discriminatory treatment has been accorded to the appellant not only in tax year 2006 but also in the year in appeal. The learned LA and the learned DR have not been able to rebut this assertion of learned AR. We do not find any reason to treat this tax year differently if under the similar circumstances foreign tax credit in respect of AJ&K operations is allowed in earlier tax years in the appellant's case and in other banks cases. Regarding disallowance out of Legal and Professional charges it has been explained by the learned AR that during the period under consideration the appellant bank received a direction from USA to block bank account of one of its clients and transfer the amount to USA. The bank decided to contest this direction in the US Court and ultimately won the case. By contesting the case the appellant bank not only protected its own interest, reputation and goodwill but also won the confidence of its entire clientele at large in the long run to assure them that bank does not succumb to any wrong pressures from any quarters and does also not leave its clients alone at the time when they need its help. This was done for the purposes of the business of the bank. The Officer has disallowed as non-business expense. In addition to above, Bank was also involved in defending before Hon'ble Supreme. Court in famous Asghar Khan's Petition. Bank's interest, reputation and goodwill were also at stake in this case. Huge legal expenses were incurred in this case too. Besides, a detailed write up containing details of other legal and professional expenses was provided to the Officer. All the expenses were essentially related to business of the bank and allowable deductions. The learned AR has contended that query made by the Additional Commissioner in respect of above disallowance did not point out any erroneousness and prejudice to the interest of revenue, as envisaged in section 122(5A). On the contrary there were elements of suspicion, guesswork, apprehension, assumption and surmise in the query made by the officer which is evident from the following wordings of the notice issued:-- "As per note 26 of the financial statement of account you have claimed legal and professional charges at Rs.1,570,330,000 against last year Rs.758,853,

000. Increase by 107% against last you requires examination and its allowability under the law. The said expenses appear to be capital in nature and thus not allowable under section 21(n). Further, the fine etc are also not allowable under section 21(g) of the income Tax Ordinance, 2001." According to the learned AR plain reading of the above query shows that there was nothing erroneous or prejudicial. Had this not been so the ACIR would not have asked for its examination. Besides, the officer was also not sure whether amount was capital in nature or fine or penalty. That's why he showed his intention to simultaneously treat it under section 21(n) or under section 21(g) however, after calling for various details and documents from the appellant the AIR made the disallowance of Rs.320(M) with the following observations: "Findings on above write up(clainr of expenses Rs.120(14-)): Messrs Habib Bank Limited (HBL) did not provide the particular of the person(s) whose accounts were required to be blocked. Messrs HBL is a huge organization; the blockage of said account would not have affected its deposit position. In fact the blockage of account/transfer of money was required to be defended by the said person(s) and not by the HBL. The incurrence of huge legal expenses by Messrs HBL for not transferring the amount (figure not provided) has no nexus with the business particularly when the profit on debt/interest earned during the year by the HBL on the said depositor's earned on the said deposit are more or less than the expenses incurred during the year. Hence, this expense is not allowable within the meanings of section 20 read with rule 9 of the seventh schedule to the Income Tax Ordinance, 2001. Findings on above, write up (claim of expenses) > From the above write up, it is abundantly clear that this expense has not been incurred in any head of expense which can be attributed to the business of having a nexus with the business > Automation related expenses are not legal and professional nature of expenses. > Further the tax deduction evidence has not been provided. In statement under section 165, the said expense is also of reflecting. The action is also required under section 21(c) > Sum of Rs.200,000,000 have been claimed against business "vitality and continuity" without mentioning the actual nature of expenses claimed under the head "legal and professional charges" Due to this reason also there is no nexus of this amount with the business. The learned AR has contended that it is evident from the above findings that:-- (i) The amount Rs.320(M) has been disallowed on the basis of a write up provided by the appellant's AR to the ACIR, which clearly suggest that there was nothing erroneous or prejudicial to the interest of revenue in the order under section 120 sought to be amended. (ii) The officer in his notice expressed his suspicion about payment being in the nature of capita expense under section 21(n) or penalty/fine under section 21(g) ended up treating the amount as not allowable within' the meaning of section 20 i.e. not related to business. (iii) The arbitrary treatment so meted out was not confronted to the appellant i.e. appellant was never provided an opportunity to explain its position with regard to inference drawn under section 20. (iv) One of the reasons assigned for disallowance of the sum of Rs.200(M) is that tax deduction evidence has not been provided. It is submitted that ACIR never asked the appellant or its AR to provide such evidence therefore adverse inference drawn was without providing opportunity to the appellant. The addition is not maintainable. In addition to above in the light on decision of this Tribunal in cases reported as 2013 PTD (Trib.) 246 and 2012 PTD 1055 it is now selected that except adjustments as per Rule 1(a) to (h) of 7th Schedule no addition could be made to be profits and gains of a banking company, the addition under section 20 or 21(c) as the case may be is not maintainable. The learned CIR(A) has confirmed the findings with the observation that the expense of Rs.320(M) has no nexus with the business of the appellant. We have heard the learned representatives and perused the record. We are convinced that query in respect of legal and professional charges primarily was the outcome of a suspicion that arose due to abnormal increase in the quantum of expense compared to last year. Nothing definite with regard to erroneousness or prejudice to the interest of revenue was pointed out in the notice under section 122(5A). In the notice suspicion was raised as to whether it is in the nature of capital expenditure or fine or penalty. Again ACIR was not sure which provision of law was violated by the appellant and the ACIR was proceeding on assumption and suspicion. We agree with the assertion of learned AR that provision of section 122(5A) could not be invoked on suspicious, guesswork, surmise, conjecture and assumption. All these elements were abundantly present in the initial notice issued by the ACIR- Contention of the ACIR that he can make inquiries from the taxpayer under section 122(5A) is also misconceived as inquiries if any have to be made by the Additional Commissioner at his end. It does not allow him to seek information from details and data from the taxpayer and then utilize it against him. In the instant case the ACIR admittedly based his adverse findings on the write-up/information provided by the appellant's AR which establishes that there was nothing erroneous and prejudicial to the interest of revenue so far as the order under section 120 was concerned. It has also been noted that the Additional Commissioner has made a disallowance of Rs.320(M) out of legal and professional charges for the reasons that the same are not related to business of the appellant as well as are pot admissible under section 21(c) as according to him evidence of tax deduction was not provided to him. The order of ACIR clearly shows that in his notice under section 122(5A) he expressed his apprehension that amount claimed as legal and professional charges was either inadmissible under section 21(n) or under section 21(g) But he ended up disallowing a sum of Rs.320(M) as not related to business and/or inadmissible under section 21(c) for which appellant was not confronted. This constitutes a blatant violation of principle of natural justice/audi alteram partem. The appellant has been condemned unheard. It is now selected that an order affecting the rights of a party cannot be passed without opportunity of hearing. Failure to comply with such requirement renders the order void and the entire proceedings which follow also become illegal. The learned CIR(A) was not justified to uphold the disallowance made by the assessing officer in violation of the provisions of section 122(5A) and principle of natural justice. Besides, perusal of the facts as per write up narrated in the order of Additional Commissioner and also provided us by the AR during hearing as well as arguments of AR clearly show that expense incurred on law suit filed in New York and legal expenses incurred in defending bank's position in Asghar Khan's case were related to business of the bank as by contesting these cases the bank has been able to protect its own interest, reputation and goodwill as well to win confidence and trust of its clients in the long run. In view of above addition of Rs.320(M) is not sustainable in the eyes of law the same is deleted. Regarding the levy of WWF we have found that the learned CIR(A) has upheld the levy of WWF in the light of judgment of Hon'ble Sindh High Court reported as 2010 PLC 2003 (MUFAP v. Federation of Pakistan and others) on the ground that amendments in the WWF Ordinance, 1971 through money bill for 2006 and 2008 were validly made. A three member larger bench of the Sindh High Court in its judgment in Constitutional Petition No. D-2753/2009 [(Shahbaz Garments (Pvt.) Ltd v. Pakistan and others)] has been pleased to endorse the findings in MUFAP v. Federation of Pakistan and others as under:-- "For the aforesaid reasons, we hold that the Workers Welfare Fund charged in terms of sections 4 and 4A on the income of industrial establishments exceeding Rs.500,000 (Rupees Five Lac) in the year of account at the rate of 2% of its total income to be assessed and collected by the Taxation Office having jurisdiction over the case of the industrial establishment is a tax as it contains all the attributes and characteristics of tax. Consequently, the amendments introduced in the Workers Welfare Fund Ordinance, 1971 through Finance Acts, 2006 and 2008 respectively (Money Bills) do not suffer from any constitutional or legal infirmity. The question referred to this bench is answered accordingly" It has been contended by the learned AR that as per the larger bench judgment WWF is to be charged on total income to be assessed and it is to be charged by the "Taxation Officer." Additional Commissioner is not a "Taxation Officer." The term "Taxation Officer" ceased to exist in the Income Tax Ordinance, 2001 by virtue of amendments brought about by the Finance (Amendment) Ordinance, 2009. Since no corresponding amendment has been brought about in the WWF Ordinance, 1971 which still authorizes only a "Taxation Officer" to charge WWF which has been ascended by the Hon'ble Sindh High Court in its three members Larger Bench judgment cited supra, therefore, Additional Commissioner is not legally competent to charge WWF in appellant's case. Reliance in this regard has been placed by the learned AR on ratio of decision of this Tribunal reported as (2011) 103 Tax 363 (Trib.) holding that notice and order charging WWF By the Deputy Commissioner Inland Revenue as without lawful jurisdiction and only a Taxation Officer can charge WWF under section 4(4) of WWF Ordinance. According to the learned AR the three member larger bench judgment in Constitutional Petition No. D-2753/2009 has confined its findings to the issue whether amendments in WWF Ordinance could be brought about through a money bill. No findings on the issue decided by this Tribunal 2011 PTD (Trib.) 748 have been given by the Hon'ble High Court, therefore decision of Tribunal still holds the field and levy of WWF by the Additional Commissioner may be deleted being without lawful authority. The learned AR has further contended that the Hon'ble Sindh High Court in its larger bench judgment has held that WWF is a "tax" however section 2(63) of the Income Tax Ordinance, 2001; which defines the word "tax" envisages that "tax" means any tax imposed under Chapter II of the Income Tax Ordinance, 2001, and includes any penalty, fee or other charge or any sum or amount leviable or payable under Ordinance Income Tax Ordinance, 2001. According to the learned AR in order to charge WWF as tax amendments have to be made in the Income Tax Ordinance, 2001. No WWF could be charged unless section 4 of the Income Tax Ordinance, 2001 provides for charging WWF as tax. It has further been argued by the learned AR that section 60A of the Income Tax Ordinance, 2001 provides that a person shall be entitled to a deductible allowance for the amount of any Workers' Welfare Fund paid by the person under Worker's Welfare Fund Ordinance, 1971, however at the same time section 21(a) envisages that any cess, rate or tax paid or payable by the person that is levied on the profits of gains of the business or assessed as a percentage or otherwise on the basis of such profits or gains shall not be allowed as a deduction. It has accordingly been contended that there is a conflict between the provisions of sections 60A and 21(a). If WWF is to be treated as tax it cannot be allowed as deduction in terms of section 60A of the Income Tax Ordinance, 2001 in view of provisions of section 21(a).

12. After considering all the above discussed facts, circumstances and the legal position of the case we are of the view that in both the years under review there was no justification for invoking the provisions of section 122(5A) in the manner as the Taxation Officer has done. Both the appeals on legal issues and on the facts of the case are therefore allowed. Both the appeals for the Tax Years 2006 and 2012 as well as the applications for additional grounds are allowed. The impugned orders for both years are vacated and the order of the Taxation Officer under section 122(5A) are annulled. CMA/52/Tax(Trib.) Appeals accepted.