2003 PLP (Trib (PTD)

As already mentioned this Tribunal in the case of Union Bank has further discussed this issue and has given the following observations:‑‑ "The provision has been so framed to provide a remedy and in fact the Courts have unanimity in opinion that debiting to profit and loss account and crediting to a provision/reserve for doubtful debts account would be sufficient compliance with the condition of writing off the bad debts. The squaring off individual account for such a claim has been considered as unnecessary." At the time of deciding the' case of Union Bank certain cases were not before the ITAT, however, it has subsequently been produced before the Tribunal. It appears that this Tribunal in the case of I.T.As. Nos. 42 to 44/KB of 1977‑78 order dated 14‑6‑1978, I.T.A. No.775/KB of 1975‑76, dated 13‑3‑1978 and I.T.As. Nos.1897 to 1899/KB of 1973‑74 order, dated 12‑7‑1977 in the case of National Bank of Pakistan has held that the issue of provision for bad and doubtful debts stands clinched in favour of the assessee. In this regard they have found themselves convinced that it is the method of accounts employed by the Bank under which it is to be determined that the same loans had become bad and after having come to the conclusion under the system of accounts that the loan is unrecoverable and a proper debit entry is made in the accounts such a provision is an allowable expenses. In any case, the present case we have already mentioned a judgment from the High Court Karachi supra. These judgments have also been referred being on the same subject and to say that the view of the Tribunal even in earlier times was the same. Practically speaking in the case of provisions for gratuity, provision for bonus and provision for bad debts, the opinion of the Honourable superior Court has remained almost identical. The parameters for allowing these provisions in said judgments are‑‑‑ (i) that it should be an ascertained liability; (ii) it should be as per rules and regulations‑and terms of agreement relatable to said entry; and (iii) that it should be as per normal method of accounts maintained by such Organization. In the earlier para. of this order, we have allowed provision for bonus in the same analogy. Here; again we are‑convinced that provision for bad and doubtful debts having been made by the bank after being convinced that it is not recoverable under his own method of accounts and Prudential Bank Regulations under which the Bank is operating itself was not to be disallowed: In this regard saying that the Prudential Banks Regulations does not have any bearing on the Income Tax proceedings may be correct to the extent that it is an independent law. However, one cannot accept the argument that it is not allowable under the Income Tax law and the Prudential Banking Regulations only are in support of this right. Further the departmental contention that the Tribunal has confirmed a similar provision disallowed by the department, in the case of assessee in an earlier assessment year, is not of any help. The learned Tribunal in I.T.As: Nos. 2758 to 2761/LB of 1996 order, dated 26‑5‑1997 have confirmed the issue for the reason that it did not arise out of the order of the CIT(A). In any case, in view of the various other judgments of this Tribunal earlier and recent and more for the reason of the decision of the High Court Karachi we are convinced that these additions are liable to deletion. Without any hesitation, we order accordingly. The next common ground of appeal is disallowance of excess perquisite under section 23(i) amounting to Rs.150,874,279 and Rs.125,065,356 in each of the assessment year i.e. 1995‑96 and 1996‑97 respectively. The AR assailed the impugned additions on the ground that the basis and ratio of additions in each of the assessment years were the findings for the assessment year 1994‑

95. The learned AR pointed out various deviations from the base adopted by the department itself i.e. assessment year 1994‑

95. It was exhlahted with the help of calculation of excess perquisites that in both the assessment years under appeal, excess perquisites were also applied on the component of house rent allowance which when reduced from basic salaries would reduce the addition. Consequently the learned AR only questioned the method and basis off working out excess perquisites. The learned DR did not controvert the working produced by the learned AR hence it is considered more appropriate to remand the case back to the Assessing Officer to re‑compute the working of excess perquisites on the basis and the lines ask worked out by his predecessor for the assessment year 1994‑

95. The next ground which is only for assessment year 1995‑96 is addition or provision in the amount of Rs.124,753,

000. The learned AR presented break‑up of the amount by stating that out of the above Rs.124,753,000 an amount of Rs.114,000,000 relates to bonus which was actually an ascertained liability worked out under mercantile system of accounts and the disbursement of which took place in the subsequent year. The balance amount relates to Workers Welfare Rs.10,753,000 has actually been incurred by the Bank for the benefit of the employees and such cost cannot be disallowed being wholly and exclusively incurred for the purposes of the business and also being a part of staff related benefits. So far as the amount of bonus is concerned the fact that the entire amount is ascertained and has been paid in the subsequent year is not disputed. Neither, the method of accounts is challenged nor the department doubts the validity. The addition, therefore, is not maintainable. Regarding W.W.F. the same is an allowable expense under law. The same also being undisputed figure also cannot be maintainable. For the reasons given in earlier part of this order the provision for bonus disallowed is deleted. Similarly, W.W.F. being a statutory allowance and its payment being undisputed the additions are hereby deleted. The next common ground of appeals relates to ad hoc disallowances out of profit and loss account in both the assessment years under the heads communication, staff service charges, general travelling expenses, motor vehicles, entertainment and Qarz‑e‑Hasna. The learned AR vehemently argued that not a single instance of unverifiability has been pointed out before making additions which is the requirement of proviso to section 62 of the Income Tax Ordinance, 1979 and also held in many reported decisions that the addition made without identifying the instance of unverifiability is not maintainable. Reliance was placed on C.&R. Letter 1(231) T‑77, dated 1‑1‑1977, 1984 PTD 225 (H.C. Kar.), 1996 PTD (Trib.) 1104 and 1984 PTD

225. It was argued that the Bank is still partly owned by the Federal Government and is subjected to internal and external audits. It has sound system of internal controls and no chances exist for unverifiability and coon‑business related payments. Thus there remains no justification on the part of the Assessing Officer to make disallowances in the case of the assessee‑Bank. This is not the case of a street shopkeeper. Its accounts do not suffer from any lacuna, as any unverifiability therein would amount to an offence chargeable under various laws of the land. Add back in such cases can only be where the payment is not covered within the language of relevant provisions. The additions here are not covered by section 23 or any other similar provision. These additions, therefore, also stand deleted. The next common ground of appeals relate to disallowance of donation of Rs.1,993,470 and Rs.12,352,600 for the assessment years 1995‑96 and 1996‑97 respectively. It was argued that the donations are made to entities duly approved under clause (91) of the Part I of the Second Schedule of the Income Tax Ordinance, 1979. The list provided to us indicates that he payments have been made to following Institutions. ALLIED BANK OF PAKISTAN LIMITED INV. & FUNDS MANAGEMENT DIVISOIN CENTRAL OFFICE, KARACHI. STATEMENT OF DONATION PAID DURING THE YEAR 1994. DATE NAME OF PARTY AMOUNT 16‑4‑1994 Messrs Al‑Shifa Trust Eye Hospital Rs.106,620.00 9‑5‑1994 Ministry of Interior Endowment Rs.700,000.00 25‑5‑1994 Medicos Aid Society Rs.15,000.00. 14‑7‑1994 Anjuman Insdad Tipdiuque Rahimyar Khan Rs.25,00,000.00 18‑7‑1994 The Wheeler Purchased for Mr. Abdul Qadir (Handicap Person) Rs.48,000.00 22‑9‑1994 Mr. M. Manzoor Alam Awan (a patient) Rs.25,000.00 13‑10‑1994 Sukhi Ghai, Islamabad. Rs.10,000.00 16‑10‑1994 Peshawar Club, Peshawar. Rs.10,000.00 20‑11‑1994 Model Welfare Association, Lahore Rs.25,000,00 5‑12‑1994 Karachi Posh Lions Club Rs.15,000.00 29‑12‑1994 Fatmid Foundation, Lahore. Rs.50.000.00 Rs.1.029,620.00 The AR claims that the above institutions have been approved by the Ministry of Finance for exemption under clause (91) of the Second Schedule. He, however, has not produced the relevant notification. The clause does obtain some of them in its list provided under said clause (91), however, apparently all of them are not approved. In any case we in principle agree with learned AR that the donations paid to the Institutions which are approved under clause (91) are exempt from tax. However, we leave it for the Assessing Officer to determine that which Institution is approved out of the list provided by the assessee. For determination of the exemption to that extent, we set aside this issue. As a result all the appeals filed by the assessee are decided in the manner and to the extent as mentioned above. C.M.A./677/Tax (Trib.) Appeals decided, accordingly.