2014 PLP 1101 (PTD)

ZARINA N. ZAIDI, ACCOUNTANT MEMBER.

The Above captioned cross appeals have been filed against separate orders passed by Commissioner Inland Revenue (Appeals-I), Karachi for the tax years 2004 to 2007 and are being assailed by the respective appellants as per their respective grounds of appeals and are being decided through this combined order. We intend to first decide the appeals filed by the taxpayer/ appellant assailing the impugned orders on following grounds of appeal. (1) I.T.A. NO. 834/KB OF 2010 FOR TAX YEAR 2004. TAXPAYER'S APPEAL "(1) That the order passed by the Commissioner of Income Tax (Appeals) is bad in law and on facts. (2) That the learned Commissioner Inland Revenue (Appeals) has erred in confirming the application of section 122(5A) of Income Tax Ordinance, 2001 to the case of the appellant although prior to delegation, the Commissioner Inland Revenue has to consider and prove that the order passed erroneous in so far it is prejudice to the interest of revenue. There being no finding to the contrary, the order passed under section 122(5A) being illegal and without jurisdiction is liable to be annulled. (3) That the learned Commissioner Inland Revenue (Appeals) has erred in confirming the application of section 21(g) of Income Tax Ordinance, 2001 to the case of the appellant whereby the additional Sales Tax of Rs.745,168 was confirmed without appreciating the factual aspect and legal provision of law and also the evidence produced by the appellant. The provision of law and also the evidence of section 21(g) is not applicable. The quantum of additional Sales Tax of Rs. 745,168 confirmed in appeal besides being unjustified is not only unjustified but also against the provision of law and is liable to be deleted. (4) That the Commissioner Inland Revenue (Appeals) has erred in confirming the application of section 34(5) of Income Tax Ordinance, 2001 and has further erred in confirming interest payable amounting to Rs.37,664,650 to the case of the appellant, although the same is allowable in accordance with Circular No.29/2002 read with the clause (3A) of 2nd Schedule of Income Tax Ordinance, 2001, which has especially highlighted section 34(5) of Income Tax Ordinance, 2001, hence, the addition confirmed in appeal is liable to be deleted. (5) That the learned Commissioner Inland Revenue (Appeals) has erred in confirming the addition of Rs.996,552 confirmed in appeal besides being unjustified is without any basis and is liable to be deleted. The quantum of addition of Rs.996,552 confirmed in appeal besides being unjustified is without any basis and is liable to be deleted. (6) That the appellant craves permission to add, amend, alter or substitute any further grounds of appeal at the time of hearing of appeal." (2) I.T.A. NO.618/KB OF 2008 FOR TAX YEAR 2005. TAXPAYER'S APPEAL "(1) That the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law and on facts. (2) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the treatment meted out by the Taxation Officer while applying the provisions of section 122(5A). (3) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the application of section 122(5A) of the Income Tax Ordinance, 2001 to the case of the appellant although prior to delegation, the Commissioner of Income Tax has to consider and prove that the order passed was erroneous in so far it is prejudice to the interest of revenue. The being no finding to the contrary, the order passed under section 122(5A) being illegal and without jurisdiction is liable to be annulled. (4) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made under section 39(3) of the Income Tax Ordinance, 2001 amounting to Rs.11,57,841 to the case of the appellant. The addition of Rs. 11,5,841 having been made on the basis of incorrect application and appreciation of section 39(3), the second condition having been fulfilled, the addition made is totally unjustified and illegal is liable to be deleted. (5) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the application of section 34(5) to the case of the appellant in respect of "Road Cess". (6) That the learned Commissioner of Income Tax (Appeals) has erred in restricting the addition in respect of road cess to Rs.1,507,537 under section 34(5) of Ordinance, 2001 is applicable. (7) That the learned Commissioner of Income Tax (Appeals) has misdirected in confirming the application of section 34(5) in respect of Assessment Year 2001-2002 which could be applied in Tax Year 2004 and NOT in Tax Year 2005. The addition of Rs.1,507,537 is liable to be deleted. (8) That without prejudice to ground Nos. 5,6 and 7 which are also applicable in review of addition made out of interest payable at Rs.51,366,837 without appreciating that the said liability relates to the period for Asst. Year 2001-2002 and prior years hence, could not be added under section 34(5) in the Tax Year 2005. The addition made is liable to be deleted. (9) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the addition made in respect of interest payable at Rs.5,13,66,837 in the Tax Year 2005 by invoking the provisions of section 34( 5). The addition confirmed in appeal is liable to be deleted. The quantum of interest payable confirmed in appeal besides being unjustified is not only without any basis but also on the basis of incorrect application of provisions of section 34(5), hence, the addition of Rs.5,13,66,837 is liable to be deleted. (10) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the application of section 21(k) of the Income Tax Ordinance, 2001 to the case of the appellant whereby the addition of Rs.184,590 was confirmed without appreciating the factual aspect and evidence produced by the appellant, nor the provision of law. The quantum of addition of Rs.184,590 confirmed in appeal besides being unjustified is not only baseless on legal plane and as well as facts of the case and evidence produced by the appellant. Hence, the addition is liable to be deleted. (11) That the appellant craves permission to add, amend, alter or substitute any further grounds of appeal at the time of hearing of appeal." (3) I.T.A. NO. 52/KB OF 2009 FOR TAX YEAR 2006. TAXPAYER'S APPEAL "(1) That the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law and on facts. (2) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the treatment meted out by the Taxation Officer while applying the provisions of section 122(5A). (3) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the application of section 122(5A) of the Income Tax Ordinance, 2001 to the case of the appellant although prior to delegation, the Commissioner of Income Tax has to consider and prove that the order passed was erroneous in so far it is prejudice to the interest of revenue. There being no finding to the contrary, the order passed under section 122(5A) being illegal and without jurisdiction is liable to be annulled. (4) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the addition on account of alleged reversal of provisions for gratuity amounting to Rs.172,468 relating to Tax Year 2005 although no such provision was claim in the Tax Year 2006. The quantum of additions confirmed on account of alleged reversal of provisions for gratuity besides being unjustified is not only illegal but also without justification, hence, liable to be deleted as the said provision was not claimed in the Tax Year 2006. (5) That the Commissioner Inland Revenue (Appeals) has erred in confirming the application of section 21(k) of Income Tax Ordinance, 2001 of the Income Tax Ordinance, 2001 to the case of the appellant whereby the addition of Rs.267,61 was confirmed without appreciating the factual aspect and evidence produced by the appellant, nor the provision of said law is applicable as loan to employees were allowed and gratuity fund account of respectively employees. The quantum of addition of Rs.267,610 confirmed in appeal besides being unjustified is not only excessive and exorbitant but are liable to be annulled. (6) That the appellant craves permission to add, amend, alter or substitute any further grounds of appeal at the time of hearing of appeal." (4) I.T.A. NO.835/KB OF 2010 FOR TAX YEAR 2007. TAXPAYER'S APPEAL "(1) That the order passed by the learned Commissioner of Income Tax (Appeals) is bad in law and on faces. (2) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the application of section 122(5A) of Income Tax Ordinance, 2001 to the case of the appellant although prior to delegation, the Commissioner Inland revenue has to consider and prove that the order passed was erroneous in so far it is prejudice to the interest of revenue. (3) That the learned Commissioner of Income Tax (Appeals) has erred in confirming the application of section 21(g) of Income Tax Ordinance, 2001 to the appellant whereby the Additional Sales Tax of Rs.1,352,784 was confirmed without appreciating the factual aspect and legal provision of law and also the evidence produced by the appellant. The provision of section 21(g) is not applicable. The quantum of Additional Sales Tax of Rs.1,352,782 confirmed in appeal besides being unjustified is not only unjustified but also against the provision of law and is liable to be deleted. (4) That the appellant craves permission to add, amend, alter or substitute any further grounds of appeal at the time of hearing of appeal." The learned counsel for Taxpayer/appellant Mr. Iqbal Salman Pasha, advocate has explained that appeals for tax years 2004 to 2007 have been filed against the order passed under section 122(5A) by various Additional Commissioners Inland revenue, Large taxpayers Unit, Karachi. In these appeals one of the main disputed issue being contested is the proceedings initiated and order passed under section 122(5A) without neither complying, nor the main requirements of section 122(5A) have been proved, According to learned A.R. although the provision of section 122(5A) of Ordinance, 2001 and section 66A of Repealed Ordinance, 1979 are pari materia and the assessments or deemed assessments or orders under sections 59(1), 59A of Repealed Ordinance, 1979 and as well as under section 120(1) of Ordinance, 2001 can be cancelled and amended under section 66A of Ordinance, 1979 and 122(5A) of Ordinance, 2001, provided the required conditions are fulfilled. But, under the Ordinance, 2001 besides the order being erroneous and prejudice and before delegation under section 210(1A), the Commissioner can delegate the authority only "if he considers" that the assessment order is erroneous in so far it is prejudice to the interest of revenue. After reading the entire provision of section 122, the A.R. has asserted that in subsection (5A) special words "if he considers" has been used by the legislature, which means that prior to delegation, the Commissioner has to examine the income tax return and apply his mind, but in neither of the amended orders passed under section 122(5A) there is no such finding, nor any reason for assuming the deemed order being erroneous and prejudice to interest of revenue has been recorded, except for the opinion of Additional Commissioner mentioned in notice subsequently issued under sections 122(9)/122(5A). The A.R. has further explained that the proceedings initiated and amended order subsequently passed are neither sustainable in law, nor on facts as these proceedings are entirely based on fishing inquires, but neither of the conditions which are both to be fulfilled simultaneously has been complied. The A.R. has referred to decisions of Appellate Tribunal and as well as higher forum wherein similar proceedings initiated under section 34A of Repealed Act, 1922, section 66A of Repealed Ordinance, 1979 and also under section 122(5A) of Ordinance, 2001 have been cancelled as illegal and without jurisdiction. The decision relied upon are 1999 PTD (Trib.) 2051; 2004 PTD 330 (HHC); 2008 PTD (Trib.) 1491; 2009 PTD (Trib.) 121; I.T.As. Nos. 61 and 62/KB of 2009, Tax Years 2005 and 2006 dated 17-5-2011 and I.T.A. No. 47/KB of 2011, Tax Year 2009 dated 3-3-2012. Photostat copies of decisions have been produced by the A.R. Continuing his arguments, the learned A.R. has explained that the decision of Pakistan Mobile Communications Limited v. C.I.T. W.Ps. Nos.517-513 of 2009 reported as 2011 PTD 1506 of (Islamabad High Court referred to by Commissioner Inland Revenue (Appeals) in the impugned order is not applicable as, in the said case, notice issued under section 122(5A) was contested as illegal and without jurisdiction, but while dismissing the Petition it was held that the notice issued under section 122(5A) was within the delegated power and as a compromise, the petitioner was directed to comply to the said notice. The A.R. has also referred to the decision of Sindh High Court in the case of Shell (Pakistan) Limited reported as 2013 PTD 1012 (SHC) which was also dismissed on similar grounds, hence these decisions are not applicable as there is neither any discussion, nor there is any finding on the issues being contested before this forum. In reply to a query by the Bench, the learned A.R. has explained that he is not contesting that the provision of section 122(5A) is illegal and is liable to be struck off from the statute, but his main objection is that without fulfilling both the required conditions envisaged in section 122(5A), the amended orders are illegal, without jurisdiction and are liable to be cancelled and annulled as neither of the conditions have been fulfilled as appellant in all the years had declared losses due to claim of depreciation and carried forward assessed losses. Tax under section 113 was paid with the income tax return and there is no increase in tax liability. He has finally pleaded to cancel the orders passed under section 122(5A) for all the years as illegal and in excess of jurisdiction. The learned Departmental Representative Mr. Shahid Iqbal Baloch while supporting the orders passed by Additional Commissioner and the learned Commissioner Inland revenue (Appeals), Karachi has also referred to the decisions of Islamabad High Court and as well as Sindh High Court wherein proceedings initiated under section 122(5A) were held within the powers and jurisdiction vested in Commissioner Inland Revenue and subsequent delegation under section 210(1A), to Additional Commissioner Inland Revenue. According to learned D.R. the notice issued by the Additional Commissioner is in accordance with the law and after examining the audited accounts and income tax returns filed by the appellant. As the deemed order was erroneous and as well as prejudice to the interest of revenue, the proceeding initiated and the amended order passed under section 122(5A) is legal, valid and within the vested powers. The Commissioner Inland Revenue (Appeals) Karachi is fully justified and had correctly rejected the contention of appellant. He has pleaded to confirm the order passed by CIR(Appeals) Karachi. After hearing the arguments of both the sides we are of the considered opinion that this issue will be decided after hearing the arguments on merits and whether the jurisdiction under section 122(5A) was exercised in accordance to law or not and whether the deemed order was erroneous in so far it is prejudicial to the interest of revenue. Arguing on merits of the case the learned counsel has referred to ground No.3 in tax year 2004 and ground No.3 in tax year 2007 which are common wherein additional sales tax paid was disallowed on the assumption of violation and being inadmissible under section 21(g). The treatment accorded was confirmed by the CIR (Appeals). Explaining the facts of the case, the A.R. has stated that the sales tax liability for the current crushing season and also for the earlier years were payable, but could not be paid and although installments for payment of sales tax liability was allowed by the Chief (Sales Tax), Revenue Division. Sales Tax Wing, Central Board of Revenue. Islamabad, but due to financial crises, the installment could not be paid. For delayed payment, additional tax as surcharge was levied which the auditors had termed as penalty, although, it is a settled issue that additional tax paid does not represent penalty for any violation for the reason that as per section 21(g), the inadmissibility of any expenditure is restricted if the payment is in respect of fine or nullity or payable due to violation of any law or rule or regulation, but if there is no violation of any law, neither the provision of section 21(g) can be invoked nor the claim can be disallowed as the same is an admissible deduction under section 21(1) of Ordinance, 2001. According to A.R., although for non payment of installment of sales tax, additional tax was levied and paid which was incorrectly termed as penalty by the auditors, but in fact the payments have been made on the basis of amnesty scheme and concession allowed by FBR through various S.R.Os. whereby the Federal Government was pleased to exempt the amount of additional tax and penalty if the amount of sales tax not paid or adjustment of inadmissible input tax is paid along with 25% as additional tax. Hence, the claim of additional tax and even penalty is an admissible deduction and cannot be disallowed under section 21(g), Continuing his arguments, the learned A.R. has stated that in view of section 3 of Ordinance, 2001 which excludes the application of any other law for the time being in force, the provision of section 21(g) cannot be invoked as there is no violation of any provisions of Income Tax Ordinance, 2001. While elaborating his arguments, the learned A.R. has stated that violation if any was under the Sales Tax Act and not under Income Tax Ordinance, 2001, hence the additional tax or even if assumed as penalty cannot be disallowed under section 21(g). He has relied on the decision of Sindh High Court reported as 1995 PTD 577 and 1993 PTD 383 (S.C. Pak.) in support of his contention. The learned A.R. has further stated that additional tax or even if termed as penalty for non payment or delay in payment of sales tax liability cannot be disallowed under section 21(g) as there is neither criminal infraction, nor violation of any law, the deduction was held as an admissible deduction/expenditure incurred wholly and exclusively for the purpose of business. Reliance has been placed on the decision reported as 2000 PTD 3741 (SC Pak); 2006 PTD 2256 (KHC); 2010 PTD 737 (HCK) and also unreported decision of this Tribunal in I.T.As. Nos. 1299 and 1058/KB of 2003 assessment years 2001-2002 and 2002-2003 dated 20-5-2005 and I.T.A. No. 968/KB of 2009 tax year 2004 dated 2-8-2011. Photostat copies were produced and were apprised by the Bench. Referring to the decision of Supreme Court of Pakistan in the case of CIT v. Premier Bank Limited reported as 1999 PTD 3005 mentioned by the Assessing Officer in amended order passed under section 10(3)(XVI), the learned AR has referred to para 9 of the above decision wherein the Supreme Court has itself observed that it is not every expenditure incurred on account of infringement of a provision of a statute that can be disallowed as an inadmissible deduction but the question whether such expenditure is admissible under section 10(2)(xvi) or it, would depend upon the circumstances of each case. Referring back to the orders passed under section 122(5A) and CIR(Appeals), the learned A.R. has asserted that both the Officers have disallowed the deduction for the solitary reason that the auditors have used the term penalty in the audited accounts, although it was explained that it is an incorrect nomenclature and a generalized word in accordance to International Accounting Standard. The learned counsel has also referred to the decisions of learned CIR(A), wherein similar disallowance made by the Assessing Officer were deleted in succeeding years. The learned A.R. has finally pleaded that as the payment of additional tax or surcharge or even if termed as penalty, there is neither any infringement, nor violation of any law, or even otherwise as there is no violation in accordance to provisions of Income Tax Ordinance, 2001 and as this issue has already been settled in various decisions of higher forums in Pakistan he has pleaded to delete the disallowances made in both years. The Learned Departmental Representative while supporting the orders passed by both the Officers impugned in this appeal has relied on the decision of Supreme Court of Pakistan in the case of Premier Bank and has asserted that any expenditure incurred in violation of any statute is not an admissible deduction within the meaning of section 21(g) and it also includes violation of any rule or regulation, but could not distinguish subsequent findings in various decisions referred to by learned A.R. for appellant, nor any violation of Income Tax Ordinance, 2001 and has pleaded to confirm the order of CIR (Appeals) We have heard the arguments advanced by both the sides and have also perused the orders and as well as various decisions relied upon by the counsel for appellant. In these decisions, the unanimous principle upheld was that unless violation or criminal infringement of law is proved, hence every penalty can be disallowed under section 21(g) of Ordinance, 2001. As some of the decisions are on similar provisions of Repealed Income Tax Ordinance, 1979, hence in order to appraise the legal position, we intend to reproduce both the provision of law:-- "Section 21(g) of Income Tax Ordinance, 2001. "any fine or penalty paid or payable by the person for the violation of any law, rule or regulation." "Section 24(i) of Income Tax Ordinance, 1979 (Repealed) "any expenditure incurred of on account of payment of a fine or penalty for the violation of any law or rule or regulation for the time being in force." The intention behind the above provisions is that any expenditure incurred on account of criminal infringement or violation of law is not allowable as an admissible deduction and not otherwise, hence the decisions relied upon not only supports the contention of appellant, as there is no other finding in the impugned orders except that the auditors have used the word penalty which has been rebutted by the appellant. After considering the facts of the case, the relevant provision of law and as well as decisions relied upon, we are of the view that provision of section 21(g) was wrongly invoked and confirmed by the learned Commissioner Inland Revenue (Appeals) although, neither of the Officers could prove any violation, infraction or infringement of law. Hence, we accordingly allow the appeals for both the years, set-aside the order CIR(Appeals) and delete the additions. The next issue argued as per Ground No. 4 for tax year 2004 relates to disallowance and addition made under section 34(5) out of financial charges and frozen markup. According to learned Counsel for appellant both the Officers have not only misdirected themselves by incorrectly assuming that as the provision of clause (3A) of Part-IV of Second Schedule was inserted vide Finance Act, 2004, the concession and benefit is available from tax year 2005 onward, without appreciating the intention of legislature and has vehemently asserted that although the provisions of clause (3A) was inserted by Finance Act, 2004, but the legislature has approved Circular No. 29 of 2002 dated 15-10-2002 issued by State Bank of Pakistan with retrospective effect and this aspect has been ignored by both the Officers. After reading clause (3A) the learned A.R. has explained that the intention of legislature is very clear as application of subsections (5), (5A) of section 34 and section 70 have been excluded in respect of waiver of profit on debt or the debt itself as approved by State Bank of Pakistan in accordance to Circular No. 29 of 2002 dated 15-10-2002, hence irrespective of the fact that clause (3) was brought on statute at a later date, but the condition of waiver approved is from the date of issue of Circular No. 29 of 2002 dated 15 October, 2002. The learned A.R. has emphasized that even from plain reading of provision, retrospective application is very clear and obvious as the legislature has specifically referred to Circular issue by State Bank of Pakistan and has also approved the conditions of waiver from the date of said Circular, Referring back to the facts of appellant's case, the learned Counsel has asserted that, although the long term liability of bank are outstanding even prior to assessment year 2001-2002 and although the addition could not be made under section 34(5) in tax year 2004 and apart from factual dispute, but besides this objection, both the Officers have not only misdirected themselves, both have also misinterpreted the provisions of clause (3A) without appreciating the actual intention of legislature and also the facts explained during proceedings under section 122(5A) as the Schedule Banks and DFI had agreed the waiver scheme duly approved by State Bank of Pakistan. In support of his contention, the learned A.R. has referred to various decisions of Supreme Court of Pakistan and as well as High Court reported as (1992) 66 Tax 238 (SHC); 2009 PTD 481 (LHC). According to A.R. as clause (3A) was brought on statute to bring the same in consonance with the policy of State Bank of Pakistan, the application of waiver and exclusion of section 34(5); (5A) and section 70 from such waiver is applicable with retrospective effect from the date of Circular No.29 of 2002 dated 15-10-2002 and the set-off was correctly claimed by the appellant. The learned Departmental Representative has supported the orders passed by both the Officer as clause (3A) was inserted in the income year relevant to tax year 2005, hence the benefit is not applicable in tax year 2004 and cannot be applied retrospectively. According to learned D.R. the addition was correctly made under section 34(5) as the liability relates to assessment year 2001-2002 and as it was not paid off till tax year 2004. We have heard the arguments advanced by both the sides and have also perused the impugned order and as well as case-laws relied upon and copies provided by the learned counsel for appellant. The only dispute is that whether clause (3A) of Par-IV of Second Schedule brought on statute through Finance Act, 2004 is applicable retrospectively or is prospective in application. In order to understand the intention of legislature, its application and the remedies allowed, relevant provisions are reproduced hereunder. Clause 3A of Part-IV of Second Schedule "(3A) The provisions of subsections (5) and (5A) of section 34 and section 70 shall not apply to any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan, Banking Policy Department's Circular No. 29 of 2002, dated the 15th October, 2002, to the extent not set off against the losses under Part VIII of Chapter III." There is no dispute that deduction allowed in respect of unpaid liabilities can always be taxed in accordance to provisions of sub-sections (5) and (5A) of section 34 and as well as section 70 of Income Tax Ordinance, 2001. There is no dispute in respect of application of said provision, but its application was disputed on the basis of Circular No. 29 of 2002 dated 15-10-2002 read with clause (3A) of Part-IV of Second Schedule, which was not only a beneficial concession accorded to sick industries as per conditions specified in Circular issued by State Bank of Pakistan. A bare perusal of clause (3A) in the case that it has excluded the application of section 34(5), (5A) and as well as section 70 of Income Tax Ordinance, 2001 in respect of such debts and liabilities approved by State Bank of Pakistan. In short, it wholly and solely applies on such unpaid liabilities and as Circular No. 29 of 2002 dated 15-10-2002 has been specifically mentioned, the intention is very clear and the benefit is applicable from the date of Circular dated 15-10-2002 issued by State Bank of Pakistan. As clause (3A) has been brought on statute to accord approval to the conditions specified in above Circular, hence we are of the considered opinion that the benefit is to be accorded from the date of Circular No. 29 of 2002 for the reason that the case of the appellant is fairly within the scope of exemption accorded to clause (3A), hence the appellant cannot be denied the benefit on the basis of any supposed intention to the contrary of the legislature or authority granting it as the bare perusal clearly indicate the waiver of profit on debt or the debt itself under the State Bank of Pakistan, Banking Policy Department's Circular No. 29 of 2002 dated 15 October, 2002. Accordingly we are of the considered opinion that the claim of write off was correctly claimed as the benefit is available with retrospective effect from the date of circular dated 15-10-2002. The appeal is allowed, the impugned order of CIR(Appeals) is set-aside and the addition made under section 34(5) is deleted. The next issue contested by the appellant is in respect of addition made under section 21(k) of Ordinance, 2001 and is also involved in tax years 2005 and 2006. According to learned Counsel for appellant the Assessing Officer had shown the intention to calculate and disallow interest on outstanding loans to employees, Although, appellant had explained that loans have been allowed against credit balance in provident and gratuity funds of respective employees which has been deducted from wages and salaries. Moreover, the provisions of section 21(g) is not applicable in the case of appellant. The Assessing Officer had rejected the contention of appellant and after referring to the decision of this Tribunal in the case of Hong Kong Shanghai Banking Corporation, Karachi, (sic) addition was made under section 21(k) by charging interest at the bench mark rate in the above tax yearn. The treatment accorded was confirmed by the Commissioner Inland Revenue (Appeals) Karachi. The learned counsel for the appellant has vehemently asserted that provision of section 21(k) is not applicable in the case of employer, Moreover, the decision in the case relied upon by the Assessing Officer has been overruled and reversed by High Court of Sindh in ITRAs Nos. 306 and 207 of 2010 in the case of Commissioner (Legal Division LTU), Karachi v. English Biscuit Manufacturer (Pvt.) Limited, Karachi and similar other decision on this issue. The decision of Sindh High Court has also been confirmed by Supreme Court of Pakistan in Civil Petitions Nos. 503-K and 504-K of 2011 dated 18-7-2011 in the case of above manufacturer. Copies of decision have been provided to the Bench and have been perused by us. As facts of the case of appellant and of above decisions are the same, neither the provision of section 21(k), nor 13(7) of Ordinance, 2001 are applicable, the learned A.R. has pleaded that the additions made in the three years in appeal may be deleted. The learned Departmental Representative while supporting the impugned orders has explained that as appellant had advanced interest free loans to its employees, hence the Assessing Officers have correctly charged interest on these loans and as such treatment has also been confirmed by Appellate Tribunal in the case of bank, the learned Commissioner Inland Revenue (Appeals) was fully justified and had correctly confirmed the addition. However, he did not comment on the decision of Sindh High Court and Supreme Court of Pakistan. We have considered the arguments of both the sides and are of the view that after the decision of Sindh High Court and as well as Supreme court of Pakistan, the earlier decision of this Tribunal in the case of Hong Kong Shanghai Banking Corporation, Karachi referred to in the amended order stands overruled and is not applicable. As the facts of appellant's case and of the case decided by High Court of Sindh are the same which has not been disputed, hence respectfully following the decision of High Court and Supreme Court of Pakistan, appeals for the above three years are allowed. Additions confirmed by CIR (Appeals) and his orders are set-aside and the additions made in the three years are deleted. We will now take up the appeal filed by Taxpayer for tax year 2005 as per I.T.A. No. 618/KB of 2008. According to both the learned Counsel, grounds Nos. 2, 3 and 10 are common and have already been argued by them in appeal for the tax year 2004. As the disputed issues and arguments are the same hence grounds Nos. 2 and 3 will be decided after hearing the arguments on merits. Whereas ground No. 10 relates to addition made under section 21(k). This issue has been discussed above and as the addition made has been deleted while deciding the appeal for tax year 2004, hence our finding for tax year 2005 is the same as in appeal for tax year 2004. Referring to ground No. 4 for tax year 2005, the learned A.R. has asserted that the learned CIR(Appeals) was not justified in confirming the addition of Rs.157,841 made under section 39(3) of Ordinance, 2001 without considering the relevant provisions and although during the proceeding under section 122(5A), appellant had explained that loan of Rs. 1,157,841 was received through bearer cheque from M/s. Bawany Sugar Mills Limited, Karachi also assessed in Large Taxpayers Unit, Karachi as per National Tax Number 0709885. Referring to section 39(3) of Income Tax Ordinance, 2001, the learned A.R. has asserted that the said section is not applicable as there are two conditions. As loan of Rs. 157,841 has been received through banking channel from a person registered on National Tax Number, he had emphasized that as the appellant has fulfilled the second condition which has also been verified by the Assessing Officer from bank statements of appellant and were again produced before the Commissioner Inland Revenue (Appeals) Karachi, the learned A.R. has pleaded to delete the addition as provisions of section 39(3) was wrongly invoked and confirmed in appeal. The learned Departmental Representative has stated that although loan was not received through cross cheque, both the Officers were fully justified in confirming the addition due to violation of section 39(3), However, in response to a query from Bench that as loan has been received through banking channel from a person holding National Tax Number, the second condition of section 39(3) has been fulfilled. The learned D.R. could not give any satisfactory reply, but insisted that as loan was not received through cross, the provision of section 39(3) was correctly invoked. We have heard the arguments of both the sides and have also perused the evidence produced by the learned A.R. After perusal of section 39(3), we are of the considered opinion that as loan was received through banking, channel from a person registered on national tax number, there is no violation of section 39(3), hence the addition confirmed in appeal is neither justified, nor maintainable. Accordingly the order passed by CIR (Appeals) on this issue is cancelled and the addition confirmed in appeal is deleted. Referring to grounds Nos. 5, 6, and 7 for tax year 2005, the learned A.R. has referred to finding of CIR (Appeals) recorded on pages 18 and 19 of impugned order whereby addition under section 34(5) in respect of payable liability of road cess was confirmed at Rs.1,507,537 without considering that the addition could have been made under section 25(c) of Repealed Ordinance, 1979 but not under section 34(5) of Ordinance, 2001. The learned A.R. has asserted that the outstanding liability of Rs.1,507,537 for income year ending 30-9-2000 relevant to assessment year 2001-2002 could be added back in tax year 2004 and not in tax year 2005 which is the fifth year and according to subsection (5) of section 34 the unpaid liability could be added back in the first tax year following the end of three years. Although, the learned A.R. has pleaded to delete the addition of Rs.1,507,537 and the learned Departmental Representative has supported the order of learned CIR (Appeals), but as we are not convinced with the arguments of learned Counsel for appellant, we are of the considered opinion that the finding of CIR (Appeals) is correct, we therefore confirm the impugned order on this issue and the appeal is dismissed. Referring to grounds Nos. 8 and 9 for tax year 2005, the learned A.R. has referred to his submissions recorded in para. 6 on pages 11 and 12 of impugned order and has asserted that the addition of unpaid interest confirmed by CIR (Appeals) has resulted in double addition as the disputed amount is included in the unpaid interest of Rs. 67,138,530 added back under section 34(5) for tax year 2003. The learned A.R. has also claimed the benefit of clause (3A) of Part-IV of Second Schedule read with Circular No. 29 of 2002 issued by State Bank of Pakistan in respect of waiver of long term liability from application of section 34(5) of Ordinance, 2001. Explaining the facts of the case, the learned A.R. has asserted that the amount of outstanding interest is payable even prior to 30-9-1998. During audit proceedings for tax year 2003, the entire outstanding interest aggregating to Rs.67,138,530 was added back under section 34(5) as per order passed under section 122(1) for tax year 2003 and has produced a copy of amended order which has been perused and the contention has been verified by the Bench. He has further argued that the entire amount of outstanding interest etc payable to Bank aggregating to Rs.114,641,053 which also includes interest payable at Rs. 51,366,837 which has also been claimed in rescheduling proceedings with the approval of State Bank of Pakistan in accordance to Circular No. 29 of 2002 and clause (3A) of Part-IV of Second Schedule. As the amount of outstanding interest for the period 30-9-1998 onward has already been added back under section 34(5) in the tax year 2003, the learned A.R. has pleaded to delete the addition made in tax year 2005 as it has resulted in double addition. The Learned Departmental Representative has not only supported the orders passed by both Officers but has also asserted that although the amount of outstanding interest of Rs.67,138,538 was added back under section 34(5) in tax year 2003, but the adjustment and waiver claimed in accordance to Circular of State Bank of Pakistan read with clause (3A) are separate issues, hence the addition was correctly added back under section 34(5) which has also been confirmed in appeal. We have thoroughly examined the contention of both the sides and have also perused the relevant finding in impugned order through which addition made under section 34(5) was confirmed and the waiver and adjustment claimed in accordance to direction of State Bank of Pakistan read with clause (3A) of Part-IV of Second Schedule and as well as the amended order passed under section 122(1) for tax year 2003 with reference to section 34(5) of Ordinance, 2001 read with section 25(c) of repealed Ordinance, 1979. As the addition in tax year 2003 was made under section 34(5) hence the admitted position was that the outstanding liability was prior to 30-9-1998 in order to attract section 34(5). We are therefore of the considered opinion that provision of section 34(5) is not applicable and the said addition was incorrectly made in tax year 2005. It is also an admitted fact that as the liability payable to Bank was outstanding from prior to 30-9-1998 and such outstanding liability has been claimed in rescheduling and waiver, the provision of section 34(5) is even otherwise not applicable in tax year in appeal. On the basis of facts of this case which are not disputed and the provisions of section 34(5) is even otherwise not applicable in view of specific exemption accorded through clause (3A) of Part-IV of Second Schedule read with Circular of State Bank of Pakistan which also includes the addition 3 made in tax year 2003, the outstanding amount of interest payable cannot be added back under section 34(5). In view of above discussion, the appeal of taxpayer is allowed and after setting-aside the order of CIR (Appeals), the addition made under section 34(5) is accordingly deleted. As all the grounds for tax year 2005 have been adjudicated, we will now take up the Taxpayer's Appeal for tax year 2006 as per I.T.A. No. 52/KB of 2009 tax year 2006. As per contention of learned Counsel for appellant, grounds Nos. 2, 3 and 5 are common grounds wherein disputed issues are the same and have already been argued by him while arguing the appeals for tax years 2004 and 2005. According to him, his submissions and the decisions relied upon are the same as in earlier years. The learned Departmental Representative has also confirmed the contention of learned A.R. and his arguments are also the same. As the disputed issues are common and arguments are also the same, hence grounds Nos. 2 and 3 will be decided after hearing the arguments on merits, whereas, ground No. 5 relating to addition made under section 21(k) has been discussed above and as the addition made has been deleted while deciding the appeal for tax years 2004 and 2005, hence our finding for tax year 2006 is also the same as in appeals for earlier tax years. While arguing on ground No. 4, the learned counsel for appellant has referred to his submissions recorded on page 3 of impugned order and has explained that provision for gratuity of Rs.172,468 was claimed in cash flow statement for tax year 2005 and not in tax year 2006. He has also referred to para 2 of notice issued under section 122(5A) which has been reproduced on page 1 and also the finding recorded on page 8 of amended order wherein the provision of gratuity and actual payment were allowed as gratuity scheme is duly approval. According to learned counsel for appellant Assessing Officer has incorrectly disallowed the claim under section 21(e), without appreciating that the claim was declared and recorded in cash flow statement for tax year 2005, hence the addition was made on the basis of incorrect appreciation of facts and law in tax year 2006. In order to justify he has produced photostat copy of Note No. 6.1 of audited accounts for tax year 2005. While objecting to disallowance made under section 21(c), the counsel has explained that gratuity scheme is duly approved and similar claims were never disallowed either under section 21(e) or otherwise which is also evident from finding recorded on page 8 of amended order and has pleaded that as claim relates to tax year 2005, the disallowance made in tax year 2006 may be deleted. The learned Departmental Representative while supporting the impugned orders has asserted that the disallowance was correctly made by the Assessing Officer as it is in clear violation to section 21(e) of Ordinance, 2001. We considered the arguments of both the sides and have also perused the each flow statement and also the finding recorded on page 8 of amended order, wherein provision of gratuity has been allowed which proves the contention of learned A.R. that section 21(e) was wrongly invoked. Moreover, the claim of Rs.172,468 relates to tax year 2005 and was recorded in cash flow for the said year. As the disallowance made does not relate to tax year 2006, appeal is allowed, orders passed by both the lower forums are set-aside and disallowance made is deleted. There are no other grounds for tax year 2006, the learned counsel has explained that in appeal filed for tax year 1007 as per I.T.A. No. 835/KB of 2010, ground No. 2 relates to order passed under section 122(5A) and his arguments are the same as in appeals for tax years 2004 to 2006. The next ground No. 3 relating to disallowance made under section 21(g) and his submissions are the same as argued in tax year 2004 and other years. He has also referred to his submissions recorded on pages 2 and 3 of amended order passed under section 122(5A). According to learned A.R. as the facts and provision of law and as well as decisions relied upon are the same, the disputed issue for tax year 2007 may be decided on the basis of submissions recorded in earlier years. The learned D.R. has also contended that his arguments in respect of grounds Nos. 2 and 3 are also the same as argued for tax years 2004 to 2006. We have perused the impugned order and are of the opinion that the disputed issues are common and as the arguments are also the same, hence ground No. 2 will be decided after hearing the arguments on merits. Whereas, ground No. 3 relating to addition made under section 21(g) has been discussed above tax year 2004, wherein the addition made has been deleted while deciding the appeal for tax year 2004, hence for the same reason our finding for tax year 2007 is also the same as in appeal for earlier tax years. Now we will take up the appeals filed by the Commissioner Inland Revenue, Large Taxpayers Unit, Karachi for tax years 2004, 2005 and 2006 assailed on the following grounds (1) I.T.A. NO. 832/KB OF 2010 TAX YEAR 2004 FILED BY COMMISSIONER (LEGAL DIVISON) LTU, KARACHI-III DEPARTMENTAL APPEAL. "(1) That the order passed by the learned CIR (Appeals-I) Karachi is bad in law and on facts of the case. (2) That the learned C.I.R. (Appeals), Karachi has erred in deleting the addition amounting to Rs.1,404,770 in respect of provision for gratuity. (3) That the appellant craves leave to add, amend or alter any of the grounds on or before the final hearing of appeal." (2) I.T.A. NO. 520/KB OF 2008 TAX YEAR 2005 FILED BY COMMISSIONER (LEGAL DIVISON) LTU, KARACHI-III DEPARTMENTAL APPEAL. "(1) That the order passed by the learned CIT(Appeals-I) Karachi is bad in law and on facts of the case. (2) That the learned CIT(Appeals), Karachi has erred in deleting disallowance of Sales Tax amounting to 862,125 under section 21(g) of the Income Tax Ordinance, 2001. (3) That the learned CIT(Appeals) was not justified to delete addition of Rs.114,641,053 under section 34(5) of the Income Tax Ordinance, 2001. (4) That the learned CIT(Appeals) was not justified to reduce addition made under section 34(5) of the Income Tax Ordinance, 2001 for an amount of Rs.7,187,560 being read cess to Rs.1,507,537. (2) I.T.A. NO. 88/KB OF 2009 TAX YEAR 2006 FILED BY COMMISSIONER (LEGAL DIVISON) LTU, KARACHI-III DEPARTMENTAL APPEAL. "(1) That the order passed by the learned CIT (Appeals-I) Karachi is bad in law and on facts of the case. (2) That the learned CIT (Appeals) was not justified to deleting the addition made under section 34(5) of the income Tax Ordinance, 2001, as the waiver of loan and interest of Rs. 46,460,582 was justifiably disallowed. (3) That the learned CIT (Appeals) has erred in deleting the addition of Rs. 1,507,337 made under section 34(5) of the Income Tax Ordinance, 2001 in the fact of unpaid liability of road cess, as the same was correctly disallowed by the assessing Officer. (4) That the appellant craves leave to add, amend or after any of the grounds on fact the final hearing of appeal." Referring to ground No. 2 for tax year 2004, the learned Departmental Representative Mr. Shahid Iqbal Baloch has argued that although provisions for gratuity was correctly disallowed by the assessing Officer as provisions are not admissible deduction, the learned Commissioner Inland Revenue (Appeals) was not justified in deleting the addition, without appreciating that the actual payment made during the year was allowed. He has prayed to reverse the finding of CIR (Appeals). On the other hand the learned counsel for respondent that the claim of gratuity charged to cash flow statement is on the basis of actual and determined liability for the year which has been worked out on the basis of salary of each employee, hence, according to A.R. the observation of Assessing Officer were neither correct, nor based on facts and law for the reason that the claim of gratuity being a determined and ascertained liability under sections 32 and 34(3) of Ordinance, 2001, the claim was never disallowed. He has further asserted that Supreme Court of Pakistan in the case of Commissioner of Income Tax v. Messrs Oriental Dyes and Chemicals Company Limited reported as 1992 SCMR 763 have approved the deduction of liability as an admissible deduction through it is to be discharged at a future date. As respondent is following Mercantile system of Accountancy, similar claims have been allowed by High Court and Appellate Tribunal and has also referred to various decisions reported as 1985 PTD 413 (KHC), 1990 PTD 248 (KHC), 1998 PTD (Trib.) 1103 and 2012 PTD (Trib.) 1385. According to learned A.R. as the finding recorded by the learned CIR (Appeals) on pages 9 and 10 of impugned order is correct and in accordance to law, the provision made for gratuity being an ascertained liability to be paid in succeeding years, the CIR (appeals) had correctly deleted the disallowance and has prayed to confirmed the finding in impugned order. We have considered the arguments of both the sides and have perused the impugned orders and as well decisions referred to by learned Counsel for respondent. In our opinion, this issue has been settled by the Appellate Tribunal and as well as High Court and Supreme Court of Pakistan and we respectfully acknowledge the followings. Commissioner of Income Tax v. Messrs Oriental Dyes and Chemical Company Limited reported as 1992 SCMR 763=1992 PTD 668:-- "The claim of gratuity payable cannot be disallowed. Gratuity as a liability gets accrued though to be discharged at a future date. It is a proper deduction while working out the profits and gains of business under the accepted principles of commercial practice and accountancy and that is not necessary that the amount actual be expended or paid." In Commissioner of Income Tax, Karachi v M/s. Pakistan Security Printing Corporation Limited Karachi 1985 PTD 413 (KHC) it was held. 6(v) That under the mercantile system of accounting a debit entry of an accrued liability would be a proper charge on the revenue receipts and an allowable deduction there from, and it is not necessary that there should have been any actual disbursement just like receipts through not actual receipts but accrued due are brought in for income tax assessment. (xii) That the object of the statutory provisions in the Companies Act and the schedule thereto pertaining to the preparation of a balance sheet is to ensure as far as possible that the balance sheet should reveal accurately and in some detail sufficient information and should give true and fair view of the financial position of a company." In Commissioner of Income Tax, Central Zone-A, Karachi v. M/s. Chemdyes Pakistan Limited, Karachi 1990 PTD 248, it has been held that, where an assessee is maintaining mercantile system of accounting, provisions made for payment to staff in the books of account without actually having yet paid is an allowable expense. Income Tax Appellate Tribunal in their decision reported as 1998 PTD (Trib.) 1103, have recorded the following finding in para 45 of their decision:-- "ADMISSIBILITY OF PROVISION FOR BONUS:

45. The provision for bonus claim by same of the assessee insurance companies have been disallowed by the Department. The A.Rs for the assesses and particular Mr. E. U: Khawaja has submitted that the method of accounting employed by the assessee's company is mercantile and hence the unpaid, quantified and ascertained liability disbursed subsequently, is provided for in the accounts and is a legitimate deduction which does not warrant any disallowance as inadmissible expense. He has submitted that the point in issue already stands settled in favour of assessee by the Hon'ble Sindh High Court vide judgment reported as 1990 PTD 248 C.I.T. v. Chemdyes Pakistan Limited. There is force in the contention. It is, therefore, held that the claim was admissible and the disallowance is not justified." In the case reported as 2012 PTD (Trib.) 1385 Commission Inland Revenue, LTU, Lahore v. Millat Tractors and other, the provision made on account of accrued liabilities to be discharged has been accepted as an admissible deduction with the following finding:-- "Expenditure was of statutory nature and accrues: on account of services received from the employees by the employer. Actual salary expenditure was accrued although not paid immediately. Liability already accrued thought to be discharged at a future date would be a proper deduction while working out the profits and gains of business under the accepted principle of commercial practice and accountancy and that it was not necessary that the amount actually be expended or paid, Deletion by the First Appellate Authority was confirmed by the appellate Tribunal." Respectfully following the above decisions, finding of Commissioner Inland Revenue (Appeals), Karachi is confirmed and the appeal of Department is dismissed. In the appeal filed for tax year 2005, the learned departmental Representative has explained that ground No 2 relates to disallowance of sales tax of Rs.862,124 under section 21(g). This issue has also been contested by the respondent as per ground No.3 for tax 2004. As the issue contested is common in both the appeals, his submission while defending the disallowance are the same and will be applicable in tax year 2005 as well. The learned counsel for respondent has also endorsed the submission of DR and has also referred to his submission and decision relied upon while arguing the appeal on this issue in tax year 2004. We have perused the impugned orders, grounds agitated by both the respective counsel in their respective appeals and are of the view that this being a common issue and as we have already allowed the appeal filed by the respondent and have deleted the disallowance made under section 21(g) in tax year 2004. As facts for both the years are the same, provisions of section 21(g) was wrongly invoked, hence the finding recorded for tax year 2004 is also applicable in tax year 2005. Accordingly, we confirm the finding recorded in the impugned order and appeal filed by Commissioner Inland Revenue is dismissed. Arguing on next grounds, the learned D.R. has stated that ground No. 3 for tax year 2005 ground No. 2 for tax year 2006 are common as the issue involved relates to waiver of unpaid liability which was disallowed in accordance to provision of section 34(5). He has vehemently apposed the directions of learned Commissioner Inland Revenue (Appeals) while deleting the additions in both the years. According to learned D.R., the assessing Officer had correctly disallowed unpaid liability of various banks under section 34(5) as respondent does not qualify for wavier of unpaid liability and has pleaded to confirm the finding recorded by the Assessing Officer. The learned counsel for respondent has also affirmed the contention that both the grounds involve common and identical issue. While supporting the finding of CIR(Appeals), the learned A.R. has explained that, the provision of section 34(5) and (5A) read with section 70 are not applicable as a special and specific exemption has been accorded by the legislature through clause (3A) of Part-IV of Second Schedule which was inserted vide Finance Act, 2004 for rescheduling and as waiver of long term liability in accordance to Circular No. 29 of 2002 issued by State Bank of Pakistan under Progressive Industrialization Program. Since, the write off and waiver of long term liabilities agreed by various scheduled banks was also approved by State Bank of Pakistan, hence, that respondent had correctly claimed set off and adjustment of unpaid liability in accordance to clause (3A) of Part-V of Second Schedule to Income Tax Ordinance, 2001. In order to justify his statement, the learned counsel has referred to clause (3A) and has also provided copy of Circular No. 29 of 2002 dated 15-10-2002 issued by State Bank of Pakistan along with working of loss against which adjustment was claimed. Working produced before the Bench has also been reproduced on Page 8 of impugned order for tax year 2005 and on Pages 3 and 4 for tax year 2006, Referring to the observation of Assessing Officer, the learned counsel for respondent has explained that in view of depreciation losses and as well as unadjusted losses for both the years, there is no effective rate of tax as alleged by the Assessing Officer and has referred to working also produced before the Bench, according to him. Respondent was fully justified in claiming the write off and adjustment as waiver of long term liability, which was correctly appreciated by CIR (Appeals) and with these submissions, he has vehemently pleaded to confirm the finding of learned Commissioner Inland Revenue (appeals), Karachi. We have perused the impugned orders for both the years and as well as clause (3A) and Circular No. 29 of 2002 dated 15-10-2002 issued by State Bank of Pakistan on the basis of which clause (3A) was inserted through Finance Act, 2004. Before proceeding further and in order to appraise the intention of legislature, we are reproducing clause (3A) of Part-IV of Second schedule in Ordinance of 2001. Clause (3A) of Part-IV of Second Schedule. "(3A) the provisions of subsections (5) and (5A) of section 34 and section 70 shall not apply to any benefit derived by way of waiver of profit on debt or the debt itself under the State Bank of Pakistan, Bankinf Policy Department's Circular No. 29 of 2002, dated the 15th" October, 2002 to the extent not set off against the losses under Part VIII of Chapter III." We have also examined the working provided by the learned A.R. for respondent and also Circular No. 29 of 2002 and are of considered opinion that CIR(Appeals) had correctly deleted the additions made in tax years 2005 and 2006 with the following findings and are reproduced hereunder. Tax Year 2005 "In the above observations the taxation officer has in fact agreed to the contention of the AR of the appellant that no effective rate of tax is applicable for the year due to assessed loss, the write off as waiver of long term liability is fully justified and was correctly claimed. Meaning thereby that the taxation officer admitted that the provision of sections 34(5) and (54) and 70 would be applicable where the addition results in adjustment of loss for the year in view of this observations, there was no justification for disallowing the claim of Rs. 114,641,053 hence this addition is dated. Tax year 2006 "I have examined the observation of the Assessing Officer and as well as the arguments advanced by the counsel. After consulting relevant provision of law as incorporated in section 34(5) and as well as (5A) along with section 70 of Income Tax Ordinance, 2001, the legislature has allowed a special concession to various industrial undertaking who are in financial difficulties whereby rescheduling of bank loans and debts were allowed as per specific directions of State Bank of Pakistan incorporated in Circular No. 29 of 2002 under the progressive industrialization program. The insertion of clause (3A) of Part-IV in the Second Schedule clearly signifies a concession allowed to such industrial undertaking. Accordingly, the taxpayer had claim set-off and adjustment of Rs. 46,460,582 representing waiver of long term liability from the application of above provisions of law which is also obvious from the computation of income which has been reproduced above and such set-off is permissible for the reason that even after adjustment the net result is a loss. Thus, the contention of the A.R. is correct that no effect rate of tax is applicable for the year due to assessed losses, hence, the write off as waiver of long term liability is fully justified and was correctly claim which is duly supported by Clause (3A) of Part-IV of the Second Schedule. Since the Assessing Officer was not justified in disallowing the claim of write off and setoff of long term liability amounting to Rs.46,460,582 the disallowance is accordingly deleted." We have considered the facts of the case, relevant provision of law and are of considered opinion that the learned CIR (Appeals) had correctly deleted the additions in both the tax years, hence, we fully agree and confirm the finding of CIR (Appeals). Accordingly, appeal filed on this issue is dismissed. Referring to ground No. 4 for tax year 2005, the learned D.R. has also stated that ground No. 3 for tax year 2006 are common grounds on same issue. Department is aggrieved with the orders passed by learned Commissioner Inland Revenue (appeals) whereby the addition made in respect of unpaid liabilities of road cess made under section 34(5) was deleted in appeal. According to learned D.R. the addition was correctly made as the unpaid liabilities for both the tax years were more than three years old. He has prayed to cancel the order of CIR (Appeals). The learned counsel for respondent has asserted that the CIR (Appeals) had correctly deleted the addition made under section 34(5) in tax year 2005 as the provision of section 34(5) was incorrectly invoked as the liability relates to assessment year 1993-94 onward which could be added back under section 25(c) of Repealed Ordinance, 1979 in eight years and not under section 34(5) as the later section does not permit any addition beyond four years. Moreover, in tax year 2003 an addition of Rs.67,138,530 was made under section 34(5), hence, according to learned A.R. the addition made under section 34(5) Rs.7,187,560 was incorrectly made by the Assessing Officer which was correctly deleted to the extent of Rs.5,680,023 as the same was more than four years old. In respect of tax year 2006, the learned A.R. has referred to finding of learned CIR (Appeals) on page 9 of impugned order wherein it was contested that liability of Rs.1,507,337 relates to assessment year 2001-2002, hence, it could be added back under section 25(c) of Repealed Ordinance and not under section 34(5) of Ordinance, 2001. The learned A.R. has also explained that liabilities of Rs.11,270,231 had been paid off up to 30-9-2005, relevant to tax year 2006 which includes unpaid liability of Rs.1,507,337, the CIR (Appeals) had correctly deleted the addition made under section 34(5) in tax year 2006 and has pleaded to confirm the finding of CIR (Appeals) for both the years in appeal. After hearing the learned counsel for both the sides and from perusal of impugned orders and as well as provision of section 25(c) of Repealed Ordinance and also section 34(5) of Ordinance, 2001, we are of the considered opinion that although both the provisions permit the addition of unpaid liability, but the period is different, hence the contention of learned A.R. is correct. Moreover, from the perusal of year wise breakup of liability, we are also of the view that unpaid liability of road cess for assessment years 1993-94 onward could not be added back under section 34(5) in tax year 2005, but the provision of section 25(c) of Repealed Ordinance could be invoked if permissible under the law. Thus, the CIR (Appeals) had correctly deleted the unpaid liability of road cess in tax year 2005 as it was beyond the limitation period specified under section 34(5). Agreeing with the finding of learned CIR (Appeals), the impugned order is confirmed and the appeal filed for tax year 2005 on this issue is dismissed. In tax year 2006 as unpaid liability of road cess at Rs.11,270,231 which includes liability of Rs.1,507,337 has been paid off and as this fact has not been controverted by the learned D.R. we are of the considered opinion that provision of section 34(5) was even otherwise not applicable and was correctly deleted by CIR (Appeals) as this liability is not outstanding in the income year relevant to tax year 2006. For the reasons discussed above, the finding of CIR,(Appeals) is confirmed and appeal filed on this issue is also dismissed. As all the grounds assailed by both the sides in cross appeals for above tax years as per respective grounds of appeal have been adjudicated, we are now reverting back to grounds assailed by the taxpayer/appellant in their appeals for tax 2004 to 2007 against the orders passed under section 122(5A). While recapping the issue, one of the contention of learned counsel for appellant was that jurisdiction under section 210(1A) can be exercised by the Additional Commissioner Inland Revenue subsequent to an order passed by Commissioner Inland Revenue after examining the income tax return and if he considers that the deemed order passed under section 120(1) was erroneous and as well as prejudiced to the interest of revenue. The learned A.R. has compared the intention of legislature in subsection (5A) with various other subsections of section 122 and has asserted that in subsection (5A) the legislature has used specific words "if he considers", which according to learned A.R. the entire discretion is with Commissioner Inland Revenue and unless a specific finding is recorded by the Commissioner, neither jurisdiction can be delegated to Additional Commissioner, nor proceedings under section 122(5A) can be initiated. The second objection of learned A.R. was proceedings under section 122(5A) cannot be initiated on fishing inquiry or on assumption without proving that the deemed order was erroneous and as well as prejudicial to the interest of revenue. Thus, both the conditions have to be fulfilled simultaneously and if either of the conditions is not fulfilled provision of section 122(5A) which is in pari materia to section 66A of Repealed Ordinance, 1979 cannot be invoked. Moreover, this Tribunal in various cases has also held that fishing inquiries are not permitted within the powers vested under the said section. Thus, in our opinion both the contentions of learned A.R. are interrelated to each other. During hearing of these cross appeals and after considering various decisions relied upon by the learned counsel for appellant, we were convinced that the provisions of section 122(5A) were incorrectly invoked and these appeals could also be decided on legal objections, but on vehement persuasion of both the learned counsel, we had permitted them to argue their respective appeals on merits as per their respective grounds which have been heard in detail and decided in preceding paras. Moreover, on bare perusal of amended orders passed under section 122(5A) for tax years 2004 to 2007, it is also observed that in all the respective tax years, the Taxpayer/Appellant had declared substantial losses and even after making additions which were subsequently disputed in appeals before CIR (Appeals) and also this Tribunal, even then the end result were assessed loss in each year before adjustment of carried forward losses of preceding years. Hence, from revenue point of view, there was no loss of revenue as Taxpayer/Appellant was not required to pay any income tax in any of the year. This Tribunal in its earlier decision reported as 1969 PTD (Trib.) 144, which although was decided keeping in view the provision of section 34A of Repealed Income Tax Act, 1922, but as the said provision and the provisions of section 66A of repealed Ordinance, 1979 and also section 122(5A) of present Ordinance are in pari materia but while dilating on powers and the basis of review by Additional Commissioner, it was held that precedent condition was that, the order should be erroneous and as well as prejudicial to interest of revenue. Thus, both the conditions were required to be fulfilled simultaneously and if either of the conditions is not fulfilled, the order cannot be reviewed or amended. In order to appreciate the contention of learned Counsel for appellant, the relevant finding recorded on Pages 52 and 53 of reported decision are reproduced hereunder:-- "Held, that:-- (i) the wording of the relevant section leaves us in no manner of doubt that it is only that order which can be subject of review by Inspecting Assistant Commissioner which is not only erroneous but is also prejudicial to the interest of revenue. An order may be erroneous but not prejudicial to the interest to the revenue and in that case it would not but not be open to the Inspecting Assistant Commissioner to review that order under section 34A of the Act. (ii) the words "prejudicial" to the interest of revenue connotes and signify an order whereby the revenue suffers a loss and assessee pays tax less than what is really due from him. In the present case had the appellant not been granted registration the incidence of tax would have been higher and accordingly this condition is fulfilled; and (iii) the condition concerning "erroneous" nature of the Income-tax Officer and order as envisaged by section 34A was not justified and the Inspecting Assistant Commissioner had, therefore, no jurisdiction for reviewing the Income-tax Officer he Income-tax Officer's order. On this ground alone the Inspecting Assistant Commissioner's order can not be sustained and must be cancelled. The word "erroneous" obviously means not in accordance with law and thus any order which is not in accordance with law, being opposed to any provisions of law cannot but be regarded as erroneous. The words "prejudicial to the interest of revenue "connotes and signify an order whereby the revenue suffers a loss and the assessee pays tax less then what is really due from him ..... The further question is whether apart from the Income-Tax Officer's order being prejudicial to the interest of revenue it should in order to attract the provisions of section 34A be also erroneous. According to the learned counsel for the appellant these are in department conditions and upon the fulfillment of both only the Inspecting Assistant Commissioner is empowered to review the Income-Tax Officer's order whereas the learned Departmental Representative's stand is that every order whereas the learned Departmental Representative's stand is that every order which is prejudicial to the interest of revenue is per se erroneous .. The plea of the Departmental Representative is over-ruled and we hold that both the conditions must be fulfilled before the Inspecting Assistant Commissioner can take action under section 34A. After considering the above findings and as well as provisions of sections 34A and 122(5A) of respective Act and Ordinance, we are of the view that identical words, viz. "order is erroneous in so far it is prejudicial to the interest of revenue" are common in the three sections referred to above. Thus, reverting back, we are of the considered opinion, that jurisdiction can be exercised only if order passed or the deemed order is erroneous and as well as prejudice to the interest of revenue and not otherwise. As discussed above, even after amendment of deemed orders, the end result is net loss in the respective years. Thus, as there is no income assessable to tax or which is liable to tax in any of four tax years in appeals, hence, there is no loss of revenue. Thus, the contentions of learned A.R. for Taxpayer/Appellant are not only copious but are also well founded. The plea of learned Departmental representative that after additions made in the amended orders for all the years have reduced the net loss in respective years and may result in future tax liability. Thus objection is overruled and is not acceptable for the reason that prior to amendment the deemed orders were neither erroneous, nor prejudice to interest of revenue, nor this aspect has been proved at any stage. Moreover, even after passing of deemed orders, the treatment accorded has not resulted in tax liability in any of the respective years. Thus, in the tax years disputed in appeals before CIT (appeals) and this Tribunal, none of the orders passed under section 122(5A) are either erroneous nor prejudice to interest of revenue. After considering the facts of appeals before us, provisions of section 122(5A) of this Ordinance and as well as sections 34A and 66A of repealed Act and Ordinance, the decision of this Tribunal referred to above and also our findings recorded in preceding paras, we are of the considered opinion that the contention of learned A.R. for Taxpayer/appellant are copious and well founded, the provision of section 122(5A) were wrongly invoked and are also not sustainable. Although, per contention of learned A.R., the deemed orders passed in tax years 2004 to 2007 may be erroneous from Departmental point of view which is also not correct as this contention has neither been proved, nor was accepted and even from discussion on merits, the deemed orders were neither erroneous, nor were prejudicial to the interest of revenue. Hence, in view of above discussion, we also agree that the legal objections are not only valid but are also well founded. We therefore allow the appeals for tax years 2004 to 2007 and cancel the orders passed under section 122(5A) on legal objections as well. All the above appeals are disposed of accordingly. CMA/49/Tax(Trib.) Order accordingly.