Profit and loss expenses

2014 PTD 1492 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Ss.161 & 205Failure to pay tax collected or deductedProfit and loss expensesAddition due to non-deduction of tax

Taxpayer contended that assessing officer was not justified in charging tax on payments made under the head "stationery/office supplies" without particularly pointing the payments made which were liable to tax deduction and failed to cite any single instance or identifying the parties to whom the taxpayer had been treated as in default of withholding tax

Validity

Taxpayer filed relevant record/details before the assessing officer, but not a single transaction was pointed out by the assessing officer which attracted S.161 of the Income Tax Ordinance, 2001

On the contrary, assessing officer had charged tax @ 3.5% on the gross amount of claimed expenses under the head Stationery/Office Supplies

Assessing officer had failed to point out any specific amount of transaction on which tax was required and not deducted

No justification existed in charging tax under S.161 of the Income Tax Ordinance, 2001.

2014 PTD 1207 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.221Rectification of mistakeProfit and loss expensesAddition of travelling and conveyance and in entertainment expenses was made on the ground of self-made vouchers

Taxpayer contended that expenses related to local travelling of employees and other miscellaneous small labour, small entertainment and other expenses based on the claims of the employees and labour engaged though employees for which it was an accepted principle that the taxi drivers and labour did not issue a printed receipt; and expenses were in consonance with the past history

Validity

Expenses were disallowed on stock phrases, without properly identifying any defect in the maintenance of accounts and against past history

Similar addition made was retrenched by the Appellate Tribunal in the previous year

Addition of expenses retrenched and disallowed on account of travelling and conveyance and entertainment had not been justifiably established

Order of the Bench not attending to the correct facts and the legal apposition deserved richly to be rectified, amended and withdrawn

Appellate Tribunal ordered accordingly and treatment of First Appellate Authority was restored on the issue.

2012 PTD 1544 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

Profit or lossDetermination of

Mere book entries were not determinative of the question whether the taxpayer had earned any profit or incurred a loss, and that a receipt, which in law could not be regarded as income, could not become so, merely because the taxpayer credited same in the profit & loss account.

2012 PTD 1535 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S. 21(1)Deductions not allowedProfit and loss expensesDisallowance of

Revenue contended that vouchers regarding the payments were not furnished and taxpayer failed to furnish the supporting evidence in respect of such amounts of expenses and expenses in this regard were treated to be not genuine and were disallowed

Deletion of add backs made out of profit and loss expenses were supported by the taxpayer by books of accounts, vouchers and other relevant documents were provided and there was no justification for such add backs; and Taxation Officer had made the lump sum addition using of stock phrases without considering the fact that most of the expenses so claimed, were made through cross cheques

Validity

Admittedly, taxpayer provided books of accounts, vouchers and other relevant documents but Taxation Officer had made lump sum addition using stock phrases without pointing out the specific heads

First Appellate Authority had rightly knocked off addition which required no interference.

2007 PTD 2583 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S. 62(1)Assessment on production of accounts, evidence etc.Profit and loss expenses

Disallowances in the profit and loss account expenses were not to be made without any basis and without examining the claim in details and without due notice" and without incorporation the instances' of defects in assessment order by the Assessing Officer

Disallowances in profit and loss account expenses were made in a slipshod manner without pinpointing specific defects and instances and the assessee/taxpayers were constrained to contest those disallowances in first and second appeals

Order of First Appellate Authority in deleting the disallowance was maintained by the Appellate Tribunal in circumstances.

2007 PTD 2583 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S. 62(1)Assessment on production accounts, evidence etc.Profit and loss expenses

Principles/position regarding deduction of expenditure set out by the Tribunal and High Courts recorded.

2007 PTD 2583 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S. 62(1)Assessment on production of accounts, evidence etc.Profit and loss expenses

Disallowance by using- stock phrases and in generalized 'terms that expenses involved were personal in nature and unverifiable

Validity

If some expenses were unverifiable and un­vouched the Assessing Officer should keep in his mind the volume and nature of the business and proportion of the expenses claimed by the assessee

Taxation Officer failed to find out any item in which personal element of expenditure was involved

Matter was an account case and the assessee was maintaining day to day account books

Audited books of accounts were produced before the Assessing Officer, consisting of all the details, explanations, vouchers and ledgers of the respective heads

Law cast a legal obligation upon the Assessing Officer before disallowing expenses where books of accounts were being produced

Taxation Officer, in terms of proviso to subsection (1) of S.62 of the Income Tax Ordinance, 1979 should have confronted the assessee with the defects found in the books of accounts; it was a mandatory provision which, was required to be followed

Mandatory notice under S.62(1) of the Income Tax Ordinance, 1979 was prerequisite condition which was added in income tax law just enabling taxpayer to know the allegation against him and give a proper reply and detail thereof so that the taxpayer be saved from the arbitrary action of the Assessing Officer

Assessing Officer having failed to do so he had no legal authority to make any disallowance

Such disallowances were ab initio void and illegal which were rightly deleted by the First Appellate Authority.

2007 PTD 2381 INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN Judicial Precedent

S.62(1)Assessment on production of accounts, evidence .etc.Profit and Loss expenses

Disallowance of expenses by using stock phrases like `unverifiable/personal nature of expenses' and without confronting the add-backs under S.62(1) of the Income Tax Ordinance, 1979

Validity

Orders passed by both the lower officers being in flagrant violation of settled law were nullity in the eye of law

All the add-backs made in such manner were deleted by the Appellate Tribunal.