Restriction of dis-allowance

2013 PTD 235 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.21(m)Deductions not allowedSalaries paid to employeesRestriction of dis-allowanceScope

Revenue authority contended that First Appellate Authority was not justified in restricting the disallowance made out of salaries paid to the employees; that S.21(m) of the Income Tax Ordinance, 2001 clearly stated that no salaries expenses could be allowed if the amount paid other than cheque exceeded Rupees ten thousand, and that entire amount was to be disallowed rather than restricting the same

Taxpayer contended that First Appellate Authority was justified in restricting the disallowance exceeding Rupees ten thousand paid other than crossed cheque; and correctly worked out the disallowance to be made

Validity

While calculating the income from business the deduction should not be allowed, if salary exceeding Rupees ten thousand was paid other than by a crossed cheque

Admittedly in the present case salaries were paid in cash and exceeded Rupees ten thousand, therefore the same could not be allowed as business expense under the provision of S.21(m) of the Income Tax Ordinance, 2001

First Appellate Authority mis-interpreted the law and restricted the disallowance made by the Taxation officer

Section 21(m) of Income Tax Ordinance, 2001 was enacted purposely to thwart fraudulent or sham transactions

Section 21(m) of the Income Tax Ordinance, 2001 might be read in conjunction with main S.21 of the Income Tax Ordinance, 2001 which unequivocally stated that "no deductions shall be allowed in computing the income from Business", if any salary paid or payable exceeded Rupees ten thousand per month other than through crossed cheque

First Appellate Authority misinterpreted the law by restricting the disallowance

Salaries paid to employees in cash were not allowable expenditure

Order of First Appellate Authority was vacated, wherein it, had restricted the disallowance and that of Taxation Officer was restored

Appeal was disposed of accordingly.