Reversal of provisions

Disallowance of the difference between the gross and net provisions of non-performing loans claimed by the taxpayer as reversal within the meaning of R.8A of the Seventh Schedule to the Income Tax Ordinance, 2001

Taxpayer contended that amounts were claimed earlier as provisions and were disallowed by the Department; that now the same had been claimed as reversal; that assessing authority had admitted in its order that after disallowance of provisions the amounts in question had been written off and claimed as reversal; and that same was not allowed on the ground that matter was in appeal

Validity

Bad debts written off were admissible deduction

Amount of receivable could be written off by only creating the provision without actually crediting the accounts of debtors

Provision for receivables is an admissible deduction under S. 29 of the Income Tax Ordinance, 2001 without crediting the said provision to the individual debtor's account

Even otherwise the amount pertaining to the periods prior to tax year 2008 qualified to be treated as admissible deductions within the meaning of R.8A of the Seventh Schedule to the Income Tax Ordinance, 2001.

Department taxed reversal of provision against non performing loans, other assets, off balance sheet items and diminution in value of investment treating them as "income"

Taxpayer/bank contended that it had already offered reversals for tax when it reduced the charge for the year by that amount

Validity

Said issue had already been decided in favour of taxpayer/banks

By following earlier precedent, addition was deleted by the Appellate Tribunal.