Income Tax

The income for which exemption is sought (i) must be from "investments in securities of the Federal Government and house property"; (ii) either the said sources of income or the income itself must be "held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes"; and (iii) the income must be "actually applied or finally set apart for application thereto".

Briefly, for tax year 2003, the petitioner taxpayer derived income from two sources: locally manufactured beverages chargeable under the normal tax regime and imported finished beverages subjected to final tax at import stage under section 148 of the Income Tax Ordinance, 2001

The taxpayer filed its return under Section 120, which became a deemed assessment, wherein it apportioned common expenditures between the two income streams on the basis of gross profit ratio

The Commissioner Inland Revenue amended the deemed assessment under Section 122 by reallocating expenditures between presumptive and non-presumptive income through application of Rule 13 of the Income Tax Rules, 2002, using a sales-based formula

The departmental appeal failed, but the appellate tribunal set aside the amendment, whereafter the High Court, in a tax reference, reversed the tribunal's decision

The taxpayer then sought leave to appeal before the Supreme Court against the High Court's judgment

Pivotal question of law for consideration was as to "whether the appellate tribunal was justified to hold that Rule 13 of the Income Tax Rules, 2002 was not mandatory for purpose of apportionment of expenses under Section 67 of the 2001 Ordinance?"

Held: As long as "any" reasonable basis was used for the proration of expenditures the basis applied by the taxpayer could not be defeated or denied simply for the reason that applying Rule 13 of Income Tax Rules, 2002 would have resulted in a larger or enhanced tax liability

Or, to invert that observation, it was impermissible to conclude that since the non-application of Rule 13 (and the reasonable basis actually adopted by the taxpayer in its stead) resulted in a smaller tax burden that, in terms of Section 122(5), amounted to income chargeable to tax escaping assessment or led to the total income being under-assessed

That would be to completely misconstrue and misapply both that provision and Section 67(1)

The point, for present purposes, was reinforced by sub-rule (2) which provided that any expenditure incurred for a particular class or classes of income was to be regarded as so allocated

From this, it was clear that submission made on behalf of the petitioner was correct that the manufacturing and other such expenses incurred for the local production of beverages had to be allocated solely to the non-PTR (presumptive tax regime) income and had nothing to do with the PTR income

For such expenditure the question of proration did not arise

The order amending the deemed assessment showed that the department, while applying the formula laid down in sub-rule (3), had taken "total admissible expenses" into account, which was incorrect in the facts and circumstances of the case

Nature of the exercise required (i.e., allocation between PTR and non-PTR income) and keeping in mind the relevant factors as applicable i.e., the relative size and nature of the activities (local manufacture versus import to which the expenditure related) the basis actually adopted was a reasonable one

That sufficed for purposes of subsection (1) of Section 67

It followed that the approach taken by the department and upheld by the High Court was not sustainable

Leave petition was converted into an appeal and the question posed was answered in the affirmative, in circumstances.

The income for which exemption is sought (i) must be from "investments in securities of the Federal Government and house property"; (ii) either the said sources of income or the income itself must be "held under trust or other legal obligations wholly, or in part only, for religious or charitable purposes"; and (iii) the income must be "actually applied or finally set apart for application thereto".

Briefly, for tax year 2003, the petitioner taxpayer derived income from two sources: locally manufactured beverages chargeable under the normal tax regime and imported finished beverages subjected to final tax at import stage under section 148 of the Income Tax Ordinance, 2001

The taxpayer filed its return under Section 120, which became a deemed assessment, wherein it apportioned common expenditures between the two income streams on the basis of gross profit ratio

The Commissioner Inland Revenue amended the deemed assessment under Section 122 by reallocating expenditures between presumptive and non-presumptive income through application of Rule 13 of the Income Tax Rules, 2002, using a sales-based formula

The departmental appeal failed, but the appellate tribunal set aside the amendment, whereafter the High Court, in a tax reference, reversed the tribunal's decision

The taxpayer then sought leave to appeal before the Supreme Court against the High Court's judgment

Pivotal question of law for consideration was as to "whether the appellate tribunal was justified to hold that Rule 13 of the Income Tax Rules, 2002 was not mandatory for purpose of apportionment of expenses under Section 67 of the 2001 Ordinance?"

Held: As long as "any" reasonable basis was used for the proration of expenditures the basis applied by the taxpayer could not be defeated or denied simply for the reason that applying Rule 13 of Income Tax Rules, 2002 would have resulted in a larger or enhanced tax liability

Or, to invert that observation, it was impermissible to conclude that since the non-application of Rule 13 (and the reasonable basis actually adopted by the taxpayer in its stead) resulted in a smaller tax burden that, in terms of Section 122(5), amounted to income chargeable to tax escaping assessment or led to the total income being under-assessed

That would be to completely misconstrue and misapply both that provision and Section 67(1)

The point, for present purposes, was reinforced by sub-rule (2) which provided that any expenditure incurred for a particular class or classes of income was to be regarded as so allocated

From this, it was clear that submission made on behalf of the petitioner was correct that the manufacturing and other such expenses incurred for the local production of beverages had to be allocated solely to the non-PTR (presumptive tax regime) income and had nothing to do with the PTR income

For such expenditure the question of proration did not arise

The order amending the deemed assessment showed that the department, while applying the formula laid down in sub-rule (3), had taken "total admissible expenses" into account, which was incorrect in the facts and circumstances of the case

Nature of the exercise required (i.e., allocation between PTR and non-PTR income) and keeping in mind the relevant factors as applicable i.e., the relative size and nature of the activities (local manufacture versus import) to which the expenditure related) the basis actually adopted was a reasonable one

That sufficed for purposes of subsection (1) of Section 67

It followed that the approach taken by the department and upheld by the High Court was not sustainable

Leave petition was converted into an appeal and the question posed was answered in the affirmative, in circumstances.

Law existing in a particular tax year or tax period is applicable for the purpose of determining tax liability.

Taxation officer has no discretion to determine in arbitrary manner profit margin that he finds reasonable in relation to a certain income stream

What is vested in taxation officer under Income Tax Ordinance, 2001 is not discretion but a right to exercise judgment while reassessing income pursuant to provisions of Income Tax Ordinance, 2001

Where such judgment is being exercised in a manner that rejects the treatment afforded to income by taxpayer, the taxation officer is under an obligation to provide reasons for the manner in which he/she has chosen to exercise judgment

Without such reasons, which are justiciable, rejection of tax treatment afforded by taxpayer or change in profit margin applied bytax department cannot be countenanced

Tax authorities cannot arbitrarily apply a profit margin.

Transactions undertaken by taxpayer based in part on the interpretation of provision of law by the government revenue service

Courts subsequently interpreting the provision differently resulting in issuances of notices of reassessment by the revenue service imposing tax liability on the tax payer

Whether equitable remedy of rescission of transaction is available in a case where the taxpayer is mistaken about the tax consequences of transaction freely agreed upon]

[Per Brown J: (Majority view): Transactions that do not call for relief as a matter of conscience or fairness are properly outside equity's domain

Nothing is unconscionable or unfair in the ordinary operation/ application of tax statutes to transactions freely agreed upon

Tax consequences do not flow from parties' motivations or objectives

Rather, they flow from their freely chosen legal relationships, as established by their transactions

Taxpayer should neither be denied nor judicially accorded a benefit based solely on what they would have done had they known better

Proper inquiry is into what the taxpayer agreed to do and not into whether there is a windfall for the public treasury or a taxpayer

Court may not modify an instrument/ transaction merely because a party discovered that its operation generates an adverse and unplanned tax liability]

[Per Côté, J: (Minority view): Rescission is, in strictly limited circumstances, an available remedy that can be used to unwind transactions that were undertaken on the basis of a mistaken assumption, even if permitting it would effectively relieve the taxpayer from payment of unexpected taxes

Rescission on the ground of mistake is available in a tax context, but should be granted only in rare circumstances

Equity will not intervene to relieve a taxpayer from the consequences of a risk that was knowingly or recklessly accepted

Taxpayers should not engage in bold tax planning on the assumption that it will be possible to rescind their transactions should that planning fail

Since rescission is a remedy of last resort, it can only be granted if no alternative remedies are available; it is not sufficient for an alternative remedy to merely exist; the alternative remedy must be practical and adequate.

Each tax year is a separate unit of account and taxation and the law has to be applied as it stood in respect of that tax year alone.

Show cause notice was delivered to a person by an authority in order to get the reply back with a reasonable cause as to why a particular action should not be taken against him with regard to the defaulting act

By and large, it was a well-defined and well structured process to provide the alleged defaulter with a fair chance to respond the allegation and explain his position within reasonable timeframe.

Each tax year is a separate unit of account and taxation and the law has to be applied as it stood in respect of that tax year alone.

Show cause notice was delivered to a person by an authority in order to get the reply back with a reasonable cause as to why a particular action should not be taken against him with regard to the defaulting act

By and large, it was a well-defined and well-structured process to provide the alleged defaulter with a fair chance to respond the allegation and explain his position within reasonable timeframe.

Term "undisclosed income" means any income which was chargeable to tax but was not so-charged.

Three stages in the imposition of a tax were; first, leviable (declaration of liability); second, payable (assessment); and third, recoverable

Exemption inserted itself between the first two stages, i.e., between what was leviable and what was payable

Tax credit inserted itself between the second and the third stages, i.e., between what was payable and what was recoverable

Conceptual difference existed between tax credit and an exemption

If there was an exemption in the field then the second stage may not be reached at all (i.e., the tax may not be payable) if the exemption was whole

Of course, it may be reached partially if that be the nature of the exemption

On the other hand, in the case of a tax credit the second stage must necessarily always be reached, and that too in full; it was only then that the credit manifested itself by interposing between what was payable (i.e., the assessment) and what was recoverable

Such interposition may be complete (if the tax credit was 100%) or partial

In a fiscal statute there must always be the first stage, that could be affected by neither an exemption nor a tax credit

Exemption operated on, and in relation to, the second stage: that stage may not be reached at all, or only partially

Tax credit did not bear on the second stage

Once that stage was reached, and crossed, then the tax credit was manifested, thereby blocking (as the case may be, either in whole or in part) the third stage

Exemption may eliminate the need for an assessment altogether (if it was whole) or reduce it by the relevant amount if it was partial

Tax credit on the other hand had no bearing on the assessment; it came into operation after assessment and when the question of recovery arose.

Three stages in the imposition of a tax were; first, leviable (declaration of liability); second, payable (assessment); and third, recoverable

Exemption inserted itself between the first two stages, i.e., between what was leviable and what was payable

Tax credit inserted itself between the second and the third stages, i.e., between what was payable and what was recoverable

Conceptual difference existed between tax credit and an exemption

If there was an exemption in the field then the second stage may not be reached at all (i.e., the tax may not be payable) if the exemption was whole

Of course, it may be reached partially if that be the nature of the exemption

On the other hand, in the case of a tax credit the second stage must necessarily always be reached, and that too in full; it was only then that the credit manifested itself by interposing between what was payable (i.e., the assessment) and what was recoverable

Such interposition may be complete (if the tax credit was 100%) or partial

In a fiscal statute there must always be the first stage, that could be affected by neither an exemption nor a tax credit

Exemption operated on, and in relation to, the second stage: that stage may not be reached at all, or only partially

Tax credit did not bear on the second stage

Once that stage was reached, and crossed, then the tax credit was manifested, thereby blocking (as the case may be, either in whole or in part) the third stage

Exemption may eliminate the need for an assessment altogether (if it was whole) or reduce it by the relevant amount if it was partial

Tax credit on the other hand had no bearing on the assessment; it came into operation after assessment and when the question of recovery arose.

Authority, exercising statutory powers of adjudication/assessment, or appeal, affecting valuable rights of the parties, should act as Quasi Judicial authority; and while exercising those powers, must pass a speaking order, duly supported by reasoning, showing due application of mind to the facts; as well as applicable law

Any order lacking such criteria, would be illegal, having no legal effect

In order to maintain the sanctity of both Quasi Judicial and administrative proceedings, it was necessary to maintain oversight on the performance of Adjudicating Authorities, whose orders, should not be entirely dependant upon the opinions and comments of the Assessing Officer

Non-speaking and sketchy order, could not be said to meet the requirements of the judicial order; which must contain the contentions raised before the authority by the rival parties and its reasoning based on evidential substance for passing reasoned order in accordance with the relevant applicable law read with S.24-A of the General Clauses Act, 1897.

Burden to prove that an assessees' receipts fell within the scope of 'income' and were liable to be taxed, laid on the department, and if the latter managed to establish the same, then the burden shifted onto the former to show that such receipts were exempt from tax.

Burden to prove that an assessees' receipts fell within the scope of 'income' and were liable to be taxed, laid on the department, and if the latter managed to establish the same, then the burden shifted onto the former to show that such receipts were exempt from tax.

Statutory exemption from income tax was conferred on the award to employees of "restricted securities" i.e. shares which were subject to provision for their forfeiture if some contingency occurred

Banks, in the present case, rather than paying bonuses to employees directly, instead gave them redeemable shares in offshore companies set up for the purposes of the availing the statutory exemption

Conditions were attached to the shares making them subject to forfeiture if certain contingency occurred, but the contingencies (conditions)were unlikely events having no business or commercial purpose

After the exemptions had accrued (by contingency not occurring) employees were free to redeem shares for cash

Question was as to whether statutory exemption from income tax would apply to the shares issued to the employees

Revenue authority assessed tax on such shares as if the employees had been paid the bonuses in cash

Validity

Transactions, in the present case, had 'no real world purpose of any kind', and a purposive interpretation of the taxing statute would suggest that they had been inserted for the sole purpose of tax avoidance

Statutory exemption, in the present case, was only intended to encourage workers to own stakes in their companies and counter opportunities for tax avoidance

Statutory exemption for "restricted securities" in the present case should be construed as limited to provision for a commercial or business purpose

On this basis, Parliament could not have intended to encourage the award of shares to employees, where the same had no purpose other than obtaining an exemption from income tax

Bonus schemes formed by the banks, in the present case, had no commercial or business purpose, thus, they did not fall within the statutory exemption

Supreme Court (UK) held that bonuses awarded by banks, to employees in the form of redeemable shares in offshore companies, in order to take advantage of statutory exemption from income tax, should be treated, for income tax purposes, as if they had been paid in cash , and thus income tax was payable on the bonuses, based on the value of the shares awarded to the employees.

Tax avoidance schemes commonly included elements which had been inserted without any business or commercial purpose but were intended to have the effect of removing the transaction from the scope of the charge

Where an enactment was of such character, and a transaction, or an element of a composite transaction, had no purpose other than tax avoidance, it could usually be said that to allow tax treatment to be governed by transactions which had no real world purpose of any kind was inconsistent with that fundamental characteristic

Where schemes involved intermediate transactions inserted for the sole purpose of tax avoidance, it was quite likely that a purposive interpretation would result in such steps being disregarded for fiscal purposes

However in contrast to that the count in numerous cases have decided that elements inserted into a transaction without any business or commercial purpose did not prevent the composite transaction from falling within a charge to tax, or bring it within an exemption from tax, as the case might be

Ultimate question was whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.

Statutory exemption from income tax was conferred on the award to employees of "restricted securities" i.e. shares which were subject to provision for their forfeiture if some contingency occurred

Banks, in the present case, rather than paying bonuses to employees directly, instead gave them redeemable shares in offshore companies set up for the purposes of the availing the statutory exemption

Conditions were attached to the shares making them subject to forfeiture if certain contingency occurred, but the contingencies (conditions)were unlikely events having no business or commercial purpose

After the exemptions had accrued (by contingency not occurring) employees were free to redeem shares for cash

Question was as to whether statutory exemption from income tax would apply to the shares issued to the employees

Revenue authority assessed tax on such shares as if the employees had been paid the bonuses in cash

Validity

Transactions, in the present case, had 'no real world purpose of any kind', and a purposive interpretation of the taxing statute would suggest that they had been inserted for the sole purpose of tax avoidance

Statutory exemption, in the present case, was only intended to encourage workers to own stakes in their companies and counter opportunities for tax avoidance

Statutory exemption for "restricted securities" in the present case should be construed as limited to provision for a commercial or business purpose

On this basis, Parliament could not have intended to encourage the award of shares to employees, where the same had no purpose other than obtaining an exemption from income tax

Bonus schemes formed by the banks, in the present case, had no commercial or business purpose, thus, they did not fall within the statutory exemption

Supreme Court (UK) held that bonuses awarded by banks, to employees in the form of redeemable shares in offshore companies, in order to take advantage of statutory exemption from income tax, should be treated, for income tax purposes, as if they had been paid in cash , and thus income tax was payable on the bonuses, based on the value of the shares awarded to the employees.

Tax avoidance schemes commonly included elements which had been inserted without any business or commercial purpose but were intended to have the effect of removing the transaction from the scope of the charge

Where an enactment was of such character, and a transaction, or an element of a composite transaction, had no purpose other than tax avoidance, it could usually be said that to allow tax treatment to be governed by transactions which had no real world purpose of any kind was inconsistent with that fundamental characteristic

Where schemes involved intermediate transactions inserted for the sole purpose of tax avoidance, it was quite likely that a purposive interpretation would result in such steps being disregarded for fiscal purposes

However in contrast to that the count in numerous cases have decided that elements inserted into a transaction without any business or commercial purpose did not prevent the composite transaction from falling within a charge to tax, or bring it within an exemption from tax, as the case might be

Ultimate question was whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.

Unless there is any prohibition or restriction on power of Legislation to legislate on same subject matter, even double taxation cannot be declared illegal or void

Rule of avoidance of double taxation is merely a rule of construction, therefore, it ceases to have application when Legislature expressly enacts a law which results in double taxation of same income.

Normally, the Income Tax Authorities, would not be justified in refusing to an assessee a reasonable opportunity of representing his view before deciding any matter against him

No presumption of bad faith against any assessee was permissible in law, unless there be sufficient material on record to establish and ascertained the bad faith in relation to that particular taxpayer

Pure guess or bare suspicion, was not sustainable, while framing assessment against assessee; there must be something more than bare suspicion.

Limitation as stood at the time of filing of return would apply.

No adverse inference could sustain if a proper opportunity of being heard was not allowed to accused and matters which had not been confronted to taxpayer were unlawful.

No addition was legally sustainable if mandatory requirement for the same had not been complied with.

Principles.

Principles.

Appellate Tribunal was competent to interpret the law, and on any point of law Reference was made to the High Court for advice.

Whether, issuance of Show-Cause Notice was provided in the law or not, must be issued so that taxpayer had at least knowledge of the intended treatment

When proper/specific final Show-Cause Notice was issued, burden shifted upon the taxpayer to defend its case against the charges framed by the Taxation Officer.

Taxpayer contended that claimed contract receipts had wrongly and unlawfully been treated as "Receipts" only on the basis of presumptions as well as without evolving any basis; and that First Appellate Authority had rejected the taxpayer's contention without bringing any material or evidence on record by which, these contract receipts had been turned in terms of "Receipts"

Validity

Taxpayer had claimed contract receipts which had been treated as "Receipts" without giving any basis

Appellate Tribunal directed that claimed "contractual receipts" be accepted as such being raised on the basis of contract.

For recovery under the concept of unjust enrichment, something must have been given, whether goods, services or money; the thing which was given must have been received and retained by the defendant, and the retention must be without juristic justification.

"Gross profit" means gross income as reduced by all the expenses to acquire, produce, procure, convert, manufacture, import or even the input of human services or machine hours

After producing and possessing (including constructive possession), its further delivery for the purpose of earning would involve indirect expenses

Base line to identify expenses capable of selling and all indirect expenses would be incurred for the purpose of selling till the product reaches the consumer or buyer

Same principle was applied to distinguish and charge carriage inward (direct) carriage outward (indirect), wages (direct), salaries (indirect), import expenses (direct), export freight (indirect), depreciation on production machines (direct), depreciation on selling machines (fork lift) (indirect) and so on.

Term 'gross' refers to the total amount received as result of some activity whereas 'net' refers to the amount left over after all deductions were made

Once net value is attained, nothing further is subtracted

Net value was not allowed to be made lower.

Taxpayers, in some areas, adjusts gross profit and net profits in the context of legal admissibility or inadmissibility which is usually done by submitting an adjustment sheet which is read with the original accounts; in other words, the adjustment sheet is a bridge between accounting version and taxable income

Such situation also ensures the sustenance of accounting presentation as per standard for the use of other concerned parties besides flexing it for the purpose of taxation

In order to apply the law both the declaration would be worth consideration

No material difference existed between accounting gross profit/tax gross profit or accounting net loss/tax net loss.

Four fundamental financial statement i.e. Balance Sheet, Income Statement, Statement of Owner's Equity and Statement of Cash flow would become meaningless if element of currency was taken out of them

Similarly, description, measurement, valuation and interpretations of economic activities budgetary and forecasts based on currency alone.

"Functional currency" as a bench work applicable to selling price, transactions with local or foreign markets, cash flow, financing, expenses and other inter-business transactions

"Currency" is universal and sole mode of measurement analysis, reporting, monitoring and projecting the organizational activity

On the contrary, an accounting presentation based on quantities would not only be quite absurd but also be unable to express some material areas of activity i.e. depreciation, intangibles, dividend, loan, work out equity, repair and maintenance etc.

Currency is common denominator indicating all the parts into which one whole is divided.

First Appellate Authority allowed due opportunity to both the parties and considered it sufficient not to have another round of cross arguments

Plea that further opportunities were not granted, was neither worth consideration neither material in the circumstances of the case

None of the parties was able to claim that it remained unheard

Appeal of the taxpayer was rejected on this count.

Parties agreed that they would be satisfied if the matter was remanded back to concerned Taxation Officer for adjudication afresh in line with the decision of the Appellate Tribunal earlier passed in the case of taxpayer.

Taxpayer contended that proration of expenses was not a valid concept and specific expenses should be allocated to the respective sources of receipt; that voluntary contribution simply entailed receipt of cheques and deposit thereof in the bank; and that huge expenditure could not be related to the simple collection of voluntary contribution involving only receipt of cheques and deposit of the same in the bank

Validity

Main function of the taxpayer was inspection of rice and the extent of this mammoth exercise relating to certification of quality of rice could be very well comprehended

Department failed to rebut the contention of the taxpayer that collection of voluntary contribution simply entailed receipt of cheques and depositing the same in banks

Rupees 15,10,894 and Rs.2,549,505 could not be spent for collection of Rs.2,200,500 and Rs.1,900,000 respectively

Keeping in view overall facts of the case, working of the organization, the nature of voluntary contributions and rice inspection and affidavits submitted by the Secretary General of the taxpayer, it was ordered that the expenses claimed relating to voluntary contributions be allowed.

Taxpayer contended that the First Appellate Authority directed the Assessing Officer to follow the arbitration order; and the said order was not implemented; and Assessing Officer proceeded to compute income as per original order

First Appellate Authority found that non-compliance by the Assessing Officer was beyond his jurisdiction particularly on the basis of his opinion

Validity

Assessing Officer was directed to follow the arbitration order; it was imperative to look as to whether the arbitration order was made under any provision of the Income Tax Ordinance, 1979 and had any legal sanctity and was worth implementation

Record showed that the arbitration order was not implemented by the Assessing Officer for there being no provision available in the Income Tax Ordinance for implementation

Department, in circumstances, was allowed to give similar treatment on the issues decided by the Appellate Tribunal in other years.

In view of a judgment of the Appellate Tribunal, the action of Assessing Officer in disallowing decommissioning cost was upheld by the Appellate Tribunal

Order accordingly.

Taxpayer contended that Assessing Officer ignored the directions of the First Appellate Authority and instead of giving credit for taxes already paid, had assessed higher income which was not sustainable under the law

Validity

Assessing Officer was directed by Appellate Tribunal to compute income in accordance with the findings of the First Appellate Authority and also directed to allow credit of tax paid/suffered at source after due verification as per law.

Jurisdictional defect cannot be cured by any amendment in law, especially where the amendment does not specifically and expressly cure the jurisdictional defect.

Addition was made on the ground that acquisition of assets in settlement of non-performing loans was a recovery out of non-performing loans which were earlier charged to Profit and Loss account

First Appellate Authority observed that amount representing assets acquired in settlement of non-performing advances was never charged as provision against non-performing advance; that taxpayer provided copies of ledger of parties whose properties were acquired in settlement of non-performing loans and advances; that provisions shown was "NIL" which demonstrated that the provision originally created stood reversed to the extent of originally created against the amount of advances less the amount of liquid assets and forced sale value of assets; and that addition was based without appraisal of factual position

Taxpayer contended that after such observations, First Appellate Authority should have deleted the addition instead of remanding the case back to Assessing Officer

Validity

After observing that addition was not warranted by facts of the case, the First Appellate Authority should have deleted the addition instead of subjecting the taxpayer to another round of litigation

Even otherwise, present issue had already been decided in favour of the taxpayer

Addition was deleted by the Appellate Tribunal.

Expenses were claimed under the head "Amortization of Deferred Cost" in administrative expenses which represented cost of Golden Handshake in prior years

Revenue observed that taxpayer already claimed the entire amount in tax computation in previous year under the "Optional Retirement Scheme"; and the same was disallowed for the reason of non-deduction of tax

First Appellate Authority set aside the addition being under the head "Optional Retirement Scheme" in previous year was also set aside

Validity

Disallowance by the department for the previous years was disapproved in previous year

Claim in question having been allowed in previous year, the same was not allowable.

Department disallowed amortization of premium on investment on the ground that expenditure paid on acquiring the securities was capital in nature

Taxpayer contended that it had purchased secondary market government securities at premium and amount of premium paid was amortized over the life of securities

First Appellate Authority allowed amortization of premium

Departmental appeal was dismissed by the Appellate Tribunal by following the earlier judgment on the issue.

Addition was made on the ground that in computation chart of taxable income accounting amortization was added instead of actual accounting amortization

Taxpayer, before First Appellate Authority, pointed out that actually, the total accounting depreciation and accounting amortization was the same but accounting amortization was mistakenly taken less than the actual; and there was also an error wherein accounting depreciation was added more instead of actual figure

First Appellate Authority after examination of audited accounts and computation chart, deleted the addition

Validity

First Appellate Authority was right in deleting the addition

Revenue could not refute the factual position

Order of First Appellate Authority was confirmed by the Appellate Tribunal.

Taxpayer amalgamated his banking business with another bank in United Kingdom to form a limited company to meet the local statutory requirement

Department stated that assets were not transferred on fair market value and estimated the income on this transaction without any definite basis

Taxpayer contended that First Appellate Authority had observed that shares were acquired by both the banks according to the net worth of their branches in UK and there was no question of earning any income from this transaction; after narrating such correct nature of transaction, he was not justified to set aside the issue

Validity

Department made addition on assertion that assets were transferred at higher amount than the book value whereas it lacked any evidence to this effect

Present was a case of amalgamation of existing business, in view of such undisputed position of transaction involving no element of income accrual in the hands of taxpayer/bank, order of First Appellate Authority setting aside the matter was vacated by the Appellate Tribunal and ordered that addition made by the department shall stand deleted.

Taxpayer contended that amount was shown in audited accounts only for disclosure purposes; and income for the years was not reduced by that amount

First Appellate Authority confirmed the addition for tax year 2007 and deleted for tax years 2005, 2009 and 2010

Validity

Amount shown in audited accounts were only for disclosure purposes and were never claimed as expense

Income was not reduced by the said amounts

Addition was deleted for tax year 2007 and order of First Appellate Authority was confirmed for tax years 2005, 2009 and 2010.