Law: Income Tax Ordinance, 2001

Section: 108,122(5A)

(a) Income Tax Ordinance (XLIX of 2001)--S.108-Transactions between associates-Scope-Appellant advanced a loan to its subsidiary company without charging interest- ACIR (Audit) spotted said transaction of interest free loan and considered it to be non-arm’s length transaction between associates and adjusted incomes and deductions under S.108 of the Income Tax Ordinance, 2001, read with Transfer Pricing Rules and more specifically Comparable Uncontrolled Price (CUP) method-Validity- Section 108 of the Income Tax Ordinance, 2001, empowered the Commissioner Inland Revenue in respect of any transaction between persons who were associates, distribute, apportion or allocate income, deductions or tax credits, between the persons as was necessary to reflect the income that the person would have realized in an arm’s length transaction-Under S.108 the exercise had to be done by distributing, apportioning or allocating income, deductions or tax credits between the persons as was necessary to reflect the income that the person (associate) would have realized in his arm’s length transaction-No new source of income could be created under said section-Assessing officer had created interest income which option was not provided in the section-Impugned order was set aside and the appeal was accepted. 1986 SCMR 968; 1992 PTD 954 and I.T.As. Nos.981/KB and 982/KB of 2013, dated 14-3-2016 ref. The Commissioner Inland Revenue Zone-I, LTU, Karachi v. Messrs Al-Karam Textile Mills Ltd, Karachi (I.T.A. No.387/KB of 2014) dated 5-5-2016 foil. (b) Income Tax Ordinance (XLIX of 2001)--S.108-Transactions between associates-Scope-An arm’s length transaction is a business deal in which buyers and sellers act independently without influencing each other and both parties act on their own interest so far non arm’s length transaction is concerned, it is also known as an arm in arm transaction, this term refers to a business deal in which buyers and sellers have an existing relationship, whether business related or personal. ORDER MRS. AMBREEN ASLAM, JUDICIAL MEMBER:---.--- Through this order we intend to dispose of the titled appeal filed by the taxpayer against the Order bearing No.01/2019…

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