Law: Income Tax Ordinance, 1979

Section: 23(1)(x)

INCOME TAX ORDINANCE, 1979 (XXXI OF 1979)----Sections: 23(1)(x) - Deductions - Banking institution - Provision for bad debts - Allocation of expenses to Capital gain - Allowing provision for bad debts by the ITAT - Disapproval of allocation of expenses to Capital gain - Holding that consultancy charges cannot be amortized - Validity - Reference to High Court - FACTS The following questions of law arise out of the order of the Income Tax Appellate Tribunal: i. Whether under the facts and in the circumstances of the case the learned ITAT was justified to allow the provision of bad debts in contravention to the provision of section 23(1)(x) of the Income Tax Ordinance, 1979 assuming that creation of provision for bad debts are synonymous with written off bad debts and failing to appreciate that even in case of written off bad debts, the condition of irrecoverability of the same as determined by the assessing officer is a pre requisite for any allowance u/s 23(1)(x) of the Income Tax Ordinance, 1979. ii. Whether on the facts and circumstances of the case the learned ITAT was justified to disapprove allocation of expanses to capital gain? iii. Whether on the facts and circumstances of the case the learned ITAT was justified to hold that consultancy charges cannot be amortized? DECISION (A.) The first issue of law relates to provision for bad debts which have been decided by the Lahore High Court Lahore in PTR No. 184 of 2002 - The first issue of law relates to provision for bad debts which have been decided by us in PTR No.184 of 2002 Commissioner of Income Tax v. Prime Bank Limited (2022) 126 TAX 575 (H.C. Lah.) that a debt becomes irrecoverable when it is written off and so the entitlement regarding deduction for bad debts was to the extent of irrecoverable loans determined as such under the regulatory framework governing financial institution. (B.) Questions No. ii and iii do not arise out of the impugned order of ITAT - Application to the extent of these question dismissed - So far as question Nos. ii and iii are concerned, having heard the parties, we do not find these questions to arise out of the impugned order of ITAT and, therefore, we decline to answer…

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