Law: Income Tax Ordinance, 2001

Section: 20,21(n),22,23,34,37(5),131

Income Tax Ordinance (XLIX of 2001)--- ----Ss. 20, 21(n), 22, 23, 34, 37(5) & 131---Claim for deduction---Denial of claim---Taxpayer, a public company, engaged in Hotel business decided to extend existing premises---As per mutual agreement and confirmation by consortium of Banks, entire finance cost of said extension was to be borne by Bankers---Taxpayer in view of said undertaking entered into agreement with owner of land to purchase the land for extension and he paid huge amount as earnest money to land owner and it was agreed between the parties that if the balance amount was not paid on or before stipulated date, the earnest money would be forfeited---Prior to execution of the agreement of sale the consortium had agreed to finance by loaning upto Rupees 1,200 million through redeemable finance facilities---Bankers had committed to provide entire funds in respect of the extension and on the basis of said undertaking given by the Bankers taxpayer had not only executed an agreement for purchase of land, but had also paid advance earnest money; and appointed an architect for preparing site plan and said site plan was presented for approval of Municipal and Building Authorities---Fees and other charges were also paid---When the taxpayer had taken all the steps within its power, one of the Members of consortium, refused to approve the finance facilities and as finance facility was not approved nor received by the taxpayer, the balance amount of sale of land could not be paid by the taxpayer, consequently according to sale agreement huge amount of earnest money was forfeited---Taxpayer, in circumstances, pleaded that such loss suffered by him was of revenue nature and allowable as a business expenditure under S.20 of Income Tax Ordinance, 2001---Contention of representative of taxpayer was that as entire expenditure was incurred for expansion of same business, the assumption that it was an expenditure of capital nature was totally incorrect, but as same had incurred during course of business in existence, the entire expenditure was admissible deduction and allowable under S.20 of Income Tax Ordinance, 2001---No negligence of the taxpayer was on record and the…

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