Law: Income Tax Ordinance, 2001

Section: 34

INCOME TAX ORDINANCE, 2001 (XLIX OF 2001)....Section 34......Section 34(5) insures, under mercantile system, that after three years if allowed deduction of an expenditure is not paid, the same shall be treated as income. Section 35.....Sub-section (4) of Section 35 allows the taxpayer to value its closing stock-in-trade either at the lower of cost or net realisable value, the condition of writing off the obsolete stock could not be found as a pre-requisite in any provision of law.- It is noticed that in by this Tribunal (ITA No. 2164/LB/2006), the head of the expenses was noted as "STOCK AND SPARES WRITTEN OFF". It cannot be ruled out that in that case the Taxpayer had actually written off stock and spares, yet the ratio of the , as we have ascertained, was based on sub-section (4) of section 35, which allows the taxpayer to value its closing stock-in-trade either at "the lower of cost" or "net realisable value". The condition of writing off the obsolete stock could not be found as a pre-requisite in any provision of law. The DR was specifically asked to point out from law, whether writing off the obsolete stock was a precondition. His emphasis remained that in that case of Nestle Pakistan Ltd. Lahore, the stock and spares were actually written off. We disagree with his submissions and are of the opinion that writing off is not a precondition under law. In our view, the obsolete stock could not be booked at Zero value because it might gain some price if it was disposed of even as scrap. The law has very carefully taken care of the situation, where such stocks are sold. If the same are sold at higher price from the one at which it was booked, the difference is taxed as gain. In our opinion the stress of department that obsolete stock should have been written off is not in consonance with the provisions of law. Orders of both the authorities below on this issue are annulled. The expenses claimed by the taxpayer are allowed, for both the years. Section 37......Gain on sale of scrap and fixed assets is a result of allowed depreciation which should not be left un-taxed for the reason that under FTR no gain could have been taxed. The gain in question undisputedly…

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