Law: Income Tax Ordinance, 1979

Section: 23(vii),23(1)(vii)

Income Tax Ordinance (XXXI of 1979)------S.23(vii)----Deduction---Capital borrowed---Interest---Penal interest paid on capital borrowed is an admissible deduction under S.23(1)(vii), Income Tax Ordinance, 1-979. M/s. City Bank NA, Karachi v. The Commissioner of Income Tax Central Zone-C, Karachi 1994 PTD 1271 fol. ORDER ABDUL MALIK (ACCOUNTANT MEMBER).---In this case the Department is in appeal for the assessment years from 1981-82 to 1986-87 against orders of the AA.C. When called out none attended for the respondent and case was taken up with help of learned D.R. 2. The assessee is operating an ice Factory and filed appeal before the AA.C. on the issue of adoption of sale rate per block, adoption of G.P. rate, meltage allowance and disallowance of penal interest. The Department is now in appeal against order of the A.A.C. enhancing meltage allowance from 10% to 20%. This Bench in a number of other cases has considered that the meltage allowance which in fact is a bad weather allowance should be taken at 15%. 3. For the years 1983-84, 1984-85, 1985-86 and 1986-87, the Department has agitated against the direction of the A.A.C whereby he allowed penal interest paid by the assessee for these years. The facts are that the assessee borrowed capital for the factory from bank and could not repay the sums-in-question at the material time. The bank charged penal interest as follows:--- 1983-84 1984-85 1985-86 1986-87 Rs.20, 743…

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