Law: Income Tax Ordinance, 1979

Section: 23,24,24(2),28,28(2)

Income Tax Ordinance (XXXI of 1979)---Ss. 28(2), 24(2) & 23---Proration of expenditure--Expenditure shall not be prorated but should be allowed by actually identifying each amount of expenditure after proper scrutinizing the same by the Assessing Officer---Principles. 2002 PTD (Trib.) 900; 1988 PTD (Trib.) 626; 2002 PTD 589; (1969 20 Tax supplementary); 2005 PTD (Trib.) 344; I.T.A. No. 1066 to 1078, dated 22-12-2004; 1993 PTD (Trib.) 472; PLD 1995 SC 423; 90 Tax. 128; 2004 PTD 62; PLD 1992 SC 562. = 1992 PTD 954; 1994 SCMR 229 = 1994 PTD 174; (1984) PTD (Trib.) 341 and 2005 PTD (Trib.) 259 ref. ORDER By this single combined order we intend to record our findings so as to dispose of the matter referred to us on noticing conflicting orders passed by the learned Division Benches of this Tribunal. The conflicting orders were regarding exactly identical/common issue i.e. in the cases of assessee's with taxable and exempt income, the total expenses were claimed for taxable income, but the disallowances/ add backs were made by prorating the expenditure to exempt and taxable income. The language of questions referred to us and description of expenses are variating in each case but spirit/essence of each question placed before us is the same i.e. proration of expenses whether proper or not or as wrong:--- (Sections referred in the order are of repealed Income Tax Ordinance, except when specifically mentioned otherwise. Firstly the Department/Revenue argued the case). The legal advisor in support of the contention that prorating of expenses is quite proper has referred to the Hon'ble High Court Karachi order, wherein prorating of expenditure was allowed, but while describing, it is noticed that such proration of expenditure is being permitted in the case of presumptive and non-presumptive regime. Then he referred to the case with citation as 2002 PTD (Trib.) 900 where proration of expenditure was permitted in an identical situation. The entire text of the order was read. On the question from the Bench, the learned legal advisor submitted that there is neither any provision which is permitting the Department for allowing expenditure on proration basis nor there is any…

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