Law: Income Tax Ordinance, 1979

Section: 23

Income Tax Ordinance (XXXI of 1979) S. 23 Deductions Profit and Loss Account Administrative and general expenses Disallowance since no business was carried out during the year First Appellate Authority directed the Assessing Officer to allow the claimed expenses in view of maintaining of office/staff to capture future prospects and propel maintenance of equipment already installed Validity Appellate Tribunal upheld the order of First Appellate Authority in view of the facts and circumstances of the case, assessee had to retain its office and incur certain expenditure even during the period it did not earn any income Appeal of the Department was rejected. ORDER MRS. ABIDA ALI (ACCOUNTANT MEMBER). This departmental appeal is directed against the order of the learned Commissioner of Income Tax (Appeals), Peshawar, dated 8 12 1999 wherein assessee's appeal for assessment year 1997 98 was accepted. 2. The Department has contested the impugned appellate order on the following grounds: "(1) That the L/CIT(A) was not justified to direct to allow administrative and general expenses under the head legal professional and conveyance at Rs.1082,723. As at the time o f assessment no books of account, vouchers were produced being unverifiable the same were rightly disallowed. (2) That financial charge at Rs.25,32,364 rightly is allowed as no business carried out during the period relevant to the assessment year." 3. Brief facts of the case, which have led to this appeal are that assessee/respondent a non resident company, derives income from contract of Penstock installation at Tarbela Dam Extension Project. Operating loss of Rs.36,15,087 was declared, which was arrived as: Contract income. Direct contract expenses. Gross loss. Less Admn. & Gen. Exp. 1082723 Less financial charges. 2532364 Operating loss. 3615086 Assessing Officer disallowed the administrative, general and financial expenses, for the reasons that no business activity took place during this period; and that no proof of this expenditure was provided, therefore, claim was not justified. 4. On appeal before the learned CIT(A), the learned counsel of assessee argued that the aforementioned expenses were…

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