MINUTES OF DAC MEETING HELD ON 10.11.

2015 AT RTO, LAHORE OF AUDIT REPORT 1996-97

IN RESPECT OF RTO MULTAN
Loss of revenue due to non levy of corporate assets tax
Amount
Name of the
Asstt:
S.#
D.P/PDP
as per
taxpayer
Year
audit
2

7.1

M/s

Arain 1992-93

Mills Ltd.
NTN
1708414

Departmental reply

5,662,000 Audit para received on transfer from RTO, Lahore.

Charged&deleted by CIR(A). ATIR also upheld the decision of
CIR(A). However, department has filed reference before the
Honorable Lahore High Court which is still subjudice.
28.08.2015
The legal advisor has been requested for out of turn hearing vide No.
649 dated: 27.08.2015.

06.11.2015
The legal advisor has been requested for out of turn hearing vide No.
1405 dated: 15.10.2015.and vide no.164 dt.06.11.2015.

Audit Remarks
02.04.2015
Still subjudice
28.08.2015
Case subjudice
before Honorable
High Court.

DAC Directives

DAC
Directions
dated
02-09-2015
RTO informed
that the case is
still
subjudice
before Honorable
High Court vide its
order
dated
27.08.2015,
the
DAC directed the
RTO to pursue the
case after final
decision
of
Honorable Lahore
High Court, Lahore.
DAC
Directives
dated 10.11.2015
The
RTO
was
informed that the
case is subjudice
before Honourable
Lahore High Court,
Lahore since before
2013, Senior Legal

Advisor has expired

recently. The DAC
directed the RTO to
pursue for early
fixation of the case.

(SEEMA MAJID)
MEMBER (ACCOUNTING)
FEDERAL BOARD OF REVENUE
ISLAMABAD

(IRFAN JAHANGIR WATTO)

DIRECTOR GENERAL AUDIT
INLAND REVENUE (NORTH)
LAHORE

(MUHAMMAD IMTIAZ)
CHIEF (PAC-DAC-DT)
FEDERAL BOARD OF REVENUE,
ISLAMABAD

MINUTES OF DAC MEETING HELD ON 10.11.2015 AT RTO, LAHORE OF AUDIT REPORT 2007-08
IN RESPECT OF RTO, MULTAN
Short levy of tax due to inadmissible deductions
S.#

Para/
PDP #

Name of taxpayer

Asst:
Year

1.1/244

Hyundai
Engineering
Construction
Ltd

2001-02
&
Co,

Loss of
revenue
reported
by audit
(Rs)
32,243,73
0

Departmental Compliance
08.06.2012

Audit Remarks 11.06.2012 to

13.06.2012

DAC Directives
09.07.2012

The
unrealized
foreign
exchange
loss
of
Rs.307,543,558/-relates to assets & liability of the
taxpayer which was receivable/payable in foreign
currency has duly been added in the income of the
taxpayer company as per order u/s 66A of the
Repealed Ordinance, 1979 vide DCR No.4 dated
30.12.2011 by the Additional Commissioner Inland
Revenue Audit Range, Zone-II, RTO, Multan and loss
is determined as under:-

The RTO Multan informed that

the case amended u/s 135/66A
vide DCR No.4/30-12-2011
and
an
amount
of
Rs.307543558/- added back in
the taxable income on account
of foreign exchange loss and
loss reduced.

The DAC directed the RTO to

ascertain the facts of the case
with higher authorities and submit
a detail report
along with
supporting
evidence
to
audit/FBR.

Assessed Loss as per order u/s

135 dated 15.06.2010
Add foreign exchange Loss

(Rs.27,292,267/-)

Rs.307,543,558/-

Income assessed as per order

u/s 66A dated 30.12.2011
Less B/F loss after ignoring
expired loss 1994-95
Loss C/F for asstt. year 02-03

Rs.280,251,291/-

(Rs.982,004,459/-)
(Rs.701,753,168/-)

Action completed loss reduced. Therefore, para may

be settled.

23.04.2015
The department was required
to intimate the reason for
allowing BF loss adjustment
against
other
income,
otherwise it should have been
taxed and demand was to be
created in the year under
consideration. Case is referred
to DAC.
04.09.2015
The case had already been
referred to the DAC. DAC is
requested to examine the fate
of para.

The DAC further directed to

explain
the
contradiction
regarding
the
notional/real
income/loss and explain how
come 66/A was invoked.
The DAC further directed that
how come the B/F business loss
was adjusted against income
earned as other income. The
report should be submitted by the
Chief Commissioner of the RTO
concerned
positively
by
09.08.2012.
DAC 03.03.2014
The RTO informed that the record is
being traced out which take some
time and sought time in this regard.
The DAC directed the RTO to provide
the relevant record to audit for
verification by 31.03.2014.

DAC Directive
05.05.2015

dated

The DAC directed the RTO to

complete assessment proceedings
as per law and report compliance
to Audit / FBR by 31.07.2015.

DAC Directive dated 07.09.2015

07-09-2015
Necessary compliance has already been made
in respect of the said audit para and department
in its earlier written response has already taken a
stance that unrealized foreign exchange gain
could be set off against business income as is
apparent from the order finalized by the
department u/s 66A/132 of the Repealed
Ordinance dated 30-12-2011.
Law recognizes all kinds of receipts connected
with a taxpayers normal course of business
activities as taxableunder the head Income from
business. It is, therefore, once again reiterated
that necessary compliance has already been
made in respect of the said audit para and
foreign exchange gain is part and parcel of the
business income/loss of the taxpayer.
The above contention is endorsed through
International Accounting Standard IAS-21. The
relevant extract is reproduced as under:
Para 28. Exchange differences arising on the
settlement of monetary items or on translating
monetary items at rates different from those at
which they were translated on initial recognition
during the period or in previous financial
statements shall be recognized in profit or loss in
the period in which they arise, except as
described in paragraph 32.
The

said

contention

has

further

been

29.10.2015
The case had already been
refered to the DAC on
23.04.2015 and 04.09.2015.
DAC is requested to decide the
fate of para.

The RTO explained that

in accordance with IAS21
profit/loss
from
currency exchange is
business profit or loss.
The RTO also Cited case
law of Gillanders A

Rbuthnot& Company
Vs CIT cited as 1966
PTD 71.According to
the
case
law
exchange loss or gain
is to be included in
business profits/loss.
Audit objected this
fresh
explanation,
because RTO has
been
rendering
different
positions
earlier.
The DAC directed the
RTO to get its stance
verified by the Audit
and report compliance
by the 30.09.2015.
DAC Directives dated
10.11.2015
The RTO explained that
gain
on
foreign
exchange is part of
business income. Audit
did not agree and has
requested for detailed
consideration
and
further discussion on

upheld/confirmed in a number of cases finalized

by superior courts. Relevant extracts alongwith
citation are as under:
a. In

the
case
of
Gillanders
A
Rbuthnot&Company Vs CIT cited as
1966 PTD 71, it was decided that
exchange gain earned by the taxpayer
operating as a selling agent in Pakistan
earned commission due to devaluation
of Pakistan currency. The issue whether
the
said
exchange
gain
is
trading/business receipts in the hands of
the taxpayer . Held yes copy enclosed).

b. In a case MothayGangarju V. CIT( 1935) ITR

58(Mad) it has been held An isolated
transaction can satisfy the description of an
adventure in the nature of trade.
c.

In case IRC V Fraser (1942) 24 Tax

Cas.498(HL) it has been held that Even on
isolated transaction can be treated as an
adventure in the nature of trade, what is
relevant is the nature of commodity dealt in.

dThe Supreme Court of India in P.M Muhammad

Meera khan Vs CIT(1969) 73 ITR 735 held that an
adventure in the nature of trade needs not be
business itself. Any activity akin to business may be
taken to be an adventure in the nature of trade. The
Court further held that a single transaction may also
constitute an adventure in the nature of trade. There
needs not be regularity or repetitiveness in the
activity. It is therefore submitted that exchange gain
having accrued to the taxpayer in connection with his

17.11.2015.

normal business activity was rightly treated as part of

its business income and BF loss adjusted accordingly.
The para may please be settled in view of above

1.1/244

Hyundai
Engineering
Construction
Ltd

2002-03
&
Co,

63,280,03
5

The
unrealized
foreign
exchange
loss
of
Rs.61,517,883/-relates to assets & liability of the
taxpayer which was receivable/payable in foreign
currency has duly been added in the income of the
taxpayer company as per order u/s 66A of the
Repealed Ordinance, 1979 vide DCR No.5 dated
30.12.2011 by the Additional Commissioner Inland Revenue
Audit Range, Zone-II, RTO, Multan and loss is determined
as under:-

Assessed Income as per

order u/s 135 dated
15.06.2010
Add foreign exchange Loss
Income assessed as per
order u/s 66A dated
30.12.2011

Rs.193,327,920/-

The RTO Multan informed that

the case amended u/s 135/66A
vide DCR No.5/30-12-2011
and
added
back
Rs.61517833/- on account of
exchange
loss.
Balance
Rs.79104479 not chargeable
on the plea that un-realized
exchange gain cannot be
considered as taxable income
the amount charged and loss
reduced.
23.04.2015

Rs.61,517,883/Rs.254,845,803/(Rs.701,753,168/-)
(Rs.446,907,365/-)

Less B/F loss

Loss C/F for asstt. year
02-03
Action completed loss reduced.Therefore, para may

be settled.
07-09-2015
Necessary compliance has already been mae in
respet of the said audit para and department in
its earlier written response has already taken a
stance that unrealized foreign exchange gain
could be set off against business income as is
apparent from the order finalized by the

The department was required

to intimate the reason for
allowing BF loss adjustment
against
other
income,
otherwise it should have been
taxed and demand was to be
created in the year under
consideration. Case is referred
to DAC.
04.09.2015
The case had already been
referred to the DAC. DAC is
requested to examine the fate
of para.
29.10.2015
The case had already been
refered to the DAC on
23.04.2015 and 04.09.2015.
DAC is requested to decide the
fate of para.

The DAC directed the RTO to

ascertain the facts of the
case with higher authorities
and submit a detail report
along with supporting
evidence to audit/FBR.
The DAC further directed to
explain the contradiction
regarding the notional/real
income/loss and explain how
come 66/A was invoked.
The DAC further directed that
how come the B/F business
losses was adjusted against
income earned as other
income. The report should be
submitted
by the Chief
Commissioner of the RTO
concerned
positively
by
09.08.2012.
DAC 03.03.2014
The RTO informed that the
record is being traced out
which take some time and
sought time in this regard.
The DAC directed the RTO to
provide the relevant record to
audit for verification by
31.03.2014.

DAC
Directive
dated 05.05.2015
The DAC directed the RTO
to complete assessment
proceedings as per law and
report compliance to Audit /
FBR by 31.07.2015.

DAC Directive dated

07.09.2015
The RTO explained that

department u/s 66A/132 of the Repealed

Ordinance dated 30-12-2011. Law recognizes all
kinds of receipts connected with a taxpayers
normal cours of business activities as
taxableunder the head Income from business.
It is, therefore, once again
reiterated that
necessary compliance has already been made in
respect of the said audit para and foreign
exchange gain in part and parcel of the business
income/loss as declared by the taxpayer due to
the following reasons:
The above contention is endorsed through
International Accounting Standard IAS-21. The
relevant extract is reproduced as under:
Para 28 Exchange differences arising on
the settlement of monetary items or on
translating monetary items at rates different from
those at which they were translated on initial
recognition during the period or in previous
financial statements shall be recognized in profit
or loss in the period in which they arise, except
as described in paragraph 32.
The said contention has further been
upheld/confirmed in a number of cases finalized
by superior courts. Relevant extracts alongwith
citation are as under:
aIn the case of Gillanders A Rbuthnot&
Company Vs CIT cited as 1966 PTD 71, it was
decided that exchange gain earned by the

in accordance with IAS21

profit/loss
from
currency exchange is
business profit or loss.
The RTO also Cited case
law of Gillanders A

Rbuthnot& Company
Vs CIT cited as 1966
PTD 71. According to
the
case
law
exchange loss or gain
is to be included in
business profits/loss.
Audit objected this
fresh
explanation,
because RTO has
been
rendering
different
positions
earlier.
The DAC directed the
RTO to get its stance
verified by the Audit
and report compliance
by the 30.09.2015.
DAC Directives dated
10.11.2015
The RTO explained that
gain
on
foreign
exchange is part of
business income. Audit
did not agree and has
requested for detailed
consideration
and
further discussion on
17.11.2015..

taxpayer operating as a selling agent in Pakistan

earned commission due to devaluation of
Pakistan currency. The issue whether the said
exchange gain is trading/business receipts in the
hands of the taxpayer . Held yes copy enclosed).
b. In a case MothayGangarju V. CIT( 1935) ITR
58(Mad) ut gas veebgekdtgat An isolated
transaction can satisfy the description of an
adventure in the nature of trade.
c.

In case IRC V Fraser (1942) 24 Tax

Cas.498(HL) it has been held that Even on
isolated transaction can be treated as an
adventure in the nature of trade, what is
relevant is the nature of commodity dealt in.

d. The Supreme Court of India in P.M

Muhammad Meerakhan Vs CIT(1969) 73 ITR
735 held that an adventure in the nature of
trade needs not be business itself. Any
activity akin to business may be taken to be
an adventure in the nature of trade. The
Court further held that a single transaction
may also constitute an adventure in the
nature
of trade. There needs not be
regularity or repetitiveness in the activity. It
is therefore submitted that exchange gain
having accrued to the taxpayer in connection
with his normal business activity was rightly
treated as part of its business income and BF
loss adjusted accordingly. Thepara may
please be settled in view of above
submissions.

1.1/244

Hyundai
Engineering
Construction
Ltd

2003
&
Co,

56,763,47
2

Contested. Unrealized Foreign Exchange Gain was

declared as accounting profit and made C/F to the
computation of the income wherein it was set off
against the same notional exchange gain, as
allowable deduction from income automatically
balancing/squaring upto Book entry/book profit. Thus
neither this gain was taxable nor has escaped
assessment because the book profit taken for the
computation of income is in itself the unrealized
Foreign Exchange Gain. Moreover, loss cases can
not be subjected to action u/s 122(5A). After adjusting
the B/F against the income/losses for the current
years, the cumulative effect would be loss; hence
action could not be taken u/s 122(5A).
11.06.2012 to 12.06.2012
The taxpayer company has filed return for the tax
year 2003 on 15.01.2004 declaring income of
Rs.4,198,495/- subject to B/F loss. Later on return
was revised on 27.01.2004 disclosing loss of
(Rs.4,198,495/-) subject to B/F losses. The audit
authority has observed that unrealized foreign
exchange gain which was required to be added into
income, but the taxpayer inadvertently deducted of
Rs.73,609,799/-.
After
adjustment
of
inadmissible/admissible expense total income worked out
by the audit authority i.e to be declared by the taxpayer
company of Rs.143,021,103/-. As the taxpayer company
claimed adjustment of B/F losses as per return, if which
was allowed the B/F loss as determined of
(Rs.446,907,365/-) by the Addl.CIR, Audit as per order u/s
66A of the Repealed Ord. 1979 for asstt.year 2002-03, so
no loss revenue is to be arrived which is as under:-

05.04.2010

05.04.2010

Under examination with audit.

The DAC directed the

audit
to
verify
the
contention
of
the
department by 30.04.2010

Referred to DAC.
Taxpayer
earned
foreign
exchange
gain
for
the
assessment year 2002-2003 at
Rs 140,622,362 and also
included it into other income.
This means that the gain was
actual and not notional as
reported by department
07.07.2011 to 09.07.2011
The reply of the department
was not in line with the Audit
observation. There was actual
foreign exchange gain (loss)
rather a notional gain (loss) as
contested by the department.
Actually, the department did
confront to the taxpayer
through show cause notice.
Now, the case has barred by
time and no action could be
taken by the department.
Documentary
evidence
is
support of his view point to be
provided.
23.04.2015
Department itself had charged
foreign exchange gain as other
income for the tax year 200102 and 2002-03. The reason
for not charging in the tax year

13.07.2011
The DAC directed the
RTO to re visit the cases
and report compliance to
FBR and Audit within one
month.
09.07.2012
The DAC directed the
RTO to ascertain the facts
of the case with higher
authorities and submit a
detail report along with
supporting evidence to
audit/FBR.
The DAC further directed
to explain the contradiction
regarding the notional/real
income/loss and explain
how come 66/A was
invoked.
The DAC further directed
that how come the B/F
business
losses
was
adjusted against income
earned as other income.
The report should be
submitted by the Chief
Commissioner of the RTO
concerned positively by
09.08.2012.

Profit as per profit & loss a/c

Rs.57,560,960/-

Add inadmissible deduction

Rs.12,950,432/Rs.70,511,392/-

Less admissible deduction

Rs. 1,100,128/Rs.69,411,264/-

Add foreign exchange gain

(inadvertently deducted)

Rs.73,609,799/-

Total income to be declared

Rs.143,021,063/-

Less B/F loss A.Y 02-03

(Rs.446,907,365/-)

Balance loss to be C/F (Rs.303,886,262/-)

Loss of revenue is not involved, so the para may please be
treated as settled. Foreign Exchange Gain was charged to
tax in the cases of M/s. AES Pak Gen (Pvt) Ltd and M/s.
AES Lalpir (Pvt) Ltd as proposed by the audit. However,
the Therefore, the audit paras framed in the said two cases
have been recommended for settlement in the DAC
Meeting held on 19.04.2010 at Lahore. The facts and
circumstances of the case under consideration being the
similar, the proposed action cannot be invoked.
The para may please be settled. `Commissioner (Appeals)
deleted the addition made on that ground. The Appellate
Tribunal also upheld the action of Commissioner Appeals.
However, the Commissioner Legal did not propose
Reference in the said two cases on the plea that unrealized
Foreign Exchange Gain was no income as already held by
the Superior Courts.

2003 may please be intimated.

Matter referred to DAC.
29.10.2015
The case had already been
refered to the DAC on
23.04.2015 and 04.09.2015.
DAC is requested to decide the
fate of para.

DAC 03.03.2014
The RTO informed that the
record is being traced out
which take some time and
sought time in this regard.
The DAC directed the
RTO to provide the
relevant record to audit for
verification by 31.03.2014.

DAC
Directive
dated 05.05.2015
The DAC directed the
RTO
to
complete
assessment
proceedings as per law
and report compliance
to Audit / FBR by
31.07.2015.

DAC Directive dated

07.09.2015
The RTO explained that
in accordance with IAS21
profit/loss
from
currency exchange is
business profit or loss.
The RTO also Cited case
law
of
Gillanders A

Rbuthnot& Company Vs
CIT cited as 1966 PTD 71.
According to the case law
exchange loss or gain is to
be included in business
profits/loss.
Audit objected this fresh
explanation, because RTO
has
been
rendering
different positions earlier.

1.3/257

Hyundai
Engineering &
Construction Co.
Ltd. Multan

2003

61,499,07
4

Contested. Unrealized Foreign Exchange Gain was

declared as accounting profit and made C/F to the
computation of the income wherein it was set off against the
same notional exchange gain, as allowable deduction from
income automatically balancing/squaring upto Book
entry/book profit. Thus neither this gain was taxable nor has
escaped assessment because the book profit taken for the
computation of income is in itself the unrealized Foreign
Exchange Gain. Moreover, loss cases can not be subjected
to action u/s 122(5A). After adjusting the B/F against the
income/losses for the current years, the cumulative effect
would be loss; hence action could not be taken u/s 122(5A).
The taxpayer company has filed return for the tax year 2003 on
15.01.2004 declaring income of Rs.4,198,495/- subject to B/F loss.
Later on return was revised on 27.01.2004 disclosing loss of
(Rs.4,198,495/-) subject to B/F losses. The audit authority has
observed that unrealized foreign exchange gain which was required
to be added into income, but the taxpayer inadvertently deducted of
Rs.73,609,799/-. After adjustment of inadmissible/admissible
expense total income worked out by the audit authority i.e to be
declared by the taxpayer company of Rs.143,021,103/- and loss of
revenue is to be worked out @ 43% of Rs.61,499,074/-. As the
taxpayer company claimed adjustment of B/F losses as per return,
if which was allowed the B/F loss as determined of
(Rs.446,907,365/-) by the Addl.CIR, Audit as per order u/s 66A of
the Repealed Ord. 1979 for asstt.year 2002-03, so no loss revenue
is to be arrived which is as under:Profit as per profit & loss
a/c

57,560,960/-

Add inadmissible deduction

12,950,432/70,511,392/-

Less admissible deduction

1,100,128/69,411,264/-

Add foreign exchange gain

inadvertently deducted)

73609799

Total income to be declared

143,021,063

Less B/F loss A.Y 02-03

(446907365)

Balance loss to be C/F

(303,886,262

As no tax liability is chargeable in the light of above

mentioned facts. So the additional tax u/s 205 is not
applicable and no loss of revenue is involved, thus
the para may please be treated as settled.

05.04.2010
Under examination
With Audit
Referred to DAC.
Taxpayer earned foreign exchange
gain for the assessment year
2002-2003 at Rs 140,622,362 and
also included it into other income.
This means that the gain was
actual and not notional as reported
by department.
07.07.2011 to 09.07.2011
The reply of the department was
not in line with the Audit
observation. There was actual
foreign exchange gain (loss)
rather a notional gain (loss) as
contested by the department.
Actually, the department did
confront to the taxpayer through
show cause notice. Now, the case
has barred by time and no action
could be taken by the department.

Documentary
evidence
is
support of his view point to be
provided.
23.04.2015
Linked with para 1.1/244 tax
year 2003. Matter referred to
DAC.
29.10.2015
The case had already been
refered to the DAC on
23.04.2015 and 04.09.2015.
DAC is requested to decide the
fate of para.

The DAC discuss the

issue of taxation of
notional exchange gain.
The RTO was of the view
that this gain is not taxable
in the light of decision of
ITAT
parallel
cases. On
The inDAC
directed
the
the
other
hand
the stance
audit
RTO to get its
was
of the
that the
verified
by view
the Audit
and
gain
was
not
notional
report compliance by but
the
real
in nature and hence
30.09.2015.
taxable.,
The
DAC
DAC Directives
dated
directed
10.11.2015the RTO to
reexamine
the case and
The RTO explained
that
report
to
audit
19gain
on by foreign
5-2010.
exchange is part of
13.07.2011
business income. Audit
The
DACagree
directed
did not
and the
has
RTO
to re visit
cases
requested
forthedetailed
and
report compliance and
to
consideration
FBR
and Audit
within one
further
discussion
on
month.
17.11.2015..
09.07.2012
The DAC directed the
RTO to ascertain the facts
of the case with higher
authorities and submit a
detail report along with
supporting evidence to
audit/FBR.
The DAC further directed
to explain the contradiction
regarding the notional/real
income/loss and explain
how come 66/A was
invoked.
The DAC further directed
that how come the B/F
business
losses
was
adjusted against income
earned as other income.
The report should be
submitted by the Chief
Commissioner of the RTO
concerned positively by
09.08.2012.
DAC 03.03.2014
The RTO informed that the
record is being traced out
which take some time and

Non Levy Of Additional Tax For Late Payment Of Assessed Tax Or Penalty
Contested:
5
3.4/254
Hyundai
Tax year Rs.
Engineering
2003
55,349,17
The taxpayer company has filed return for the tax year 2003
&Construction
0
on 15.01.2004 declaring income of Rs.4,198,495/- subject to
Co, Ltd

B/F loss. Later on return was revised on 27.01.2004

disclosing loss of (Rs.4,198,495/-) subject to B/F losses. The
audit authority has observed that unrealized foreign
exchange gain which was required to be added into income,
but the taxpayer inadvertently deducted of Rs.73,609,799/-.
After adjustment of inadmissible/admissible expense total
income worked out by the audit authority i.e to be declared
by the taxpayer company of Rs.143,021,103/- and loss of
revenue is to be worked out @ 43% of Rs.61,499,074/-also
worked out additional tax u/s 205 of Rs.55,349,170/-. As the
taxpayer company claimed adjustment of B/F losses as per
return, if which was allowed the B/F loss as determined of
(Rs.446,907,365/-) by the Addl.CIR, Audit as per order u/s
66A of the Repealed Ord. 1979 for asstt.year 2002-03, so no
loss revenue is to be arrived which is as under:Profit as per profit & loss a/c

57,560,960/-

Add inadmissible deduction

12,950,432/70,511,392/-

Less admissible deduction

1,100,128/-

05.04.2010
Under examination
with Audit
07.07.2011 to
09.07.2011
The reply of the
department was not in
line with the Audit
observation. There
was actual foreign
exchange gain (loss)
rather a notional gain
(loss) as contested by
the department.
Actually, the
department did
confront to the
taxpayer through
show cause notice.
Now, the case has
barred by time and no
action could be taken
by the department.
Documentary
evidence is support of
his view point to be
provided

69,411,264/Add foreign exchange gain

inadvertently deducted)

73609799

Total income to be declared

143,021,063

Less B/F loss A.Y 02-03

(446907365)

Balance loss to be C/F

(303,886,262

As no tax liability is chargeable in the light of above

mentioned facts. So the penalty is not applicable and no loss
of revenue is involved, thus the para may please be treated
as settled.

23.04.2015
Linked with para
1.1/244 tax year 2003.
Matter referred to
DAC.

29.10.2015
The case had already
been refered to the
DAC on 23.04.2015
and 04.09.2015. DAC

The DAC directed the audit to verify

the contention of the department by
5-5-2010.
13.07.2011
The DAC directed the RTO to re visit
the cases and report compliance to
FBR and Audit within one month.
09.07.2012
The DAC directed the RTO to
ascertain the facts of the case with
higher authorities and submit a
detail report along with supporting
evidence to audit/FBR.
The DAC further directed to explain
the contradiction regarding the
notional/real income/loss and
explain how come 66/A was
invoked.
The DAC further directed that how
come the B/F business losses was
adjusted against income earned as
other income. The report should be
submitted by the Chief
Commissioner of the RTO
concerned positively by 09.08.2012.
DAC 03.03.2014
The RTO informed that the record is
being traced out which take some
time and sought time in this regard.
The DAC directed the RTO to
provide the relevant record to audit
for verification by 31.03.2014

DAC
Directive
05.05.2015

dated

The DAC directed the RTO to

complete assessment proceedings
as per law and report compliance to
Audit / FBR by 31.07.2015.

DAC Directive
07.09.2015

dated

The RTO explained that in

accordance
with
IAS-21
profit/loss from currency
exchange is business profit
or loss.

is requested to
decide the fate of
para.

The RTO also Cited case law

of Gillanders A Rbuthnot&
Company Vs CIT cited as
1966 PTD 71. According
to the case law exchange
loss or gain is to be
included
in
business
profits/loss.
Audit objected this fresh
explanation,
because
RTO has been rendering
different positions earlier.
The DAC directed the
RTO to get its stance
verified by the Audit and
report compliance by the
30.09.2015.
DAC
Directives
dated
10.11.2015
The RTO explained that gain
on foreign exchange is part
of business income. Audit
did not agree and has
requested
for
detailed
consideration and further
discussion on 17.11.2015..

1.1/24
6

MAQBOOL
TEXTILE
MILLS LTD.,
MN

01-02

2525900

CONTESTED
The Audit Observation is contested as under:The audit observation seems to be based on an incomplete
scrutiny of the assessment record, because the decision of the
learned ITAT, Lahore, has been ignored while making the audit
observation. The learned ITAT in its ITA No. 4293/LB/2003,
dated: 08-06-2005 deleted the whole addition with the following
remarks :We do not have any hesitation in holding that the amount of
claim which has not been accepted by the insurance company
shall be written off and in future if at all the same is recovered
wholly or partially it shall be added in the year in which it is

28.08.2008
Insurance claim
was required to
be accounted for
on accrual basis
but needful was
not done.
05.04.2010
As per directions

28.08.2008
Audit examined the case
and report by 30.09.2008.
The DAC directed the
RTO to complete the
verification process from
the insurance company
and report results to audit
by
19-5-2010.

recovered.
The department did not file reference on the issue.
Even otherwise the company claimed total bad debts at
Rs:55913656/- and according to the ratio of local sales i.e
68.54%, addition comes to Rs:38323220/- which was made
accordingly.
As regards Rs:40769866/- it is the amount of a capital loss which
was sustained by the assessee due to fire and the company
received the said claim from the concerned insurance company
during the same year. As the said amount was neither claimed as
bad debt nor as any other expense during any year, therefore, no
question to offer the said amount to tax arises.
In view of the above, it is clear that the audit observations are
based on some misconceptions which are not supported with any
legal provision.
It is, therefore, requested that the audit
observation may be withdrawn.
06.07.2011
The insurance company has rejected the claim. The matter is still
subjudice in court

The part of the Insurance claim which was not

accepted and paid by the Insurance company has
rightly been claimed by the taxpayer and accepted
by the Department as a Bad Debit . The treatment
has duly been upheld by the Tribunal by holding that
in-future if at all the same is recovered wholly or
partly it shall be added in the year in which it is
recovered.
No reference was filed against the Tribunal s order
as no question of law arose out of the same.
Therefore, the Tribunal s decision holds the field
The para may please be settled.
29.10.2015
In the light of the order of the learned ATIR
in IT No.4293 /LB/2003 dated 08-06-2005, the
addition on account of unrealized insurance claim
from
M/S
Pakistan
General
Insurance
Company( PGIC) as written off by the taxpayer was
deleted with the direction that in case of recovery of
this amount in future, the same shall be added in the

of ITAT, the
information to be
obtained from
insurance
company whether
the amount in
question has or
has not been
received.
07.07.2011 to
09.07.2011
Subjudice.
29.10.2015
An amount of Rs 40
Million has been
received by the
taxpayer from
insurance company.
The taxpayer had
offered this amount of
Rs. 40 Million for
taxation as per Note
23.3 of Audited
Accounts for the tax
year 2014.

13.07.2011
The DAC directed the
RTO To pursue the case
at appropriate appellate
forum
09.07.2012
The case discussed at
length in DAC meeting .
No loss of revenue is
involved and in the light
of decision of the learned
ATIR vide ITA
No.4293/LB/2003 dated
08.06.2005. The DAC
recommended the para
for settlement.
However, it is also
emphasized that
whenever the taxpayer is
in receipt of the said
amount it should be taxed
in the same year
DAC
Directives
10.11.2015

dated

Already settled in DAC

meeting
dated
09.07.2012
recommended
for
settlement subject to

year it is recovered. During the tax year 2014, the

taxpayer vide Note No.23.3 to the audited accounts
has declared that as a result of litigation the dispute
has been settled and the Insurance company has
agreed to pay total amount of Rs.40.000(M). This
amount as per the above referred Note , has been
reduced from the cost of sales pertaining to tax year
2014 meaning thereby the settled amount has been
offered for taxation.
In the light of above, the audit para may
please be settled as no further action is pending in
this regard.

(SEEMA MAJID)
MEMBER (ACCOUNTING)
FEDERAL BOARD OF REVENUE
ISLAMABAD

(IRFAN JAHANGIR WATTO)

DIRECTOR GENERAL AUDIT
INLAND REVENUE (NORTH)
LAHORE

taxation of receipts by the

taxpayer, in the tax year
of actual receipts. RTO
informed
that
the
taxpayer has now offered
the said amount as per
note No.23.3 of the
audited accounts for tax
year 2014, verified by
audit.
The
DAC
recommended the para
for settlement.

(MUHAMMAD IMTIAZ)
CHIEF (PAC-DAC-DT)
FEDERAL BOARD OF REVENUE,
ISLAMABAD