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: DAC Directives
S.# D.P/PDP as per Departmental reply Audit Remarks
taxpayer Year
audit

2 7.1 M/s Arain 1992-93 5,662,000 Audit para received on transfer from RTO, Lahore. 02.04.2015 DAC Directions
Charged&deleted by CIR(A). ATIR also upheld the decision of Still subjudice
Mills Ltd. dated
28.08.2015
CIR(A). However, department has filed reference before the Case subjudice 02-09-2015
NTN Honorable Lahore High Court which is still subjudice. before Honorable
1708414 28.08.2015 High Court. RTO informed
The legal advisor has been requested for out of turn hearing vide No.
that the case is
649 dated: 27.08.2015.
still subjudice
06.11.2015 before Honorable
The legal advisor has been requested for out of turn hearing vide No. High Court vide its
1405 dated: 15.10.2015.and vide no.164 dt.06.11.2015. 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) (IRFAN JAHANGIR WATTO) (MUHAMMAD IMTIAZ)

MEMBER (ACCOUNTING) DIRECTOR GENERAL AUDIT CHIEF (PAC-DAC-DT)
FEDERAL BOARD OF REVENUE INLAND REVENUE (NORTH) FEDERAL BOARD OF REVENUE,
ISLAMABAD LAHORE 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/ Name of taxpayer Asst: Loss of Departmental Compliance Audit Remarks 11.06.2012 to DAC Directives
PDP # Year revenue 08.06.2012 13.06.2012 09.07.2012
reported
by audit
(Rs)
1 1.1/244 Hyundai 2001-02 The unrealized foreign exchange loss of The RTO Multan informed that The DAC directed the RTO to
ascertain the facts of the case
Engineering & 32,243,73 Rs.307,543,558/-relates to assets & liability of the the case amended u/s 135/66A with higher authorities and submit
Construction Co, 0 taxpayer which was receivable/payable in foreign vide DCR No.4/30-12-2011 a detail report along with
Ltd currency has duly been added in the income of the and an amount of supporting evidence to
taxpayer company as per order u/s 66A of the Rs.307543558/- added back in audit/FBR.
Repealed Ordinance, 1979 vide DCR No.4 dated the taxable income on account The DAC further directed to
30.12.2011 by the Additional Commissioner Inland of foreign exchange loss and explain the contradiction
Revenue Audit Range, Zone-II, RTO, Multan and loss loss reduced. regarding the notional/real
is determined as under:- income/loss and explain how
come 66/A was invoked.
23.04.2015
Assessed Loss as per (Rs.27,292,267/-)
order u/s 135 dated The DAC further directed that
The department was required how come the B/F business loss
15.06.2010 was adjusted against income
to intimate the reason for
Rs.307,543,558/- allowing BF loss adjustment earned as other income. The
Add foreign exchange report should be submitted by the
Loss against other income, Chief Commissioner of the RTO
otherwise it should have been concerned positively by
Income assessed as per Rs.280,251,291/- taxed and demand was to be 09.08.2012.
order u/s 66A dated created in the year under
30.12.2011 DAC 03.03.2014
consideration. Case is referred The RTO informed that the record is
(Rs.982,004,459/-) to DAC. being traced out which take some time
Less B/F loss after and sought time in this regard. The
ignoring expired loss (Rs.701,753,168/-) DAC directed the RTO to provide the
1994-95 04.09.2015 relevant record to audit for verification
by 31.03.2014.
The case had already been
Loss C/F for asstt. year referred to the DAC. DAC is
DAC Directive dated 05.05.2015
The DAC directed the RTO to
02-03 requested to examine the fate complete assessment proceedings
of para. as per law and report compliance to
Action completed loss reduced. Therefore, para may Audit / FBR by 31.07.2015.
be settled. DAC Directive dated 07.09.2015
The RTO explained that
07-09-2015 29.10.2015 in accordance with IAS-
Necessary compliance has already been made The case had already been 21 profit/loss from
in respect of the said audit para and department refered to the DAC on currency exchange is
23.04.2015 and 04.09.2015. business profit or loss.
in its earlier written response has already taken a
DAC is requested to decide the The RTO also Cited case
stance that unrealized foreign exchange gain fate of para. law of Gillanders A
could be set off against business income as is
apparent from the order finalized by the Rbuthnot& Company
department u/s 66A/132 of the Repealed Vs CIT cited as 1966
Ordinance dated 30-12-2011. PTD 71.According to
the case law
Law recognizes all kinds of receipts connected
exchange loss or gain
with a taxpayer’s normal course of business
activities as taxableunder the head “Income from is to be included in
business”. It is, therefore, once again reiterated business profits/loss.
that necessary compliance has already been Audit objected this
made in respect of the said audit para and fresh explanation,
foreign exchange gain is part and parcel of the because RTO has
business income/loss of the taxpayer. been rendering
The above contention is endorsed through different positions
International Accounting Standard IAS-21. The earlier.
relevant extract is reproduced as under: The DAC directed the
RTO to get its stance
“Para 28. Exchange differences arising on the
settlement of monetary items or on translating verified by the Audit
monetary items at rates different from those at and report compliance
which they were translated on initial recognition by the 30.09.2015.
during the period or in previous financial
DAC Directives dated
statements shall be recognized in profit or loss in
10.11.2015
the period in which they arise, except as The RTO explained that
described in paragraph 32”. gain on foreign
The said contention has further been exchange is part of
upheld/confirmed in a number of cases finalized business income. Audit
did not agree and has
by superior courts. Relevant extracts alongwith
requested for detailed
citation are as under: consideration and
a. In the case of Gillanders A further discussion on
Rbuthnot&Company Vs CIT cited as 17.11.2015.
 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
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
2 1.1/244 Hyundai 2002-03 63,280,03 The unrealized foreign exchange loss of The RTO Multan informed that The DAC directed the RTO to
Engineering & 5 Rs.61,517,883/-relates to assets & liability of the the case amended u/s 135/66A ascertain the facts of the case
Construction Co, taxpayer which was receivable/payable in foreign vide DCR No.5/30-12-2011 with higher authorities and
Ltd currency has duly been added in the income of the and added back submit a detail report along
with supporting evidence to
taxpayer company as per order u/s 66A of the Rs.61517833/- on account of audit/FBR.
Repealed Ordinance, 1979 vide DCR No.5 dated exchange loss. Balance
30.12.2011 by the Additional Commissioner Inland Rs.79104479 not chargeable The DAC further directed to
Revenue Audit Range, Zone-II, RTO, Multan and loss is on the plea that un-realized explain the contradiction
determined as under:- exchange gain cannot be regarding the notional/real
considered as taxable income income/loss and explain how
Assessed Income as Rs.193,327,920/-
the amount charged and loss come 66/A was invoked.
per order u/s 135
dated 15.06.2010 reduced.
The DAC further directed that
Rs.61,517,883/- how come the B/F business
Add foreign 23.04.2015 losses was adjusted against
exchange Loss Rs.254,845,803/- income earned as other
(Rs.701,753,168/-) The department was required income. The report should be
Income assessed as
per order u/s 66A to intimate the reason for submitted by the Chief
(Rs.446,907,365/-)
dated 30.12.2011 allowing BF loss adjustment Commissioner of the RTO
against other income, concerned positively by
Less B/F loss otherwise it should have been 09.08.2012.
taxed and demand was to be
Loss C/F for asstt. DAC 03.03.2014
created in the year under
year 02-03 The RTO informed that the
consideration. Case is referred record is being traced out
Action completed loss reduced. Therefore, para may to DAC. which take some time and
be settled. sought time in this regard.
04.09.2015 The DAC directed the RTO to
07-09-2015 The case had already been provide the relevant record to
referred to the DAC. DAC is audit for verification by
Necessary compliance has already been mae in 31.03.2014.
requested to examine the fate
respet of the said audit para and department in of para. DAC Directive dated
its earlier written response has already taken a
stance that unrealized foreign exchange gain 05.05.2015
29.10.2015 The DAC directed the RTO
could be set off against business income as is The case had already been to complete assessment
apparent from the order finalized by the refered to the DAC on proceedings as per law and
department u/s 66A/132 of the Repealed 23.04.2015 and 04.09.2015. report compliance to Audit /
Ordinance dated 30-12-2011. Law recognizes all DAC is requested to decide the FBR by 31.07.2015.
kinds of receipts connected with a taxpayer’s fate of para. DAC Directive dated
normal cours of business activities as 07.09.2015
The RTO explained that
taxableunder the head “Income from business”. in accordance with IAS-
It is, therefore, once again reiterated that 21 profit/loss from
necessary compliance has already been made in currency exchange is
respect of the said audit para and foreign business profit or loss.
The RTO also Cited case
exchange gain in part and parcel of the business
income/loss as declared by the taxpayer due to law of Gillanders A
the following reasons: Rbuthnot& Company
Vs CIT cited as 1966
The above contention is endorsed through PTD 71. According to
International Accounting Standard IAS-21. The
the case law
relevant extract is reproduced as under:
exchange loss or gain
“Para 28 Exchange differences arising on is to be included in
the settlement of monetary items or on business profits/loss.
translating monetary items at rates different from Audit objected this
those at which they were translated on initial
fresh explanation,
recognition during the period or in previous
financial statements shall be recognized in profit because RTO has
or loss in the period in which they arise, except been rendering
as described in paragraph 32”. different positions
earlier.
The said contention has further been
The DAC directed the
upheld/confirmed in a number of cases finalized
by superior courts. Relevant extracts alongwith RTO to get its stance
citation are as under: verified by the Audit
and report compliance
aIn the case of Gillanders A Rbuthnot& by the 30.09.2015.
Company Vs CIT cited as 1966 PTD 71, it was
decided that exchange gain earned by the DAC Directives dated
taxpayer operating as a selling agent in Pakistan 10.11.2015
The RTO explained that
earned commission due to devaluation of
gain on foreign
Pakistan currency. The issue whether the said exchange is part of
exchange gain is trading/business receipts in the business income. Audit
hands of the taxpayer . Held yes copy enclosed). did not agree and has
b. In a case MothayGangarju V. CIT( 1935) ITR requested for detailed
58(Mad) ut gas veebgekdtgat “An isolated consideration and
transaction can satisfy the description of an further discussion on
adventure in the nature of trade”. 17.11.2015..
 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.

3 1.1/244 Hyundai 2003 56,763,47 Contested. Unrealized Foreign Exchange Gain was 05.04.2010 05.04.2010
Engineering & 2 declared as accounting profit and made C/F to the
Construction Co, computation of the income wherein it was set off Under examination with audit. The DAC directed the
Ltd against the same notional exchange gain, as audit to verify the
allowable deduction from income automatically Referred to DAC. contention of the
balancing/squaring upto Book entry/book profit. Thus Taxpayer earned foreign department by 30.04.2010
neither this gain was taxable nor has escaped exchange gain for the
assessment because the book profit taken for the assessment year 2002-2003 at 13.07.2011
computation of income is in itself the unrealized Rs 140,622,362 and also The DAC directed the
Foreign Exchange Gain. Moreover, loss cases can included it into other income. RTO to re visit the cases
not be subjected to action u/s 122(5A). After adjusting This means that the gain was and report compliance to
the B/F against the income/losses for the current actual and not notional as FBR and Audit within one
years, the cumulative effect would be loss; hence reported by department month.
action could not be taken u/s 122(5A).
07.07.2011 to 09.07.2011 09.07.2012
11.06.2012 to 12.06.2012
The reply of the department The DAC directed the
The taxpayer company has filed return for the tax was not in line with the Audit RTO to ascertain the facts
year 2003 on 15.01.2004 declaring income of observation. There was actual of the case with higher
Rs.4,198,495/- subject to B/F loss. Later on return foreign exchange gain (loss) authorities and submit a
was revised on 27.01.2004 disclosing loss of rather a notional gain (loss) as detail report along with
(Rs.4,198,495/-) subject to B/F losses. The audit contested by the department. supporting evidence to
authority has observed that unrealized foreign Actually, the department did audit/FBR.
exchange gain which was required to be added into income, confront to the taxpayer The DAC further directed
but the taxpayer inadvertently deducted of Rs.73,609,799/-. through show cause notice. to explain the contradiction
After adjustment of inadmissible/admissible expense total Now, the case has barred by regarding the notional/real
income worked out by the audit authority i.e to be declared time and no action could be income/loss and explain
by the taxpayer company of Rs.143,021,103/-. As the
taxpayer company claimed adjustment of B/F losses as per
taken by the department. how come 66/A was
return, if which was allowed the B/F loss as determined of invoked.
(Rs.446,907,365/-) by the Addl.CIR, Audit as per order u/s Documentary evidence is
66A of the Repealed Ord. 1979 for asstt.year 2002-03, so support of his view point to be The DAC further directed
no loss revenue is to be arrived which is as under:- provided. that how come the B/F
Profit as per profit & loss a/c Rs.57,560,960/-
business losses was
23.04.2015 adjusted against income
Add inadmissible deduction Rs.12,950,432/- earned as other income.
Rs.70,511,392/- Department itself had charged The report should be
Less admissible deduction Rs. 1,100,128/- foreign exchange gain as other submitted by the Chief
income for the tax year 2001- Commissioner of the RTO
Rs.69,411,264/-
02 and 2002-03. The reason concerned positively by
Add foreign exchange gain for not charging in the tax year 09.08.2012.
(inadvertently deducted) Rs.73,609,799/- 2003 may please be intimated.
Matter referred to DAC. DAC 03.03.2014
Total income to be declared Rs.143,021,063/- The RTO informed that the
Less B/F loss A.Y 02-03 (Rs.446,907,365/-) 29.10.2015 record is being traced out
The case had already been which take some time and
Balance loss to be C/F (Rs.303,886,262/-) refered to the DAC on sought time in this regard.
Loss of revenue is not involved, so the para may please be 23.04.2015 and 04.09.2015. The DAC directed the
treated as settled. Foreign Exchange Gain was charged to DAC is requested to decide the RTO to provide the
tax in the cases of M/s. AES Pak Gen (Pvt) Ltd and M/s. fate of para. relevant record to audit for
AES Lalpir (Pvt) Ltd as proposed by the audit. However, verification by 31.03.2014.
the Therefore, the audit paras framed in the said two cases
have been recommended for settlement in the DAC
DAC Directive dated
Meeting held on 19.04.2010 at Lahore. The facts and 05.05.2015
circumstances of the case under consideration being the The DAC directed the
similar, the proposed action cannot be invoked. RTO to complete
The para may please be settled. `Commissioner (Appeals) assessment proceedings
deleted the addition made on that ground. The Appellate as per law and report
Tribunal also upheld the action of Commissioner Appeals.
compliance to Audit /
However, the Commissioner Legal did not propose FBR by 31.07.2015.
Reference in the said two cases on the plea that unrealized
Foreign Exchange Gain was no income as already held by
the Superior Courts.
DAC Directive dated
07.09.2015
The RTO explained that
in accordance with IAS-
21 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..
4 1.3/257 Hyundai 2003 61,499,07 Contested. Unrealized Foreign Exchange Gain was 05.04.2010 The DAC discuss the
Engineering & 4 declared as accounting profit and made C/F to the Under examination issue of taxation of
Construction Co. computation of the income wherein it was set off against the With Audit notional exchange gain.
Ltd. Multan same notional exchange gain, as allowable deduction from Referred to DAC. The RTO was of the view
income automatically balancing/squaring upto Book Taxpayer earned foreign
entry/book profit. Thus neither this gain was taxable nor has exchange gain for the assessment
that this gain is not taxable
escaped assessment because the book profit taken for the year 2002-2003 at Rs in the light of decision of
computation of income is in itself the unrealized Foreign 140,622,362 and also included it ITAT in parallel cases. On
Exchange Gain. Moreover, loss cases can not be subjected into other income. This means that the other hand the audit
to action u/s 122(5A). After adjusting the B/F against the the gain was actual and not was of the view that the
income/losses for the current years, the cumulative effect notional as reported by gain was not notional but
would be loss; hence action could not be taken u/s 122(5A). department. real in nature and hence
The taxpayer company has filed return for the tax year 2003 on taxable., The DAC
15.01.2004 declaring income of Rs.4,198,495/- subject to B/F loss. 07.07.2011 to 09.07.2011 directed the RTO to
Later on return was revised on 27.01.2004 disclosing loss of The reply of the department was
not in line with the Audit
reexamine the case and
(Rs.4,198,495/-) subject to B/F losses. The audit authority has
observed that unrealized foreign exchange gain which was required observation. There was actual report to audit by 19-
to be added into income, but the taxpayer inadvertently deducted of foreign exchange gain (loss) 5-2010.
Rs.73,609,799/-. After adjustment of inadmissible/admissible rather a notional gain (loss) as 13.07.2011
expense total income worked out by the audit authority i.e to be contested by the department. The DAC directed the
declared by the taxpayer company of Rs.143,021,103/- and loss of
Actually, the department did RTO to re visit the cases
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, confront to the taxpayer through and report compliance to
if which was allowed the B/F loss as determined of show cause notice. Now, the case FBR and Audit within one
(Rs.446,907,365/-) by the Addl.CIR, Audit as per order u/s 66A of has barred by time and no action month.
the Repealed Ord. 1979 for asstt.year 2002-03, so no loss revenue could be taken by the department.
is to be arrived which is as under:-
Documentary evidence is 09.07.2012
Profit as per profit & loss 57,560,960/- The DAC directed the
a/c support of his view point to be
provided. RTO to ascertain the facts
Add inadmissible deduction 12,950,432/- of the case with higher
70,511,392/- 23.04.2015 authorities and submit a
detail report along with
Less admissible deduction 1,100,128/-
Linked with para 1.1/244 tax supporting evidence to
69,411,264/-
year 2003. Matter referred to audit/FBR.
Add foreign exchange gain 73609799 DAC.
inadvertently deducted) The DAC further directed
29.10.2015 to explain the contradiction
Total income to be declared 143,021,063
The case had already been regarding the notional/real
Less B/F loss A.Y 02-03 (446907365)
refered to the DAC on income/loss and explain
Balance loss to be C/F (303,886,262 23.04.2015 and 04.09.2015. how come 66/A was
DAC is requested to decide the invoked.
As no tax liability is chargeable in the light of above The DAC further directed
mentioned facts. So the additional tax u/s 205 is not fate of para.
that how come the B/F
applicable and no loss of revenue is involved, thus business losses was
the para may please be treated as settled. 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
5 3.4/254 Hyundai Tax year Rs. Contested: 05.04.2010 The DAC directed the audit to verify
Under examination the contention of the department by
Engineering 2003 55,349,17 The taxpayer company has filed return for the tax year 2003 with Audit 5-5-2010.
&Construction 0 on 15.01.2004 declaring income of Rs.4,198,495/- subject to 13.07.2011
Co, Ltd 07.07.2011 to
B/F loss. Later on return was revised on 27.01.2004 The DAC directed the RTO to re visit
09.07.2011 the cases and report compliance to
disclosing loss of (Rs.4,198,495/-) subject to B/F losses. The The reply of the
audit authority has observed that unrealized foreign FBR and Audit within one month.
department was not in 09.07.2012
exchange gain which was required to be added into income, line with the Audit The DAC directed the RTO to
but the taxpayer inadvertently deducted of Rs.73,609,799/-. observation. There ascertain the facts of the case with
After adjustment of inadmissible/admissible expense total was actual foreign higher authorities and submit a
income worked out by the audit authority i.e to be declared exchange gain (loss) detail report along with supporting
by the taxpayer company of Rs.143,021,103/- and loss of rather a notional gain evidence to audit/FBR.
revenue is to be worked out @ 43% of Rs.61,499,074/-also The DAC further directed to explain
(loss) as contested by the contradiction regarding the
worked out additional tax u/s 205 of Rs.55,349,170/-. As the the department.
taxpayer company claimed adjustment of B/F losses as per notional/real income/loss and
Actually, the explain how come 66/A was
return, if which was allowed the B/F loss as determined of department did invoked.
(Rs.446,907,365/-) by the Addl.CIR, Audit as per order u/s confront to the The DAC further directed that how
66A of the Repealed Ord. 1979 for asstt.year 2002-03, so no taxpayer through come the B/F business losses was
loss revenue is to be arrived which is as under:- show cause notice. adjusted against income earned as
other income. The report should be
Profit as per profit & loss a/c 57,560,960/- Now, the case has
submitted by the Chief
barred by time and no Commissioner of the RTO
Add inadmissible deduction 12,950,432/- action could be taken concerned positively by 09.08.2012.
70,511,392/- by the department. DAC 03.03.2014
The RTO informed that the record is
Less admissible deduction 1,100,128/- Documentary being traced out which take some
evidence is support of time and sought time in this regard.
69,411,264/-
his view point to be The DAC directed the RTO to
Add foreign exchange gain 73609799 provide the relevant record to audit
provided
inadvertently deducted) for verification by 31.03.2014
DAC Directive dated 05.05.2015
Total income to be declared 143,021,063
The DAC directed the RTO to
23.04.2015 complete assessment proceedings
Less B/F loss A.Y 02-03 (446907365)
as per law and report compliance to
Balance loss to be C/F (303,886,262 Linked with para Audit / FBR by 31.07.2015.
1.1/244 tax year 2003.
As no tax liability is chargeable in the light of above Matter referred to
DAC Directive dated
mentioned facts. So the penalty is not applicable and no loss DAC. 07.09.2015
of revenue is involved, thus the para may please be treated The RTO explained that in
as settled. 29.10.2015 accordance with IAS-21
The case had already profit/loss from currency
been refered to the exchange is business profit
DAC on 23.04.2015 or loss.
The RTO also Cited case law
 and 04.09.2015. DAC of Gillanders A Rbuthnot&
is requested to Company Vs CIT cited as
decide the fate of
para. 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..
6 1.1/246 MAQBOOL 01-02 2525900 CONTESTED 28.08.2008 28.08.2008
The Audit Observation is contested as under:-
TEXTILE The audit observation seems to be based on an incomplete Insurance claim Audit examined the case
MILLS LTD., scrutiny of the assessment record, because the decision of the was required to and report by 30.09.2008.
MN learned ITAT, Lahore, has been ignored while making the audit be accounted for The DAC directed the
observation. The learned ITAT in its ITA No. 4293/LB/2003,
dated: 08-06-2005 deleted the whole addition with the following on accrual basis RTO to complete the
remarks :- but needful was verification process from
“We do not have any hesitation in holding that the amount of not done. the insurance company
claim which has not been accepted by the insurance company
shall be written off and in future if at all the same is recovered 05.04.2010 and report results to audit
wholly or partially it shall be added in the year in which it is As per directions by 19-5-2010.
recovered.” of ITAT, the
The department did not file reference on the issue. information to be
Even otherwise the company claimed total bad debts at
Rs:55913656/- and according to the ratio of local sales i.e obtained from 13.07.2011
68.54%, addition comes to Rs:38323220/- which was made insurance The DAC directed the
accordingly. company whether RTO To pursue the case
As regards Rs:40769866/- it is the amount of a capital loss which
was sustained by the assessee due to fire and the company the amount in at appropriate appellate
received the said claim from the concerned insurance company question has or forum
during the same year. As the said amount was neither claimed as has not been
bad debt nor as any other expense during any year, therefore, no
question to offer the said amount to tax arises. received. 09.07.2012
In view of the above, it is clear that the audit observations are The case discussed at
based on some misconceptions which are not supported with any 07.07.2011 to length in DAC meeting .
legal provision. It is, therefore, requested that the audit
observation may be withdrawn. 09.07.2011 No loss of revenue is
06.07.2011 involved and in the light
The insurance company has rejected the claim. The matter is still Subjudice. of decision of the learned
subjudice in court
The part of the Insurance claim which was not
ATIR vide ITA
29.10.2015 No.4293/LB/2003 dated
accepted and paid by the Insurance company has An amount of Rs 40
rightly been claimed by the taxpayer and accepted Million has been 08.06.2005. The DAC
by the Department as a Bad Debit . The treatment received by the recommended the para
has duly been upheld by the Tribunal by holding that taxpayer from for settlement.
“in-future if at all the same is recovered wholly or insurance company.
partly it shall be added in the year in which it is The taxpayer had However, it is also
recovered”. offered this amount of
Rs. 40 Million for emphasized that
No reference was filed against the Tribunal ‘s order whenever the taxpayer is
taxation as per Note
as no question of law arose out of the same. 23.3 of Audited in receipt of the said
Therefore, the Tribunal ‘s decision holds the field Accounts for the tax amount it should be taxed
The para may please be settled. year 2014.
29.10.2015
in the same year

In the light of the order of the learned ATIR in DAC Directives dated
10.11.2015
IT No.4293 /LB/2003 dated 08-06-2005, the addition
on account of unrealized insurance claim from M/S Already settled in DAC
Pakistan General Insurance Company( PGIC) as meeting dated
written off by the taxpayer was deleted with the 09.07.2012
direction that in case of recovery of this amount in recommended for
future, the same shall be added in the year it is settlement subject to
recovered. During the tax year 2014, the taxpayer taxation of receipts by the
 taxpayer, in the tax year
vide Note No.23.3 to the audited accounts has of actual receipts. RTO
declared that as a result of litigation the dispute has informed that the
been settled and the Insurance company has agreed taxpayer has now offered
to pay total amount of Rs.40.000(M). This amount as
the said amount as per
per the above referred Note , has been reduced from
the cost of sales pertaining to tax year 2014 meaning note No.23.3 of the
thereby the settled amount has been offered for audited accounts for tax
taxation. year 2014, verified by
In the light of above, the audit para may audit. The DAC
please be settled as no further action is pending in recommended the para
this regard. for settlement.

(SEEMA MAJID) (IRFAN JAHANGIR WATTO) (MUHAMMAD IMTIAZ)

MEMBER (ACCOUNTING) DIRECTOR GENERAL AUDIT CHIEF (PAC-DAC-DT)
FEDERAL BOARD OF REVENUE INLAND REVENUE (NORTH) FEDERAL BOARD OF REVENUE,
ISLAMABAD LAHORE ISLAMABAD