LAHORE: The income tax department has disallowed actuarial loss to a cellular company on its defined benefit plans, alleging that the income declared by the company was erroneous, said sources.

According to details, the taxpayer had made deductions in computing income chargeable under the head of ‘income from business’ and returned losses with the claim that its deductible expenses exceeded its taxable income.

The company deducted the activation tax from its taxable income, saying that the expenditure incurred by it was wholly and exclusively for the purposes of business.

The assessing officer disregarded the expense on the ground that commercial expediency was no justification for not passing on the liability to the customers, as the levy was across the board and on any individual company.

He said the levy at the rate of Rs500 per set for activation of the cellular phone was the liability of the cellular company to charge, collect, and pay the levy through a monthly sales tax return.

Regarding the accrual basis accounting, the assessing officer maintained that a person accounting for income chargeable on an accrual basis should derived income when it is due to the person and incur expenditure when it is payable by the person.

However, the taxpayer returned losses with the claim the sales tax paid on free air time was expenditure to attract the customers. The department, after issuance of show cause notice, disallowed such deduction, saying that the taxpayer had adopted its own marketing strategy to increase the business or attract the customers but such practice could not absolve it from payment of sales tax on the free air time.

Once the sales tax is paid, the same could not be allowed to be considered in terms of expenses as the taxpayer had not booked any revenue against the free air time.

The relevant forums held that the loss is notional in nature and is not sustained by the taxpayer, therefore, it was not allowable expense and such an exchange loss has rightly been disallowed by the department.

Copyright Business Recorder, 2024