LAHORE: A tax officer has failed to prove advance against shares as fictitious transactions transacted through banking channel, said sources.

They said the tax department had added back the advance against the shares into the income by the taxpayer under the pretext of section 39(3) of the Income Tax Ordinance, 2001 (ITO).

The taxpayer was a Public Limited Company and was involved in manufacturing of cement. It had furnished the return of income and declared loss from business to the tune of PKR 78,428,706/-, and tax refundable to the tune of PKR 201,105/-.

This case was selected for audit by the assessing officer under section 177 of the ITO. In the aftermath, the officer observed some discrepancies and the same confronted to the taxpayer through a show-cause notice. The taxpayer submitted its reply, but the audit officer was not satisfied with it, hence he passed the order.

The Commissioner (Appeals) confirmed the same and held that as the advance against shares was given by a person that did not hold a NTN at the time of remitting the amount through banking channel, the same falls within the taxability of Section 39(3) of the ITO as the genuineness of the transactions could not be verified.

The taxpayer was of the view that the transactions were not fictitious as the same were conducted through banking channel. Since the transactions are not fictitious the said amount of advance cannot be added back to the income as settled by the superior courts from time to time, it added.

The department agitated that the transactions were not genuine as the Director who had made the advance against shares was not a NTN holder at the time when the transactions were made.

However, the relevant appellate forum held that since the transactions at hand were done through banking channel, the same cannot be termed as fictitious by any stretch of imagination. Accordingly, the taxpayer succeeded on this ground and the demand became annulled.

Copyright Business Recorder, 2024