Cir Multan vs M/S D.H. Fertilizer Limited

FORM No. HCJD/C-121

ORDER SHEET

IN THE LAHORE HIGH COURT,

MULTAN BENCH, MULTAN.

JUDICIAL DEPARTMENT

ITR No.169 of 2025 Commissioner Inland Revenue versus M/s D. H. Fertilizer Ltd. Sr. No. of order/ Date of order/ Order with signature of Judge, and that of Proceedings Proceeding Parties’ counsel, where necessary 22.06.2026 Malik Muhammad Shahzad Awan, Advocate for the applicant.

M/s Sarim Shahid and Shahmeer Ubeid, Advocates for the respondent.

Through this single order, we shall decide two Reference Applications i.e. ITR No.169 & 168 of 2025 for Tax Years 2013 and 2015 filed under Section 133 of the Income Tax Ordinance, 2001 against consolidated impugned order dated 14.04.2025 (“the Impugned Order”), passed by the Appellate Tribunal Inland Revenue, Lahore Bench, Lahore (“the Appellate Tribunal”) on four cross appeals, i.e. two for each Tax Year, filed by rival parties, wherein following questions of law have been stated to have arisen for consideration by this Court:

(1)Whether under the facts and in the circumstances of the case the learned Appellate Tribunal was justified to ignore that expenditure incurred on sales promotion / advertisement / marketing development is capital in nature and is liable to amortization under Section 24 of

ITO, 2001?

(2)Whether under the facts and in the circumstances of the case the learned Appellate Tribunal was justified to ignore that expenditure incurred on sales promotion / advertisement / marketing development is capital in nature instead of

revenue being the said expenditure provide benefit beyond the tax year?

2.Learned counsel for the applicant at the very outset points out that the portion of order relating to findings on the issue of amortization of sales promotion / advertisement / marketing development expenditure amounting to Rs.61,145,522/- decided vide the impugned order through its paragraph no. 13 is under challenge through these reference applications, for which purpose the aforementioned questions of law have been proposed for opinion of this Court. It is claimed that the impugned order is not sustainable as to the said extent it is a non- speaking order for the reason that the Appellate Tribunal without taking into consideration the exact nature of aforementioned expenses, has observed that all the expenses were recurring in nature and in view thereof declared the same are revenue expenses, which has been done without pointing out the relevant portion of the expenses referred to in the impugned order as recurring expenses and on the said basis seeks setting aside only the aforesaid portion of the impugned order. The breakup of the expenditure in dispute amounting to Rs.61,145,522/- has been mentioned in the impugned orders as under: Sr. Description Amount (Rs.)

1 Dealer incentive 57,310,330 2 Public Relations 3,674,417 3 Advertisement Press 70,775 4 Others 90,000 Total 61,145,522

3.On the other hand the learned counsel for the respondent has vehemently defended the impugned order by stating that the detail of expenses is given in

the reply filed by the respondent and reproduced in the order passed by the Commissioner Inland Revenue (Appeals) “CIR(A)”, which order has been upheld by the learned Appellate Tribunal for substantial reasons, hence the same being in accordance with law is sustainable and seeks dismissal of afore-referred applications.

4.The relevant portion of the impugned order relating to Amortization of Sales Promotion / Advertisement / Marketing Development expenditure decided vide the paragraph No. 13 of the impugned order is reproduced hereunder:

“We have heard the rival arguments and perused the available record. The nature of expenses is of revenue nature as they are of recurring nature. The learned CIR(A) has rightly held these expenses were rightly claimed as revenue expenses and treatment of the assessing officer to amortize the same is based on assumptions and surmises. Further, the matter has already been decided in favour of the Tax payer vide referred decisions. Therefore, the order of CIR(A) is hereby confirmed and departmental appeal is rejected.”

5.The question for determination before the Appellate Tribunal was that whether the aforementioned expenses incurred under different categories are revenue expenses or capital expenses. The Appellate Tribunal while observing that the aforementioned expenses were recurring expenses held the same to be revenue expenses instead of expenses of capital nature by basing its decision on a previous decision passed in favour of the respondent in ITA No.3726/LB/2019 previously decided vide order dated 30.07.2024. The claim of the applicant is

that the previous decision could only be looked into to the extent that same had decided a legal issue provided the same was not contrary to any decision of Superior Courts but the said decision could not be applied to the factual aspect of the matter as each and every case is required to be decided on its peculiar facts and circumstances. It is settled law that each and every case is to be decided on the basis of its own peculiar facts and the law is to be applied keeping in view the peculiar facts of each case. Reliance may be placed on Messrs Elahi Cotton Mills Ltd and others versus Federation of Pakistan through Secretary M/o Finance, Islamabad and 6 other (PLD 1997 SC 582 = 1997 PTD 1555 SC), wherein while deciding the question whether a particular kind of receipt is income for the purpose of Income Tax or not, it was held that determination of said question would depend for its answer on the peculiar facts and circumstances of the case and it was also observed that if the nature of the receipt and its source are not satisfactorily explained by an assessee, facts which are generally within his peculiar knowledge, the Income Tax Officer may legitimately presume that the amount in question is an income of the assessee from an undisclosed source. On the basis of aforementioned decision it is clear that the Appellate Tribunal was required to consider and factually decide the exact nature of expense before applying the law.

6.In the present case, the Appellate Tribunal in the impugned order has although made reference to the aforementioned amount but has not considered the details of the said expenditure to factually

determine its nature as to whether the same falls within the category of revenue expenses or the expenses of capital nature, hence the impugned order is a non-speaking order to the said extent. Generally a non-speaking order is not sustainable under the law. In somewhat similar situation arising in Commissioner of Income Tax/Wealth Tax, Companies Zone, Peshawar and another versus Messrs Shahzad Ghee Mills (Pvt.) Ltd. and 4 other (2012 SCMR 880 = 2012 PTD 969 SC), where the question of fact going to the root of the matter was not decided by the CIR(A) and the Appellate Tribunal also while passing the final decisions, which orders had also been upheld by the High Court, the Supreme Court by declaring that the orders passed by the CIR(A) and the Appellate Tribunal were non- speaking orders, remanded the matter to CIR(A) for decision afresh. The operative portion of the order of Supreme Court is reproduced below:

“12. To ascertain the factual aspect of the case and to provide an opportunity to the parties to establish their respective claims, we set aside the judgments of the High Court, ITAT as well as CIT(A) and remand the case to the CIT(A) for the purpose of re-hearing of the appeals of the respondents and disposing of the same keeping in view the observations made hereinabove as well as principles discussed in the cases referred to hereinabove.”

7.It is pertinent to mention here that although this Court while deciding a reference has jurisdiction to decide pure questions of law and mixed questions of law and fact yet the legal position is that this Court does not decide disputed questions of fact that require deeper appreciation of documents to

determine the disputed facts and in such cases the Appellate Tribunal was the final fact finding authority as observed by the Supreme Court in Commissioner Inland Revenue v. RYK Mills Lahore (2023 SCMR 1856), Commissioner Inland Revenue v. Sargodha Spinning Mills (2022 SCMR 1082), Commissioner Inland Revenue v. MCB Bank Limited (2021 PTD 1367), Wateen Telecom Limited v. Commissioner Inland Revenue (2015 PTD 936), Pakistan State Oil Company Ltd. v. Collector of Custom, E&ST (Adjudication-II) (2006 SCMR 425), National Logistics Cell v. Collector of Customs (2023 SCMR 1325) and Fancy Foundation v. Commissioner of Income Tax (2017 SCMR 1395), hence the Appellate Tribunal should have referred to the details of afore-referred aspect of the matter in hand while reaching the conclusion of finds of fact as to whether the said expenses were capital or revenue in nature, which has not been done and the impugned order is a non-speaking order to the said extent.

8.The question next arises in the matter for consideration before this Court is that as this Court has already observed that the impugned order is a non-speaking order, hence is not sustainable, should this Court also decide the questions referred to us for our opinion mentioned above. The legal position is that this Court is not under obligation to decide each and every question referred to the Court for its opinion. Reference may be made to principles laid down by the Supreme Court in Commissioner of Income Tax Company's II, Karachi v. Messrs National Food Laboratories (1992 PTD 570 SC = 1992 SCMR 687), wherein it is mentioned that under

Section 66 of the repealed Income‐ Tax Act, 1922 (which is equivalent to Section 136 of the Income‐ Tax Ordinance, 2001), ordinarily the High Court has to answer the question as referred to it by the Tribunal, however, in order to decide the real issues between the parties, the High Court is competent to reframe or re-settle the question referred by the Tribunal without raising any new or different question. The aforesaid principles have been followed by this Court in Commissioner of Income Tax/Wealth Tax versus Muhammad Naseem Khan (2013 PTD 2005 Lahore), Commissioner of Income Tax versus Metal Forming Ltd. (2009 PTD 75 Lahore) and Commissioner Inland Revenue versus Messrs Golden Pearl Cosmetics (2017 PTD 1485 Lahore) to uphold the powers of this Court to reframe questions of law referred to it by any party for decision.

9.It is noticed that in the instant case as the Appellate Tribunal did not discuss the factual aspect of the matter relating to the nature of different items mentioned as expenses and decided the said question by only basing its decision on findings recorded in a past order, without comparing whether the expenses were of exactly same nature as the expenses in the previous orders referred by it or were partially similar and partially different in nature and under what category different items of such expenses should be placed, hence in the given circumstances of the case question of law would not circumscribe and comprehensively elucidate the real controversy in issue, therefore, it would not be out of context to mention here that as this Court while hearing a

reference application is competent to reframe, resettle and amend the questions of law in order to decide real controversy and issues between the parties, the questions in this reference application are reframed as under:

“1- Whether the Appellate Tribunal has addressed in detail the controversy relating to nature of expenditure incurred on sales promotion / advertisement / marketing development while treating the same as revenue expense and not capital in nature?

2.Whether the order passed by the Appellate Tribunal is a non-speaking order?”

10.This Court, on the basis of what has been discussed above, is of the opinion that the Appellate Tribunal has not addressed and decided the question of expenditure incurred on sales promotion / advertisement / marketing development as to whether the same were revenue expenses or capital in nature by determination of factual aspect of the matter by referring to details of different items of expenses, therefore, the order passed by the Tribunal is a non- speaking order. Consequently, the reframed question of law at Serial No.1 is decided in the negative and the reframed question of law at Serial No.2 is decided in the affirmative and without further commenting upon the merits of the case lest it may cause prejudice to either of the parties, we remand the matter to the learned Appellate Tribunal with direction to pass a speaking order only to the extent whether the aforementioned expenses are capital or revenue in nature and while doing so to also keep in view the case law, if any, referred to by both the parties, which exercise shall be carried out,

expeditiously, preferably within a period of 60-days on receipt of certified copy of this order.

11.Resultantly, the instant reference application along with the connected application is disposed of in the afore-referred terms.

12.Office shall send a copy of this order under seal of the Court to learned Appellate Tribunal as per Section 133(8) of the Income Tax Ordinance, 2001.

(RASAAL HASAN SYED) (MUZAMIL AKHTAR SHABIR)

JUDGE JUDGE

*KMSubhani*

APPROVED FOR REPORTING.