LAHORE: The Lahore High Court has ruled that the Cost Equalisation Adjustment claimed by Sui Northern Gas Pipelines Limited qualifies as a deductible business expense, allowing a tax claim of Rs11.217 billion for the tax year 2010.
In its judgment, the court held that the expenditure was incurred “wholly and exclusively” for business purposes under Section 20 of the Income Tax Ordinance, 2001, stating that the company’s operations would not have been sustainable without it.
The case originated from a deemed assessment filed by SNGPL, which was later challenged by tax authorities through a show-cause notice in 2012, alleging errors and potential loss to revenue.
Following the notice, the assessing officer amended the assessment and disallowed the deduction. SNGPL appealed the decision, and the Commissioner Inland Revenue (Appeals) ruled in favour of the company, allowing the deduction.
The Federal Board of Revenue challenged the decision before the appellate tribunal, which initially upheld the company’s position. However, the matter was later remanded for reconsideration, and the tribunal reversed its earlier stance, restoring the tax demand.
As a state-owned entity, the dispute was also referred to the Alternative Dispute Resolution Committee, which resolved other issues but left the CEA matter unsettled.
The court noted that the central question was whether the expenditure met the legal test of being incurred wholly and exclusively for business purposes. It concluded that compliance with regulatory directives and contractual obligations made the cost mandatory for the company’s operations.
Setting aside the tribunal’s decision, the court restored the earlier order of the Commissioner Inland Revenue (Appeals), thereby allowing the deduction and resolving the dispute in favour of SNGPL.
