Taxpayer cannot claim full deduction on an intangible asset in single tax year: LHC

LAHORE: The Lahore High Court has held that a taxpayer is not entitled to claim a full deduction on an intangible asset in a single tax year where the asset’s utility extends beyond that year.

The court also observed that the Sales Tax (ST) Ordinance, 2001, prevents a taxpayer from claiming deductions on intangible assets to artificially suppress taxable income in a year.

The court observed that section 122(5A) of the ST Ordinance empowers the CIR to amend an assessment order if it is erroneous and prejudicial to the interest of revenue.

However, the provision explicitly mandates that no amendment shall be made without affording the taxpayer an opportunity of being heard, the court added.

The court also observed that section 24 of the Ordinance is designed to prevent the immediate expensing of costs related to intangible assets, whose benefits are spread across multiple tax years, particularly in cases involving goodwill, brand promotion, trademarks, or intellectual property rights.

The purpose of these provisions is to ensure fair and orderly recognition of expenses that confer long-term economic benefits, the court added.

The court said that the applicant’s contention that the benefit of such advertising expenses was confined solely to the relevant tax year is without legal or factual merit.

The court also noted that the data and information submitted by the applicant in the tax return were subjected to scrutiny for accuracy in computation. This scrutiny, by itself, does not prevent the tax authorities from examining whether the deemed order was passed in accordance with law, the court added.

The court said the legal obligation to invoke section 122(5A) was rightly discharged, and the only statutory condition of affording an opportunity of hearing was fulfilled.

Therefore, no illegality in assumption of jurisdiction by the CIR is floating on the record, the court said, and added that the CIR and appellate tribunal are well within the lawful domain to disallow the immediate deduction and to require that the expense be amortized in accordance with the method prescribed under Section 24(3) of the Ordinance.

The court also observed that the orders of the authorities below, being well-reasoned and supported by the available material, do not suffer from any legal infirmity warranting interference.

The court passed this order in a petition of M/s Naubahar Bottling Company (Pvt) Ltd challenging the decisions of the Commissioner Inland Revenue (CIR) and the tribunal.

The court observed that the applicant-taxpayer is not entitled to claim a full deduction of an expense relating to an intangible asset in a single tax year.

The court, therefore, upheld the decision of the tribunal and dismissed the petition as being devoid of merit, and directed the office to send a copy of the decision to the appellate tribunal.

Copyright Business Recorder, 2026