LHC Allows SNGPL Rs11.2B Tax Deduction Claim

The Lahore High Court has adjudicated in favour of Sui Northern Gas Pipelines Limited (SNGPL), holding that the Cost Equalisation Adjustment (CEA) constitutes an allowable business deduction. The ruling permits the company to claim a tax deduction amounting to PKR 11.217 billion for the tax year 2010.

In its detailed judgment, the Court determined that the expenditure satisfied the statutory requirement of being incurred “wholly and exclusively” for the purposes of business, as envisaged under Section 20 of the Income Tax Ordinance, 2001. It further observed that such expenditure was integral to the continuity and viability of the company’s operational framework.

The matter originated from a deemed assessment filed by SNGPL, which was subsequently subjected to scrutiny by tax authorities through the issuance of a show-cause notice in 2012. The notice alleged discrepancies in the assessment and highlighted a potential loss to the national exchequer.

Following these proceedings, the assessing officer amended the assessment and disallowed the claimed deduction. SNGPL challenged this determination before the Commissioner Inland Revenue (Appeals), who ruled in favour of the taxpayer and allowed the deduction.

The Federal Board of Revenue (FBR) contested this outcome before the Appellate Tribunal Inland Revenue (ATIR), which initially upheld the appellate decision in favour of SNGPL. However, the matter was later remanded for reconsideration, upon which the tribunal reversed its earlier findings and reinstated the tax demand.

Given SNGPL’s status as a state-owned enterprise, the dispute was also referred to the Alternative Dispute Resolution Committee (ADRC). While certain issues were resolved through this mechanism, the question relating to the CEA deduction remained unresolved.

The Lahore High Court, in its final determination, examined whether the expenditure met the legal threshold of being wholly and exclusively incurred for business purposes. The Court concluded that compliance with regulatory directives and binding contractual obligations rendered the expenditure necessary and unavoidable for the company’s operations.

Accordingly, the Court set aside the tribunal’s subsequent order and restored the earlier decision of the Commissioner Inland Revenue (Appeals), thereby allowing the deduction and conclusively resolving the matter in favour of SNGPL.