The Tax Appeal Tribunal (TAT or “the Tribunal”) Lagos Zone has ruled, in NPF Microfinance Bank PLC (NPF or “the Company” or “the Appellant”) and Federal Inland Revenue Service (FIRS or “the Respondent”), that bad debts (which have been proven to be bad) are allowable for tax deductions and are not subject to the discretion of the FIRS’ Board while disallowing unsubstantiated Public Relations (PR) Expense.

Background of the Case

NPF, a financial services institution offering banking products and services to both serving and retired members of the Nigerian Police Force as well as the general public, had classified bad debts, overdraft facilities and PR expenses as allowable expenses for Companies Income Tax (CIT) purposes. This decision was based on Section 24 of the CIT Act Cap C21 LFN 2004 (as amended) (CITA).

The FIRS, during its audit of the Company’s 2017-2018 years of assessment (YOAs), disallowed the said expenses and issued Notices of Additional Assessment and Demand Notes. NPF duly objected to the FIRS’ assessment on the basis that the FIRS’ position was inconsistent with Section 24 of the CITA, which allows for tax purposes, expenses that are wholly, exclusively, necessarily, and reasonably (WREN) incurred to generate turnover. The FIRS, declaring that it had acted within the confines of the law, issued a Notice of Refusal to Amend (NORA) despite ongoing reconciliation between the two parties.

Dissatisfied with the FIRS’ rejection of the Company’s position and the issuance of the NORA, NPF filed an Appeal before the TAT seeking for the deduction of the expenses and a ruling that the FIRS infringed on its rights to fair hearing given the circumstances of the case.