In ITA No. 6707/Del/2018- ITAT - ITAT (Delhi) allows Service Tax payment by Amway India to its distributors as a deductible Business Expenditure
Members C.M. Garg (Judicial) & B.R.R. Kumar (Accountant) [08-05-2023]

Read Order: Addl. CIT v. Amway India Enterprises Pvt. Ltd.

Chahat Varma

New Delhi, May 26, 2023: The Delhi bench of the Income Tax Appellate Tribunal has refused to interfere with the findings of the Commissioner of Income Tax (Appeals) [CIT(A)], stating that the payment of service tax, made by Amway India (assessee) to its distributors, was directly related to the business activity of the assessee and was incurred wholly and exclusively for the purpose of the company's business, thereby allowing it as a deductible business expenditure.

In the present case, the Revenue had filed an appeal against the order of the CIT(A), stating that CIT(A) had erred in deleting the addition of Rs. 38,12,22,446/- on the account of amounts written off and treating the expenditure as revenue expenditure. The Revenue contended that the Assessing Officer (AO) was justified in disallowing the payment of service tax made by the assessee to its distributors, as showing the same as bad debts was a clear example of claiming revenue expenditure under the guise of bad debts, which was not permissible under the law.

The assessee, on the hand, had contended that the assessee had made the payment of service tax to its distributors for smooth running of business by facilitating its distributors to pay the service tax liability and since the legality of said liability was not clear, the payment was shown as loan in the books of account and not claimed as an expenditure on account of service tax in the year of payment.

The bench of C.M. Garg (Judicial) and B.R.R. Kumar (Accountant) noted that the assessee had made payment of service tax to its distributors, who had actually paid the amount of service tax to the exchequer and thus, it was a kind of reimbursement of service tax liability of the assessee to its distributors.

The bench also acknowledged that the liability of service tax was a result of the implementation of new taxation laws, such as the GST. The question of whether this liability should be borne by the distributors of the assessee company or the assessee itself was not settled at that particular point in time.