SABRI CHEMICALS PVT. LTD.,,BARODA vs. THE ACIT, CIRCLE-2(1)(1),, BARODA

आदेश / O R D E R

PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–2, Vadodara [CIT(A) in short] vide appeal no.CAB/(A)-2/531/14-15 dated 04.02.2016 arising in the matter of assessment order passed under Sec.143(3) of the Income Tax Act, 1961(here-in-after referred to as "the Act") dated 26.02.2015 relevant to Assessment Year (AY) 2012-13.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 2 - 2. The grounds of appeal raised by the assessee are as under:- 1. “The Learned C.I.T.(Appeals) erred in law in upholding disallowance of late payment of PF & ESIC of Rs. 1,53,295/- made by assessing officer u/s 36(1)(va) of the I.T Act, 1961. 2. The Learned C.I.T(Appeals) erred in law and facts in upholding the disallowance of the advance written off Rs, 200000/- made u/s 36(2) and alternatively u/s 28 without appreciating the provisions of the section properly. 3. The Learned C.I.T(Appeals) erred in law and facts in upholding the disallowance of the advance written off of Rs. 49,70,206/- made u/s 36(2) and alternatively u/s 28 without appreciating the provisions of the section properly. 4. The Learned C.I.T(Appeals) erred in law and on facts in upholding the disallowance of the Exhibition Expenses of Rs. 1,64,010/-. 5. The Learned C.I.T(Appeals) erred in law and facts in not allowing the Interest of Rs, 81,440/- paid to Tata Capital Ltd - NBFC. The appellant reserves its right to add, amend, alter or modify any of the grounds stated hereinabove either before or at the time of hearing.”

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 3 - 4.1 The AO during assessment proceedings observed that the assessee failed to deposit the employee's contribution to PF/ESI within the due date as specified under the relevant act, rule or notification issued thereunder. Therefore, the AO disallowed the same after having a reliance on the judgment of Hon’ble Gujarat High Court, in the case of CIT vs. GSRTC reported in 41taxmann.com 100 and added to the total income of the assessee.

Being aggrieved by order of ld. CIT(A) assessee is in the second appeal before us.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 4 - “We may, however, add that a co-ordinate bench of this Tribunal, in the case of Rajjratna Metal Industries Ltd Vs. ACIT (ITA No.940/Ahd/2015; order dated 22.09.2017), has observed as follows:- "3. Assessee's latter substantive ground challenges correctness of both the lower authorities' action disallowing/adding a sum of Rs.3,85,810/- u/s. 36(1)(va) r.w.s. 2(24) of the Act on account late payment of employees' contribution to PF & ESI in question. There is no dispute that hon'ble jurisdictional high court's decision in CIT vs. Gujarat State Road Transport Corporation (2014) 366 ITR 170 (Guj) upholds such a disallowance in principle. The assessee's case however is that relevant due date has to be seen not from the relevant month of salary but the one pertaining to its payment. He then files a computation chart indicating it to have paid above employees' PF/ESI contributions on 22.05.2009 and 28.05.2009 as against the due dates thereof following on 20.06.2009. The Revenue fails to dispute this factual position. We therefore quote this tribunal's co-ordinate bench decision in Kanoi paper & Industries Ltd. vs. ACIT 75 TTJ 448 that the relevant date in such case is that of month of the actual payment of wages/salaries. We therefore rely on the above co-ordinate bench decision and direct the Assessing Officer to delete the impugned disallowance as well.”

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 5 - In view of the above, the ld. AR of the assessee before us submitted that the matter should be restored to the file of AO for fresh adjudication in terms of the above.

7.1 The ld. DR further submitted that the payment of Wages Act, 1936 requires that the payment should be made before the expiry of the 7th day after the last day of the wage period, where the salary is less than thousand rupees and in other cases, it should be the 10th day. The payment of Wages Act requires that the payment should be made within the period as specified. Thus, if the assessee can claim a deduction of the employee’s contribution towards PF/ESI on the payment basis, then there is a possibility that the assessee will delay in the payment of wages to the workers. Thus, if the deduction for contribution towards PF / ESI is

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 6 - allowed to the assessee by date of payment of salary, then the purpose of Wage Act, 1936 will be defeated.

The ld. AR in his rejoinder submitted that no reference should be made to the payment of wages Act while deciding the issue under the Income Tax Act.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 7 - the explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees' contribution to the employees' account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.”

However, the ld. AR before us has submitted that the due date for depositing the employee’s contribution towards PF/ESI should be seen from the date of the payment and not from the due date. In this regard, we note that the Jurisdictional Tribunal in the identical facts and circumstance in the case of Suzlon Energy Ltd. (supra) has restored this issue to the file of the AO for fresh adjudication. Therefore, respectfully following the same, we are inclined to restore the issue on the hand to the file of AO for fresh adjudication in accordance to the provision of law as well as after considering the order of this Tribunal in the case of Suzlon Energy Ltd. (Supra). Thus, the ground of appeal of the assessee is allowed for statistical purpose.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 8 - Associates returned a sum of Rs.3,00,000/- to the assessee but forfeited a sum of Rs.2,00,000/-. Therefore, the assessee has shown the sum of Rs. 2,00,000/- as bad debts in its profit and loss account.

However, the AO was of the view that the bad debts of Rs. 2,00,000/- concerning the payment made to Sailesh Nair & Associates is not allowable for deduction in view of the provision of Section 36(2) of the Act. Accordingly, the AO disallowed the same and added to the total income of the assessee.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 9 - sheet entry dated 08.01.2016, the ld. Authorized Representative was specifically required to prove that the condition of section 36(2) are satisfied in respect of both the bad debts. He was also required to furnish supporting documentary evidence along with copy of account. On perusal of the details furnished, it was noticed that the sum of Rs.2,00,000/- was given to Shailesh Nair & Associates and the same was never considered in the profit of the appellant company. Thus, condition of section 36(2) was not satisfied in this regard particularly when the appellant was not engaged in the business of advancing loan. The Ld. Authorized Representative has made an alternative claim of loss u/s. 28 during the course of hearing. Accordingly, he was asked to furnish confirmation from Shailesh Nair & Associates in order to establish nature of transaction and genuineness of the claim as to whether same has actually become bad or not. However, no confirmation was furnished. Accordingly, I hold that the conditions of section 36(2) as well as section 28 were not satisfied and hence disallowance to this extent of Rs.2,00,000/- is confirmed.”

Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 10 - 13. On the other hand, ld. DR vehemently supported the order of authorities below.

From the preceding discussion, we note that the genuineness of the expenses has not been doubted by the authorities below. It is also undisputed that the amount written off as bad debts was not offered to tax in the earlier year. Therefore, the conditions stipulated under the provision of section 36(2) of the Act were not complied with.

However, the argument of the ld. AR for the assessee that the expenses were incurred in connection with the renovation/alternation of factory building and office building were not doubted. Therefore, an inference can be drawn that the expenses claimed by the assessee were incurred exclusively for the purpose of the business. Therefore, the same should have been allowed under the provision of Section 37(1) of the Act. In holding so, we find support and guidance from the judgment of Hon’ble High Court of Jharkhand in the case of CIT vs. Tata Robins Fraser Ltd. reported in 26 taxmann.com 15 wherein it was held as under:

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 11 - “16. Substantially this is also a question of fact where an expenditure incurred by the assessee was of the revenue in nature or it was a capital expenditure. However, in view of the fact that question has been framed and we have narrated the facts of the case including the break-up of the expenditure which includes the fee of Rs. 2,57,335/- paid to the Architect and some expenses of Rs. 46,379/- incurred on old capital work in progress which was abandoned and cost of damaged cabinets and that too, amounting to Rs. 12,776/-, total expenditure including all three of the heads is Rs. 3,16,490/-. It is not in dispute that the project could not be accomplished because of the reason that the place where it was to be undertaken had a poor quality of soil and all the construction already damaged. The other articles bought by the assessee also got damaged and, therefore, in that fact situation, the Tribunal was fully justified in holding that such expenditure which may be pre-operational expenditure for a project can be treated to be a revenue expenditure actually and not a capital expenditure.”

14.1 We also extend our reliance on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Idea Cellular Ltd., reported in 76 taxmann.com 77 wherein it was held as under: “9. We have carefully perused the memo of the appeal. We have also perused the order of the assessing officer and that of the first appellate authority. Mr. Malhotra has elaborately taken us through these orders to submit that the assessing officer found from the record itself and particularly from a document, namely, a letter or response from the assessee that the purpose of the expenditure cannot be said to be other than bringing up a capital asset into existence. The fact that later on the site was not chosen for hoisting the tower is immaterial. However, we find that the tribunal applied the correct test. The tribunal found that there is no dispute that the expenditure in question was incurred for the purpose of construction of a cellular tower, but the project was then abandoned due to the reason that the site was not suitable. The reasons assigned by the assessing officer and the first appellate authority are unsustainable, according to the tribunal for the simple reason that cellular towers were being erected for the purpose of assessee's own business of providing cellular services to the customers. The towers are

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 12 - meant for the business of providing cellular services. It is by utilising these towers that such services are provided. It is not an independent source of income. It is only to make the cellular services provided more efficient, convenient and profitable. When the towers are not exclusively meant for leasing out to third parties for earning the revenue, but used for transmission of telephone signals of assessee's own cellular services, then, it cannot be said that the towers, which are used for the assessee's own business, are new source of income. A cellular tower can be a new independent source of income, if it is erected exclusively for leasing out to the other operators. However, on facts, this was not the position and the tribunal, therefore, rightly concluded that in series of decisions, the High Courts and the Hon'ble Supreme Court of India has laid down the principle that if an expenditure is incurred for doing the business in a more convenient and profitable manner and has not resulted in bringing any new asset into existence, then, such expenditure is allowable business expenditure. In the present case, no new business was set up, but towers in addition to which were already set up were proposed at site, which project was later on abandoned.”

14.2 We also extend our reliance on the judgment of Hon’ble Delhi High Court in the case of Mohan Meakin Ltd. vs. CIT reported in 11 taxmann.com 141 wherein it was held as under: “10. Applying the principles of law as regard interpretation of sections 28, 29, 36(1)(vii), 36(2) and section 37 of the Act as enunciated by the Division Bench of J&K High Court and the Apex Court in the afore- cited cases, we are of the considered view that it was in the totality of overall situation of the matter that the assessee decided to write off the advances made to M/s. Kanpur Boot House as bad debt. The reason as given by the assessee was apparently well-founded and was abruptly rejected by the Assessing Officer and the Tribunal. They did not appreciate the fact that the continuity of supply was essential to honour the agreement with the Corporation and that it was to continue the business without any break that the advances were made to the manufacturer, M/s. Kanpur Boot House. It was only on account of non- recovery of the huge amount from the Corporation that the work had to be cancelled and the supplies had to be abruptly stopped by the

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 13 - assessee and consequently production was necessarily required to be stopped. It is known practice that usually manufacturer gives advances to the workers which are adjusted or carried forward in the coming times against the works done by them. This was not an unusual practice which was liable to be outrightly rejected by the department. When the assessee had written off the dues recoverable from the Corporation and the same were accepted by the Department and it had also so written off, the advances made to M/s. Kanpur Boot House in its books of account, what else could be the proof with the assessee for its being unable to recover the same. The other reason for writing off was the demise of the proprietor, Bhagwan Das, of M/s. Kanpur Boot House and the assessee in its wisdom did not choose to take the matter to the court apprehending counter claim and this decision of the assessee seems to be well reasoned. In any case, the Revenue could not compel the assessee to have recourse to litigation to recover the amount against dead person or his legal heirs when in the given circumstances, the same may not be recoverable. The CIT(A) rightly recorded that the debt had become bad and not recoverable and it would be a futile exercise to take any action against the legal heirs of the deceased. In view of the discussion as made by the Division Bench of J&K High Court and the Hon’ble Supreme Court, as quoted above, that the advances made by the assessee in the case were certainly of a type which would be within the contemplation of the words "laid out or expended wholly and exclusively for the purposes of the business". As no portion of the said advances could be stated to be loss of capital expenditure, but it being a plain case of business loss, it would certainly be allowable to be deducted under the provisions of section 37 of the Act.”

14.3 In addition to the above, we also note that the claim of the assessee under the section 36(2) of the Act does not disentitle the assessee for deduction of its claim under section 37(1) of the Act. As such the claim of the assessee is not dependent on the classification of the expenses under a particular head. There cannot be a test for the allowability of claim based ob its classification. The AO is required to allow the rightful

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 14 - claim made by the assessee though it was classified under the wrong head. In this regard, we also note that the CBDT in its Circular issued in June, 1955 has instructed to the Department not to disallow the rightful claim of the assessee. The relevant extract of the circular reads as under: "Officers of the department must not take advantage of the ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the officers should take the initiative in guiding taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department, for, it would inspire confidence in him that he may be sure of getting a square deal from the department. Although, therefore, the responsibility for claiming refunds and reliefs rests with the assessees on whom it is imposed by law, officers should (a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."

In view of above, we hold that the assessee is very much eligible for deduction on account of payment made to Sailesh Nair and Associates for the renovation/alteration of the factory and office building under the provision of Section 37(1) of the Act. Hence, we reverse the order of authorities below and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

However, the AO during the assessment proceedings observed certain facts as detailed under: i. M/s. Sabri Aromatics Pvt. Ltd. is a sister concern of the assessee and therefore it is duly covered under the provision of Section 40A(2)(b) of the Act. ii. The assessee has made transactions with its associated concerns for the last several years, but the assessee failed to justify the reasons for non-recovery of the amount from the sister concern. iii. The assessee has not filed the details of the nature of the transactions carried out with M/s. Sabri Aromatics Pvt. Ltd. iv. The copy of the ledger of M/s. Sabri Aromatics Pvt. Ltd. was not furnished by the assessee. v. Similar disallowance was made by the ld. CIT(A) in the own case of the assessee pertaining to the A.Y. 2010-11. The

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 16 - submissions made by the assessee for the year under consideration were identical as made in the A.Y. 2010-11.

In view of above, the AO disallowed the deduction claimed for Rs. 49,70,206/- and added to the total income of the assessee.

17.1 The assessee also submitted that there is no requirement under the provision of Section 36(2) of the Act to prove that the debts have become bad debts. Therefore merely the amount written off in the books of accounts is sufficient enough for allowing the deduction u/s 36(1)(vii) & 36(2) of the Act. However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: “3.1. As regards the bad debt claim of Rs.49,70,206/- in the name of Sabari Aromatics Pvt. Ltd., I find that the appellant has been making various payments to this concern being a associates concern. Since Sabari Aromatics Pvt. Ltd. is incurring huge loss, the appellant is claiming bad debt and no tax is paid by Sabari Aromatics Pvt. Ltd. on the liability ceased u/s. 41(1). Since the appellant company had made payment to Sabari Aromatics Pvt. Ltd. by account payee cheque and the appellant is not engaged in the business of advancing money, the condition of section 36(2) are not satisfied. Moreover, it has claimed deduction of the bad debts, but Sabari Aromatics Pvt. Ltd. has not paid

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 17 - any taxes on the liability ceased u/s. 41(1) due to heavy losses. Thus, the transaction of advancing money to Sabari Aromatics Pvt. Ltd. and claiming bad debt are part of a colourable device adopted by the appellant. Under the almost similar facts and circumstances, CIT(A)- III, Baroda vide his order dated 21.10.2013 contained in Appeal No. CAB/III-263/12-13 (A.Y. 2010-11) in the case of appellant itself has confirmed the disallowance of bad debt. The relevant portion of the order of the CIT(A)-III, Baroda is reproduced as under:-

"4.3. I have considered the facts of the case and submissions made by the AR of the appellant. The AO has stated in his order that M/s Sabari Aromatics Pvt. Ltd was a concern covered under provisions of section 40A(2)(b) of the Act. Despite this, in the audit report this fact had been not mentioned. This fact has not controverted by the appellant during the appellate proceedings. The AO has also stated that writing off of debt due from the concern as bad debt by the appellant was a colourable device to reduce the taxable income of the appellant and to evade the income tax. He has also stated that this related concern was incurring losses for several years and had never paid taxes including the A.Y 2010-11. Despite this, the appellant had been making the payments of this concern despite the fact that there, was no possibility of recovery from the said party. The appellant has not given any submission on all these facts and inferences drawn by the AO from the details submitted by the appellant. The only submission of the appellant is that once it has written off a debt as bad debt as per the provisions of section 36(1)(vii) and the judicial pronouncements in this regard/ it cannot be asked to established that debt has became bad and such claim has to be allowed by the AO. In normal circumstances, the appellant's claim are admissible but not in the present situation where the appellant has concealed the facts that the debtor is a party covered under the provisions of section 40A(2)(b)and has submitted nothing regarding conclusion of the AO that the action of the appellant is nothing but colourable device to evade taxes. The only submission made by the appellant is that for the provisions of section 36(1)(vii) r.w.s 32, no distinction had been provided between the parties covered by the provisions of section 40A(2)(b) and those who are not covered. But absence of such distinction cannot be taken to mean that the AO cannot lift the corporate veil and look into the real nature of transaction to establish that the apparent is not real and the transaction entered into by an assessee is nothing but a colourable

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 18 - device to evade taxes. Since the appellant has not been able to contradict the conclusion of the AO in this regard, hence the disallowance made by the AO is upheld. 4.3.1. The disallowance made by the AO is correct on another account also. During the course of appellate proceedings, the appellant had not submitted any details of the transactions entered into it with M/s Sabari Aromatics Pvt. Ltd. A copy of the ledger account of M/s Sabari Aromatics Pvt. Ltd., submitted by the appellant before the AO was obtained by this office, A perusal of the ledger accounts shows that during the F.Y 2009-10, the opening debit balance in the accounts of this party was Rs.2,37,78,443/-. During the F.Y 2009-10 there were several transactions in the nature of sales made by the appellant to this party, purchase made by the appellant from this party, and also the payments made by the appellant to this party by taking overdraft from its Bank of Baroda cash credit account. The closing debit balance as on 31/03/2010 was Rs.2,34,09,499/- out of which an amount of Rs.40,68,421/- was written off as bad debt for the current year in the books of accounts of the appellant. The analysis of this ledger account shows that despite the opening debit balance of Rs.2,37,78,443/-, the appellant has further made opening debit balance of Rs.2,37,78,443/-, the appellant has further made payments of Rs.68,74,178/- to the sister concern. Besides, the appellant has also made sales to this concern during this year. Thus, the increase in debit balance during this year is on account of both these activities. Besides during the F.Y 2008-09, the opening debit balance was Rs.2,35,78,443.96 and closing debit balance as on 31/03/2009 was Rs.2,37,78,443.96. These opening and closing balances are tabulated as follows:

FY 2008-09 FY 2009-10

Opening debit Rs,2,35,78,443.96 Rs.2,37,78,443.96 balance Closing debit Rs.2,37,78,443.96 Rs.2,34,09,499.00 balance (including bad debt written off Rs.40,68,421/-.

4.3.2. Thus, the closing balance as on 31/03/2010 was almost entirely out of the opening balance as on 01/04/2008. No ledger account of a

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 19 - date prior to 01/04/2008 has been submitted before the AO also and hence, the nature of transactions made prior to this date are not known. The AO has also stated in his order that the nature of transactions for which the amount was bad was not submitted such as details of transactions, date of transactions, and since how long it is outstanding. Thus/ before the AO, the appellant had not established that its claim of writing off of bad debt is as per the provisions of section 36(2) of the IT Act, 1961. Hence, vide notice of this office dated 31/07/2013, the appellant was categorically asked to explain, on the basis of its books of accounts and supporting evidences, as to how the bad debt written off by it satisfied the provisions of sub section 2 of section 36 of the IT Act, 1961, The hearing for the purpose was fixed on 12/08/2013, but on that day neither any person appeared on behalf of the appellant nor any written submission was made. A further hearing was fixed on 05/09/2013 vide notice dated 29/08/2013. Again, no compliance was made. Another hearing was fixed on 18/09/2013 vide notice dated 10/09/2013. On that day a letter was submitted requesting for adjournment of the proceedings. Accordingly, the hearing was adjourned to 07/10/2013. But, again, on that day no compliance was made on behalf of the appellant. Thus, despite being accorded several opportunities of being heard, the appellant has failed to establish, or file any explanation to the query raised by this office as to how the bad debt written off by it satisfies the provisions of sub section 2 of section 36 of the IT Act, 1961. Under such circumstances, the disallowances made by the AO is upheld on this account also by holding that the appellant has not fulfilled the conditions laid down by the provisions of section 36(2) while claiming deduction on account of writing off of bad debt."

4.3.2. In view of the above facts and circumstances of the case, thus I hold that the transactions with the sister concern regarding giving advances and then claiming bad debt, are sham transactions. Moreover, conditions of section 36(2) are not satisfied. Thus the disallowance made by the Assessing Officer at Rs.49,70,206/- is confirmed. Accordingly, appellant fails in respect of Ground No, 4.”

Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 20 - 18. The ld. AR before us submitted that the disallowance was made by the AO and confirmed by the ld. CIT(A) after having reliance in the own case of the assessee pertaining to the A.Y. 2010-11. However, the Hon’ble ITAT, Ahmedabad has deleted the addition made by the AO in ITA No. 24/Ahd/2014 vide order dated 12.04.2017. Accordingly, the ld. AO for the assessee prayed to allow the claim made by the assessee.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 21 - 9. Since, the assessee has actually written off the debt in its books of accounts, drawing support from the ratio laid down by the Hon'ble Supreme Court, we direct the A.O. to delete the disallowance of Rs. 40,68,421/-. 10. Appeal filed by the assessee is allowed.”

Respectfully following the same, we have no hesitation in reversing the orders of authorities below. Accordingly, we direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

However, the AO observed that the exhibition would take place in the F.Y. 2012-13 relevant to A.Y. 2013-14. Therefore, the payment made for participation in the exhibition represents the advance payment which cannot be allowed in the year under consideration. Therefore the same was disallowed and added to the total income of the assessee.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

23.1 Without prejudice to the above the assessee alternatively submitted that the expenses are eligible u/s 37 of the Act in the year under consideration. The assessee also submitted that the genuineness of the expenses had not been doubted. However, the ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under: “4.4. Ground No. 5 pertains to disallowance of exhibition expenses of Rs.1,64,010/-. It is noticed that the appellant company has paid advance of Rs.1,64,010/- in respect of contract for exhibition to be held in Corpworld at London from 6th to 8th November, 2012. Since the expenditure pertains to the subsequent year, as per the matching principle, the expenditure has not been incurred for the business of the year under consideration. Accordingly, I hold that the Assessing Officer has rightly made the disallowance of Rs.1,64,010/-. Thus, appellant fails in respect of Ground No. 5.”

Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 23 - 24. The ld. AR before us submitted that the expenses claimed by the assessee are eligible on accrual basis. The ld. AR for the assessee in support of his claim relied on the judgment of Bombay High Court in the case of CIT vs. Nagri Mills Co. Ltd. reported in 33 ITR 681.

26.1 It is an undisputed fact that the assessee has made the payment for participating in the exhibition in Cropworld at London. The exhibition will take place on 6th to 8th November, 2012 relevant to the previous year 2012-13. Thus, there is no ambiguity that the payment made by the assessee represents an advance payment. As the expense does not pertain to the year under consideration, therefore, the same cannot be allowed as deduction. It is because the assessee will earn income out of such

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 24 - exhibition in the subsequent year but the assessee is claiming the corresponding cost in the year under consideration. Therefore, there is no match between the income to be booked by the assessee and the corresponding expenditure. The principle of matching requires that the assessee should book its expenses corresponding to its income. Therefore, we are of the view that there is no infirmity in the order of authorities below.

As the genuineness of the expenses has not been doubted, therefore we are of the view that the same is eligible for deduction under section 37(1) of the Act in the subsequent year. The argument of the ld. AR for the assessee that there was no claim in the subsequent year for such expenses has not been challenged. Therefore, we direct the AO to allow the claim of the assessee in the subsequent year for such expenses as per the provisions of law. Hence, the ground of appeal of the assessee is dismissed.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 25 - disallowed u/s 40(a)(ia) of the Act and added to the total income of the assessee.

4.2.1. In view of the above facts and legal position, thus the Assessing Officer is directed to verify as to whether the appellant has been treated as assessee in default u/s. 201(1) or not and if appellant has been treated as an assessee in default u/s. 201(1), then the disallowance will stand confirmed. However, if appellant has not been treated as an assessee in default u/s, 201(1) and the deductee has included the amounts received from the appellant in his return of income and also paid the taxes thereon, then no disallowance u/s. 40(a)(ia) is called for.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

- 26 - Hence, the Assessing Officer is further directed to verify the factual position and allow consequential relief accordingly. Needless to mention, the appellant will provide all necessary documents to the Assessing Officer in this regard including certificate in Form No. 26A. Thus, appellant partly succeeds in respect of Ground No. 3.”

Being aggrieved by the order of ld. CIT(A) assessee is in appeal before us.

ITA No.1019/Ahd/2016 Sabri Chemicals Pvt.Ltd vs. ACIT A.Y. 2012-13

This Order pronounced in Open Court on 15/11/2018

sd/- Sd/- ¼e/kqferk jkW; e/kqferk jkW; e/kqferk jkW;½ e/kqferk jkW; ¼olhe vgen olhe vgen½ olhe vgen olhe vgen U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; U;kf;d lnL; Yks[kk ln Yks[kk ln Yks[kk lnL; Yks[kk ln L; L; L; (WASEEM AHMED) (MADHUMITA ROY) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 15/11/2018 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-2, Vadodara. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad. 6. गाड� फाईल / Guard file. आदेशानुसार/BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad