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3. The ld CIT DR supported the assessment order and submitted that a plain reading of section 37(1) of the Act shows that to be an allowable expenditure under this provision, the amount of expenditure incurred by the assessee must be (a) paid out of wholly and exclusively for the purpose of business or profession of assessee, (b) must not be capital expenditure, or Page | 1 Amway India Enterprises Pvt. Ltd personal expenses or an allowance of the character described in section 32 to 36 of the Act.

5. Replying to the above, ld counsel of the assessee submitted that the assessee is a company is working through its distributors and the chain of distributors is sole source of the assessee to reach its customers. The ld Page | 2 Amway India Enterprises Pvt. Ltd counsel submitted that there was service tax liability created on the distributors due to application of new GST Rules and distributors were facing great hardship in making payment of service tax out of the commission income earned by them. The ld counsel submitted that keeping in view the hardship of the distributors the assessee company decided to support their distributors by way of payment of services tax and the amount paid to them was shown as debit balance in their respective account with an expectation that within same time this amount would be settled. The ld counsel submitted that specifically it was observed by the assessee company that the distributors/ ABOs are not able to return the amount debited to their respective accounts, therefore, the same was treated as bad debts and claim granted in the profit and loss account of the assessee. Ld counsel submitted that in the present case the appellant has made the payment of service tax to the ABOs 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 if assessee and not claimed as an expenditure on account of service tax in the year of payment. The ld counsel submitted that the Hon'ble Supreme Court in the case of State of Madras Vs. GJ Coelho (supra) as noted by the AO in para 3 and 4 of the assessment order, it was held that the expenditure made under the transaction which is so closely related to the business of the assessee that it can be viewed as integral part of conduct of the business, may be regarded as revenue expenditure laid out wholly and exclusively for the purpose of the business.

6. The ld counsel submitted that there is no denial of the fact that the payment was made to the distributors for reimbursement of service tax liability borne by them and it has been exclusively demonstrated by the assessee that the payment was made only to those ABOs who had actually paid the service tax. Ld counsel submitted that in view of the foregoing factual position and compulsion of the assessee the appellant has made payment to its distributors to sustain their survival and existence the amount paid by the appellant, which was subsequently written off as bad Page | 3 Amway India Enterprises Pvt. Ltd debits is closely related to the business activity of the assessee and thus it was incurred wholly and exclusively for the purpose of the business of the assessee and the same was not capital or personal expenditure, therefore, the ld CIT(A) was right in allowing the claim of the assessee considering the entire facts and circumstances and commercial expediency of business of the assessee. The ld counsel lastly submitted that the findings arrived by the ld CIT(A) are quite correct and sustainable therefore, impugned first appellate order may kindly be upheld dismissing the ground of revenue.

7. On careful consideration of the above submission, first of all we find it necessary and appropriate to reproduce the relevant operative part of the first appellate order which reads as under:-

"5.3 I have gone through the facts of the case and the submission made by the AR. It has been contended that the appellant is selling the goods directly to customers through independent distributors who are known as Amway Business Owners (ABOs). The ABOs are entitled to commission as per their entitlement. Earlier no Service Tax was being charged and paid by the ABOs but later on, the ABOS started receiving quarries from the Service Tax Department on the ground that they are taxable under the category of Business Auxiliary Services. However, the issue of liability of the Service Tax was not clear. Since the Service Tax Department was asking the ABOS to pay the Service Tax, the ABOS asked the appellant company for help as the ultimate liability of Service Tax is to be borne by the person who avails the services. It is further submitted that the appellant, in view of the above facts, decided to lend certain amount to the ABOS for the amount to be paid as Service Tax by them till the issue of taxation with the Department get settled. The said amount was not claimed in the P&L account as an expense at that time as the issue of applicability of Service Tax was not final and therefore, the appellant company had shown these amounts as loans to the ABOS in its balance sheet. The AR has submitted that the CBEC finally clarified on 03.06.2009 that the services provided by the ABOS was taxable. In view of this, the ABOS requested the appellant to waive off the refundable loan because they had already paid the said amount to the Service Tax Department. After considering all the factors, the appellant decided to write off the amounts paid to the ABOS for meeting the Service Tax liability ull December 2011. As already discussed, the AO has disallowed this amount written off and has made the addition by holding that this sum was not wholly & exclusively incurred for the purposes of the business and also the same is in the nature of capital expenditure.