Revenue's appeal dismissed: trial sales expenses allowed on consistency principle, leave encashment under section 43B follows Supreme Court precedent

ITAT Delhi dismissed Revenue's appeal on multiple grounds. Regarding trial sales expenses, ITAT held disallowance unjustified as similar claims were accepted in preceding year and invoices worth Rs. 1.72 crores were produced before AO, applying consistency principle. For leave encashment under section 43B, ITAT followed Supreme Court precedent in UOI vs. Exide Industries, allowing deduction when payment actually made regardless of accounting system. Section 14A disallowance was deleted as no exempt income was claimed. Advertisement expenses were held revenue in nature as providing no long-term benefit. Depreciation disallowance was confirmed due to insufficient evidence of plant installation and usage.

---

---

Issues Involved:
1. Disallowance of expenses related to trial sales.
2. Disallowance under section 43B.
3. Disallowance under section 14A.
4. Disallowance of advertisement expenses.
5. Disallowance of depreciation.

Summary of Judgment:

Issue 1: Disallowance of expenses related to trial sales
The Ld. AO disallowed Rs. 2,90,04,000/- for lack of documentary evidence, despite the assessee providing detailed justifications and partial invoices. The Ld. CIT(A) found the disallowance unjustified as similar claims were accepted in the previous year, and the expenses were duly recorded and audited. The Tribunal upheld the Ld. CIT(A)'s decision, emphasizing consistency and the absence of any adverse findings on the assessee's claim.

Issue 2: Disallowance under section 43B
The Ld. AO disallowed Rs. 5,56,022/- for lack of supporting evidence. The Ld. CIT(A) deleted the disallowance, noting adequate disclosure in the tax audit report and compliance with section 43B. The Tribunal agreed, highlighting that the Ld. AO should have verified departmental records and that the Ld. CIT(A)'s findings aligned with the Supreme Court's decision in UOI vs. Exide Industries Ltd.

Issue 3: Disallowance under section 14A
The Ld. AO disallowed Rs. 58,84,990/- under section 14A r.w. Rule 8D, despite the assessee claiming no exempt income. The Ld. CIT(A) deleted the disallowance, citing Delhi High Court judgments that section 14A does not apply if no exempt income is received or receivable. The Tribunal upheld this decision, dismissing the Revenue's reliance on CBDT Circular No. 5/2014 and other judgments.

Issue 4: Disallowance of advertisement expenses
The Ld. AO disallowed Rs. 53,01,600/- considering it capital expenditure providing enduring benefit. The Ld. CIT(A) deleted the disallowance, finding the expenses recurring and not providing long-term benefits. The Tribunal found no reason to deviate from the Ld. CIT(A)'s findings, rejecting the Revenue's grievance.

Issue 5: Disallowance of depreciation
The Ld. CIT(A) upheld the disallowance of Rs. 55,21,000/- for lack of evidence of installation and use of Plant and Machinery. The assessee contended that the tax audit report confirmed the installation and use. The Tribunal found no adverse comments on the assessee's contentions and allowed the Cross Objection, deciding in favor of the assessee.

Conclusion:
The appeal of the Revenue is dismissed, and the Cross Objection of the assessee is allowed.

---