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2023 (9) TMI 161 - HC - Income TaxCommission payment claimed as deduction - deductible business expenditure or not? - No evidence to show that services have been rendered - test of commercial expediency - AO allowed only 1/3rd as deductible expenditure and disallowed balance 2/3rd on the ground that the entire payment cannot be considered as laid out wholly and exclusively for the purpose of the business because neither the Appellant Assessee nor the recipients of commission could show that orders were procured with their assistance HELD THAT:- Merely because the contracts awarded to the Appellant is by Government/ Public Corporations that does not mean that the Appellant-Assessee cannot obtain services of the commission agents to assist them in the tendering process and for follow up action for recovery of the money, as for the Appellant it is fully a commercial activity and engaging expert/specialised services is under a written contract is entered between the commission agents and the Appellant. It is not the case of the Revenue that there is any legal prohibition for the Appellant- Assessee to avail services of such commission agents. It is also not the case of the Revenue that these commission agents within the meaning of the Act are entities/persons related to the Appellant-Assessee and/or they are government employees. Therefore, in our view, it is the business prerogative of the Appellant-Assessee as to whose services they should engage in the course of its business and on what terms and conditions. Most significantly, the fact that the AO and the Tribunal have allowed part of the commission payment for the purpose of business also indicates that the Revenue has accepted the services rendered by and this part of expenditure in that regard was held to be allowable. There cannot be a contradictory course of action as the Revenue needs to be consistent. It is for the AO to decide, whether, any commission paid by the Appellant-Assessee to his agents are wholly or exclusively for the purpose of his business and the mere fact that the Appellant-Assessee establishes the existence of an agreement between him and his agent and the fact of actual payment, the discretion of an officer to consider, whether such expenditure was made exclusively for the purpose of the business is not taken away. The expenditure incurred must be for commercial expediency. However, in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively laid out for the purpose of the business, reasonableness of the expenditure has to be adjudged from the businessman's point of view and not from the Revenue’s perspective. AO and the Tribunal were not justified in disallowing part of the commission payment - Decided in favour of assessee.
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