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2022 (5) TMI 1104 - HC - Income TaxDisallowing commission expenses u/s 37 - commercial expediency - commission paid were either Directors of the Company or their relatives - allowable business expenditure or not? - HELD THAT:- At the outset, it requires to be noticed that the supply of IOF was not the line of business of the Appellant. It was no doubt required to make the supply, pursuant to an export order, in a short span of time. Nevertheless, claiming that each of the seven persons to whom commission was paid actually had the expertise to help the Appellant procuring the IOF from different sources appears to be stretching things a bit too far. It is not a sheer coincidence that three of the seven persons to whom commission was paid happened to be Directors of the Appellant and the remaining four were relatives of such Directors. Particularly, with the Appellant not being able to demonstrate their special expertise in procuring IOF from the markets in India, the AO appears to be justified in disallowing the commission insofar as it was paid to the said seven persons. The AO has been objective on the issue As all the persons to whom commission was paid were either Directors of the Company or their relatives. None of them is shown to have any expertise in procuring IOF from the Indian markets for enabling the Appellant to meet the purchase order placed on it for IOF. The amounts paid as commission were also not insubstantial. In the facts of the case, it cannot be said that the AO’s decision to disallow part of the payment towards commission was unreasonably arrived at. The test of commercial expediency was indeed applied. Even from the point of view of a businessman, it does appear to this Court that the commission amount which was disallowed by the AO cannot be said to be for the purpose of business of the Appellant. Consequently, the question framed by this Court is answered in the affirmative i.e. in favour of the Department and against the Assessee.
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