Website commission expense allowed only partly where business nexus under section 37 was not fully proved.
ITAT Delhi held that website commission claimed as business expenditure was not fully deductible under section 37 because the assessee did not produce a written agreement, any enquiry or sale generated through the website, or proof of a direct nexus with business purpose. The claim was therefore not shown to have been incurred wholly and exclusively for business, and the full amount was considered unreasonable on the facts. However, the expenditure was not disallowed in toto because the website advertisement could still have yielded some business benefit. Deduction was allowed on a reasonable estimate, with partial relief granted and the balance disallowed.
Issues: Whether the amount claimed as commission paid to a website concern was allowable as business expenditure under section 37 of the Income-tax Act, 1961, and if not, to what extent deduction could be allowed.
Analysis: The expenditure was claimed as commission at 3% of sales for website advertisement of the assessee's products. No written agreement was produced, no query or sale was shown to have resulted from the website, and the assessee failed to establish a direct nexus between the payment and the business purpose. The claim was not supported as wholly and exclusively incurred for business, and the full amount appeared unreasonable in the facts. At the same time, the business could not be said to have derived no benefit at all from the advertisement, and the expenditure was not disallowed in toto.
Conclusion: The entire disallowance was not sustained. Deduction was allowed to the extent of Rs. 1,00,000 and the balance of the claim remained disallowed.
Final Conclusion: The assessee obtained partial relief on its claim for deduction of the website-related expenditure.
Ratio Decidendi: An expenditure is deductible under section 37 only when it is shown to be incurred wholly and exclusively for business with a genuine nexus to the business purpose; where that nexus is not fully established, partial allowance may be granted on a reasonable estimate.
TaxTMI 
AI Drafter ✕
TaxTMI 
