Commission expenditure allowed where banking evidence, TDS, and confirmations showed genuineness despite the revenue questioning the rate

Commission expenditure supported by recipient PAN details, banking-channel payments, TDS deduction and payee confirmations was held to be allowable as business expenditure, as genuine payment could not be denied merely because the rate appeared high. The revenue could not replace the assessee's commercial judgment on commission fixed to secure sales and liquidate old inventory, especially when there was no material showing flow back or non-genuine payment. The disallowance was therefore not sustainable in full, with only a lump sum addition retained and the balance deleted in favour of the assessee.

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Issues: Whether the disallowance of commission expenditure claimed by the assessee was sustainable under section 37(1) of the Income-tax Act, 1961.

Analysis: The assessee furnished the particulars of the commission recipients, including PAN details, and showed that the payments were made through banking channels after deduction of tax at source. Most of the payees confirmed receipt of commission on enquiry. The expenditure was incurred to liquidate old inventory in real estate projects and to reduce further holding and maintenance costs. The mere fact that the rate of commission was high did not, by itself, establish that the expenditure was bogus or not laid out for business purposes. The revenue could not substitute its own view for the commercial decision of the assessee in fixing commission for securing sales, and there was no material to show any flow back or non-genuine payment.

Conclusion: The disallowance was not sustainable in full. A lump sum disallowance of Rs. 5 lakhs was upheld and the balance commission addition was deleted, in favour of the assessee.

Ratio Decidendi: Where commission expenditure is supported by recipient details, banking evidence, TDS deduction, and confirmations, its allowability under section 37(1) cannot be denied merely because the revenue considers the rate excessive, absent evidence that the payment is not genuine.

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