Secret commission deduction fails where payments are unproved, untraceable, and treated as prohibited inducements under tax law.

Secret commission was held not deductible as business expenditure because the assessee failed to prove actual payment, trade practice, or a clear business nexus with satisfactory evidence. Cash vouchers prepared by a partner, without names, addresses, or details linking payments to specific orders or sales, were found insufficient, and earlier ad hoc acceptance in other years did not bind the present year. On the facts, the payments were treated as clandestine inducements to employees of customer concerns and as expenditure hit by the Explanation to section 37(1) for being opposed to law and public policy, so the disallowance was upheld.

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Issues: Whether secret commission claimed as business expenditure was allowable under section 37(1) of the Income-tax Act, 1961, and whether such expenditure was hit by the Explanation to that section as being for a purpose that was an offence or prohibited by law.

Analysis: The claim was supported only by cash vouchers prepared by a partner, without names or addresses of recipients and without particulars linking the payments to specific orders or sales. The assessee failed to prove a prevailing trade practice in its line of business or produce satisfactory evidence of actual payment. Past accepted disallowances on an ad hoc basis did not establish a binding pattern, since each assessment year is separate and earlier scrutiny had not tested genuineness on evidence. The payments were found to be clandestine inducements to employees of customer concerns and, on the facts, amounted to a type of expenditure falling within the mischief of the Explanation to section 37(1) because it involved conduct opposed to law and public policy.

Conclusion: The secret commission was not allowable as business expenditure under section 37(1) of the Income-tax Act, 1961, and the disallowance sustained by the appellate authority was upheld.

Ratio Decidendi: Secret commission is deductible only when the assessee proves the trade practice, the actual payments, and the business nexus by satisfactory evidence; where the payments are unsupported, untraceable, and amount to clandestine inducements prohibited by law, section 37(1) and its Explanation bar deduction.

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