Genuine commission expenditure under section 37(1) cannot be curtailed by estimate without corroborated evidence of non-business use.

Commission paid to authorised dealer firms was examined as a business expenditure claim under section 37(1). The Tribunal noted that written dealer agreements, cheque-based payments, books of account, dealer assessment records and supporting testimony showed that services such as canvassing, order booking and collection support were actually rendered. A retracted statement under section 132(4), without independent corroboration or incriminating material showing routing back of commission, was insufficient to displace the documentary evidence. The Revenue could not reduce an otherwise genuine business expense to an estimated amount in the absence of a specific disallowance provision.

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Issues: Whether commission paid by the assessee-company to the authorised dealer firms was a genuine business expenditure allowable under section 37(1) of the Income-tax Act, 1961, and whether the revenue could restrict the allowance to an estimated amount.

Analysis: The assessee had entered into written agreements with independent authorised dealers, paid commission by cheque, and produced books of account, assessment records of the dealer firms, and evidence from retail dealers and sales representatives supporting the existence of dealer services such as canvassing, booking orders and collection support. The search material did not yield any incriminating assets or direct evidence of commission being routed back to the assessee. The statement recorded from the managing director under section 132(4) was subsequently retracted and, on the facts, could not by itself displace the documentary and testimonial material establishing the genuineness of the payments. The statements recorded from retail dealers at the back of the assessee were not treated as sufficient corroboration, especially where cross-examination and later affidavits supported the assessee. The Tribunal also noted the settled principle that, once expenditure is found to have been actually incurred for business purposes, the Revenue cannot sit in the armchair of the businessman and estimate a lower allowable amount unless the case falls within a specific disallowance provision such as section 40A(2).

Conclusion: The commission payments were held to be genuine and wholly and exclusively for business purposes, and the restriction of the allowance to an estimated figure was held unsustainable. The assessee was entitled to deduction of the full commission.

Ratio Decidendi: Where commission expenditure is supported by agreements, books, payments through banking channels and corroborative evidence of services rendered, a retracted search statement without independent corroboration cannot justify disallowance or partial estimate of the expense under section 37(1); the Revenue cannot substitute its own view of quantum absent a specific statutory basis.

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