2026 (1) TMI 941 - AT - Income Tax

Commission payments to dealers treated as bona fide business expenses after commercial-realities proof; disallowance deleted; decision for assessee

Dominant issue: whether commission payments claimed as business expenditure were disallowable for lack of proof of nature and purpose. The ITAT applied ... Disallowance of commission expenses - assessee non furnishing the nature being purpose of expenses - as per AO assessee failed to prove with documentary evidences that the expenses claimed were related to its business and the parties have actually provided/rendered some services to the assessee for which the payment was made. HELD THAT:- As dealers are rendering after sales services and keep watch on credit worthiness of ultimate customers. Further storage is also matter of concern and governed by statutory restrictions, hence Dealers also keep storage in their premises/depot to meet urgent requirement of customers. Looking to all the above dynamics of the Chlor-Alkali business, the assessee has availed the services of the dealers which is beneficial to it by safeguarding payment, long term customer relationship by way of taking care of after sale services. Thus when every details have been furnished by the assessee, before the assessing officer without making any verification or cross checking of the dealers when the commission payments made through TDS and banking channel. Thus the assessing officer is not justified in making the addition. No infirmity in the order passed by the Addl. CIT(A) deleting the addition made by the AO. Decided against revenue. Issues: Whether the deletion of the Assessing Officer's disallowance of sales commission expenses of Rs. 1,88,37,071/- is sustainable where the assessee furnished party-wise breakup, vendor ledgers, and TDS/banking evidence during assessment proceedings.Analysis: The appeal concerns admissibility of commission payments claimed as business expenditure. The assessee furnished party-wise details including name, address, PAN, amounts paid, and TDS particulars, together with vendor ledgers and party-wise sales records during assessment proceedings. The assessing authority disallowed the commission without conducting independent verification or cross-checks of the furnished material. The industry practice and commercial context of the goods (dealer-oriented distribution, storage, transportation and after-sales services) was relied upon to explain the nature and business purpose of the payments. Documentary evidence included payments routed through banking channels and TDS deductions which linked the payments to identifiable payees and transactions. The appellate authority examined these materials and found the disallowance to be made without due verification and opportunity; on that basis the addition was deleted.Conclusion: Deletion of the disallowance of sales commission expenses is sustained. The evidence furnished (party-wise breakup, ledgers, TDS and banking entries, and commercial context) sufficed to establish business purpose and payment traceability and the Assessing Officer's disallowance is not justified.