Commission to promoter director disallowed as business expense for lack of distinct services and independent business justification.

Commission paid to a promoter full-time director was held not allowable as business expenditure because the assessee did not show any extraordinary effort beyond the director's normal duties. The payment was linked to turnover, but the director was already remunerated for the same functional role in marketing and business development, and no distinct service or independent business justification supported a separate commission. Board and shareholder approval did not cure the defect where the expenditure was found excessive and unsupported by a direct nexus to business necessity, so the disallowance was restored in favour of the Revenue.

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Issues: Whether the commission expenditure of Rs. 2 crore paid to the promoter full-time director was allowable as business expenditure.

Analysis: The assessee failed to establish that the commission payment was for any extraordinary effort beyond the director's normal duties as promoter and full-time working director. The payment was linked to turnover, but the director was already receiving remuneration for the same functional role in marketing and business development. No direct nexus was shown between the alleged incentive and any distinct service justifying a separate commission. The approval by the board and shareholders did not by itself establish allowability when the expenditure was found to be excessive and lacking independent business justification.

Conclusion: The deletion of the disallowance was unsustainable and the addition was rightly restored in favour of the Revenue.

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