2011 (4) TMI 1548

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....s. 14,89,617/- paid to M/s Lamp Cap (India) Private Limited. The facts, in brief, are that the assessee company is engaged in the business of laboratories testing and manufacturing of pharmaceutical drugs. During the year, under consideration, it incurred expenditure on payment of commission of Rs. 14,89,617/- to M/s Lamp Cap (India) Private Limited for facilitating contract manufacturing order from M/s Intas Pharmaceuticals Limited, Ahmedabad. The contract amount was Rs. 2,42,21,413/-. On this amount the commission @ 6.15% was worked out at Rs. 14,89,617/-. However, the Assessing Officer disallowed the claim of commission expenditure by stating that the said payment was not supported by a legally binding contract. It was observed by the As....

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....is not an associate concern of the assessee as per the list of directors of these companies placed in the paper book. We have also found that similar commission paid by the associate concern M/s Promed Laboratories Private Limited to the said M/s Lamp Cap (India) Private Limited amounting to Rs. 14,97,886/- paid for contract manufacturing with Ranbaxy Laboratories was also disallowed by the Assessing Officer. However, on further appeal, the learned Commissioner of Income-tax (Appeals) has allowed the same for the assessment year 2004-05 vide his order dated 15.1.2008. We find that the commission has been paid by the assessee concern for rendering necessary services which resulted into increase in turnover of the assessee company from Rs. 1.....

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....s was possible through the effective services rendered by the agent. It was found by the Tribunal that the assessee could not achieve such business results without the services of agent. Thus, the payment of business development expenses was fully justified and the same was held to be allowable business expenditure. Hon'ble Rajasthan High Court in the case of Laxmi Engg. Indutries; 298 ITR 203 held that for allowing payment of commission, there is no need of any written agreement. It was found that since the assessee and recipient company were not sister concerns and the recipient was assessed regarding the amount of commission received, it was held that there was no justification for disallowing the claim of commission. Following decisions....