TaxTMI 
TaxTMI 
2026 (9) TMI 777
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....der passed by Ld. Income Tax Officer, ward 1(2), Thane (in short, "Ld. AO"), under section 143(3) of the Act dated 25.12.2018. 2. The assessee is a company engaged in the business of trading in health cards, magnetic bracelets and gas safety products. Under its business model, membership is given to purchasers and commission is paid to members on referrals at different levels. The assessee filed its return of income on 16.10.2016 declaring total income of Rs. 4,41,770/-. The case was selected for limited scrutiny under CASS, inter alia, on account of large commission expenditure and low net profit. During the relevant year, the assessee debited commission expenditure of Rs. 68,83,823/-. During the assessment proceedings, the assessee fur....
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....ary evidence being available on record. The Ld. AR submitted that the assessee has filed before the Bench a paper book comprising pages 1 to 119. The Ld. AR specifically drew our attention to APB pages 07 to 21, containing the details/list of commission payments in respect of the recipients from whose commission TDS was deducted, together with their PAN particulars and Form No.26Q. It was submitted that these documents establish the identity of the recipients as well as the fact of deduction and reporting of tax at source. 4. The Ld. AR further drew our attention to APB pages 76 to 90, being the copy of the assessee's letter dated 23.07.2018 submitted before the Ld. AO, along with the details of the total commission payments. Thus, a....
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....urt in CIT v. Calcutta Agency Ltd. reported in [1951] 19 ITR 191 (SC) that the burden to establish the admissibility of expenditure is upon the assessee. Accordingly, the Ld. DR prayed that the order of the Ld. CIT(A) be sustained. 7. We have heard the rival submissions and perused the material available on record, including the paper book filed by the assessee. The limited issue before us is whether the 30% ad hoc disallowance out of the commission expenditure of Rs. 68,83,823/- can be sustained on the facts of the present case. It is undisputed that commission expenditure is an integral component of the assessee's referral-based business model. The assessment order itself records that the assessee furnished a list of commission rec....
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....n expenditure. 10. Significantly, the basis adopted for such estimation was that commission in the multi-marketing sector would "normally" be between 20% and 25%, whereas the assessee had incurred commission at 35.42% of turnover. No comparable case, market data, industry material or other cogent basis for adopting the benchmark of 20% to 25% has been referred to in the assessment order. The assessment order merely treats 30% of the expenditure as unreasonable and thereby allows commission equivalent to approximately 25% of turnover. 11. We further notice that the assessee's commission-to-sales ratio was not wholly unprecedented in its own business. The assessment order records the ratio at 35.42% for A.Y. 2016-17, 29.93% for A.Y.....