In a recent ruling, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that commission paid for works obtained and works sub contracted is allowable as business expenditure under Section 37 of Income Tax Act, 1961.
The Assessing Officer (AO) found that the assessee has paid commission of Rs. 15, 79, 568/- to M/s. Ram Krishna Petro Services Pvt. Ltd. The AO sought to establish the nexus of this commission paid and services rendered by the commission agent and also to produce the copies of agreement/contract for any other document in respect of commission paid. The assessee furnished a copy of invoices raised by the commission agent and submitted that the commission was paid for obtaining micro surfacing work at Dhule Site , Maharashtra.
The CIT(A) confirmed the addition holding that the total amount of contract received by the assessee was Rs.1,17,60,000/- and out of that Rs.15,79,568/- was provided for making payment towards commission which is a substantive part of total contract but failed to specify what the services has been rendered by the aforesaid party to the assessee instead a general reply has been given that it was provided for liasoning services.
The explanation 1 of Section 37(1), of Income Tax Act, stated that any expenditure that is an offense or prohibited by law shall not be considered as sustained for business or profession, and no deduction shall be allowed for such expenditure.
Ongoing through the business of the assessee, the work obtained, the works sub-contracted, the increase in the profits, the agreements executed, The two member bench of the tribunal comprising Yogesh Kumar US (Judicial member) and Dr.B.R.R Kumar (Accountant member) held that the commission paid was allowable as business expenditure under Section 37 of the Income Tax Act, 1961. Accordingly, the appeal of the assessee on this ground was allowed.
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