Commissions paid by Pharmaceutical Companies to Agents are Eligible for Deduction: ITAT Ahmedabad [Read Order]


In M/s. Stallion Laboratories Pvt. Ltd. v. ITO Ahmedabad, the ITAT Ahmedabad bench held that the commission paid to agents by a pharmaceutical company is eligible for deduction under the Income Tax Act, 1961. Earlier, the claim of the company was rejected by the AO on ground that there was no proof of the payees services rendered to the assessee though the assessee had produced all the relevant details along with confirmations, PAN particulars, TDS deductions, commission/liasoning agreements etc. however, the first appellate authority modified the order of assessment by allowing 3% deduction towards the claim.

Dismissing the appeal filed by the Revenue, the bench accepted the assessee’s contention that that commission expenses are a routine practice in pharmaceutical business in order to boost the sales. It was observed that “Coming to the CIT(A)’s observation terming the assessee’s commission payments to be excessive, we notice that there is no comparative tabulation with market rate of such payments; if any before arriving at the said conclusion. We accordingly observe that the ld. CIT(A) has erred in directing the Assessing Officer to restrict assessee’s commission payments @3% after observing that the said authority had not been careful before disallowing the impugned payments wherein the assessee has placed on record all possible details in order to discharge its onus on the one hand whereas the commission payments have been held to be excessive without any such comparison on the other. We thus accept assessee’s arguments supporting its sole substantive ground and to direct the Assessing Officer to allow its entire claim of commission payments amounting to Rs.67,77,001/-.”

Read the full text of the order below.