There cannot be Contradictory Course of Action as Revenue needs to be Consistent: Bombay HC rules Commission Payments Allowable as Business Expenditure [Read Order]

The Bombay High Court ruled that commission payments are allowable as business expenditure and commented that “There cannot be contradictory course of action as Revenue needs to be consistent”.

The Appellant, The Indian Hume Pipe Co. Ltd, is a limited company listed on the stock exchange and is engaged mainly in the business of manufacturing and sale of R.C.C. Pipes, Steel Pipes etc. which are required for water supply and drainage system.

The Assessing Officer disallowed a sum of Rs. 22,89,941/- on account of commission payment claimed as deduction by the assessee. The Assessing Officer allowed only 1/3rd as deductible expenditure and disallowed balance 2/3rd on the ground that the entire payment cannot be considered as laid out wholly and exclusively for the purpose of the business because neither the assessee nor the recipients of commission could show that orders were procured with their assistance. Therefore, the role of commission agent is only in respect of follow up enquiries and therefore, only 1/3rd was considered as deductible expenditure.

The assessee contended that the commission agents are not related to the appellant and further they have also produced the commission agreements with these agents in course of the assessment proceedings. The payments have been made through banking channel and there is no allegation that payments made to the commission agent has come back to the Appellant. The Appellant further submitted that nature of services is such that there would not be any documentary evidence in support thereof.

The Respondent contended that these are findings of facts recorded by the lower authority and the same could not be interfered with by this Court under Section 260A of the Income Tax Act. The Respondent further submitted that the findings of the Tribunal are based on appreciation of evidence and therefore there does not arise any question of law much less substantial question of law.

A Division Bench comprising Justices Jitendra Jain and GS Kulkarni observed that “It is the business prerogative of the Appellant-Assessee as to whose services they should engage in the course of its business and on what terms and conditions. Most significantly, the fact that the Assessing Officer and the Tribunal have allowed part of the commission payment for the purpose of business also indicates that the Revenue has accepted the services rendered by and this part of expenditure in that regard was held to be allowable. There cannot be a contradictory course of action as the Revenue needs to be consistent.”

“We are of the view that the Assessing Officer and the Tribunal were not justified in disallowing part of the commission payment for the assessment years 1986-87, 1987-88 and 1988-89. In view thereof, the appeal of the Assessee is allowed by answering the question of law in favour of the Assessee and against the Revenue” the Bench concluded.

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