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Facts
The assessee, a partnership firm engaged in the distribution of medical equipment, filed its return of income for AY 2017-18. The Assessing Officer disallowed a commission payment of Rs. 44,76,750/-, observing that the expenses were booked on the last day of the accounting year and the assessee failed to substantiate the expenditure. The CIT(A) upheld the disallowance.
Held
The Tribunal noted that no evidence was provided by the assessee to prove that the commission payment was incurred wholly and exclusively for business purposes. Even if accepted as payment for procurement of orders, it was considered against public policy under Explanation (2) to section 37 of the Act.
Key Issues
Whether the disallowance of commission payment of Rs. 44,76,750/- for failure to substantiate the business purpose and its compliance with public policy is justified.
Sections Cited
143(3), 37
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI SONJOY SARMA, JM
IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH BEFORE SHRI INTURI RAMA RAO, AM AND SHRI SONJOY SARMA, JM ITA No. 229/Coch/2025 Assessment Year: 2017-18 Pharmacon .......... Appellant 35/2977, B 5, First Floor, Shopping Complex Pallinada, Palarivattom, Kochi 682025 [PAN: AALFP0115C] vs. DCIT, Non Corporate Circle 1(1), Kochi .......... Respondent Assessee by: ------- None ------- Revenue by: Smt. Leena Lal, Sr. D.R. Date of Hearing: 05.06.2025 Date of Pronouncement: 05.08.2025
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the National Faceless Appeal Centre, Delhi [CIT(A)] dated 23.01.2025 for Assessment Year (AY) 2017-18.
Brief facts of the case are that the appellant is partnership firm engaged in the business of distribution of medical equipments specializing in stents and balloons used in cardiology. The return of income for AY 2017-18 was filed on 19.03.2018 admitting income of Rs. 99,12,240/-. Against the said return of income, the assessment
2 ITA No. 229/Coch/2025 Pharmacon was completed by the ACIT, Non Corp Circle 1(1), Kochi (hereinafter called "the AO") vide order dated 30.12.2019 passed u/s. 143(3) of the Income Tax Act, 1961 (the Act) at a total income of Rs. 1,43,88,990/-. While doing so, the AO disallowed the claim for deduction of commission payment of Rs. 44,76,750/- by observing that the commission expenses were booked on the last day of the accounting year, i.e. 31.03.2017 and the assessee had failed to substantiate the said expenditure.
Being aggrieved, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
When the appeal was called on nobody appeared on behalf of the assessee despite due service of notice of hearing. Therefore, we proceeded to dispose of the appeal after hearing the learned Sr. DR. However, the appellant had filed written submission stating that the commission payment was made to various individuals, institutions and hospitals and tax was deducted at source. Therefore, no disallowance is required to be made.
On the other hand, the learned Sr. DR, placing reliance on the orders of the learned lower authorities submits that since the appellant had failed to substantiate the claim for deduction, the
3 ITA No. 229/Coch/2025 Pharmacon CIT(A) had rightly confirmed the disallowance of commission expenditure. Therefore, no interference is called for.
We have heard the rival contentions and perused the material available on record. The issue in the present appeal relates to allowability of commission payment of Rs. 44,76,750/-. The AO disallowed the same for the failure of the appellant to substantiate that the commission payment was made wholly and exclusively for business purposes. Even before the CIT(A), no evidence was filed by the appellant to prove that the commission payment was incurred wholly and exclusively for business purposes. Even if, the contention that commission payment was made for procurement of orders is accepted, the same is hit by Explanation (2) to provisions of section 37 of the Act, which is against public policy. The ratio of the decision of the Hon'ble Supreme Court in the case IPCA Laboratories is squarely applicable to the fact of the present case.
In the result, the appeal filed by the assessee stands dismissed.
Order pronounced in the open court on 5th August, 2025.
Sd/- Sd/- (SONJOY SARMA) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER Cochin, Dated: 5th August, 2025 n.p.
4 ITA No. 229/Coch/2025 Pharmacon Copy to:
The Appellant 2. The Respondent 3. The Pr. CIT concerned 4. The Sr. DR, ITAT, Cochin 5. Guard File By Order
Assistant Registrar ITAT, Cochin