ITAT Deletes ₹1.13 Crore Business Promotion Disallowance Due to Lack of Adverse Findings

ACIT Vs Sharmanji Yarns Pvt. Ltd. (ITAT Chandigarh)

Ad Hoc Disallowance of ₹3.03 Crore General Expenses Deleted Because AO Failed to Identify Defects; ITAT Allows Business Promotion Expenses for Dealer Meet Since Expenses Were Properly Documented; Commission Expenses Allowed Because Payments Were Through Banking Channels and Supported by TDS Compliance; ITAT Rejects Revenue Appeal on Business Promotion Expenses Incurred for Sales Expansion Activities; Mere Increase in Expenses Cannot Justify Disallowance Without Evidence, Rules ITAT Chandigarh; ITAT Deletes Addition on Business Conference Expenses Because AO Made No Specific Adverse Finding; Commission Paid to Agents Held Allowable Since It Was Linked to Higher Sales Turnover.

In ACIT Vs Sharmanji Yarns Pvt. Ltd., the ITAT Chandigarh dealt with cross appeals filed by the assessee and the Revenue for Assessment Year 2022-23 concerning disallowances made by the Assessing Officer (AO) towards general expenses, business promotion expenses, and commission expenses.

At the outset, the Tribunal considered a delay of 20 days in filing the assessee’s appeal. The assessee explained that its Chartered Accountant was occupied with time-barring matters and the filing had inadvertently slipped from his attention. Referring to decisions of the Supreme Court in Collector Land Acquisition Vs. Mst. Katiji and N. Balakrishnan Vs. M. Krishnamurthy, the Tribunal observed that the expression “sufficient cause” should receive liberal interpretation to advance substantial justice. Finding no mala fide intention or deliberate delay, the Tribunal condoned the delay and proceeded to hear the matter on merits.

The principal dispute related to the disallowance of general expenses amounting to ₹3.03 crore. The AO had observed that the assessee failed to justify the nature of the expenses and their connection with business activities. He also noted that general expenses had increased substantially compared to the previous year. Based on these observations, the AO disallowed the entire amount. The CIT(A) restricted the disallowance to 20% of the amount, thereby sustaining ₹60.61 lakh and deleting ₹2.42 crore. Before the Tribunal, the assessee argued that it maintained proper audited accounts and that the AO had merely reproduced two vouchers without identifying any specific defect in the books or demonstrating that the expenses were not incurred for business purposes. The Tribunal agreed with the assessee and observed that a company with turnover exceeding ₹841 crore and declared income of more than ₹221 crore would necessarily maintain detailed records. It held that the AO had made an ad hoc disallowance without pointing out any unreliability in the accounts or any non-business expenditure. Consequently, the Tribunal deleted the entire addition of ₹3.03 crore and allowed the assessee’s appeal on this issue.

The Revenue challenged the deletion of ₹1.13 crore claimed as business promotion expenses. The AO had disallowed the expenditure after reproducing a few vouchers without recording any adverse findings. The CIT(A), however, accepted the assessee’s explanation that it had expanded its production capacity and organized a business meet for dealers, agents, and customers to promote its products and achieve higher sales targets. The expenses included venue rent, catering, decoration, entertainment, accommodation, gifts, lighting, and related arrangements for a business conference attended by around 800 guests. The assessee submitted invoices, ledger extracts, bank statements, and proof of TDS deduction. The CIT(A) noted that the payments were made through banking channels to registered vendors and that no evidence had been brought on record by the AO to establish that the expenses were personal or non-genuine. The Tribunal upheld the CIT(A)’s findings, observing that the business meet was organized for promoting business and that the AO had failed to point out any valid reason for disallowance. Accordingly, the Revenue’s ground was rejected.

The Revenue also challenged deletion of commission expenses amounting to ₹4.02 crore. The AO had disallowed the commission on the ground that the assessee had not sufficiently established the purpose or utility of the payments. The assessee explained that it operated in the textile industry where dealers, brokers, and commission agents played a significant role in achieving sales across India and abroad. It submitted that commission represented only 0.44% of total turnover of over ₹912 crore and that the increase in commission corresponded with expansion of business and higher sales. The assessee produced invoices, ledger accounts, PAN details of agents, bank payment records, and proof of TDS deduction. The CIT(A) found that all parties were identifiable, payments were made through banking channels, TDS provisions had been complied with, and the AO had not brought any adverse material on record. The Tribunal agreed with these findings and held that the AO had failed to examine the nature of services rendered or the role of agents in achieving substantial turnover. Since the commission expenditure was properly supported and commercially justifiable, the Tribunal upheld deletion of the addition.

In conclusion, the ITAT Chandigarh allowed the assessee’s appeal by deleting the remaining disallowance of general expenses and dismissed the Revenue’s appeal relating to business promotion and commission expenses. The Tribunal emphasized that ad hoc disallowances could not be sustained without adverse findings or evidence against the genuineness and business purpose of the expenditures.

FULL TEXT OF THE ORDER OF ITAT CHANDIGARH

The assessee and the Revenue are in cross appeals against the order of ld. Commissioner of Income Tax (Appeals) [in short ‘the CIT (Appeals)’] dated 20.08.2025 passed for assessment year 2022-23.

2. The Registry has pointed out that appeal filed by the assessee is time barred by 20 days. In order to explain the delay in filing the appeal, assessee has filed an application for condonation of delay and submitted that its Chartered Accountant was busy in time barring cases and filing of this appeal has been slipped from his mind. On the other hand, ld. DR submitted that assessee should be more vigilant in prosecuting its income tax litigation.

3. Sub-section 5 of Section 253 contemplates that the Tribunal may admit an appeal or permit filing of memorandum of cross- objections after expiry of relevant period, if it is satisfied that there was a sufficient cause for not presenting it within that period. This expression sufficient cause employed in the section has also been used identically in sub­section 3 of section 249 of Income Tax Act, which provides powers to the ld. Commissioner to condone the delay in filing the appeal before the Commissioner. Similarly, it has been used in section 5 of Indian Limitation Act, 1963. Whenever interpretation and construction of this expression has fallen for consideration before Hon’ble High Court as well as before the Hon’ble Supreme Court, then, Hon’ble Court were unanimous in their conclusion that this expression is to be used liberally. We may make reference to the following observations of the Hon’ble Supreme court from the decision in the case of Collector Land Acquisition Vs. Mst. Katiji & Others, 1987 AIR 1353:

1. Ordinarily a litigant does not stand to benefit by lodging an appeal late.

2. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.

3. “Every day’s delay must be explained” does not mean that a pedantic approach should be made. Why not every hour’s delay, every second’s delay? The doctrine must be applied in a rational common sense pragmatic manner.

4. When substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.

5. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk.

6. It must be grasped that judiciary is respected not on account of its power to legalize injustice on technical grounds but because it is capable of removing injustice and is expected to do so.

4. Similarly, we would like to make reference to authoritative pronouncement of Hon’ble Supreme Court in the case of N. Balakrishnan Vs. M. Krishnamurthy (1998) 7 SCC 123 dated 03.09.1998. It reads as under:

“Rule of limitation are not meant to destroy the right of parties. They are meant to see that parties do not resort to dilatory tactics, but seek their remedy promptly. The object of providing a legal remedy is to repair the damage caused by reason of legal injury. Law of limitation fixes a life-span for such legal remedy for the redress of the legal injury so suffered. Time is precious and the wasted time would never revisit. During efflux of time newer causes would sprout up necessitating newer persons to seek legal remedy by approaching the courts. So a life span must be fixed for each remedy. Unending period for launching the remedy may lead to unending uncertainty and consequential anarchy. Law of limitation is thus founded on public policy. It is enshrined in the maxim Interest reipublicae up sit finislitium (it is for the general welfare that a period be putt to litigation). Rules of limitation are not meant to destroy the right of the parties. They are meant to see that parties do not resort to dilatory tactics but seek their remedy promptly. The idea is that every legal remedy must be kept alive for a legislatively fixed period of time. A court knows that refusal to condone delay would result foreclosing a suitor from putting forth his cause. There is no presumption that delay in approaching the court is always deliberate. This Court has held that the words “sufficient cause” under Section 5 of the Limitation Act should receive a liberal construction so as to advance substantial justice vide Shakuntala Devi lain Vs. Kuntal Kumari [AIR 1969 SC 575] and State of West Bengal Vs. The Administrator, Howrah Municipality [AIR 1972 SC 749]. It must be remembered that in every case of delay there can be some lapse on the part of the litigant concerned. That alone is not enough to turn down his plea and to shut the door against him. If the explanation does not smack of mala fides or it is not put forth as part of a dilatory strategy the court must show utmost consideration to the suitor. But when there is reasonable ground to think that the delay was occasioned by the party deliberately to gain time then the court should lean against acceptance of the explanation. While condoning delay the Could should not forget the opposite party altogether. It must be borne in mind that he is a looser and he too would have incurred quiet a large litigation expenses. It would be a salutary guideline that when courts condone the delay due to laches on the part of the applicant the court shall compensate the opposite party for his loss”.

5. In the light of above, if we examine the explanation of the assessee, then it would reveal that there was no malafide intention at the end of the assessee to make its appeal time barred. The assessee has not adopted a delaying strategy to litigate with the Revenue. It was a bonafide mistake at the end of the professional. It is pertinent to note that impugned order is open for debate in the appeal of the Revenue. The assessee could challenge the issue agitated in its appeal with the help of Rule 27 of ITAT Rules or could file Cross Objections also. Thus, considering the cumulative situation, we condone the delay and proceed to decide the appeal on merit.

6. A perusal of the record would indicate that Revenue has taken four grounds of appeal whereas assessee has taken six grounds. A perusal of the grounds of appeal taken by the assessee would reveal that its grievance revolves around a single issue, namely; CIT (Appeals) has erred in restricting the disallowance out of General Expenses at 20% of the total disallowance made by the AO. In other words, the ld. AO has made an addition of Rs.3,03,05,000/- which has been restricted to Rs.60,61,000/-. Against this, Revenue is in appeal and has challenged this issue in Ground No.3. In other words, the grievance of the Revenue is that the ld.CIT (Appeals) has erred in deleting the addition of Rs.2,42,44,000/- out of total addition of Rs.3.03 Cr. Thus, Ground No. 3 of Revenue’s appeal is inter-connected with the solitary grievance of the assessee.

7. We take these grounds first.

8. The brief facts of the case are that assessee is a Private Limited company engaged in the business of manufacturing different kinds of cotton, cotton yarns, PC yarns, trading of knitted cloth and other agricultural activities. It has filed its return of income on 11.10.2022 declaring total income of Rs.2,21,31,21,840/-. Its return was processed at a little higher figure u/s 143(1) and thereafter selected for scrutiny assessment. The ld. AO has passed very brief assessment order. He has just reproduced some of the vouchers and thereafter given his conclusions. The reasons assigned by the AO for making the addition of Rs.3,03,05,000 read as under :

“The nature of general expense was clearly justified by the assessee. Also, it is pertinent to note that the assessee company has claimed travel expenses separately in the other expense column. In general expense also, the assessee has claimed expenses similar to transport. Also, the assessee has failed to explain how these general expenses are incidental to the business. Also, there has been a substantial increase of 350% in the general expense when compared to the preceding year though the purchase/sale have increased only in the range of 55-65%.

Hence, the general expense amounting to Rs. 3,03,05,000/- is disallowed and back to the income of the assessee.”

9. On appeal, ld.CIT (Appeals) restricted this disallowance to 20% of the total addition and in this way, deleted the addition of a sum of Rs.2,42,44,000/-.

10. With the assistance of ld. Representative, we have gone through the record carefully. The assessee is a company whose total turnover during the year was Rs.84,175.69 lacs. It has purchased raw material of Rs.6699.04 lacs. It has filed a return declaring income of more than Rs.221 Cr. Its accounts are audited. It has been maintaining meticulous details, otherwise a company of this magnitude cannot be run which can resulted taxable income of this magnitude. The AO has made the addition by just reproducing two vouchers on page 9 of the impugned assessment order and thereafter drawing his conclusion in five lines. He has nowhere pointed out as to why accounts are not reliable, which expenditure has not been incurred by the assessee for the purpose of business. He cannot generalize the things in such a manner of a company of this magnitude. Therefore, adhoc disallowances of this nature cannot be made. We allow the ground of appeal raised by the assessee and delete the addition sustained by the ld.CIT (Appeals). In other words, total addition made by the AO of Rs.3,03,05,000/- stands deleted. Accordingly, ground of appeal No. 3 of the Revenue’s appeal is rejected.

11. In the result, appeal of the assessee is allowed.

12. Now we take remaining grounds of appeal raised by the Revenue.

13. In the first ground of appeal, Revenue has pleaded that ld.CIT (Appeals) has erred in deleting the addition of Rs.1,13,19,000/- which was claimed by the assessee towards business promotion expenses and AO has disallowed this claim of the assessee.

14. With the assistance of ld. Representative, we have gone through the record carefully. The AO has again made the addition without recording any finding. He has just reproduced three vouchers and then disallowed the total expenses claimed under the head ‘Business Promotion’.

15. Dissatisfied with the addition, assessee carried the matter in appeal before the CIT (Appeals). It has brought to the notice of ld.CIT (Appeals) about the nature of expenses which has been appreciated by the ld. First Appellate Authority and finding of the CIT (Appeals) reads as under :

“7. Ground No. 2 is against disallowance of business promotion expenses amounting to Rs. 1,13,19,000/-. Upon considering the facts of the case, the findings given by the assessing officer, the submissions put forth by the appellant, and the evidences submitted in the course of appellate proceedings to substantiate its claim that since appellant company had made expansion of its production unit, it had organised business meet for its dealers, agents and customers with an intention of promoting its business and marketing the new product range so as to attract more customers and dealers and achieve its sales target.

7.1 It is pertinent to consider the submissions dated 22/07/2025 and 12/08/2025 made by the appellant. The relevant portion of the submissions dated 22/07/2025 reads as under:

The detailed explanation of the entire Business Promotion expenditure incurred by the appellant during the year under consideration is as follows:

The Appellant expanded its business during the year under consideration. Additional unit for production was constmcted & put to use at that time. Hence in order to attract more customers or dealers, the appellant conducted a Business/Dealers/Customers Meet in order to promote its business or market the new product range All the arrangements including food, decoration, gifts & entertainment were made. The bill wise explanation of the Ledger Account of Business Promotion expenditure is as follows:

7.2 Further the relevant portion of the submissions dated 12/08/2025 reads as under;

“As regards disallowance of business promotion expenses amounting to Rs. 1,13,19,000/- made by the Ld. assessing officer though we have filed detailed submissions alongwith documentary evidences to prove the genuineness of the expenses incurred, we may once again re-iterate that appellant company had organized a business meet (sales conference) wherein had invited the business associates not only across India, but even from other countries to whom appellant company exports the goods.

From the submissions filed on 02/12/2024 and 26/0572025, your honours will please see that we have submitted ledger extracts of sales promotion expenses as appearing in our books of accounts, wherein have given billwise details of the expenses incurred for having organized the business meet on 07/12/2021 at venue named “Bath Castle” at Ludhiana, wherein almost BOO guests had attended the meeting, in the course of which all the necessary arrangements for their stay, travel, food, entertainment and token of momento (gifts) were made.

It is needless to say that appellant being in the manufacturing industry needs to focus upon the sales, because until and unless it achieves desired sales targets may not be able to run the manufacturing unit and your honours would appreciate that the appellant company have not only expanded its manufacturing capacity but have even achieved much higher sales target by more than 50% in comparison to immediate earlier year (i.e have achieved sales turnover of Rs. 9.12,36,85,721/, – as against the total sales of Rs. 5,96,79,89,733/- in immediately earlier year).

Without prejudice to above we may further invite your honours kind attention to the fact that from the very copies of bills submitted before your honours it can clearly be seen that all the expenses are related to business meet (sales conference) organized on 07/12/2021. Sir/Madam, from the very items mentioned on the bills it gets clearly proved that the same relate to the business meet organized on 07/12/2021.

Though the copies of the bills have already been submitted before your honours, we are now once again submitting the copy of invoices duly supported by ledger extract of each vendor and also copy of relevant pages of bank statement highlighting the payments made to the vendors wherein even the details of Tax Deducted at Source on the very expenses incurred/claimed during the year under consideration is mentioned as “Annexure “A”

7.3 Upon considering the submissions made by the appellant, the facts and the figures of the book results declared by the appellant for the year under consideration vis-a-vis the immediate earlier years and the details of expenses incurred by the appellant towards business promotion expenses as furnished by appellant vide submissions dated 02/12/2024, and further submissions dated 22/07/2025 and 12/08/2025, it is pertinent to note that appellant has submitted the copies of bills which all are issued by the registered dealers bearing GSTN. the payments to the vendors is made by payee account cheque as is evident from the copy of the relevant ledger extract and the copy of bank statements furnished. On going through the ledger extract of the vendors furnished by appellant it is seen that the tax at source has also been deducted towards the said expenses.

7.4 Apart from having furnished the details and the evidences the appellant has raised legal contention to the effect that appellant being a company is a juristic person which cannot have personal expenses like individual, in support whereof has relied upon the decisions of Hon’ble Gujrat High Court in the case of Sayaji Iron & Engg. Co. vs. Commissioner of Income Tax, (253 ITR 749), the decision of Hon’ble Supreme Court in the case of S A. Builders Vs. CIT, 158 Taxman 74{SC) and other decisions of Hon’ble Delhi High Court, Hon’ble Delhi ITAT, Hon’ble Jaipur ITAT and Hon’ble Kolkata ITAT.

7.5 Considering the details furnished, the contention put forth by the appellant and the fact of the assessing officer having not brought on record any adverse findings, except having raised suspicion on expenses being personal in nature, I am of the considered view that no disallowance is called for. Hence disallowance made by the assessing officer is hereby deleted.”

16. On due consideration of the above, we are of the view that ld. First Appellate Authority has appreciated the facts and circumstances in right perspective whereas AO has nowhere pointed out as to why these expenses deserve to be disallowed. According to the assessee, it has organized a Meet of dealers, customers in order to enhance the business. The assessee has expanded his business in comparison to other years. In such a Meet, it has incurred these expenses and TDS was deducted as and when called for. After going through well-reasoned order of the ld.CIT (Appeals), we do not find any error in it. This ground of appeal is rejected.

17. In the next ground of appeal, the grievance of the Revenue is that ld.CIT (Appeals) has erred in deleting the addition of Rs.4,02,21,000/-. The ld. AO has considered this issue in paragraph No. 4.6.2 on page No. 7 and 8 of the assessment order. A perusal of the impugned order would indicate that AO has noticed certain detail of expenses debited by the assessee in a tabular form. Thereafter, he reproduced copy of an Invoice. The AO then observed that though bill denotes ‘Commission’ in the product description but did not disclose the nature of services, hence he disallowed the ‘commission’ paid by the assessee.

18. Dissatisfied with this assessment order, assessee carried the matter in appeal and pointed out as to why this commission is being paid on the sales made by it to customers. The ‘commission’ represents only 0.44% of the total sales made by the assessee at Rs.912,36,85,729/-. The AO has failed to appreciate the true nature of expenses and just summarily rejected the claim of the assessee. The ld.CIT (Appeals) has re-appreciated the facts and circumstances and deleted the additions.

18.1 We deem it appropriate to take note of the finding of the ld.CIT (Appeals) on this ground, which reads as under :

8. Ground No. 3 is against disallowance of commission expenses amounting to Rs. 4,02,21,000/-. I have considered the facts of the case, the findings given by the assessing officer, the submissions put forth by the appellant, the contentions raised by the appellant and the evidences submitted in the course of appellate proceedings.

8.1 On going through the assessment order particularly para 4.6.2 it is seen that according to the assessing officer since appellant has not specifically mentioned the purpose/utility for which the commission was paid and was not able to substantiate its link for the business operation, the same was not allowable as business expenditure.

8.2 And simultaneously on going through the submissions made by the appellant, the explanation and the evidences furnished in the form of bills, the ledger extract of the commission agents furnished vide annexure B to submission dated 12/08/2025, it is seen that appellant has not only made payments through banking channel but has even deducted tax at source (TDS) as per provisions of I T Act. Apart from same it is not that the year under consideration is first year wherein appellant has paid commission/brokerage as is evident from the chart of the other expenses reproduced by assessing officer at pg no. 4 of the assessment order. Though from the chart it is seen that the amount of commission incurred and claimed by the appellant in the immediately preceding year was Rs. 180.30 Lacs and is Rs. 402.21 Lacs in the year under appeal, however here it is pertinent to consider the submissions dated 22/07/2025 and 12/08/2025 made by the appellant.

8.3  The relevant portion of submissions dated 22/07/2025 reads as under

“From the above, your honors will please see and appreciate that it is not the assessing officer’s case that appellant had not produced the relevant evidences and / or that the evidence produced by the appellant were either cash vouchers or so as to raise a doubt on its reliability. Infact the Ld. Assessing officer ought to have appreciated the fact that appellant company being a prudent business entity inspite of having paid higher amount of commission as compared to earlier years has earned much higher profit in comparison to earlier years and that total commission amounting to Rs. 4,02,21,000/- paid by appellant company as against the total sales of Rs. 9,12,36,85,729/- worked out to 0.44% only, which in my humble view can by no iota of imagination be considered as excessive or unjustified.

Apart from same, it is not even the case of the assessing officer that appellant had not furnished details and / or that assessing officer had issued any notices u/s 133(6) of the IT. Act. 1961, which either remained unserved or unattended in which situation appellant cannot be alleged of having failed to substantiate its claim.

Your honors kind attention is further invited to a vital fact that inspite of Ld. Assessing officer himself having reproduced the comparative figures at Page No. 4 of the assessment order has failed to appreciate that it is not the case that the year under consideration was the first year wherein the commission expense were incurred.

Though apparently there is variation in the amount of commission incurred in immediately earlier year vis-£-vis the amount of commission claimed in the year under appeal, the same too is admittedly on account of the factual reason that since the appellant company has gone into expansion it had to engage new commission agents as well, so as to achieve higher sales target which your honors would appreciate that the appellant company has been absolutely successful in”.

8.4 The relevant portion of submissions dated 12/08/2025 reads as under:

As regards disallowance of commission expenses amounting to Rs 4,02,21,000/- is concerned, we vide our submissions dated 02/12/2024 and 26/05/2025 have filed the copies of the respective invoices and have also submitted the ledger extracts of the expenses claimed under the head “commission” at Sr. no. 14 and 15 of Annexure “2” of submissions dated 26/05/2025.

From the observations of the Ld. assessing officer as given in para 4.6.2 at pg no’s 7 & 8 of the assessment order, your honours will please see that the Ld assessing officer has neither doubted the payment of commission, nor has brought on record any adverse material / evidence to prove it otherwise. However, has disallowed the same alleging the appellant for not having justified the need of payment of commission alongwith its link with business operations.

Your honours would appreciate that a manufacturing unit situated at Ludhiana and selling its goods not only across India, but even outside India, cannot do so without engaging the dealers, brokers and agents and it is well known and an accepted fact of textile industry that the textile market is not only run by the brokers, but infact is highly dominated by agents/brokers.

It is not the case that the year under consideration is the first year where appellant company has paid /claimed the commission expenses. Sir/Madam, form the copy of profit & loss account as reproduced by Ld. assessing officer himself in the showcause at pg no. 3 and in the assessment order at pg no. 4, your honours will please see that in immediate earlier year too appellant has incurred and claimed commission expenses to the tune of Rs. 1,80,30,000/-

It is not that the 100% of the sales are made through brokers However, it depends from time to time and on the market situation, on the basis of which the agents/brokers play the respective role. Though the amount of commission / brokerage paid during the year is Rs. 4,02,21,000/-, which apparently in comparison to an amount of Rs. 1,80,30,000/- paid in earlier year appears to have increased. However, your honours would appreciate that though expenditure on account of commission has increased by Rs. 2,21,91,000/-, (4,02,21,000 – 1,80,30,000). however as against the same the sales has also gone up by 3,16.00,00,000/- and if the differential amount of Rs. 2,21,91,000 is compared vis-a-vis Rs 3,16,00.00.000 it works to 0.70% only (2,21,91,000/ 3.16.00.00.000*100) which in our humble view can by no iota of imagination be held to be unreasonable or excessive.

It may also be placed on record that appellant has duly complied with the provisions of TDS vis-a vis commission, in support whereof a chart giving partywise details of commission/ brokerage paid and TDS thereon alongwith copy of ledger extract of each agent are being attached herewith as “Annexure “B” for your honours kind perusal.

8.5 Upon considering the facts and figures of the case . i am of the considered opinion that since appellant has furnished ail the relevant details and particularly considering the book results of the year under consideration which are better as compared to earlier years and the fact that payments have been made by banking channels after duly compiling with the provisions of TDS, further it is seen that all the parties are identifiable and the assessee has discharged its onus by not only identifying the parties but also providing their PAN details. The Hon’ble Apex Court has laid down the principle that suspicion cannot be a substitute for evidence. In summary the parties are identifiable, the TDS provisions have been complied with, the payments are through proper banking channel and the commission is justifiable in view of the nature of business and increased turnover during the year. Hence, no disallowance of expenses claimed towards commission/brokerage is called for. Accordingly, disallowance of Rs. 4,02,21,000/-, is deleted.”

18.2 The ld. CIT DR reiterated the stand as was noticed by the AO. On the other hand, ld. counsel for the assessee relied upon the submissions noticed by the CIT (Appeals) (extracted supra). He also drew our attention towards the Paper Book running into 763 pages and submitted that every detail has been maintained by the assessee meticulously. The copy of the ledger account of ‘commission expenses’ is available on page No. 169 to 450. He pointed out that all these details are duly maintained and assessee has explained the nature of services rendered by its agents who help the assessee to achieve the sale targets.

19. We have duly considered the rival contentions and gone through the record carefully. A perusal of the assessment order would indicate that ld. AO has not discussed any of the aspects brought to his notice by the assessee, namely, as to why ‘Commission’ was paid, what is the sale turnover of the assessee and how such agents have helped the assessee to achieve the sale targets of Rs.912 Cr which is a substantial figure. The ‘Commission’ paid by the assessee is less than ¹/₂% of the total sales. Thus, it ought not to have been disallowed by the AO and ld.CIT (Appeals) has appreciated the controversy in right perspective and has rightly deleted the disallowance. We do not find any merit in this ground of appeal. It is rejected.

20. In the result, appeal of the Revenue is dismissed whereas appeal of the assessee is allowed.

Order pronounced on 22nd April,2026.