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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →The Ahmedabad Income Tax Appellate Tribunal (ITAT) deleted an ₹18,76,286 disallowance of commission paid by a Herbalife distributor to his wife’s proprietary concern for Assessment Year 2018–19. The tribunal’s reason was not that commission to a spouse is automatically allowable: it found that the Assessing Officer’s 30% benchmark, drawn from Ayurvedic-product businesses, did not establish that the payment was excessive in the distributor’s own business.
What the ITAT decided
In Nirav Dineshbhai Bhavsar v. Income Tax Officer, Ward 5(3)(2), Ahmedabad, the tribunal allowed the taxpayer’s appeal and deleted the full ₹18,76,286 disallowance. The disputed commission was ₹31,87,156, paid to Tanzil Nutrition Centre, a proprietary concern of Bhavsar’s wife, Riddhi Bhavsar.
The appeal concerned Assessment Year 2018–19. The CIT(A)/National Faceless Appeal Centre had upheld the disallowance in an order dated August 7, 2025. The ITAT pronounced its decision in open court on October 1, 2026. LiveLaw Biz reports the appeal as ITA No. 1971/AHD/2025 and identifies Vice-President Dr. B.R.R. Kumar and Judicial Member Rahul Chaudhary as the bench members. TaxGuru’s October 5, 2026 report reproduces the order; LiveLaw Biz’s October 5, 2026 report separately reports the appeal number, bench, outcome and a passage from the decision. The signed official order was not independently confirmed in those reports.
Why the Assessing Officer disallowed part of the commission
Bhavsar had operated as a Herbalife Nutrition India Private Limited distributor through a proprietary business since August 2012. The reported order describes a model involving independent distributors, retail sales, royalties and bonuses linked to distributor-team performance.
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For the year in dispute, the Assessing Officer (AO) treated ₹18,76,286 of the ₹31,87,156 commission as excessive. The AO limited the commission to 30% of turnover using a comparison with businesses selling Ayurvedic products. The CIT(A) upheld that decision, pointing to insufficient documentary evidence about the nature and extent of the services.
Why the tribunal rejected the 30% comparison
The ITAT accepted that the payment to the wife’s proprietary concern fell within section 40A(2)(b) of the Income-tax Act, 1961. But a payment to a related person is not disallowed automatically. The provision calls for an assessment of whether expenditure is excessive or unreasonable in light of the fair market value of the services or facilities, the taxpayer’s legitimate business needs, or the benefit derived by or accruing to the taxpayer.
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The tribunal focused on whether the AO’s comparison could show that this commission was excessive in the context of Bhavsar’s business. The taxpayer’s reported business involved Herbalife distribution and team development; the benchmark came from businesses in a different line of trade. Without comparable material connecting that benchmark to the services and circumstances at issue, the percentage alone did not establish excessiveness.
“the reasonableness of expenditure under section 40A(2)(b) has to be examined on the basis of the facts and circumstances of the assessee’s own business and the services actually rendered. A mere comparison with a different line of business, without bringing any comparable material on record, cannot by itself establish that the commission paid was excessive or unreasonable.”
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This is a case-specific ruling about the adequacy of the comparison used to support the disallowance. It does not approve a general commission rate or make a different percentage a safe harbour.
What the taxpayer said about the services and amounts
According to the submissions reproduced in the reported order, Tanzil Nutrition Centre provided promotion and business-development services. Bhavsar said the concern incurred ₹20,97,860 in business-promotion and related expenses from the commission, leaving a stated surplus of ₹6,03,316. He also said there was an agreement with the concern and that its profit-and-loss account had been furnished.
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These figures and explanations are reported as the taxpayer’s account; they should not be read as independent findings that every claimed service or expense was verified. The tribunal’s reasoning also cautioned that related-party payments still require proper verification of the actual services and their commercial justification.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What the ruling means for commission paid to a spouse’s business
The practical lesson is about evidence and comparison, not family relationships alone. A related-party commission may be scrutinized under section 40A(2)(b), but the scrutiny must address the business purpose, services actually rendered and reasonableness of the amount. A benchmark drawn from an unlike business, without relevant comparable material, may not be enough to sustain a disallowance.
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- Document what work the recipient performed, when it was performed and how it supported the business.
- Keep the agreement, invoices or other records, accounts and evidence of the services together so the payment can be connected to actual activity.
- Be prepared to explain the commercial basis for the amount, including how it relates to the services, business needs or benefit received.
- If a comparison is used to assess reasonableness, its relevance to the taxpayer’s business and the services should be supportable; a percentage borrowed from an unrelated line of business may not answer that question.
The tribunal did not determine that all payments to a spouse’s concern are reasonable, nor did it set a generally permissible commission percentage. Its decision turned on the record and the unsupported comparison in this assessment.
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