The row started when contestant Fleur East, 26, performed Uptown Funk from Mark Ronson's as-yet unreleased album on the show on Saturday.
Lily Allen quickly accused Cowell of corruption and getting free publicity for the song.
Cowell joked the singer should "smile more and lose the paranoia."
Speaking at The Sun Military Awards in London on Wednesday, he also said that Lily Allen's chances of appearing on the X Factor as a judge "have been reduced slightly."
Sony Music, which is releasing Uptown Funk is home to Mark Ronson's label Columbia Records and Cowell's Syco records.
Fleur's performance in the semi-final of the ITV competition went straight to number one in the iTunes chart.
The original song by Mark Ronson and Bruno Mars had been released digitally but was scheduled for full release for 11 January, but after the iTune success the release date has now been brought forward five weeks.
But Cowell claimed the reason they chose the song for Fleur on X Factor wasn't anything to do with promotion.
He said: "I didn't even know what label it was on, to be honest. All I knew is that we loved the song.
"Then we heard that Mark Ronson and Bruno was going to do it on the finals so we stopped doing it with Fleur, then I found out they weren't coming, so I thought 'fine' we will do it with her.
"I mean I was being creative."
A series of tweets posted by Lily Allen, which appear to have been deleted, after the show on Saturday said: 'Is this even out yet? #XFactor ... Well done to @sony for managing to get a not yet released song of theirs sung on prime time weekend telly. #uptownfunk #shazam #airplay
"It is an amazing song and Fleur did it justice but it's still a great example of music industry corruption. #uptown funk"
Fleur East has since apologised to Mark Ronson after her X Factor cover of the song caused the music producer to release it early.
Featuring Bruno Mars on lead vocals, Uptown Funk is the first single from British producer Mark Ronson's fourth album, Uptown Special.
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Simon Cowell has told Newsbeat that Lily Allen should "smile more" after she accused the X Factor of "industry corruption".