Skip to main content

Money paid under consent settlement can be treated as business expense: IT Appellate Tribunal

The Income Tax Appellate Tribunal (ITAT) has clarified that money paid under the consent decree mechanism to settle disputes is permissible as business expenditure and cannot be equated to penalty levied for breaching law. The clarification will set precedence as many companies are currently negotiating with the market regulator to settle disputes under the consent mechanism by paying a fee but without admitting or denying guilt.

They can record such costs as normal business expenditure and claim tax exemption. No such tax benefit can be taken on penalties levied for breaching law.

The ruling of the ITAT bench of BR Baskaran and Sanjay Garg came on a case related to Reliance Shares & Stock Broker, a unit of Anil Ambani's Reliance Group. For the assessment year 2008-09, the company had declared a loss of Rs 1.55 lakh in its Income Tax return. The assessing officer observed that it had paid Rs 50 lakh to the Securities and Exchange Board of India to settle a dispute, and disallowed it as business expenses.

The regulator had recommended for suspension of the company's certificate of registration as a stock broker for nine months for allegedly violating various regulations. Reliance Shares & Stock Broker challenged Sebi's decision at the Securities Appellate Tribunal, but before the tribunal made a decision, agreed to settle the issue with Sebi by paying Rs 50 lakh under the consent mechanism.

The tax department argued the company had paid a penalty for not following rules under the Sebi Act. The consent order passed by the regulator shall not change the character of violation or penalty initially levied by the board, it said.

The company's counsel submitted that Sebi had initiated the action in connection with certain technical violations based on powers given to the regulator to take administrative or civil action. According to the counsel, the Sebi Act makes clear demarcation of penalties levied under administrative or civil action for technical defaults and the penalties levied for offences committed.

The commissioner of income tax had not accepted the assessing officer's decision disallowing to record the fee as business expense, but that was challenged at the tribunal.

Article referred: http://articles.economictimes.indiatimes.com/2014-11-12/news/56025526_1_securities-appellate-tribunal-consent-mechanism-sebi-act

Comments

Post a Comment

Most viewed this month

Deposit Of Minimum 20% Fine/Compensation U/s 148 NI Act Mandatory

In OP(Crl.).No.348 OF 2019, T.K.SAJEEVAN vs FRANCIS T.CHACKO, the appeal was filed against the order of the lower court to deposit 25% of the fine before filling of appeal. The appellant argued that the deposit introduced through the Section 148 of the NI Act after amendment was directory in nature as it used the term 'may' while mentioning the issue of deposit. The Kerala High Court however disagreeing held that in view of the object of the Legislature while incorporating Section 148 into N.I. Act, the word 'may' will have to be read as 'shall'. The imposition of payment contemplated under Section 148 N.I. Act cannot be restricted to some prosecutions and evaded in other prosecutions. Since the amount directed to be deposited being compensation, undoubtedly, it is liable to be ordered to be deposited irrespective of the nature of the prosecution. Therefore, the word 'may' can only be taken to have the colour and meaning of 'shall' and there
Post a Comment
Read more

NCLT - Mere admission of receipt of money does not qualify as a financial debt

Cause Title : Meghna Devang Juthani Vs Ambe Securities Private Limited, National Company Law Tribunal, Mumbai, CP (IB) No. 974/MB-VI/2020 Date of Judgment/Order : 18.12.2023 Corum : Hon’ble Shri K. R. Saji Kumar, Member (Judicial) Hon’ble Shri Sanjiv Dutt, Member (Technical) Citied:  Carnoustie Management India Pvt. Ltd. Vs. CBS International Projects Private Limited, NCLT Swiss Ribbons Pvt. Ltd. & Anr vs. Union of India & Ors. (2019) Sanjay Kewalramani vs Sunil Parmanand Kewalramani & Ors. (2018) Pawan Kumar vs. Utsav Securities Pvt Ltd 2021 Background Application was filed under section 7 of the Insolvency and Bankruptcy Code, 2016 alleging loan of Rs, 1.70 cr is due. The Applicate identified herself as the widow and heir of the lender but could not produce any documents proving financial contract between her Late husband and the CD but claimed that the CD has accepted that money was received from her husband. The applicant subsequently filed rejoinder claiming the debt t
Post a Comment
Read more

Vanishing promoters and languishing shareholders

Over Rs 60,000 crore of shareholders’ wealth is stuck in 1,450 companies suspended by the stock exchanges. More importantly, near 100 per cent pledging of promoter holding appears to be common in many of these companies. This, almost rules out any chance of the companies bouncing back. The suspension is for non-compliance of the listing norms. Vanishing Companies - Definition As per the definition stipulated by SEBI, any listed company, which raised moneythrough initial public offer and, thereafter, stopped operations, did not file returnseither with the RoC or SEBI and did not exist on the registered premises wastermed as vanishing.There are provisions under Companies Act under which companies are termedvanishing companies on satisfying certain conditions. it is provided a companywould be deemed to be a vanishing company, if it satisfies all the conditions given below : a) Failed to file returns with Registrar of Companies (ROC) for a period of two years; b) Failed to fil
3 comments
Read more