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

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more

Flat owner without legal title has consumer rights

In a significant judgment, the South Mumbai Consumer Forum has held that a flat owner legally occupying the flat would be a consumer, even if his title to the flat might be in dispute before a competent court. Thurlow owned a flat in a co-operative society. Appuswami was residing with him. In 1976, Appuswami got married in the same flat, and his wife started residing in the same flat. They had three children, born and brought up in the same flat. After Thurlow expired in 2004, Appuswami approached the High Court for inheritance to Thurlow's estate but expired while the matter was pending. His wife and children were brought on record. Subsequently, the society intervened, contending Appuswami did not have any right to the flat and it should be handed over to the Society. The Appuswami family continued to reside in the flat, and even pay the society's outgoings and maintenance charges. Later, the society stopped collecting maintenance charges from all members, as it earned...
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 subs...
Post a Comment
Read more