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

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

Property can be sold on power of attorney - Delhi High Court

As reported in the Hindusthan Times on 5th May:-  http://www.hindustantimes.com/India-news/NewDelhi/Property-can-be-sold-on-power-of-attorney/Article1-1054964.aspx In a judgment that will benefit lakhs of Delhi residents living in co-operative housing societies and DDA flats, the Delhi High Court has quashed a Delhi government circular banning property sale in the Capital through general power of attorney (GPA). The court found that the directions in the circular, issued by the revenue department on April 27 last year, were contrary to the Supreme Court judgment dated October 11, 2011. The HC order will increase the number of saleable properties in Delhi and could bring down the value of freehold properties. According to realty watchers, on an average, around 20% of properties are registered through GPA transfers — a common way of selling leasehold properties and those that don’t have a clear title. The judgment came on a petition filed by a company, Pace Developers and ...
5 comments
Read more