‘ Consent Payment ’ made by Anil Ambani to SEBI a Business Expenditure u/s 37(1): ITAT [Read Order]

Consent Payment - Anil Ambani - Taxscan

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) in the case of DCIT v. Shri Anil Dhirajlal Ambani while dismissing the appeal of the revenue held that the ‘ Consent Payment ’ made by the assessee was a payment for the purpose of the profession carried on by the assessee to save the time, cost and hassle of a long-winded litigation and hence is a business expenditure.

The appeal was filed on the grounds that whether the disallowance made by the Assessing Officer (AO) by treating the settlement charges paid by the assessee to Securities and Exchange Board of India (SEBI) as a penalty paid for infraction of law not allowable under Section 37(1) of the Income Tax Act.

The facts, in brief, are that the assessee is an individual having proprietorship concerns M/s IREF and M/s SADA. The AO observed that the assessee had claimed an expenditure of Rs. 50,00,00,000/- being settlement charges against income by way of ‘commission’ and ‘sitting fees’ received from Reliance Communication Ltd. (RCL), Reliance Infrastructure Ltd. (RIL), Reliance Natural Resources Ltd. (RNSL) etc. The assessee, in consequence, submitted a copy of ‘consent order’ passed by the SEBI. The AO was hence of the opinion that the assessee and his group entities have violated the provisions of SEBI Act for which the said agency initiated the enforcement action under various Rules and for which the assessee submitted a consent application on certain terms and after consideration of the application.

The AO was of the view that the payment was in the nature of penalty. However, the assessee argued that the ‘settlement charges’ are not a penalty for violation of SEBI or any other regulations and that the same is allowable u/s 37(1) as it is not penal in nature. Hence, the AO disallowed the amount u/s 37(1) and added the same to the total income of the assessee. However, while on appeal before the CIT(A), relying upon a number of decisions it was of the opinion that the fee cannot be equated with a penalty and is a payment to enable the assessee to carry on its business in the normal course and accordingly allowed the ground. The revenue is hence in further appeal before the present Tribunal.

The departmental representative contended that it is evident from the consent order of the SEBI that the various entities had violated many provisions of the SEBI Act and other regulations after which the High Powered Action Committee (HPAC) of the SEBI recommended the terms of ‘settlement’ subject to the fulfillment of certain conditions which were accepted by the SEBI which in turn passed the consent order and the assessee paid the amount.

The tribunal after considering the arguments put forth before the lower authorities, existing precedents, the arguments advanced by the parties and on the CBDT circular EFD/ED/Cir-1/2007 dated 20.04.2007 observed that the payment of settlement charges made by the respondent was neither in the nature of protection money, nor extortion, nor hafta nor bribe and does not fall within the term ‘etc.’ used after bribe which would refer to similar payments by applying the principle of ejusdem generis. Hence, “the payment so made by assessee was a payment for the purpose of the profession carried on by the assessee to save the time, cost and hassle of a long winded litigation as also to protect the reputation of the assessee and hence is to be allowed as expenditure under Section 37(1) of the Income Tax Act.”

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