Payment to SEBI under Consent Order is Business Expenditure: ITAT deletes Penalty [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ), while deleting a penalty order, has held that the payments made to the Securities Exchange Board of India (SEBI) under a Consent Order are allowable as business expenditure under the Income Tax Act.

The Assessing Officer had levied penalty under section 271(1)(c) of the Income Tax 1961 Act on the grounds that the payment of Rs. 2,05,00,000/- paid by the assessee to SEBI under consent order was in the nature of the penalty for infraction of the law and is hit by Explanation 1 to section 37(1) and hence was not an allowable business expenditure keeping in view Explanation 1 to Section 37(1) of the Act.

The Tribunal recalled its earlier orders wherein it was held that the aforesaid payment of Rs. 2,05,00,000/- paid by the assessee to SEBI under the consent order is not the infraction of the law and is not hit by Explanation 1 to section 37(1) and the said expenses were held to be an allowable business expenditure.

“Once the whole basis of addition itself as made by the AO in quantum has been deleted by the tribunal and expenses were held to be business, we do not find any reason and merit in the penalty being levied by the AO u/s 271(1)(c) on this ground and which was later confirmed by learned CIT(A) on the aforesaid amount of Rs.2,05,00,000/- . We have also observed that Ld. CIT(A) by following the aforesaid order of tribunal against the quantum assessment, correctly deleted the penalty. We do not find any discrepancy/defect in Ld. CIT(A) granting relief to the assessee and we have no hesitation in holding that under these circumstances, the penalty levied by the AO u/s. 271(1)(c) on payment of Rs. 2,05,00,000/- made by the assessee to SEBI under consent order is not sustainable in the eyes of law,” the Tribunal said.