prohibited by law sec. 37
This query is : Resolved
05 December 2009
A pharma co. has made payment with interest to govt. since pharma co. was selling medicines above M.R.P specified by govt.
please tell me whether this payment is PENAL OR COMPENSATORY IN NATURE U/S 37 OF INCOME TAX.
I request comment with any case laws if any.
THANKS
please tell me whether this payment is PENAL OR COMPENSATORY IN NATURE U/S 37 OF INCOME TAX.
I request comment with any case laws if any.
THANKS
05 December 2009
Dear Vipin:
You itself unable to justify the nature of expenses incurred to claim the deduction available. Then how the Assessing Officer will allow it.
For Your Satisfication:
CASE LAW
SUMMARY
The payment which is punitive, is not allowable and in case the payment is compensatory, then the payment to the extent the same is of compensatory nature is to be allowed.
CASE LAW DETAILS
Decided by: ITAT, BANGALORE BENCH `B’, In The case of: ACIT v Khoday India Ltd., Appeal No.: ITA No. 338/Bang/08, Decided on: December 12, 2008
RELEVENT PARAGRAPH
2.7 The Hon’ble Apex Court in the case of CIT v Ahmedabad Cotton Manufacturing Co. Ltd. 205 ITR 163 held as under:-
“what needs to be done by an assessing authority under the Income-tax Act, 1961, in examining the claim of an assessee that the payment made by such assessee was a deductible expenditure under $.37 of the Income-tax Act although called a penalty is to see whether the law or scheme under which the amount was paid required suchpayment to be made as penalty or as something akin to penalty, that is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to penalty due to the act that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, then one has to regard suchpayment as business expenditure of the assessee, allowable under section 37….â€
2.8 Thus, the law on the allowability of expenses debited as penalty has been fully settled by the Hon’ble Apex Court and it is the duty of the assessee to show that the amounts claimed are compensatory in nature in case these are to be allowed. As per Explanation to section 37, the expenditure incurred for any purpose, which is an offence or which is prohibited by law, is to be treated to have not been incurred for the purpose of the business. Thus, thepayment, which is punitive, is not allowable and in case the payment is compensatory, then the payment to the extent of compensatory nature is to be allowed. Since the issue has not been properly dealt either by the Assessing Officer or by the learned CIT(A), therefore, we have no alternative but to set aside this issue on the file of the Assessing Officer so that the assessee files all the material before the Assessing Officer to show that the amounts are allowable because these are compensatory in nature. In case the Assessing Officer finds that the amount is punitive, then it is not allowable. In case, the amount is compensatory as well as punitive, then the Assessing Officer will bifurcate the amount and will allow the amount to the extent it is compensatory.
Expecting Reply From You.
You itself unable to justify the nature of expenses incurred to claim the deduction available. Then how the Assessing Officer will allow it.
For Your Satisfication:
CASE LAW
SUMMARY
The payment which is punitive, is not allowable and in case the payment is compensatory, then the payment to the extent the same is of compensatory nature is to be allowed.
CASE LAW DETAILS
Decided by: ITAT, BANGALORE BENCH `B’, In The case of: ACIT v Khoday India Ltd., Appeal No.: ITA No. 338/Bang/08, Decided on: December 12, 2008
RELEVENT PARAGRAPH
2.7 The Hon’ble Apex Court in the case of CIT v Ahmedabad Cotton Manufacturing Co. Ltd. 205 ITR 163 held as under:-
“what needs to be done by an assessing authority under the Income-tax Act, 1961, in examining the claim of an assessee that the payment made by such assessee was a deductible expenditure under $.37 of the Income-tax Act although called a penalty is to see whether the law or scheme under which the amount was paid required suchpayment to be made as penalty or as something akin to penalty, that is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to penalty due to the act that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, then one has to regard suchpayment as business expenditure of the assessee, allowable under section 37….â€
2.8 Thus, the law on the allowability of expenses debited as penalty has been fully settled by the Hon’ble Apex Court and it is the duty of the assessee to show that the amounts claimed are compensatory in nature in case these are to be allowed. As per Explanation to section 37, the expenditure incurred for any purpose, which is an offence or which is prohibited by law, is to be treated to have not been incurred for the purpose of the business. Thus, thepayment, which is punitive, is not allowable and in case the payment is compensatory, then the payment to the extent of compensatory nature is to be allowed. Since the issue has not been properly dealt either by the Assessing Officer or by the learned CIT(A), therefore, we have no alternative but to set aside this issue on the file of the Assessing Officer so that the assessee files all the material before the Assessing Officer to show that the amounts are allowable because these are compensatory in nature. In case the Assessing Officer finds that the amount is punitive, then it is not allowable. In case, the amount is compensatory as well as punitive, then the Assessing Officer will bifurcate the amount and will allow the amount to the extent it is compensatory.
Expecting Reply From You.
07 December 2009
THANKS, MR. SUDHARSHAN K G
SIR., as a auditor in a PVT. CO. i have to prove to magt. that whether a expense is allowable or not.
but PLEASE TELL ME HOW TO JUDGE THAT A PAYMENT IS PENAL OR COMPENSATORY IN NATURE.
PHARMA. CO. HAS VIOLATED THE M.R.P SPECIFIED BY GOVT. AND HAS MADE PAYMENT WITH INTEREST.
SIR I ACCEPT YOUR VIEW BUT I HAVE PROVE THE point before co. as well before the C.A. FIRM.
SIR., as a auditor in a PVT. CO. i have to prove to magt. that whether a expense is allowable or not.
but PLEASE TELL ME HOW TO JUDGE THAT A PAYMENT IS PENAL OR COMPENSATORY IN NATURE.
PHARMA. CO. HAS VIOLATED THE M.R.P SPECIFIED BY GOVT. AND HAS MADE PAYMENT WITH INTEREST.
SIR I ACCEPT YOUR VIEW BUT I HAVE PROVE THE point before co. as well before the C.A. FIRM.
07 December 2009
sir i am not able to read your reply.
PLEASE I REQUEST YOU TO ME DIRECTLY AT FOLLOWING e-MAIL ADRRESS:
rahul14121985@rediffmail.com
sir please ! please! reply
FOR
SIR SUDHARSHAN K G
PLEASE I REQUEST YOU TO ME DIRECTLY AT FOLLOWING e-MAIL ADRRESS:
rahul14121985@rediffmail.com
sir please ! please! reply
FOR
SIR SUDHARSHAN K G
07 December 2009
sir you have mailed me reply but still your expert opinion is not there in reply.
ONLY AFTER YOUR FIRST REPLY MY TWO REPLY IS THERE.
PLEASE !PLEASE ! REPLY ME AT MY E-MAIL ADDRESS .
HOPING FOR YOUR KIND REPLY.
ONLY AFTER YOUR FIRST REPLY MY TWO REPLY IS THERE.
PLEASE !PLEASE ! REPLY ME AT MY E-MAIL ADDRESS .
HOPING FOR YOUR KIND REPLY.
07 December 2009
sir you have mailed me reply but still your expert opinion is not there in reply.
ONLY AFTER YOUR FIRST REPLY MY TWO REPLY IS THERE.
PLEASE !PLEASE ! REPLY ME AT MY E-MAIL ADDRESS .
HOPING FOR YOUR KIND REPLY.
ONLY AFTER YOUR FIRST REPLY MY TWO REPLY IS THERE.
PLEASE !PLEASE ! REPLY ME AT MY E-MAIL ADDRESS .
HOPING FOR YOUR KIND REPLY.
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