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Is Bribe allowable expenditure????

Samiksha (Articles) (345 Points)

05 October 2010

Bribe given to any person is allowable under income tax act?

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36 Replies

CA Ayush Agarwal (Kolkata-Pune-Mumbai) (27191 Points)
Replied 05 October 2010

disallowable

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CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 05 October 2010

Dear Samiksha,

As per the explanation given to sec.37(1), if bribe is paid to government employees, the expenditure shall be disallowed, because it is considered as an offence or it is opposed to public policy. However, if it is paid to others, which is not prohibited by any law, it is not disallowed. U can also refer Goodlass Nerolac Paints Ltd (1990) 188 ITR 1 case

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krishna Teja (CA Final) (85 Points)
Replied 05 October 2010

Any expenditure incurred contrary to the provisions of any law or if such an expenditure is incurred for illegal purposes, then it is not tax deductable. So bribe is disallowed.

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 05 October 2010

Dear Krishna,

I agree with ur first line. Bribes are always not given for illegal purposes.Eg. Lorry drivers always bribe to enter the roads. By entering the raods, theu do not do any illegal business. Bribing government employees is illegal, as it is against public policy, and hence disallowed. However, bribing to others is not illegal, as per the explanation given in section 37(1)

Naresh chowdhary (CHARTERED ACCOUNTANT) (29 Points)
Replied 05 October 2010

bribe paid , even though business related expenses , it cannot be allowed as deduction in arriving at taxable income under income tax act.

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Harpreet (* * * * * *) (1670 Points)
Replied 05 October 2010

Great discussion of the Day.

CA.G.Muguntha Narayanan (Internal Auditor at TVS Motors) (2195 Points)
Replied 05 October 2010

... any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction of allowance shall be made in respect of such expenditure. (sec.37(1))

Payment of bribe to government employees is an offence, hence it is disallowed. However, payment to others (other than Govenment officials) is not an offence under any law. So these bribes are allowed u/s.37(1)

RAMANJU (here to updating the knowledge) (485 Points)
Replied 05 October 2010

First of all how do you account it in the books?? you can not bring it books to my knowledge.

CA Parag Shukla (Practicing Chartered Accountant) (153 Points)
Replied 05 October 2010

If it is a allowable expenditure den der wil be huge loss to the Government..... :) :)

prerna (auditor) (95 Points)
Replied 05 October 2010

Originally posted by : krishna

Any expenditure incurred contrary to the provisions of any law or if such an expenditure is incurred for illegal purposes, then it is not tax deductable. So bribe is disallowed.

totally agree

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Arun m (DIP) (124 Points)
Replied 06 October 2010

travel companies i audit for, merge the bribe into oher expenses or driver expenses .. In these companies bribe is a regular affair and they pay lakhs as bribe every year. These are to be smartly merged with other expenses of open nature if you want to save tax.

So it totally depends on you if you want to make it an illegally allowable expense or legally disallowable expense.

Shivish Verma (C A) (376 Points)
Replied 06 October 2010

payment of bribe is itself an offence. coz by paying bribe, you do or get some thing done which is prohibited by law. hardly matters whom u offer bribe, goverment official or non govt official. at the same time, one must review the nature and purpose. some times, one has to pay bribe even for a good cause. that should be allowable expenditure.

Robin (AUDITOR) (854 Points)
Replied 06 October 2010

Originally posted by : CA.G.Muguntha Narayanan
	Dear Samiksha, As per the explanation given to sec.37(1), if bribe is paid to government employees, the expenditure shall be disallowed, because it is considered as an offence or it is opposed to public policy. However, if it is paid to others, which is not prohibited by any law, it is not disallowed. U can also refer Goodlass Nerolac Paints Ltd (1990) 188 ITR 1 case

CA. MUUNTHA NARAYANAM ?

PLEASE UPDATE YOUR KNOWLEDGE...."BRIBE " itself is an offence whether it is given to govt or non-govt personnals......It is disallowed irrespective of persons to whom the payment is made...Please read that case law carefully and educate us once again.

If you say Bribe is an allowable expenditure then think of companies financial statement !! Dont worry about Evidences in that case......Somehow they can provide evidences...

Divya (CA Final student) (272 Points)
Replied 06 October 2010

In a recent audit , i came across a bribe- pmt to a govt official accounted under miscellaneous expense. Subsequently we've asked the auditee to collect personal bills and account it under other heads. bribe itself is an illegal activity. Isn't is void abinitio????