The Income Tax Appellate Tribunal ( ITAT ), Delhi bench in DCIT v. M/s VLS Finance Ltd, held that the consent fee paid to the Securities Exchange Board of India (SEBI) for the violation of its bye-laws or guidelines would amount to ‘ Business Expenditure ’. The bench clarified the said payment cannot be treated as penalty for the purpose of denying the tax deduction.
In the instant case, the Assessing Officer disallowed the expenditure on account of consent fee charged by the Security Exchange Board of India [SDEBI] by holding that the said payment has been made in violation of the statutory provisions of the SEBI Act and, therefore, cannot be allowed as revenue expenditure u/s 37(1) of the Act.
The assessee contended that the consent fee paid to SEBI was in settlement of on-going dispute and, therefore, it was incurred during the course of carrying on of the business and is, therefore, allowable as legitimate revenue expenditure.
Allowing the contentions of the assessee, the Tribunal observed that the consent fee paid by the assessee was for non-compliance of certain bye-laws/guidelines of SEBI.
“The fact of payment of consent fee cannot be treated as violation of statutory law. The charges levied by SEBI were in the ordinary course of business of the assessee and it cannot be construed that the payments were made in violation or infringement of any central or state laws. The consent fee paid cannot be equated to a penalty which must necessarily be a punishment for infraction of a law or a regulation having statutory force. The fee is paid for the purpose of business to settle a dispute with the regulator SEBI and to be able to conduct its business without interruption,” the bench said.
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