Case Law Details
Explanation to section 37(1) provides :” that 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 or allowance shall be made in respect of such expenditure.” A bare perusal of this provision indicates that incurring of any expenditure for a purpose which is an offence or prohibited by law cannot be allowed as deduction.
When we advert to the facts of the instant case, it is noticed that this expenditure was incurred as a professional fees to defend two directors of the assessee company who were arrested under NDPS Act on being found guilty of the offences under the relevant sections of the said Act. The Ld. AR argued that since the two directors were released on bail, it indicated that they were not at fault. On a specific query, it was stated that no final order on their conviction or acquittal was passed so far. It shows that the charge is still continuing, which is otherwise an offence under the NDPS Act. Under such circumstances, we are of the considered opinion that there can be no reason for allowing deduction towards such an expenditure which has been incurred for the purpose of an offence prohibited by law, squarely covered within the meaning of the Explanation to section 37(1) of the Act.
The second ground of the assessee about there being no nexus between the professional fees paid and breach of law, is not sustainable. Mandate of the Explanation is crystal clear that, any expenditure’ incurred for any purpose which is an offence or which is prohibited by law cannot be allowed as deduction. It does not make any difference, whether expenditure is direct or indirect. So long as there exists a nexus of the expenditure with the offence, it will continue to be hit by the Explanation. The reliance of the Ld. AR on certain decisions is misconceived because those decisions are based on the facts which are altogether different from those prevailing before us. Recently the Hon’ble H.P. High Court in Confederation of Indian Pharmaceuticals Industry vs. CBDT & Ors, vide its judgment dated 26.12.2012, has upheld the validity of CBDT circular No. 5/12 prohibiting Medical Practitioners from availing of freebies, thereby covering such amount under Explanation to section 37(1). In view of the foregoing discussion, we are of the considered opinion that there is no infirmity in the impugned order warranting any interference. These two grounds are therefore, not allowed.
INCOME TAX APPELLATE TRIBUNAL, “C” Bench, Mumbai
Before Shri R.S. Syal, Accountant Member and
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