2022 (7) TMI 218 - AT - Income Tax

Allowable business expenditure u/s 37 - amount paid by the assessee to West Bengal Fire Service Department - assessee has claimed before the lower authorities that the aforesaid amount was paid to West Bengal Fire Service Department for providing manpower and put in service ten (10) number jets for extinguishing the fire - disallowance made as aforesaid payment was penal in nature being compounding fees for violation of section 11C and 12 of West Bengal Fire Service Act, 1950 which is punishable u/s 11C and u/s 26 of the said Act - HELD THAT - As specific query was put by us to the ld. counsel for the assessee as to on what account the aforesaid expenditure was incurred. The ld. counsel has stated that the West Bengal Fire Service has charged the aforesaid amount from the assessee without any reason. He has further submitted that the assessee wants to place on the file a paperbook to prove the nature of the expenditure. As it is clearly mentioned in the impugned order of the CIT(A) that the aforesaid payment was made by the assessee by pleading guilty to the charges levelled vide police case no.03 dated 04.01.2013 on account of detection of nonprovision of the Fire Safety Measures in accordance with the West Bengal fire Services Act, 1950 in violation of section 11C and 12 of the West Bengal Fire Service Act, 1950 which is punishable u/s 11C and u/s 26 of the said Act respectively. Even the order dated 26.04.2013 of the DG, West Bengal Fire and Emergency Services has been reproduced. As counsel has placed on file the challan for depositing of money wherein it has been specifically mentioned that the aforesaid payment is for compounding u/s 38B of West Bengal Fire Services Act, 1950. The facts are apparent that the aforesaid payment was made by the assessee as compounding fees by pleading guilty before the competent authority of commission of offences under the West Bengal Fire Services Act 1950. Offence for non-compliance of fire safety provisions is heinous which may result into breakage of fire putting risk to life and limb of residents as well as other public at large. Any payment made by the assessee as compounding fees for such an offence has rightly been disallowed by the lower authorities. The assessee in this case right from the Assessing Officer to the level of the Tribunal has tried to misguide authorities about the nature of payment which act of the assessee is highly deprecable. Appeal of assessee dismissed.

Summary

Issues:
1. Allowability of Rs.5,00,000/- payment to West Bengal Fire Service Department as an expenditure u/s 37 of the Income Tax Act.

Analysis:
1. The appellant challenged the order of the National Faceless Appeal Centre regarding the disallowance of Rs.5,00,000/- payment to the West Bengal Fire Service Department. The grounds of appeal included contentions that the lower authorities' orders were arbitrary, erroneous, and prejudicial to the appellant's interests.

2. The main issue revolved around whether the payment made by the assessee to the Fire Service Department could be considered a legitimate business expenditure under section 37 of the Act. The appellant argued that the payment was related to business activities and should be allowed as a revenue expenditure. However, the lower authorities contended that the payment was penal in nature, being compounding fees for violating the West Bengal Fire Service Act.

3. The CIT(A) upheld the disallowance of the payment, stating that it was penal in nature and not allowable under Explanation 1 to Section 37 of the Act, which prohibits deductions for expenses incurred for any purpose that is an offense or prohibited by law. The order of the Director General of West Bengal Fire and Emergency Services dated 26.04.2013 highlighted the penal nature of the payment.

4. The appellant's counsel argued that the payment was made without any valid reason, but the CIT(A) and the Tribunal found that the payment was made after the assessee pleaded guilty to charges of non-compliance with fire safety measures, as per the West Bengal Fire Service Act. The nature of the payment was confirmed by the challan for depositing the money, indicating it was for compounding under section 38B of the Act.

5. Considering the seriousness of non-compliance with fire safety provisions, the Tribunal upheld the lower authorities' decision to disallow the payment as a business expenditure. The appellant's attempt to mislead authorities about the nature of the payment was strongly criticized, leading to the dismissal of the appeal.

6. In conclusion, the Tribunal dismissed the appeal, affirming the disallowance of the Rs.5,00,000/- payment to the West Bengal Fire Service Department as a legitimate business expenditure under section 37 of the Income Tax Act.

7. The judgment emphasizes the importance of compliance with legal requirements and the consequences of attempting to misrepresent the nature of payments made in relation to penal offenses.