“prohibited by law”

Business ExpensesSection 37 ExplanationSection 37 Explanation498 judgments

The decision most relied on for prohibited by law is Apex Laboratories Pvt. Ltd. v. CIT (135 Taxmann.com 286), cited in 148 judgments on BharatTax.

Leading authorities on prohibited by law

Apex Laboratories Pvt. Ltd. v. CIT

135 Taxmann.com 286 · 2022 · Supreme Court

148

citing judgments

Expenditure incurred by pharmaceutical companies on freebies provided to medical practitioners is not deductible under Explanation 1 to Section 37(1) of the Income-tax Act, as such gifting is prohibited by the Medical Council Regulations, 2002. The court also held that what is directly prohibited by law cannot be indirectly evaded through contrivance.

Sanjeev Woolen Mills v. CIT

279 ITR 434 · 2005 · Supreme Court

citing judgments

The assessee must consistently follow one method of accounting and cannot arbitrarily change it, particularly in contravention of Section 145 of the Income Tax Act. This principle prohibits changes in accounting methods that are not in conformity with the law.

Maddi Venkataraman & Co. (P.) Ltd. v. CIT

229 ITR 534 · 1998 · Supreme Court

citing judgments

Expenditure incurred for a purpose prohibited by law or in violation of another statute is not deductible as business expenditure under Section 37(1) as it is against public policy. The Explanation to Section 37 reinforces that such expenditure is deemed not for business.

Haji Aziz & Abdul Shakoor Bros. v. CIT

41 ITR 350 · 1961 · Supreme Court

citing judgments

Penalties paid for a breach of law or contravention of statutory provisions are not allowable deductions as business expenditure because they cannot be considered wholly and exclusively laid out for the purpose of the business. This principle is now enshrined in Explanation 1 to Section 37(1) of the Income-tax Act, 1961.

CIT v. Kap Scan and Diagnostic Centre (P.) Ltd.

344 ITR 476 · 2012 · High Court

citing judgments

Payment of commission to doctors for referring patients to diagnostic centers or providing gifts, freebies, or hospitality to medical practitioners by pharmaceutical companies is against public policy and cannot be allowed as a business expenditure under Section 37(1). Demanding such benefits is unethical on the part of doctors, and paying them is equally unethical on the part of companies.

Claggett Bronchi Co. Ltd. v. CIT

177 ITR 409 · 1989 · Supreme Court

citing judgments

Issuing a notice under section 148 after two years from the end of the relevant assessment year is prohibited by law and makes reassessment proceedings void.

PCIT v. Monnet Ispat & Energy Ltd.

18 SCC 789 · 2018 · Reported

citing judgments

The Insolvency and Bankruptcy Code (IBC) overrides other laws, including the Income Tax Act, due to its non-obstante clause in Section 238. Proceedings initiated against a corporate debtor undergoing insolvency are prohibited under Section 14 of the IBC.

Confederation of Indian Pharmaceutical Industry (SSI) v. CBDT

353 ITR 388 · 2013 · High Court

citing judgments

Payments made to doctors in violation of Indian Medical Council regulations are considered opposed to public policy and are not deductible as business expenditure under section 37(1). Such payments are to be discouraged.

Judgments citing prohibited by law

Macrotech Developers Ltd(Successor to Lodha Impression Real Estate Pvt. Ltd., Mumbai vs. Dy Commissioner of Income Tax, Central Circle 7(3), Mumbai

Accordingly, Ground No.1 raised by the Appellant is allowed

ITA 1863/MUM/2022[2014-2015]Status: DisposedITAT Mumbai30 Jun 2022AY 2014-2015

For Appellant: Shri Niraj ShethFor Respondent: Smt. Mahita Nair,Shri Anil Sant

Section 143(3)Section 37Section 37(1)

Explanation 1 to Section 37(1) of the Act disallows deduction for expenditure incurred for any purpose which is an offence or prohibited by law. It is not the case of the Revenue that payments made to BMC are for a purpose which is offence. Further, in case of prohibition ... being given on regular basis. Therefore, it cannot even be said that the payment to BMC was for the purpose which was prohibited under law. Thus, the payment made to the BMC would not fall within the ambit of Explanation 1 to Section 37(1) of the Act. In this

Play Games 24 X 7 Private Limited, Mumbai vs. Dy.CIT-13, Mumbai

In the result, the appeal is partly allowed in the terms indicated above

ITA 3830/MUM/2019[2014-15]Status: DisposedITAT Mumbai21 Jun 2022AY 2014-15

Section 263Section 40Section 9

duty of the appellate authority to correct the errors in the orders of the authorities below and/or remit the matter for reconsideration unless prohibited by law. In this regard, we note that there is no provision in law prohibiting us to remit the matter back to the learned Commissioner

M/S. Deepali Company Privae Limited, Bangalore vs. Income Tax Officer, Ward- 2(1)(2), Bangalore

In the result, the appeal filed by assessee stands dismissed

ITA 585/BANG/2020[2016-17]Status: DisposedITAT Bangalore21 Jun 2022AY 2016-17

Bench: Shri. Chandra Poojari & Smt. Beena Pillaiassessment Year : 2016-17 M/S. C. Krishniah Chetty & Co. Pvt. Ltd., The Income Tax (Earlier Known As :Deepali Co. Officer, Pvt. Ltd.) Ward – 2 (1)(2), 35, Commercial Street, Bangalore. Bangalore – 560 001. Vs. Pan: Aaacd5120H Appellant Respondent : Shri Narendra Sharma, Assessee By Advocate : Smt. Priyadarshini Revenue By Basaganni, Addl. Cit (Dr) Date Of Hearing : 01-06-2022 Date Of Pronouncement : 21-06-2022 Order Per Beena Pillaipresent Appeal Is Filed By Assessee Against Order Dated 03.0.2020 Passed By Ld.Cit(A)-2, Bangalore For A.Y. 2016-17 On The Following Grounds Of Appeal: “1.1 On The Facts & Circumstances Of The Case, The Learned Commissioner Of Income Tax Erred In Not Allowing Business Loss For The Year Of Rs. 114,66.766/- On The Ground That The Business Of The Assessee Company Is Closed & There Are No Receipts From Operation Of Business.

For Respondent: Shri Narendra Sharma

Section 143(2)Section 24Section 72

doubts, it is hereby declared 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 hove been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect

M/S. Himalaya Wellness Company (Formerly Known As the Himalaya Drug Company), Bengaluru vs. The Deputy Commissioner of Income Tax, Circle- 6(1)(1), Bengaluru

In the result, the appeal filed by the assessee is partly allowed for statistical purpose

ITA 259/BANG/2022[2017-18]Status: DisposedITAT Bangalore14 Jun 2022AY 2017-18

Bench: Shri George George K, Jm & Ms.Padmavathy S, Am It(Tp)A No.259/Bang/2022 : Asst.Year 2017-2018 M/S.Himalaya Wellness Company The Deputy Commissioner Of (Formerly Known As The Himalaya Income-Tax, Circle 6(1)(1) V. Bengaluru. Drug Company), Makali, Tumkur Road Bengaluru – 562 162. Pan : Aadft3025B. (Appellant) (Respondent)

For Appellant: Sri.Padamchand Kincha, CAFor Respondent: Sri.Sumer Singh Meena, CIT -DR

Section 143(1)Section 143(2)Section 143(3)Section 144C(5)Section 2(11)Section 92C

Rs.1000. It was therefore submitted that these expenses cannot be considered as incurred for any purpose which is an offence or which is prohibited by law. 7.1 The AO held that the items given to receptionists who allow medical representatives to meet the doctors cannot be considered as promotional ... corresponding penal provision in the 2002 Regulations applicable to it - there is no doubt that its actions fell within the purview of “prohibited by law” in Explanation 1 to Section 37(1). 25. Furthermore, if the statutory limitations imposed by the 2002 Regulations are kept in mind, Explanation

Deputy Commissioner of Income Tax Central Circle-2(4), Mumbai vs. Shri Gajendra Sanghvi, Mumbai

In the result, appeals of the learned assessing officer are partly allowed

ITA 812/MUM/2018[2011-12]Status: DisposedITAT Mumbai09 Jun 2022AY 2011-12

Bench: Shri Prashant Maharishi, Am & Shri Sandeep Singh Karhail, Jm

For Appellant: NoneFor Respondent: Shri Shekhar L. Gajbhiye, CIT

Section 131Section 132Section 142Section 153A

learned departmental representative vehemently submitted that assessee is engaged in the business of hawala which is opposed to the public policy, prohibited by law and therefore no expenditure incurred by the assessee is allowable as deduction u/s 37 (1) of the act. He submitted that CIT (A) has allowed business ... expenditure, ITA nos. 811 & 812/Mum/2018 Shri Gajendra Sanghvi; A.Y. 10–11 & 11–12 which is prohibited by law, and therefore no expenditure is allowable as deduction from income earned through that business. 011. With respect to the deletion of addition on account of seized documents found for assessment year

Deputy Commissioner of Income Tax Central Circle-2(4), Mumbai vs. Shri Gajendra Sanghvi, Mumbai

In the result, appeals of the learned assessing officer are partly allowed

ITA 811/MUM/2018[2010-11]Status: DisposedITAT Mumbai09 Jun 2022AY 2010-11

Bench: Shri Prashant Maharishi, Am & Shri Sandeep Singh Karhail, Jm

For Appellant: NoneFor Respondent: Shri Shekhar L. Gajbhiye, CIT

Section 131Section 132Section 142Section 153A

Icici Home Finance Company Ltd, Mumbai vs. Addl CIT 10(1), Mumbai

In the result, appeal filed by the Revenue is dismissed

ITA 1325/MUM/2013[2009-10]Status: DisposedITAT Mumbai03 Jun 2022AY 2009-10

Bench: Shri Vikas Awasthy, Hon'Ble & Shri S. Rifaur Rahman, Hon'Ble

For Appellant: Aarti VissanjiFor Respondent: R.A. Dhyani

Section 14ASection 201Section 250Section 36(1)(viii)Section 36(1)(viil)Section 37(1)

expended wholly and exclusively for the business purpose and payment of interest on late remittance of TDS is neither an offence nor prohibited by law, as held in the case of Lachmandas Mathura v. CIT (254 ITR 799) (SC). Therefore, we direct AO to allow the claim of the assessee

M/S. Star Chemical (Bombay) P. Ltd., Mumbai vs. DCIT CIT - 3(3), Mumbai

ITA 5987/MUM/2006[1996-1997]Status: DisposedITAT Mumbai27 May 2022AY 1996-1997

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri K. Shivaram, Sr. A.R. &For Respondent: Shri B.K. Bagchi, Sr. A.R

established that the transactions were sham transactions. The lease agreements executed by the assessee company had the transactions entered into thereupon are not prohibited by law. They are within the four corners of law. Therefore, in obedience of the decision of the Orissa High Court as stated above, we have

M/S. Star Chemical (Bombay) P. Ltd., Mumbai vs. DCIT CIT - 3(3), Mumbai

ITA 5986/MUM/2006[1995-1996]Status: DisposedITAT Mumbai27 May 2022AY 1995-1996

Bench: Shri Kuldip Singh & Shri Gagan Goyal

For Appellant: Shri K. Shivaram, Sr. A.R. &For Respondent: Shri B.K. Bagchi, Sr. A.R

M/S I G Petrochemical Limited, Bangalore vs. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

In the result, both the appeals of the assessee are partly allowed for statistical purposes

ITA 2310/BANG/2018[2015-16]Status: DisposedITAT Bangalore25 May 2022AY 2015-16

Bench: Shri Chandra Poojari & Shri George K. George

For Appellant: Shri Parthasarthy, A.RFor Respondent: Smt. Susan Dolores George, CIT(OSD)

Section 14ASection 40

Taxman 388) wherein it was held that when the expenditure incurred for any purpose, which is an offence or which is prohibited by law is not entitled for deduction, it is not possible to take the view that compounding of the offence or violation of the provisions

M/S I G Petrochemicals Limited, Bangalore vs. Deputy Commissioner of Income Tax Circle-3(1)(1), Bangalore

In the result, both the appeals of the assessee are partly allowed for statistical purposes

ITA 2309/BANG/2018[2014-15]Status: DisposedITAT Bangalore25 May 2022AY 2014-15

Bench: Shri Chandra Poojari & Shri George K. George

For Appellant: Shri Parthasarthy, A.RFor Respondent: Smt. Susan Dolores George, CIT(OSD)

Section 14ASection 40

M/S Stemade Biotech Pvt Ltd, Mumbai vs. DCIT 11 (2)(2), Mumbai

In the result, the appeal is partly allowed for statistical purposes in the terms indicated above

ITA 7823/MUM/2019[2015-16]Status: DisposedITAT Mumbai20 May 2022AY 2015-16

Section 143(3)Section 37

that it violates the code of conduct for medical practitioners, and is, as such, inadmissible as a tax-deductible expense being an expense prohibited by law. Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without any success. The assessee is not satisfied ... medical practitioner is thus forbidden by the legally enforceable code of conduct, which renders it an expense for a purpose that is „prohibited by law‟ depriving the assessee company to claim a tax deduction in respect of the said expenditure. We, therefore, approve the conclusions arrived at by the learned

Lodha Developers Ltd(Formerly Known As Lodha Developers Private Limited), Mumbai vs. DCIT Cen Cir 7(3), Mumbai

In the result, appeal filed by the revenue is dismissed

ITA 2349/MUM/2018[2014-15]Status: DisposedITAT Mumbai12 May 2022AY 2014-15

Bench: Shri S. Rifaur Rahman, Hon'Ble & Shri Pavan Kumar Gadale, Hon'Blemacrotech Developers Limited V. Dcit – Central Circle – 7(3) {Erstwhile Lodha Developers Limited} Room No. 655, 6Th Floor 412, 4Th Floor, 17G Vardhaman Chamber Aayakar Bhavan, M.K. Road Cawasji Patel Road, Horniman Circle Mumbai – 400020 Fort, Mumbai - 400001 Pan: Aaacl1490J (Appellant) (Respondent) Dcit – Central Circle – 7(3) V. Macrotech Developers Limited Room No. 655, 6Th Floor {Erstwhile Lodha Developers Limited} 412, 4Th Floor, 17G Vardhaman Chamber Aayakar Bhavan, M.K. Road Cawasji Patel Road, Horniman Circle Mumbai – 400020 Fort, Mumbai - 400001 Pan: Aaacl1490J (Appellant) (Respondent)

For Appellant: Shri Rajan Vora &For Respondent: Shri Sandeep Raj

Section 37(1)

disallowed the same on the basis that any expenditure which has been incurred for any purpose which is an offence or which is prohibited by law shall not be allowed as deduction. The Ld.CIT(A) had upheld the disallowance made by Assessing Officer. The charges paid were on account ... 2148/MUM/2018 (A.Y. 2014-15) Macrotech Developers Limited compounding, and therefore regularisation fees paid are not in nature of offence or prohibition of law and allowable u/s 37(1) of the Act. 23. Learned Counsel for the assessee submitted that Post facto approvals were granted by the TMC after levying regularization

Tata Aig General Insurance Co. Ltd., Mumbai vs. Dy CIT - 8(3)(1), Mumbai

In the result, appeal of the assessee is allowed for statistical purposes

ITA 1718/MUM/2020[2015-16]Status: DisposedITAT Mumbai25 Apr 2022AY 2015-16

Section 101ASection 143(3)Section 2(9)Section 3Section 30Section 37Section 37(1)Section 40

decide the validity of regulations made by the IRDA? (iii) Whether the ITAT erred in holding that reinsurance payments to non- residents are prohibited by law and therefore hit by Explanation 1 to section 37 of the Act? (iv) Whether the ITAT erred in failing to follow co-ordinate bench ... said Explanation, it was declared that any expenditure incurred by an assessee for any purpose, which is an offence or which is prohibited by law, shall not have been 10 M/s. Tata AIG General Insurance Co. Ltd., deemed to be incurred for the purpose of business or supervision

DCIT Cent. Cir 5(3), Mumbai vs. Shri Parth Vinod Gadhiya, Mumbai

In the result, the appeals filed by the revenue in respect of A

ITA 2248/MUM/2021[2014-15]Status: DisposedITAT Mumbai13 Apr 2022AY 2014-15

Bench: Shri Amarjit Singh, Hon’Ble & S. Rifaur Rahman, Hon’Ble

For Respondent: Shri A. K. Kardam, CIT D.R

Section 10(38)Section 132(1)

facts and circumstances of the case, the Ld CIT(A) has erred in allowing expenses of Rs.1,16,83,600/- explicitly prohibited by law and those incurred for purposes other than business, ignoring incriminating material establishing the same and further, without any proper, reasonable and acceptable explanation of the assessee ... profit derived from unaccounted transactions by allowing expenses of Rs 71,01,796/- explicitly prohibited by law and those incurred for purposes other than business, ignoring incriminating material establishing the same and further, without any proper, reasonable and acceptable explanation of the assessee regarding the same. 6. On the facts

Tata Consultancy Services Ltd, Mumbai vs. Asst CIT Ltu-1, Mumbai

In the result, appeal by the assessee is partly allowed for statistical purpose

ITA 1650/MUM/2016[2011-12]Status: DisposedITAT Mumbai06 Apr 2022AY 2011-12

Bench: Shri Prashant Maharishi & Shri Sandeep Singh Karhail

For Appellant: Shri Porus Kaka, Sr. AdvocateFor Respondent: Ms. Vatsalaa Jha, CIT–DR

Section 115JSection 143(3)Section 144C(1)Section 144C(13)Section 144C(5)Section 2(43)Section 37Section 40Section 90Section 91

claim. In reply, the assessee submitted that the payment was neither on account of any offence committed or for any purpose which is prohibited by law and such payment was on account of compensatory penalty / interest due to delay in complying tax laws and, hence, was claimed as business expenses

M/S. United Spirits Limited, Bengaluru vs. Deputy Commissioner of Income Tax, Circle-7(1)(1), Bengaluru

In the result, the appeal filed by the assessee is partly allowed

ITA 2701/BANG/2017[2013-14]Status: DisposedITAT Bangalore04 Apr 2022AY 2013-14

Bench: Shri George George K, Jm & Ms.Padmavathy S, Am It(Tp)A No.2701/Bang/2017 : Asst.Year 2013-2014 M/S.United Spirits Limited The Deputy Commissioner Of Ub Towers, Income-Tax, Circle 7(1)(1) V. No.24 Vittal Mallya Road Bangalore. Bangalore – 560 001. Pan : Aaccm8043J. (Appellant) (Respondent) Appellant By : Sri.Percy Pardiwala, Senior Advocate Respondent By : Sri.Pradeep Kumar, Cit-Dr Date Of Pronouncement : 05.04.2022 Date Of Hearing : 24.03.2022 O R D E R Per George George K, Jm : This Appeal At The Instance Of The Assessee Is Directed Against Final Assessment Order Dated 12.10.2017 Passed U/S 143(3) R.W.S. 144C(13) Of The I.T.Act. The Relevant Assessment Year Is 2013-2014. 2. The Brief Facts Of The Case Are As Follows: The Assessee Is A Company Engaged In The Manufacture & Sale Of Alcoholic Beverage. The Assessee Filed Its Return Of Income For The Assessment Year 2013-2014 On 28.11.2013 Which Was Selected For Scrutiny Assessment. During The Course Of Assessment, The Assessee’S Case Was Also Referred To The Transfer Pricing Officer (Tpo). The Tpo Vide Order Dated 26.10.2016, Recommended Transfer Pricing Adjustments. The A.O., Thereafter, Passed A Draft Assessment Order Dated 30.12.2016. 2 It(Tp)A No.2701/Bang/2017 M/S.United Spirits Limited.

For Appellant: Sri.Percy Pardiwala, Senior AdvocateFor Respondent: Sri.Pradeep Kumar, CIT-DR

Section 143(3)Section 14ASection 234BSection 234CSection 36(1)(iii)

doubts, it is hereby declared 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

The United Western Bank Ltd. (Through Successors Idbi Bank Ltd.), Mumbai vs. DCIT, Satara

In the result, all the three appeals filed by the assessee are disposed of as above

ITA 289/PUN/2010[2002-03]Status: DisposedITAT Mumbai23 Mar 2022AY 2002-03

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri C Narseh, ARFor Respondent: Shri

Section 143(3)Section 14ASection 35DSection 36(1)(vii)Section 36(1)(viia)Section 37

case of Stock and Bond Trading Co. in ITA No.4117 of 2010 dated 14th October 2011 stating that the above payment is not prohibited by law and therefore it should be allowed. 027. The learned Departmental Representative vehemently supported the orders of the lower authorities. 028. We have carefully considered ... Provision of Section 37(1) of the Act, if assessee incurs any expenditure for any purpose which is an offence and prohibited by law shall not be deemed to have been incurred for the purpose of the business and should be disallowed. The assessee has violated the provisions of section

The United Western Bank Ltd., Mumbai vs. Deputy Commissioner of Income-Tax, Jalgaon

In the result, all the three appeals filed by the assessee are disposed of as above

ITA 1339/PUN/2007[2002-03]Status: DisposedITAT Mumbai23 Mar 2022AY 2002-03

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri C Narseh, ARFor Respondent: Shri

Section 143(3)Section 14ASection 35DSection 36(1)(vii)Section 36(1)(viia)Section 37

The United Western Bank Ltd., Satara vs. Additional Commissioner of Income-Tax, Satara

In the result, all the three appeals filed by the assessee are disposed of as above

ITA 1738/PUN/2005[2002-03]Status: DisposedITAT Mumbai23 Mar 2022AY 2002-03

Bench: Shri Prashant Maharishi, Am & Shri Pavan Kumar Gadale, Jm

For Appellant: Shri C Narseh, ARFor Respondent: Shri

Section 143(3)Section 14ASection 35DSection 36(1)(vii)Section 36(1)(viia)Section 37