ITO-4(2)(1), MUMBAI V. RELIANCE SHARE & STOCK BROKERS (P) LTD., MUMBAI

ITA 274/MUM/2013

• Counselvise Citation: 27419914 RSA 2013
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business expenditure; Commercial expediency
• Section: 14A; 37(1); 37; 12; 11

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.274/MUM/2013 ( ! ' # / ASSESSMENT YEAR : 2008-09) INCOME TAX -4(2)(1), ROOM NO.644, 6 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 / VS. M/S RELIANCE SHARE AND STOCK BROKERS (P) LTD. 412, RAHEJA CHAMBERS, NARIMAN POINT, MUMBAI-400021 ( $% / APPELLANT) .. ( &'$% / RESPONDENT) $ ./ ( ./PAN/GIR NO. :AAACR2801B $% ) / APPELLANT BY SHRI DURGA DUTT &'$% * ) /RESPONDENT BY SHRI ARVIND SONDE + , * - . / DATE OF HEARING : 12.9.2014 /0#' * - . /DATE OF PRONOUNCEMENT : 22.10.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 02.11.2012 PASSED BY LD CIT(A)-8, MUMBAI AND IT REL ATES TO THE ASSESSMENT YEAR 2008-09. 2. THE REVENUE IS IN APPEAL BEFORE US IN RESPEC T OF THE FOLLOWING ISSUES:- (A) DISALLOWANCE MADE U/S 14A R.W. RULE 8D (B) DISALLOWANCE OF CONSENT FEE PAID TO SEBI. 3. THE FACTS RELATING TO THE ABOVE SAID ISSUES ARE STATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN SHARE BROKING BUSINESS. IT F ILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION DECLARING LOSS OF RS.1 ,55,950/-. THE SAID RETURN OF INCOME CAME TO BE SCRUTINIZED BY THE ASSESSING OFFI CER. ON EXAMINATION OF THE I.T.A. NO.274/MUM/2013 2 SAME, THE AO NOTICED THAT THE ASSESSEE HAS DISCLOSE D DIVIDEND INCOME OF RS.2,13,016/- AND CLAIMED THE SAME AS EXEMPT FROM T AXATION. IT APPEARS THAT THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE U/S 14A OF T HE ACT. HENCE, THE ASSESSING OFFICER ASKED THE ASSESSEE TO COMPUTE THE DISALLOWANCE TO BE MADE IN TERMS OF SEC. 14A OF THE INCOME TAX ACT, 1961 (THE ACT). THE ASSESSEE FURNISHED WORKINGS, WHEREIN THE INTEREST DISALLOWAN CE WAS WORKED OUT AT RS.29,91,393/- AND THE EXPENSES TO BE DISALLOWED WA S WORKED OUT AT RS.15,58,023/-. THE ASSESSING OFFICER ACCEPTED THE WORKING GIVEN FOR DISALLOWING EXPENSES, BUT DID NOT AGREE WITH THE ASSESSEE WITH REGARD TO THE INTEREST DISALLOWANCE. THE AO TOOK THE VIEW THAT THE PROVIS IONS OF RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES) HAVE TO BE ADOPTED IN LETTER AND SPIRIT AND ACCORDINGLY TOOK THE VIEW THAT THE INTEREST DISALLO WANCE NEEDS TO BE COMPUTED IN TERMS OF RULE 8D(2)(II) OF THE RULES. ACCORDINGLY , THE AO WORKED OUT THE INTEREST DISALLOWANCE AT RS.2,50,84,476/-. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED A SUM OF RS.2,66,42,967/- (RS.2,50,84,476/- + RS.15,5 8,203/-) U/S 14A OF THE ACT. (THERE IS A CASTING ERROR, THE ADDITION SHOULD HAVE BEEN RS.2,66,42,679/-). 4. THE AO FURTHER NOTICED THAT THE ASSESSEE HAS PAID A SUM OF RS.50.00 LAKHS TO SEBI AS CONSENT FEE. ON FURTHER EXAMINATION, IT WAS NOTICED THAT THE SEBI HAS RECOMMENDED FOR SUSPENSION OF THE CERTIFICATE OF RE GISTRATION AS STOCK BROKER FOR A PERIOD OF NINE MONTHS FOR VIOLATING THE VARIO US REGULATIONS FRAMED BY SEBI. AFTER HEARING THE ASSESSEE, THE PERIOD OF SUSPENSIO N WAS REDUCED TO FOUR MONTHS. THE ASSESSEE HAD CHALLENGED THE SAID ORDER BY FILING BEFORE THE SECURITIES APPELLATE TRIBUNAL. WHILE THE SAID APPE AL WAS PENDING, THE SEBI ISSUED A CIRCULAR WHEREBY IT AGREED TO SETTLE THE D ISPUTES IN CONSIDERATION OF CONSENT APPLICATION FURNISHED BY THE ASSESSEE ON PAYMENT OF CONSENT FEE. ACCORDINGLY, THE ASSESSEE FILED A CONSENT APPLICATI ON BEFORE SEBI, WHEREIN IT AGREED TO PAY A SUM OF RS.50.00 LAKHS WITHOUT ADMIT TING OR DENYING THE GUILT ALLEGED BY SEBI. ON ITS APPROVAL, THE SECURITY APP ELLATE TRIBUNAL ALSO DISPOSED OF THE APPEAL FILED BY THE ASSESSEE IN TERMS OF CON SENT TERMS. THE AO TOOK THE VIEW THAT THE ABOVE SAID AMOUNT OF RS.50.00 LAKHS I S A COMPOUNDING FEE PAID BY THE ASSESSEE FOR OFFENCES COMMITTED UNDER SEBI (STO CK BROKERS AND SUB- BROKERS) REGULATIONS, 1992. ACCORDINGLY, THE AO TO OK THE VIEW THAT THIS WAS A PENALTY PAID FOR INFRACTION OF LAW AND HENCE, DISAL LOWED THE SAID CLAIM BY INVOKING THE EXPLANATION TO SEC. 37(1) OF THE ACT. I.T.A. NO.274/MUM/2013 3 5. IN THE APPEAL FILED BY THE ASSESSEE, THE LD CIT(A) NOTICED FROM THE WORKINGS FURNISHED BY THE ASSESSEE FOR INTEREST DISALLOWANCE THAT THE ASSESSEE COULD RELATE THE BORROWINGS WITH INVESTMENTS. ACCORDINGL Y, THE LD CIT(A) HELD THAT THE INTEREST DISALLOWANCE IS REQUIRED TO BE MADE UNDER RULE 8D(2)(I) OF THE I.T RULES, SINCE THE ASSESSEE HAS ESTABLISHED DIRECT NEXUS BET WEEN THE BORROWINGS AND INVESTMENTS AND ACCORDINGLY ALLOCATED INTEREST EXPE NDITURE PROPORTIONATELY, THE LD CIT(A) DIRECTED THE AO TO RESTRICT THE INTEREST DISALLOWANCE TO RS.29,91,393/-, I.E., AT THE AMOUNT WORKED OUT BY THE ASSESSEE. WI TH REGARD TO THE DISALLOWANCE OF RS.50.00 LAKHS, THE LD CIT(A) NOTICED THAT THE C ONSENT FEE WAS PAID BY THE ASSESSEE WITHOUT ACCEPTING OR DENYING THE GUILT. FU RTHER THE LD CIT(A) HELD THAT THE FACT OF ACCEPTANCE OF SAID CONSENT APPLICATION BY SEBI WOULD ONLY SHOW THAT THE SEBI HAS ALSO ACCEPTED THAT THE CHARGE OR GUILT MAY OR MAY NOT BE ESTABLISHED. ACCORDINGLY, THE LD CIT(A) HELD THAT THE CONSENT FEE PAID BY THE ASSESSEE CANNOT BE EQUATED WITH PENALTY FOR INFRA CTION OF LAW. ACCORDINGLY, THE LD CIT(A) HELD THAT THE CONSENT FEE SHOULD BE ALLOW ABLE AS BUSINESS EXPENDITURE, SINCE IT WAS PAID FOR THE PURPOSE OF BUSINESS, I.E. , IN ORDER TO ENABLE THE ASSESSEE TO CONDUCT THE BUSINESS WITHOUT INTERRUPTI ON. BEFORE THE LD CIT(A), THE ASSESSEE HAD PLACED RELIANCE ON HOSTS OF CASE LAW A ND THE FIRST APPELLATE AUTHORITY HELD THAT ALL THE DECISIONS RELIED UPON B Y THE ASSESSEE ALSO SUPPORT THE CASE OF THE ASSESSEE. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF RS.50.00 LAKHS MADE BY THE AO. AGGRIEVED BY THE DECISION OF LD CIT(A) RENDERED ON BOTH THE ISSUES REFERRED ABOVE, THE REVENUE HAS FILED TH IS APPEAL BEFORE US. 6. THE FIRST ISSUE RELATES TO THE INTEREST DISA LLOWANCE MADE U/S 14A OF THE ACT. WE HEARD THE PARTIES ON THIS ISSUE. WE HAVE ALREAD Y NOTICED THAT THE ASSESSING OFFICER HAS COMPUTED THE INTEREST DISALLOWANCE IN A CCORDANCE WITH RULE 8D(2)(II) OF I.T RULES. AS RIGHTLY POINTED OUT BY LD CIT(A), THE REQUIREMENT OF MAKING DISALLOWANCE UNDER RULE 8D(2)(II) WOULD ARISE ONLY IF THE NEXUS BETWEEN THE BORROWINGS AND INVESTMENTS COULD NOT BE CLEARLY EST ABLISHED. IN THE INSTANT CASE, THE LD CIT(A) HAS NOTICED THAT THE ASSESSEE WAS ABL E TO PROVE THE NEXUS BETWEEN THE BORROWINGS AND INVESTMENTS AND ACCORDINGLY IT H AS COMPUTED THE INTEREST DISALLOWANCE. THE FOLLOWING TABLE FURNISHED BY THE ASSESSEE SHOWS THE PURPOSE AND UTILIZATION OF BORROWINGS MADE BY THE ASSESSEE, I.E., THE NEXUS BETWEEN THE BORROWINGS AND ITS UTILISATION. I.T.A. NO.274/MUM/2013 4 RECEIVED AMOUNT UTILIZATION INTEREST PAID INTEREST AMOUNT ON BUSINESS LOAN INTEREST AMOUNT ON INVEST-MENT 1,067,500,000 OPG-TOTAL 867,500,000 OPG-BUSINESS PURPOSE 1.4.07 31.03.08 366 86,750,000 13,400,000 ICD TO MEET REGULAR EXPENSES 25.3.08 31.03.08 7 25,628 60,000,000 ICD TO MEET REGULAR EXPENSES 31.03.08 31.03.08 1 16,393 (408,000,000) REPAID 13.11.07 31.03.08 140 (15,606,557) (304,500,000) REPAID 21.11.07 31.03.08 133 (11,065,164) 500,000,000 ICD TAKEN FOR CAPITAL ADEQUACY DEPOSIT WITH BSE 19.5.07 31.03.08 318 43,442,623 (355,500,000) REPAID-BUSINESS LOAN 1.4.07 23.5.07 314 (30,499,180) (7,500,000) REPAID-BUSINESS LOAN 1.4.07 31.05.07 306 (627,049) (5,000,000) REPAID-BUSINESS LOAN 1.4.07 12.07.07 264 (360,656) (4,000,000) REPAID-BUSINESS LOAN 1.4.07 27.07.07 249 (272,131) (47,500,000) REPAID-BUSINESS LOAN 1.4.07 08.08.07 237 (3,075,820) (5,000,000) REPAID-BUSINESS LOAN 1.4.07 14.08.07 231 (315,574) (3,500,000) REPAID-BUSINESS LOAN 1.4.07 1.09.07 213 (203,689) (22,000,000) REPAID-BUSINESS LOAN 1.4.07 13.11.07 140 (841,530) 150,000,000 OPG- SHARES OF RELIANCE SECURITIES LTD.-SHARES 1.4.07 31.03.08 365 15,000,000 (3,000,000) REPAID -RELIANCE SECURITIES LTD. SHARES 1.4.07 7.4.07 360 (295,082) (10,000,000) REPAID -RELIANCE SECURITIES LTD. SHARES 1.4.07 23.04.07 344 (939,891) (15,000,000) REPAID -RELIANCE SECURITIES LTD-SHARES. 1.4.07 24.4.07 343 (1,405,738 ) (5,000,000) REPAID -RELIANCE SECURITIES LTD.-SHARES 1.4.07 12.05.07 325 (443,989) (12,500,000) REPAID -RELIANCE SECURITIES LTD.-SHARES 1.4.07 14.05.07 323 (1,103,142) (10,000,000) REPAID -RELIANCE SECURITIES LTD-SHARES. 1.4.07 22.05.07 315 (860,656) (94,500,000) REPAID -RELIANCE SECURITIES LTD.-SHARES 1.4.07 23.05.07 314 (8,107,377) 50,000,000 OPT-RELIANCE LAND PVT.LTD- SHARES 1.4.07 31.03.08 365 5,000,000 (50.000,000) REPAID-RELIANCE LAND PVT.LTD- SHARES. 1.4.07 23.05.07 314 (4,289,617) 20,500,000 SHARES OF MENON AND MENON PVT.LTD 14.1.08 31.03.08 78 436,885 298,900,000 67,367,295 2,991,393 THE ASSESSEE HAD ALSO SUBMITTED BEFORE LD CIT(A) TH AT THE NEXUS BETWEEN THE BORROWINGS AND INVESTMENTS MADE PRIOR TO 31.3.2007 WAS ALSO ESTABLISHED IN THE LIKE MANNER IN THE EARLIER YEARS. I.T.A. NO.274/MUM/2013 5 7. IT IS NOW SETTLED PRINCIPLE THAT THE ASSESSI NG OFFICER HAS TO EXAMINE THE DISALLOWANCE MADE BY THE ASSESSEE BY HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND ONLY THEREAFTER THE AO, IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM, SHALL DETERMINE THE DISALLOWANCE TO BE M ADE U/S 14A OF THE ACT IN ACCORDANCE RULE 8D. IN THIS REGARD, A GAINFUL REFE RENCE MAY BE MADE TO THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL HI GH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81). IT IS ALSO PERT INENT TO NOTE THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (347 ITR 272), WHEREIN THE HONBLE DELHI HIGH C OURT HAS EXPRESSED THE VIEW THAT THE ASSESSING OFFICER HAS TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF EXPENDITURE BY HAVING REGARD TO TH E ACCOUNTS OF THE ASSESSEE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REA SONS. IT IS ONLY THEN THAT THE QUESTION OF DETERMINATION OF EXPENDITURE U/S 14A BY THE ASSESSING OFFICER WOULD ARISE. IN THE INSTANT CASE, WE NOTICE THAT THE WOR KINGS FURNISHED BY THE ASSESSEE FOR INTEREST DISALLOWANCE WAS NOT EXAMINED AT ALL B Y THE AO, WHEREAS HE IS REQUIRED TO REJECT THE WORKINGS FURNISHED BY THE AS SESSEE AFTER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. 8. FURTHER WE NOTICE THAT THE REVENUE COULD NOT CONTROVERT THE FINDING GIVEN BY THE LD CIT(A) THAT THE ASSESSEE WAS ABLE TO ESTABLI SH THE NEXUS BETWEEN THE BORROWINGS AND THE INVESTMENTS. WE HAVE ALSO NOTIC ED THAT THE FINDING SO GIVEN BY THE FIRST APPELLATE AUTHORITY WAS CORRECT AS PER THE WORKINGS FURNISHED BY THE ASSESSEE IN THE TABLE EXTRACTED ABOVE. IT IS ALSO PERTINENT TO NOTE THAT THE REVENUE DID NOT FIND FAULT WITH THE SAID WORKINGS. UNDER THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN HOLDING THAT THE INTEREST DISALLOWANCE WAS REQUIRED TO BE MADE UNDER RULE 8D( 2)(I) OF THE I.T RULES AND ALSO IN CONFIRMING THE DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.29,91,393/-, AS WORKED OUT BY THE ASSESSEE. ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE. 9. THE NEXT ISSUE RELATES TO THE DISALLOWANCE O F CONSENT FEE OF RS.50.00 LAKHS PAID BY THE ASSESSEE. THE LD D.R SUBMITTED THAT TH E ASSESSEE HAS PENALTY FOR VIOLATION OF THE PROVISIONS OF SEBI ACT, I.E., THE ASSESSEE HAS NOT FOLLOWED THE VARIOUS RULES PRESCRIBED UNDER THE ACT. HE FURTHE R SUBMITTED THAT THE CONSENT ORDER PASSED BY THE SEBI SHALL NOT CHANGE THE CHARA CTER OF VIOLATION OR PENALTY INITIALLY LEVIED BY THE BOARD. ON THE CONTRARY, T HE LD COUNSEL APPEARING FOR THE I.T.A. NO.274/MUM/2013 6 ASSESSEE SUBMITTED THAT THE SEBI HAD INITIATED THE ACTION AGAINST THE ASSESSEE IN CONNECTION WITH CERTAIN TECHNICAL VIOLATIONS. S UCH ACTION HAS BEEN INITIATED BY VIRTUE OF POWERS GIVEN TO SEBI TO TAKE CERTAIN ADMI NISTRATIVE OR CIVIL ACTION. THE LD A.R INVITED OUR ATTENTION TO PARAGRAPH 61 OF THE ORDER DATED 11-12-2006 PASSED BY THE SECURITIES APPELLATE TRIBUNAL (SAT) , WHEREIN THE SAT HAD OBSERVED THAT THE VIOLATIONS ARE TECHNICAL IN NATUR E. IN THIS REGARD, THE LD A.R CARRIED US THROUGH THE SECURITIES AND EXCHANGE BOAR D OF INDIA ACT, 1992, MORE PARTICULARLY TO SECTION 11 OF THE ACT, WHICH ELABOR ATES THE POWERS AND FUNCTIONS OF THE BOARD. THE LD COUNSEL SUBMITTED THAT THE BO ARD HAS THE POWER TO REGULATE THE WORKING OF STOCK BROKERS ETC., LEVY FE ES OR OTHER CHARGES FROM THEM AND TAKE THE MEASURES SPECIFIED IN SEC. 11(4) OF TH E ABOVE SAID ACT IN THE INTERESTS OF INVESTORS OR SECURITIES MARKET. THE A CTIONS SPECIFIED IN SEC. 11(4), INTER ALIA, ARE THAT THE BOARD MAY RESTRAIN PERSONS FROM ACCESSING THE SECURITIES MARKET; DIRECT ANY INTERMEDIARY OR ANY PERSON ASSOC IATED WITH THE SECURITIES MARKET IN ANY MANNER NOT TO DISPOSE OF OR ALINEATE AN ASSET FORMING PART OF ANY TRANSACTION WHICH IS UNDER INVESTIGATION ETC. THE LD COUNSEL SUBMITTED THAT THE ASSESSEE HEREIN WAS ALLEGED TO HAVE COMMITTED CERTA IN IRREGULARITIES AND HENCE THE OFFICIALS RECOMMENDED FOR SUSPENSION OF THE ASS ESSEE FOR NINE MONTHS, WHICH WAS ULTIMATELY REDUCED TO FOUR MONTHS. 10. THE LD COUNSEL FURTHER SUBMITTED THAT THE S EBI ACT MAKES CLEAR DEMARCATION OF PENALTIES LEVIED UNDER ADMINISTRATIV E OR CIVIL ACTION FOR TECHNICAL DEFAULTS AND THE PENALTIES LEVIED FOR OFFENCES COMM ITTED. THE LD A.R INVITED OUR ATTENTION TO SECTIONS 15E, 15F, 15G AND 15H AND SUB MITTED THAT THESE SECTIONS PROVIDE ONLY FOR MONETARY PENALTIES FOR THE FAILURE TO OBSERVE THE RULES AND REGULATIONS, DEFAULT, INSIDER TRADING, NON-DISCLOSU RE ETC. HE THEN ATTEMPTED TO DISTINGUISH THE PENALTIES PRESCRIBED IN THE ABOVE S ECTIONS BY SUBMITTED THAT THE PROVISIONS OF SECTION 24 OF THE ACT PROVIDES FOR I MPRISONMENT OR FINE OR BOTH FOR THE OFFENCES COMMITTED UNDER THE ACT. HE THEN INVI TED OUR ATTENTION TO SECTION 24A OF THE ACT WHICH PROVIDES FOR COMPOSITION OF CE RTAIN OFFENCES. HE SUBMITTED THAT UNDER SECTION 24A OF THE ACT, THE OFFENCES PUN ISHABLE WITH IMPRISONMENT ONLY OR WITH IMPRISONMENT AND ALSO WITH FINE SHALL NOT BE COMPOUNDED, BUT ANY OTHER OFFENCES MAY BE COMPOUNDED. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE PENALTIES PRESCRIBED IN SECTIONS 15E TO 15H ARE REL ATED TO TECHNICAL VIOLATIONS I.T.A. NO.274/MUM/2013 7 AND THEY CANNOT BE CONSIDERED AS INFRACTION OF LAW, AS PRESUMED BY THE ASSESSING OFFICER. 11. THE LD COUNSEL FURTHER SUBMITTED THAT SECTIO N 15I PRESCRIBES THE METHODOLOGY TO ADJUDGE THE TECHNICAL VIOLATIONS PRE SCRIBED IN SECTIONS 15E TO 15H OF THE ACT, I.E., THE BOARD SHALL APPOINT ANY O FFICER NOT BELOW THE RANK OF DIVISION CHIEF TO BE AN ADJUDICATING OFFICER FOR HO LDING AN INQUIRY IN THE PRESCRIBED MANNER. THE SAID OFFICER SHALL DETERMINE THE QUNTU M OF PENALTY BY HAVING REGARD TO THE AMOUNT OF DISPROPORTIONATE GAIN OR UN FAIR ADVANTAGE MADE AS A RESULT OF THE DEFAULT ETC. THE LD COUNSEL SUBMITTE D THAT THIS SECTION ALSO CLEARLY SHOWS THAT THE PENALTIES PRESCRIBED IN SECTIONS 15E TO 15H ARE ONLY TECHNICAL DEFAULTS BY WHICH THE PERSON COMMITTING ANY IRREGUL ARITY MIGHT HAVE MADE UNDUE ADVANTAGE OR DISPROPORTIONATE GAIN. HE SUBMITTED T HAT THE ADJUDICTING OFFICER APPOINTED TO MAKE ENQUIRIES ABOUT THE ALLEGED IRREG ULARITIES COMMITTED BY THE ASSESSEE INITIALLY RECOMMENDED FOR SUSPENSION OF TH E ASSESSEE FOR NINE MONTHS, BUT LATER IT WAS REDUCED TO FOUR MONTHS. 12. THE LD COUNSEL, THEREAFTER, INVITED OUR ATT ENTION TO CIRCULAR NO. EFD/ED/CIR-1/2007 DATED 20 TH APRIL 2007 ISSUED BY THE SEBI, WHEREIN THE GUIDELINES FOR CONSENT ORDERS AND FOR CONSIDERING R EQUESTS FOR COMPOSITION OF OFFENCES ARE GIVEN. HE SUBMITTED THAT THE SEBI HAS MADE IT CLEAR IN PARAGRAPH 3 OF THE ABOVE SAID CIRCULAR THAT THE CONSENT ORDERS CANNOT BE CONSTUED AS WAIVER OF STATUTORY POWERS BY THE BOARD AND THE BOARD ALWA YS HAS THE RIGHT TO PROCEED FOR APPROPRIATE ACTION IF IT CANNOT ACHIEVE ITS OBJ ECTIVES THROUGH CONSENT ORDER. THE LD COUNSEL, THEN, INVITED OUR ATTENTION TO PARA GRAPH 5 OF THE CIRCULAR WHICH READS AS UNDER:- 5 THEREFORE, IT HAS BEEN DECIDED THAT ALL APPROPRIATE ADMINISTRATIVE OR CIVIL ACTIONS, EG. PROCEEDINGS UNDER SECTIONS 11, 11B, 11D, 12(3) AND 15I OF SEBI ACTMAY BE SETTLED BETWEEN SEBI AND A PERS ON (PARTY) WHO MAY PRIMA FACIE BE FOUND TO HAVE VIOLATED THE SECURITIES LAWS OR AGAINST WHOM ADMINISTRATIVE OR CIVIL ACTION HAS BEE N COMMENCED FOR SUCH VIOLATION. THE LD COUNSEL SUBMITTED THAT THE ACTION WAS TAKEN AGAINST THE ASSESSEE UNDER SECTION 11 OF THE ACT AND THE SAME IS MADE CLEAR TH AT IT WAS AN ADMINISTRATIVE OR CIVIL ACTION. FURTHER THE CONSENT ORDER IS PERMIS SIBLE ONLY IF THERE WAS A PRIMA I.T.A. NO.274/MUM/2013 8 FACIE CASE, MEANING THEREBY THERE WAS ONLY A PRIMA FACIE CASE AGAINST THE ASSESSEE ALSO. 13. THE LD COUNSEL THEN INVITED OUR ATTENTION T O THE CONSENT APPLICATION FILED BY THE ASSESSEE, WHICH IS PLACED AT PAGES 13-32 OF PAPER BOOK, MORE PARTICULARLY PARAGRAPH 19 OF THE APPLICATION WHICH SPECIFIES TE RMS OF CONSENT PROPOSAL. THE LD COUNSEL SUBMITTED THAT THE ASSESSEE HAS CLEA RLY STATED THAT THE CONSENT APPLICATION SHALL NOT BE CONSTRUED, IN ANY MANNER, AS ADMISSION OF THE FINDINGS OR THE ACCEPTANCE OF THE PENALTY STATED IN THE ORDE R. THE LD COUNSEL SUBMITTED THAT THE ASSESSEE HAS NEVER ADMITTED THE IRREGULARI TIES ALLEGED TO HAVE BEEN COMMITTED BY IT. ACCORDINGLY, THE LD A.R SUBMITTE D THAT THE SOLE MOTIVE OF THE ASSESSEE IN FILING THE CONSENT LETTER IS TO ENABLE IT TO CARRY ON ITS BUSINESS ACTIVITIES WITHOUT INTERRUPTION, WHICH DECISION HAS BEEN TAKEN ON COMMERCIAL EXPEDIENCY IN THE BEST INTEREST OF ITS BUSINESS AND CLIENTS. THE LD A.R, THEN, INVITED OUR ATTENTION TO PAGE 10 OF THE PAPER BOOK, WHEREIN THE ORDER PASSED BY THE SEBI AGAINST THE CONSENT APPLICATION. THE LD A .R INVITED OUR ATTENTION TO PARAGRAPH 2 OF THE CONSENT ORDER WHICH READS AS UND ER:- 2. YOU HAD VIDE CONSENT APPLICATION AND LETTER DA TED 15 TH NOVEMBER, 2007 PROPOSED, WITHOUT ADMITTING OR DENYING THE GUI LT, TO OFFER RS.50,00,000/- (RUPEES FIFTY LAKHS ONLY) AS AN AGGR EGATE AMOUNT TOWARDS SETTLEMENT CHARGES, LEGAL EXPENSES AND ADMINISTRATI VE EXPENSES IN THE MATTER. THE LD A.R FURTHER SUBMITTED THAT THE SEBI HAS ACCE PTED THAT THE ASSESSEE HAS FILED CONSENT APPLICATION WITHOUT ADMITTING OR DENY ING THE GUILT. FURTHER IT IS CLEARLY STATED IN THE CONSENT ORDER THAT THE AMOUNT OF RS.50.00 LAKHS PAID BY THE ASSESSEE WAS TOWARDS SETTLEMENT CHARGES, LEGAL EXPE NSES AND ADMINISTRATIVE EXPENSES. ACCORDINGLY, THE LD A.R CONTENDED THAT T HE ASSESSING OFFICER WAS NOT CORRECT IN PRESUMING THAT THE AMOUNT OF RS.50.00 LA KHS PAID BY THE ASSESSEE WAS A PENALTY FOR INFRACTION OF LAW AS SPECIFIED IN THE PROVISO TO SECTION 37(1) OF THE ACT. 14. ON CONSIDERATION OF RIVAL SUBMISSIONS, WE NOT ICE THAT THE CASE OF THE LD A.R WAS THAT THE AMOUNT OF RS.50.00 LAKHS WAS PAID BY T HE ASSESSEE BY TAKING INTO CONSIDERATION THE BUSINESS INTEREST IN ORDER TO SET TLE THE ONGOING DISPUTE AND ACCORDING TO LD A.R, THE ASSESSEE NEVER ADMITTED OR ACCEPTED THE ALLEGED I.T.A. NO.274/MUM/2013 9 IRREGULARITIES. THUS, ACCORDING TO LD A.R, THE ASS ESSEE HAS NOT COMMITTED ANY OF THE ALLEGATION MADE BY THE SEBI. HENCE THE AMOUNT OF RS.50.00 LAKHS PAID BY THE ASSESSEE CANNOT BE EQUATED TO PENALTY LEVIED FO R INFRACTION OF LAW. IN THE ALTERNATIVE, THE CONTENTION OF THE LD A.R IS THAT T HE PENALTIES PRESCRIBED IN SECTIONS 15E TO 15H ARE RELATED TO TECHNICAL VIOLAT IONS AND THEY CANNOT BE CONSIDERED AS INFRACTION OF LAW. ON THE OTHER HAND, WE NOTICE THAT THE REVENUE WAS MAINLY CARRIED AWAY BY THE EXPRESSION PENALTY USED IN SECTIONS 15E TO 15H OF THE SEBI ACT. 15. HOWEVER, WE FIND FORCE IN THE CONTENTIONS OF THE ASSESSEE. THE CIRCULAR ISSUED BY SEBI FOR CONSENT APPLIATION CLEARLY SPE CIFIES THAT THE ACTION TAKEN UNDER SECTION 11 OF THE ACT FALL IN THE CATEGORY OF ADMINISTRATIVE OR CIVIL ACTION. FURTHER, ORDER PASSED BY SAT ALSO CLEARLY STATES TH AT THE IRREGULARITIES ALLEGED AGAINST THE ASSESSEE ARE TECHNICAL VIOLATIONS. MOST OF ALL, THE AMOUNT OF RS.50.00 LAKHS PAID BY THE ASSESSEE ARE NOT RELATED TO THE PENALTY, IF ANY, IMPOSED BY THE SEBI, RATHER IT WAS A CONSENT FEE PAID BY THE ASSESSEE FOR SETTLEMENT OF DISPUTE, LEGAL EXPENSES AND OTHER ADM INISTRATIVE CHARGES OF SEBI. THE SAID AMOUNT WAS PAID CLEARLY SPECIFYING THAT IT WAS PAID WITHOUT ADMITTING OR DENYING THE GUILT. HENCE, IN OUR VIEW, IT CANNOT B E SAID THAT THE ASSESSEE HAS PAID THE AMOUNT OF RS.50.00 LAKHS BY DULY ACCEPTING OR UPON PROVING THE IRREGULARITIES ALLEGED AGAINST IT. ON THE CONTRARY , IT IS THE CASE OF THE ASSESSEE THAT IT HAS TAKEN THE DECISION TO SETTLE THE DISPUT E ON COMMERCIAL EXPEDIENCY AND UPON BUSINESS INTERESTS. 16. WE NOTICE THAT THE LD CIT(A) HAS ADJUDICAT ED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN ANOTHER ANGLE. FOR THE SAKE OF CONVENI ENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE LD CIT(A). 6.3 THE APPELLANT FURTHER SUBMITTED THAT IT M AY BE WORTHWHILE TO REPRODUCE THE RELEVANT GUIDELINES FOR CONSENT ORDER : 'UNDER THE SEBI ACT, 1992, SECURITIES CONTRACTS (RE GULATION) ACT, 1956 (SCRA) AND THE DEPOSITORIES ACT, 1996, SEBI PU RSUES TWO STREAMS OF ENFORCEMENT ACTIONS I.E. ADMINISTRATIVE/ CIVIL OR CRIMINAL. ADMINISTRATIVE/CIVIL ACTIONS INCLUDE ISSUING DIRECT IONS SUCH AS REMEDIAL ORDERS, CEASE AND DESIST ORDERS, SUSPENSIO N OR CANCELLATION OF CERTIFICATE OF REGISTRATION AND IMP OSITION OF MONETARY PENALTY UNDER THE RESPECTIVE STATUTES AND ACTION PU RSUED OR DEFENDED IN A COURT OF LAW/TRIBUNAL................ .. I.T.A. NO.274/MUM/2013 10 IT FURTHER PROVIDES THAT, 'CONSENT ORDER MAY BE PASSED AT ANY STAGE AFTER PRO BABLE CAUSE OF VIOLATION HAS BEEN FOUND. HOWEVER, IN THE EVENT OF A SERIOUS AND INTENTIONAL VIOLATION, THE PROCESS SHOULD NOT BE CO MPLETED TILL THE FACT FINDING PROCESS IS COMPLETED WHETHER BY WAY OF INVESTIGATION OR OTHERWISE.' 6.4 THE APPELLANT FURTHER SUBMITTED THAT MOST OF THE IRREGULARITIES REFERRED TO IN THE ORDER ARE PROCEDURAL OR ADMINISTRATIVE NO N-COMPLIANCES OF THE VARIOUS PROVISIONS OF SEBI ACT. THE SEBI HAS BEEN G IVEN THE POWER BY THE PARLIAMENT OF INDIA TO PASS CONSENT ORDERS UNDER TH E SEBI ACT AND THE DEPOSITORIES ACT. IT HAS ALSO BEEN SPECIFIED THAT I N THE EVENT OF A SERIOUS AND INTENTIONAL VIOLATION THE PROCESS SHOULD NOT BE COMPLETED TILL THE FACT FINDING PROCESS IS COMPLETED. THE APPELLANT'S CASE WAS DECIDED WITHOUT WAITING FOR THE FINAL FACT FINDINGS, SUGGESTING THA T THE CASE WAS ONE OF ROUTINE ABNORMALITY. 6.5 THE APPELLANT ALSO SUBMITTED THAT THE SEBI WHI LE ACCEPTING THE CONSENT PROPOSAL OF THE APPELLANT HAS INTER ALIA ST ATED AS UNDER: 'YOU HAD VIDE CONSENT APPLICATION AND LETTER DATED 15 TH NOVEMBER, 2007 PROPOSED, WITHOUT ADMITTING OR DENYING THE GUI LT, TO OFFER 50,00,000/-(RUPEES FIFTY LAKHS ONLY) AS AN AGGREGAT E AMOUNT TOWARDS SETTLEMENT CHARGES, LEGAL EXPENSES AND ADMI NISTRATIVE EXPENSES A IN THE MATTER. IN THIS REGARDS, WE INFORM YOU, THAT THE TERMS PRO POSED BY YOU WERE EXAMINED BY THE INDEPENDENT HIGH POWERED ADVIS ORY COMMITTEE (HPAC) AND HAVING CONSIDERED THE FACTS AN D CIRCUMSTANCES OF THE CASE, HPAC HAS RECOMMENDED THA T THE CASE MAY BE SETTLED ON PAYMENT OF RS. 50,00,000,/- (RUPE ES FIFTY LAKHS ONLY). IN VIEW OF THE RECOMMENDATION OF HPAC, SEBI HAS IN PRINCIPLE AGREED TO THE CLAUSE' UNDERTAKINGS(WAIVER S VIDE YOUR AFORE-MENTIONED CONSENT APPLICATION.' 6.6 THE APPELLANT FURTHER RELIED UPON THE FOLLOWING JUDGEMENTS TO SUBSTANTIATE THE SAME: FINE AND PENALTIES ARE COLLECTED BY A STOCK EXCH ANGE FROM ITS MEMBERS FOR VARIOUS REASONS. WHERE SUCH PAYMENT S WERE COLLECTED FOR ALLEGED UNFAIR TRADING PRACTICE OR NO N- BUSINESS LIKE CONDUCT, IT IS NOT A PAYMENT FOR VIOLATION OF THE R EGULATIONS OF-THE STOCK EXCHANGE. IT -WAS HELD, THAT SUCH AMOUNTS CAN NOT BE DISALLOWED IN GOLD CREST CAPITAL MARKETS LIMITED V ITO (2010) 2 ITR (TRIB) 355 (MUMBAI). IN COMING TO THE CONCLUSIO N, THE TRIBUNAL DISCUSSED THE PROVISIONS OF THE CONSTITUTION OF NAT IONAL STOCK EXCHANGE AND THE REGULATIONS APPLICABLE TO BROKERS AND SUB- BROKERS STIPULATED BY THE SECURITIES AND EXCHANGE BOARD OF INDIA WITH REFERENCE TO WHICH PENALTIES ARE LEVIED BY DI SCIPLINARY ACTION BENCH OF NATIONAL STOCK EXCHANGE. I.T.A. NO.274/MUM/2013 11 THE HON'BLE MURNBAI TRIBUNAL IN THE CASE OF VRM SH ARE BROKING (P) LTD, 27 SOT 469 IT WAS HELD THAT: 'FROM THE PERUSAL OF VARIOUS NOTIFICATIONS ISSUED B Y SEBI, IT WAS APPARENT THAT THEY WERE ISSUED MAINLY IN THE CONTEX T OF THE RISK MANAGEMENT, RATHER THAN AS A PENAL PROVISION FOR PU NISHING THE DEFAULTERS OR DEEMING THE TRANSACTIONS ILLEGAL. IN VIEW OF THE SAME, IT WAS OPINED THAT WITH OR WITHOUT THE PROVISIONS O F MARGIN MONEY THE LOSS COULD NOT BE HELD AS ILLEGAL LOSS DENYING THE BENEFIT OF SET OFF OF SAME AGAINST THE INCOME OR ALLOWING THE SAME TO CARRY FORWARD TO THE LATER YEARS. THE ORDER OF THE COMMISSIONER(APPEALS') THEREFORE DID NOT CALL FOR A NY INTERFERENCE. [PARE 6] 'THE AMOUNT PAID WAS A PENALTY LEVIED FOR VIOLATION OF THE MARGINS IMPOSED BY THE SEBI ON THE SHARE BROKERS. FRONT THE NOTIFICATIONS ISSUED BY THE SEBI, IT WAS FOUND THAT SUCH MARGINS WERE IMPOSED IN ORDER TO REDUCE THE RISK COMPONENTS AND, THEREFO RE, THOSE WERE BASICALLY RISK MANAGEMENT ORIENTED PENALTIES, WHICH WERE ROUTINE IN NATURE. IT WAS ALSO FOUND THAT THOSE VIOLATIONS WE RE OFFERED BY PAYMENT OF PENALTY AS IN THE INSTANT CASE. THEREFOR E, IMPUGNED ORDER OF THE COMMISSIONER (APPEALS) DID NOT CALL FO R ANY INTERFERENCE. [PARA 10] CASES REEFERED TO CIT V. GW ALIOR RAYON SILK MANUFACTURING (WVG.) CO.LTD [1999] 237 I TR 253/102 TAXMAN 433 (BORN.) (PARA 5) AND CONSOLIDATED COFFEE LTD. V. AGRICULTURAL INCOME-TAX OFFICER [2001] 248 ITR 417 (SC)' - THE HON'BIE ITAT IN THE CASE OF KAIRA CAN COMPANY LTD. (32 DTR 485) HAS HELD THAT PAYMENT, MADE UNDER SEBI REG ULATION SCHEME, 2002 FOR FAILURE TO MAKE DISCLOSURE AS REQU IRED UNDER SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVE RS) REGULATIONS 1997 COULD NOT BE TREATED AS PENALTY AS IT IS A PAYMENT FOR REGULARIZING THE DEFAULT COMMITTED HENCE SUCH P AYMENT CAN NOT BE DISALLOWED BY INVOKING EXPLANATION TO S. 37(1)., THE HON'BLE APEX COURT IN THE CASE OF CIT AHMEDABA D COTTON MFG. CO. LTD. [1993] 205 ITR 163 HAS HELD TH AT, PENALTY PAID UNDER OPTION CONFERRED ON ASSESSEE UN DER THE CONCERNED LAW OR SCHEME ITSELF IS DEDUCTIBLE WHAT NEEDS TO BE DONE BY AN ASSESSING AUTHORITY UNDER THE INCOME-TAX ACT IN EXAMINING THE CLAIM OF AN ASSESSEE THAT THE PAYMENT MADE BY SUCH 'ASSESSEE WAS A DEDUCTIBLE EXPENDITURE UNDER S ECTION 37, ALTHOUGH CALLED PENALTY, IS TO SEE WHETHER THE LAW OR SCHEME UNDER WHICH THE AMOUNT WAS PAID REQUIRES SUCH PAYMENT TO BE MADE, AS PENALTY OR AS SOMETHING AKIN TO PENALTY, THAT IS IM POSED BY WAY OF PUNISHMENT FOR BREACH OR INFRACTION OF THE LAW OR T HE STATUTORY SCHEME. IF THE AMOUNT SO PAID IS FOUND TO BE NOT A PENALTY OR SOMETHING AKIN TO PENALTY DUE TO THE FACT THAT THE AMOUNT PAID BY THE ASSESSEE WAS IN EXERCISE OF THE OPTION CONFERRE D UPON HIM UNDER THE VERY LAW OR SCHEME CONCERNED, THEN ONE HA S TO REGARD SUCH PAYMENT AS BUSINESS EXPENDITURE OF THE ASSESSE E, ALLOWABLE I.T.A. NO.274/MUM/2013 12 UNDER SECTION 37, AS AN INCIDENT OF BUSINESS LAID O UT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSI NESS. IF SUCH PAYMENT BY THE ASSESSEE IS THAT WHICH IS MADE IN EX ERCISE OF THE OPTION GIVEN TO SUCH ASSESSEE BY THE LAW OR THE STA TUTORY SCHEME, THERE ARISES NO NEED FOR ASSESSING AUTHORITY TO GO INTO THE QUESTION WHETHER THE PAYMENT COULD BE REGARDED AS THAT MADE AS A MEASURE OF BUSINESS EXPEDIENCY, FOR IT CANNOT IGNOR E THE FACT THAT THE LAW OR THE STATUTORY SCHEME ENABLES INCURRING O F SUCH EXPENDITURE IN THE COURSE OF ASSESSEE'S BUSINESS - CIT V. AHMEDABAD COTTON MFG. CO. LTD. 71 TAXMAN 56/[1994] 205 [ER 163 (SC). THE HONBLE APEX COURT IN THE CASE OF PRAKASH CO TTON MILLS (P) LTD V/S CIT (1993) 201 ITR 684 HAS BEEN HELD THAT, WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS A ALLO WABLE EXPENDITURE UNDER SECTION 37(1) OF THE ACT, THE ASSESSING AUTHO RITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVAN T STATURE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDIN G THE NOMENCLATURE OF IMPOST AS GIVEN BY THE STATUTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORIT Y HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) WHEREVER SUCH EXAMINA TION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN N ATURE.' THE HON'BLE BOMBAY HIGH COURT (ITA NO.4117 OF 2010 ) IN THE CASE OF M/S. THE STOCK AND BOND TRADING COMPANY , HAS HELD THAT, 'AS REGARDS THE SECOND QUESTION IS CONCERNED, THE F INDING OF FACT RECORDED BY THE CIT (A) AND UPHELD BY THE ITAT IS T HAT PAYMENT MADE BY THE ASSESSEE TO THE STOCK EXCHANGE FOR VIOL ATION OF THEIR REGULATION ARE NOT AN ACCOUNT OF AN OFFENCE OR WHIC H IS PROHIBITED BY LAW. HENCE, THE INVOCATION OF EXPLANATION TO SECTIO N 37 OF THE INCOME TAX ACT, 1961 IS NOT JUSTIFIED. IN OUR OPINI ON, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, NO FAULT CAN BE FOUND WITH THE DECISION OF THE [TAT. ACCORDINGLY, THE SECOND QUEST ION CANNOT BE ENTERTAINED.' 6.7 THE APPELLANT SUBMITTED THAT IN CASE OF CIT V. SALES MAGNESITE (P.) LTD. [1199-51214 ITR 1/81 TAXMAN 334 (BORN.), IT WA S HELD THAT, 'COMMERCIAL EXPEDIENCY MUST BE DECIDED FROM BUSINES SMAN'S POINT OF VIEW. EVEN EXPENDITURE INCURRED VOLUNTARILY ON THE GROUND OF COMMERCIAL EXPEDIENCY AND IN ORDER INDIRECTLY TO FACILITATE TH E CARRYING ON OF THE BUSINESS WOULD BE DEDUCTIBLE UNDER THIS SECTION. TH E QUESTION WHETHER IT WAS NECESSARY OR COMMERCIAL EXPEDIENCY OR NOT IS A QUESTION THAT HAS TO BE DECIDED FROM THE POINT OF VIEW OF THE BUSINESSMA N AND NOT BY THE I.T.A. NO.274/MUM/2013 13 SUBJECTIVE STANDARD OF REASONABLENESS OF THE REVENU E.' 6.8 IN VIEW OF THE ABOVE FACTS AND JUDICIAL DECISIO NS, THE APPELLANT SUBMITTED THAT FEES PAID TO SEBI IS ALLOWABLE AS BU SINESS EXPENSE AND NOT A PENALTY FOR INFRACTION OF LAW. 6.9 I HAVE GONE THROUGH THE A.O.'S ORDER AS WELL AS THE APPELLANT'S SUBMISSIONS. IT IS VERY APPARENT FROM THE CIRCULAR OF SEBI AS MENTIONED ABOVE THAT IN CASES OF ADMINISTRATIVE/CIVIL ACTIONS WHICH INCLUDES, INTER- ALIA, ORDERS OF SUSPENSION FROM TRADING ARE DIFFERE NT FROM CRIMINAL ACTIONS. FROM THE ORDER OF SEBI IT IS QUITE APPARENT THAT TH E APPELLANT HAD BEEN SUSPENDED FROM DOING TRADING ACTIVITY FOR A PERIOD OF FOUR MONTHS AND HAD NOT BEEN AWARDED ANY MONETARY FINES. IT HAS BEEN ME NTIONED IN THE SAID ORDER THAT THE CONSENT APPLICATION OF THE APPELLANT WAS WITHOUT ADMITTING OR DENYING THE GUILT. SEBI HAS ALSO ACCEPTED THE APPLI CATION ON THIS BASIS. THUS, SEBI HAS ACCEPTED THE POSITION THAT GUILT MAY OR MAY NOT BE ESTABLISHED AT THE END OF THE APPELLATE PROCEEDINGS . THE FEE PAID CANNOT THEREFORE, BE EQUATED TO A PENALTY WHICH MUST NEC ESSARILY BE A PUNISHMENT FOR INFRACTION OF A LAW OR A REGULATION HAVING STATUTORY FORCE. THE FEE IS CLAIMED TO HAVE BEEN PAID FOR THE PURPOS ES OF BUSINESS, TO SETTLE A DISPUTE WITH THE REGULATOR SEBI AND TO BE ABLE TO CONDUCT ITS BUSINESS WITHOUT INTERRUPTION. IT IS ALSO WORTH NOT ING THAT VARIOUS DECISIONS HAVE HELD THAT AN EXAMINATION OF THE NATURE OF EXPE NSES, REVEALS THAT IF THE CONCERNED IMPOST IS PURELY COMPENSATORY IN NATU RE, THE SAME IS AN ALLOWABLE EXPENSE U/S. 37 OF THE ACT. IN THE CIRCUM STANCES, THE FEE CANNOT BE EQUATED WITH A PENALTY AND IS A PAYMENT TO ENABL E THE ASSESSEE TO CARRY ON ITS BUSINESS IN THE NORMAL COURSE. HENCE, THE DISALLOWANCE MADE BY THE AO OF RS. 50,00,000/- BE DELETED. ACCORDINGL Y, THIS GROUND IS ALLOWED. 17. IN VIEW OF THE FOREGOING DISCUSSIONS, WE AR E OF THE VIEW THAT THE LD CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.50 .00 LAKHS MADE BY THE ASSESING OFFICER. 18. IN THE RESULT, THE APPEAL FILED BY THE REVE NUE IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22ND OCT , 2014. /0#' + 1 2 3 22ND OCT, 2014 0 * , 4 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + , MUMBAI: 22ND OCT,2014. . . ./ SRL , SR. PS I.T.A. NO.274/MUM/2013 14 ! ' / COPY OF THE ORDER FORWARDED TO : 1. $% / THE APPELLANT 2. &'$% / THE RESPONDENT. 3. + 6- ( ) / THE CIT(A)- CONCERNED 4. + 6- / CIT CONCERNED 5. 78 &-9! , . 9! ' , + , / DR, ITAT, MUMBAI CONCERNED 6. : , / GUARD FILE. ; + / BY ORDER, TRUE COPY < (ASSTT. REGISTRAR) . 9! ' , + , /ITAT, MUMBAI