IDFC SECURITIES LTD. (FORMERLY KNOWN AS IDFC SSKI SECURITIES LTD., MUMBAI V. ACIT CENTRAL CIRCLE 22, MUMBAI

ITA 2895/MUM/2013

• Counselvise Citation: 289519914 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 25-11-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 15-04-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SACCHIDANAND DUBEY
• Assessee Lawyers: HIRO RAI
• Keywords: Non compliance
• Section: 37; 143(3); 37(1)

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL, MUMBAI - I BENCH. , , BEFORE S/SH. RAJENDRA, ACCOUNTANT MEMB ER & VIVEK VARMA, JUDICIAL MEMBER /. ITA NO.2895/MUM/2013, ' ' ' ' # # # # / ASSESSMENT YEAR-2007-08 IDFC SECURITIES LTD. (FORMERLY KNOWN AS IDFC SSKI SECURITIES LTD.), NAMAN CHAMBERS, C-32, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI-400051. $ $ $ $ . . . /PAN:AAACK1586E V/S. ACIT CC 22, 403,AAYAKAR BHAVAN, 4TH FLOOR, M.K.ROAD, MUMBAI -400020 ( $% / APPELLANT) ( &'$% / RESPONDENT) '() '() '() '() * * * * / ASSESSEE BY : SHRI HIRO RAI + * / REVENUE BY : SHRI SACCHIDANAND DUBEY ' ' ' ' + ++ + ), ), ), ), / DATE OF HEARING : 25-11-2014 -.# + ), / DATE OF PRONOUNCEMENT : 25-11-2014 ' ' ' ' , 1961 + ++ + 254 )1 ( )/) )/) )/) )/) 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM ' ' ' ' : CHALLENGING THE ORDER DATED 01.02.2013 OF THE CIT(A )-39,MUMBAI THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. UNDER THE FACTS & IN LAW, THE LEARNED CIT (A), H AS ERRED IN CONFIRMING DISALLOWANCE OF RS.1,065,759 /- BEING PENALTY PAID TO STOCK EXCHANGE ON ACCOUNT OF VIOLATION OF CONTRACTUAL OBLIGATIONS. 1.01 THE LEARNED A.O FAILED TO COMPLY THE DIRECTION S GIVEN BY CIT(A) IN ITS ORDER DATED 27.09.2010 WHEREIN THE CIT(A) HAS DIRECTED A.O. TO VERIFY THE NATURE OF PENALTY PAID AND IN CASE THE PENALTY PAID IS FOR VIOLATION OF CONTRACTUAL OBLIGATIONS OF EXCHANGE, THE SAME IS ALLOWABLE EXPENDITURE U/S 37(1). 1.02 THE LEARNED A.O. HAS ACCEPTED THE FACT THAT TH E PAYMENT IS FOR VIOLATION OF REGULATIONS OF NATIONAL STOCK EXCHANGE AND ERRED IN COMPLYING WITH DIRECTIONS OF CIT(A) THAT PAYMENT MADE FOR VIOLATION OF EXCHANGE REGULATIONS IS AN ALLOWABLE E XPENSE U/S 37(1) BY DISALLOWING THE PENALTY PAID OF RS.1,065,759/-. 2 YOUR APPELLANT CRAVE LEAVE TO AND ALTER WITHDRAW ANY GROUNDS OF APPEAL. BRIEF FACTS 2. DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICE D BY THE A.O THAT PENALTY OF RS. 10.65 LAKHS WAS IMPOSED ON THE ASSESSEE BY THE STOCK EXCHANGE. THE A.O HELD THAT AS PER EXPLANATION 1 TO THE SECTION 37 OF THE ACT ANY EXPENDITURE INCURRED FOR CONTRAVENTION OF LAW WAS NOT ALLOWABLE EXPENDITURE. THE APPELLANT AGITATED THE MATTER BEFO RE THE FIRST APPELLATE AUTHORITY (FAA) STATING THAT THE EXPENDITURE WAS INCURRED IN THE COURSE OF BUSINESS AND WAS PAID TO THE STOCK EXCHANGE FOR NON COMPLIANCE WITH THE INTERNAL RULES OF THE EXCHA NGE THAT IT DID NOT HAVE THE CHARACTER OF PENALTY. ACCORDING TO THE APPELLANT THE VIOLATION WAS ONLY O F ADMINISTRATIVE NATURE AND NO BREACH OF LAW WAS INVOLVED. AFTER EXAMINING THE MATTER THE FAA HAS HE LD AS UNDER:- 'IN VIEW OF THIS, THE A.O. IS DIRECTED TO VERIFY TH E PENALTY PAID BY THE APPELLANT. IF THE PENALTY IS PAID FOR ANY VIOLATION OF THE REGULATION PRESCRIBED BY SEBI, THEN SUCH AMOUNT PAID TOWARDS PENALTY SHALL NOT BE ALLOWABLE AS DEDU CTION FOR INCOME TAX PURPOSES. IF THE PENALTY IS PAID FOR ANY VIOLATION OF THE CONTRACTUA L OBLIGATIONS PRESCRIBED BY THE STOCK 2 ITA NO. 2895/M/2013 IDFC SECURITIES LTD. EXCHANGES, THEN SUCH AMOUNT PAID TOWARDS PENALTY CA NNOT BE CONSIDERED AS EXPENDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHI CH IS PROHIBITED BY LAW AND IT WILL ESCAPE FROM THE EXPLANATION TO SECTION 37(1) OF THE ACT AND HENCE IT WILL BE AN ALLOWABLE EXPENDITURE U/S 37(1) OF THE ACT. IT IS ALSO SEEN T HAT THE ISSUES RELATED TO DECISIONS RELIED ON BY THE APPELLANT IS ALSO RELATED TO THE PENALTY CHA RGED BY STOCK EXCHANGES TOWARDS THE INTERNAL REGULATIONS PRESCRIBED BY THE STOCK EXCHAN GES. THE A.G. IS DIRECTED TO DECIDE THE ISSUE ACCORDINGLY. THE APPELLANT IS DIRECTED TO PRO DUCE ALL THE DETAILS REQUIRED BY THE A.O. 3. WHILE GIVING EFFECT TO THE DIRECTION OF THE FAA, THE AO, ON 13.03.2012, MADE FOLLOWING OBSERVATIONS: 'AS PER DIRECTION OF LD. CIT(A), ASSESSEE HAS ASKED TO FURNISH THE DETAILS W.R.T PENALTY PAID TO STOCK EXCHANGE. ASSESSEE HAS FURNISHED THE DETAI LS AND ON GOING THROUGH THE DETAILS & NOTES, IT IS FOUND THAT PENALTY IS IMPOSED FOR THE VIOLATION OF THE BY-LAWS, RULES AND REGULATIONS OF NATIONAL SECURITIES CLEARING CORPORA TION LIMITED AND CIRCULARS ISSUED THERE UNDER. IN VIEW OF THIS, I HOLD THAT THE ADDITION MA DE BY A.O. OF RS. 10,56,759/- IN THE ASSESSMENT U/S 143(3) W.R.T PENALTY LEVIED BY STOCK EXCHANGE, IS CORRECT.' 4. AGITATED BY THE ORDER OF THE ASSESSING OFFICER ( AO), THE ASSESSEE AGAIN PREFERRED AN APPEAL FAA. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, T HE FAA HELD THAT AO HAD TAKEN A VIEW AND HAD DECIDED THE SAID MATTER, THAT THERE COULD BE NO REV IEW OR AMENDMENT OF A DECISION ALREADY TAKEN, THAT THE ASSESSEE WANTED TO RE-AGITATE THE MATTER W HICH HAD ALREADY BEEN DECIDED BY THE FAA. IN SHORT, THE FAA DECLINED TO INTERFERE WITH THE ORDER OF THE AO. 5. BEFORE US, AUTHORISED REPRESENTATIVE (AR) STATED THAT THE PENALTY WAS NOT IMPOSED FOR VIOLATION OF LAWS, THAT THE FINDING GIVEN BY THE AO WAS CONTR ARY TO THE FACTS. HE RELIED UPON THE ORDERS OF GOLDCREST CAPITAL MARKETS LTD. (133 TTJ 446), ANGEL CAPITAL AND DEBIT MARKET LTD. (ITA(L) NO. 475/2011) 21 ITR (TRIB.) 445, MUMBAI, DT. 28TH JULY 2011) AND THE STOCK AND BOND TRADING COMPANY (ITA NO. 4117/2010 DT. 14TH OCTOBER 2011. DEPARTMENTAL REPRESENTATIVE (DR) FAIRLY CONCEDED WITH THE ISSUE WAS DECIDED IN FAVOUR OF TH E ASSESSEE. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF AN GEL CAPITAL AND DEBIT MARKET LTD. (SUPRA) HAD HELD THAT PENALTY PAID TO STOCK EXCHANGE WAS NOT DI SALLOWABLE UNDER EXPLANATION TO SECTION 37(1) OF THE ACT. WE ALSO FIND THAT IN THE CASE OF GOLDCREST CAPITAL MARKETS LTD. (SUPRA), B BENCH OF MUMBAI TRIBUNAL HAS HELD THAT VIOLATION OF RULES AN D REGULATIONS FRAMED BY STOCK EXCHANGE COULD NOT BE PER SAY CONSIDERED AS VIOLATION OF ANY PROVI SIONS OF SEBI ENACTMENT, THAT THE FINE IMPOSED BY THE DISCIPLINARY BENCH OF NSE COULD NOT BE TAKEN AS VIOLATION OF LAW BY THE ASSESSEE, THAT THE FINE PAID WERE ONLY FOR NON-OBSERVATION OF REGULATI ONS OF STOCK EXCHANGE. RESPECTFULLY, FOLLOWING THE ABOVE WE DECIDE THE EFF ECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT,THE APPE AL FILED BY THE ASSESSEE STANDS DISMISSED. 1)2 '() 3 4 '5 + ) 67 . ORDER PRONOUNCED IN THE OPEN COURT ON 25TH NOVEMBER 2014 . 0 + -.# 8 9' 25 ' , 201 4 . + / : SD/- SD/- ( / VIVEK VARMA) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 9' /DATE: 25.11 . 2014. 0 0 0 0 + ++ + &) &) &) &) ; #) ; #) ; #) ; #) / COPY OF THE ORDER FORWARDED TO : 3 ITA NO. 2895/M/2013 IDFC SECURITIES LTD. 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ < = , 4. THE CONCERNED CIT / < = 5. DR I BENCH, ITAT, MUMBAI / >/ &)' , . . . 6. GUARD FILE/ / 1 ' ) ' ) ' ) ' ) &) &)&) &) //TRUE COPY// 0' / BY ORDER, ? / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI