ITO 4(2)(2), MUMBAI V. SANTOOR LEAFIN P. LTD, MUMBAI

ITA 5454/MUM/2009

• Counselvise Citation: 545419914 RSA 2009
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 09-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Business income; Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 5454/MUM/2009 (ASSESSMENT YEAR: 2006-07) INCOME TAX OFFICER - 4(2)(2) M/S. SANTOOR LEAFIN PV T. LTD. ROOM NO. 664, 6TH FLOOR 1212 DALAMAL TOWER AAYAKAR BHAVAN, M.K. ROAD VS. NARIMAN POINT, MUMBAI 400021 MUMBAI 400020 PAN - AABCS 0036 L APPELLANT RESPONDENT ITA NO. 5497/MUM/2009 (ASSESSMENT YEAR: 2006-07) M/S. SANTOOR LEAFIN PVT. LTD. INCOME TAX OFFICER - 4(2)(2) 1212 DALAMAL TOWER ROOM NO. 664, 6TH FLOOR NARIMAN POINT, MUMBAI 400021 VS. AAYAKAR BHAVAN, M.K. ROAD PAN - AABCS 0036 L MUMBAI 400020 APPELLANT RESPONDENT ASSESSEE BY: SHRI PANKAJ R. TOPRANI REVENUE BY: SHRI S.K. SINGH O R D E R PER B. RAMAKOTAIAH, A.M. THESE ARE CROSS APPEALS BY REVENUE AND ASSESSEE FOR A.Y. 2006-07 AGAINST THE ORDER OF THE CIT(A)-IV, MUMBAI DATED 16 .07.2009 2. ASSESSEE IN ITA NO. 5497/MUM/2009 HAS RAISED TWO GR OUNDS ON THE ISSUE OF ALLOWANCE OF BAD DEBTS OF ` 49,37,301/- WRITTEN OFF IN THE BUSINESS OF SHARE BROKING. GROUND NO. 2 IS WITH REFERENCE TO AL LOWANCE OF BAD DEBT UNDER SECTION 36(1)(VII) R.W.S. 36(2) WHEREAS GROUN D NO. 1 IS IN FACT AN ALTERNATE GROUND FOR ALLOWING THE SAME AS TRADING L OSS UNDER SECTION 28. ASSESSEE HAS CLAIMED THE ABOVE AMOUNT AS IT COULD N OT RECOVER THE SAME FROM THE CLIENTS. THE A.O. CONSIDERED THAT THE PROV ISIONS OF SECTION 36(2) ARE NOT SATISFIED AND THE ASSESSEE WAS ONLY ACCOUNTING BROKERAGE, THEREFORE, THE NON-RECOVERY OF THE CLAIM WAS NOT ENTITLED TO BE AL LOWED AS A BAD DEBT. HE HAS ELABORATELY DISCUSSED THE ISSUE IN HIS ORDER IN CLUDING THE CLAIM AS ITA NOS. 5454 & 5497/MUM/2009 M/S. SANTOOR LEAFIN PVT. LTD. 2 BUSINESS LOSS AND DENIED THE SAID WRITE OFF. THE CI T(A) CONCURRED WITH THE OPINION OF THE A.O. FOLLOWING THE DECISIONS OF THE ITAT IN THE CASE OF B.S. VAASA VS. ITO 26 SOT 462 (MUM) AND ALSO G.R. PANDYA SHARE BROKING LTD. VS. ITO 26 SOT 432 (MUM). HE ALSO DID NOT ALLOW THE ALTERNATE GROUND/ CONTENTION OF CLAIM UNDER SECTION 28/37(1). 3. BEFORE US THE LEARNED COUNSEL SUBMITTED THAT THE IS SUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECI AL BENCH OF THE ITAT IN THE CASE OF SHREYAS S. MORAKHIA 4 SOT 432 WHEREIN THESE ISSUES WERE EXAMINED IN DETAIL AND HELD AS UNDER: - 21. WE ARE UNABLE TO AGREE WITH THE CONTENTIONS RA ISED BY THE LEARNED D.R. WHILE DISPUTING THE APPLICABILITY OF THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF T. VEERABHADRA RAO K. KOTESHWAR RAO & CO (SUPRA) TO THE CASE OF THE ASSESSEE WHO IS A SHARE BROKER. IT IS WORTHWHILE TO NOTE HERE THAT WHETHER THE GROSS AMOU NT IS REFLECTED IN THE CREDIT SIDE OF THE P&L ACCOUNT AND ONLY THE NET AMO UNT IS FINALLY REFLECTED AS PROFIT AFTER DEDUCTING THE CORRESPONDI NG EXPENSES OR ONLY THE NET AMOUNT SAY OF BROKERAGE RECEIVED BY THE SHARE B ROKER IS REFLECTED IN THE CREDIT SIDE OF THE P&L ACCOUNT, THE ULTIMATE EF FECT IS ONE AND THE SAME AND IT IS THAT THE NET AMOUNT GETS INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE CHARGEABLE TO TAX. IT IS JUST A DIFFE RENT WAY OF RECORDING THE RELEVANT TRANSACTIONS IN THE BOOKS OF ACCOUNT AND T HEIR REFLECTION FINALLY IN THE P&L ACCOUNT. BUT IN SO FAR AS THE ULTIMATE EFFECT ON THE TOTAL INCOME OF THE ASSESSEE IS CONCERNED, THE SAME REMAI NS ONE AND THE SAME. IT, THEREFORE, CANNOT BE SAID THAT SUCH DIFF ERENT TREATMENT GIVEN IN THE BOOKS OF ACCOUNT AND REFLECTION THEREOF IN THE P&L ACCOUNT IS A MATERIAL ASPECT HAVING ANY BEARING ON THE ISSUE UND ER CONSIDERATION. EVEN IN THE CASE OF LOAN TRANSACTION, WHAT IS REFLE CTED ON THE CREDIT SIDE OF THE P&L ACCOUNT OF THE ASSESSEE CARRYING ON MONE Y LENDING OR BANKING BUSINESS IS ONLY THE INTEREST AND NOT THE L OAN AMOUNT AS SUCH. EVEN AS REGARDS THE CONTENTION OF THE LD. D.R. THAT THE ACCRUAL OF BROKERAGE INCOME AND ACCRUAL OF DEBT AGAINST CLIENT IN RESPECT OF SHARE PURCHASE ARE TWO DIFFERENT EVENTS WHICH HAPPEN AT T WO DIFFERENT TIMES, WE FIND THAT SIMILAR IS THE SITUATION IN CASE OF LO AN TRANSACTIONS EFFECTED BY THE ASSESSEE CARRYING ON THE BUSINESS OF MONEY L ENDING OR BANKING WHEREIN THE CLIENT BECOMES DEBTOR WHEN THE AMOUNT O F LOAN IS DISBURSED IN HIS FAVOUR WHEREAS INCOME ON ACCOUNT OF INTEREST ACCRUES TO THE LENDER ONLY AFTER A SPECIFIED PERIOD OF INTERVAL AS AGREED BETWEEN THE PARTIES. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF T. VEERABHADRA RAO K. KOTESHWAR RAO & CO (SUPRA), INTEREST IS TAXED AS INCOME BECAUSE IT REPRESENTS AN ACCRETION ACCRUING DURING THE RELEVAN T YEAR ON MONEY OWED TO THE ASSESSEE BY THE DEBTOR AND THE NATURE O F SUCH INCOME INDICATES THE TRANSACTION FROM WHICH IT EMERGES. IT THEREFORE FOLLOWS THAT EVEN IF ACCRUAL OF BROKERAGE INCOME AND ACCRUAL OF DEBT AGAINST CLIENT IN RESPECT OF SHARE PURCHASE ARE TWO DIFFERENT EVENTS WHICH HAPPEN AT TWO ITA NOS. 5454 & 5497/MUM/2009 M/S. SANTOOR LEAFIN PVT. LTD. 3 DIFFERENT TIMES, BROKERAGE INCOME ACCRUES TO THE SH ARE BROKER AS A RESULT OF TRANSACTION OF PURCHASE OF SHARES ON BEHALF OF T HE CLIENTS AND THIS NATURE OF BROKERAGE INCOME INDICATES THAT IT EMERGE S FROM THE TRANSACTION OF PURCHASE OF SHARES BY THE ASSESSEE O N BEHALF OF HIS CLIENTS IN THE CAPACITY OF SHARE BROKER. THE AMOUN T RECEIVABLE BY THE ASSESSEE ON ACCOUNT OF BROKERAGE THUS IS A PART OF DEBT RECEIVABLE BY THE SHARE BROKER FROM HIS CLIENTS AGAINST PURCHASE OF S HARES AND ONCE SUCH BROKERAGE IS CREDITED TO THE P&L ACCOUNT OF THE BRO KER AND THE SAME IS TAKEN INTO ACCOUNT IN COMPUTING HIS INCOME, THE CON DITION STIPULATED IN SECTION 36(2)(I) GETS SATISFIED. 28. HONBLE MADRAS HIGH COURT THUS READ INTO SECTIO N 10(2)(XI) OF THE 1922 ACT, THE CONDITION THAT THE DEBT SHOULD HAVE B EEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE AN D AFTER HAVING DONE SO, PROCEEDED FURTHER TO OBSERVE AT PAGE 425 AS UN DER:- LEARNED COUNSEL APPEARING FOR THE REVENUE CONTENDS THAT THE REQUISITE THAT THE DEBT IF REALIZED SHOULD HAVE GONE TO SWELL THE PROFITS O F THE BUSINESS IS NOT SATISFIED. WE ARE UNABLE TO ACCEPT THIS CONTENTION. THE FACT THA T IN THE PREVIOUS ASSESSMENT YEARS THE REVENUE BROUGHT TO CHARGE THE INTEREST DUE FROM ADVANCES MADE BY THE ASSESSEE TO SUNGO LIMITED DEMONSTRATES THAT THE DEBT DID GO TO SWELL THE BUSINESS PROFITS OF THE ASSESSEE. AS WE MENTIONED EARLIER, THE INTERES T SO DUE TO THE ASSESSEE WAS TREATED BY THE REVENUE ITSELF THROUGHOUT AS BUSINES S INCOME. IT CANNOT, THEREFORE, BE PRETENDED THAT THE DEBT WAS NOT ONE WHICH IF REALIZ ED WOULD NOT HAVE GONE TO SWELL THE BUSINESS PROFITS OF THE ASSESSEE. IT WOULD BE CLEAR FROM THE ABOVE OBSERVATIONS OF HO NBLE MADRAS HIGH COURT THAT THE CONDITION THAT THE DEBT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEES INCOME STANDS SATISFIED SINCE THE INTEREST IN RESPECT OF THE DEBT IS ASSESSED IN THE ASSESSEES HANDS AS BUSINESS INCOME. THIS IS THE MEANING WHICH HAS BEE N ATTRIBUTED TO THE CONDITION WHICH HAS BEEN READ INTO THE PROVISIONS O F SECTION 10(2)(XI) OF THE 1922 ACT EVEN THOUGH THE EXPRESS LANGUAGE OF TH E PROVISION DID NOT PRESCRIBE SUCH A CONDITION. A FORTIORI, WHERE SECT ION 36(2)(I) SPECIFICALLY PRESCRIBES SUCH A CONDITION, THEN IT SHOULD BE DEEM ED TO HAVE BEEN SATISFIED IF THE BROKERAGE INCOME FROM THE TRANSACT IONS OF PURCHASE OF SHARES BY THE ASSESSEE AS A BROKER ON BEHALF OF HIS CLIENTS HAS BEEN TAXED IN HIS HANDS AS BUSINESS INCOME. IN THE PRES ENT CASE, SUCH BROKERAGE HAS ALREADY BEEN TAXED IN THE HANDS OF TH E ASSESSEE UNDER THE HEAD BUSINESS INCOME AND THIS BEING SO, WE ARE OF THE VIEW THAT THE CONDITION PRESCRIBED IN SECTION 36(2)(I) HAS BEEN S ATISFIED AND THE WRITE OFF OF THE DEBT REPRESENTING AMOUNT RECEIVABLE BY T HE ASSESSEE FROM HIS CLIENTS AGAINST PURCHASE OF SHARES ON THEIR BEHALF MUST BE HELD ALLOWABLE AS A BAD DEBT. 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND T HE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABL E BY THE ASSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS OF PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. THE BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FORMS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HAS BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF ITA NOS. 5454 & 5497/MUM/2009 M/S. SANTOOR LEAFIN PVT. LTD. 4 INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEA R OR ANY EARLIER YEAR, IT SATISFIES THE CONDITION STIPULATED IN SECTION 36 (2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 36(1)(VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOOKS OF ACCOUNT AS IRRECOVERABLE. WE, THEREFORE, ANSWER THE QUESTION REFERRED TO THIS SPE CIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE. 4. THE LEARNED D.R., WHILE ADMITTING THAT THE SPECIAL BENCH DECISION IS IN FAVOUR OF THE ASSESSEE, HOWEVER, SUBMITTED THAT ASSESSEE WAS ONLY OFFERING BROKERAGE, THEREFORE, THE CLAIM OF BAD DEB T FROM CLIENTS CANNOT BE ALLOWED AS A DEDUCTION UNDER SECTION 36(1)((VII) OR AS A LOSS UNDER SECTION 28. HE RELIED ON THE ORDERS OF THE REVENUE AUTHORIT IES. 5. WE HAVE CONSIDERED THE ISSUE. AS RIGHTLY SUBMITTED THE ISSUE OF BAD DEBTS IN THE CASE OF A SHARE BROKER HAD BEEN EXAMIN ED BY THE SPECIAL BENCH ELABORATELY AND HELD THAT THE AMOUNT NOT RECOVERED BY THE BROKER IN SHARE TRADING ACTIVITY CAN BE ALLOWED AS BAD DEBT AS IT S ATISFIES THE CONDITIONS PRESCRIBED U/S 36(2). 6. IN VIEW OF THIS, THE CLAIM OF BAD DEBT BY THE ASSES SEE IS AN ELIGIBLE CLAIM UNDER SECTION 36(1(VII)) ITSELF. EVEN OTHERWI SE THE SAME CAN ALSO CONSIDERED AS A BUSINESS LOSS UNDER SECTION 28. IN VIEW OF THE ORDER OF SPECIAL BENCH (SUPRA) THE AMOUNT IS ALLOWED AS BAD DEBT UNDER SECTION 36(1)(VII). GROUND NO. 2 IS CONSIDERED ALLOWED AND THE ALTERNATE GROUND NO. 1 IS TREATED AS INFRUCTUOUS. APPEAL ALLOWED. ITA NO. 5454/MUM/2009 7. THE REVENUE HAS RAISED TWO GROUNDS, FIRST BEING ALL OWANCE OF VSAT & TRANSACTION CHARGES DISALLOWED BY THE A.O. INVOKING PROVISIONS OF SECTION 40A(A)(IA) AND THE SECOND ISSUE IS WITH REFERENCE T O ALLOWANCE OF PENALTY OF ` 73,114/- PAID TO SHARE HOLDING CORPORATION LTD. DIS ALLOWED AS VIOLATION OF SECTION 37(1) EXPLANATION. 8. WE HAVE HEARD THE LEARNED COUNSEL AND THE LEARNED D .R. 9. AS FAR AS THE ISSUE OF ALLOWANCE OF VSAT & TRANSACT ION CHARGES ARE CONCERNED THESE EXPENDITURES ARE ALLOWABLE EXPENDIT URES FOLLOWING THE ORDER ITA NOS. 5454 & 5497/MUM/2009 M/S. SANTOOR LEAFIN PVT. LTD. 5 OF THE ITAT IN THE CASE OF KOTAK SECURITIES VS. ADD L. CIT IN ITA NO. 1995/MUM/2008 WHICH IN TURN WAS FOLLOWED BY DCIT VS . ANGEL BROKING LTD. 35 SOT 457 (MUM). 10. THE CIT(A) FOLLOWED THE ORDER OF THE ITAT MUMBAI BE NCH IN KOTAK SECURITIES VS. ADDL. CIT IN ITA NO. 1995/MUM/2008 D ATED 28.08.2008. SINCE THE STOCK EXCHANGES DO NOT PROVIDE ANY MANAGE RIAL SERVICES AND THE FEES PAID BY THE MEMBER TO THE STOCK EXCHANGE IS NO T FOR TECHNICAL SERVICES RENDERED, NO TDS IS DEDUCTIBLE ON THE SAME. THEREFO RE, PROVISIONS OF SECTION 40A(A)(AI) DOES NOT APPLY. THE SAME VIEW ALSO TAKEN BY THE ITAT MUMBAI BENCH IN THE CASE OF DCIT VS. ANGEL BROKING LTD. 35 SOT 547 WHEREIN IT WAS HELD AS UNDER: - STOCK EXCHANGES AS MEASURE OF PROVIDING INFRASTRUC TURE TO THEIR MEMBERS INSTALL VSAT AND LEASED LINE SYSTEM. FEE CO LLECTED IN THAT REGARD IS NOTHING BUT FEE PAID FOR USE OF FACILITIE S PROVIDED BY THE STOCK EXCHANGE. SUCH FACILITIES ARE AVAILABLE FOR U SE BY ANY MEMBER. SATELLITE BASED TRADING ENABLES TRADING MEMBERS TO TRADE ON EXCHANGE FROM THEIR PLACE OF WORK ACROSS THE COUNTR Y. STOCK EXCHANGE HAS TO GET PERMISSION FROM THE DEPARTMENT OF TELECO MMUNICATION FOR INSTALLING AND SETTING UP VSAT OR LEASED LINE SYSTE M. CHARGES LEVIED BY THE STOCK EXCHANGE ON ITS MEMBERS ARE FOR THE PU RPOSE OF RECOVERY OF ITS COST IN PROVIDING THESE FACILITIES TO THE ME MBERS. STOCK EXCHANGES DO NOT PROVIDE ANY TECHNICAL SERVICES BY INSTALLING VSAT NETWORK. THEY MERELY PROVIDE FACILITIES FOR MEMBERS TO PURCHASE AND SELL SHARES WITHIN FRAME WORK OF ITS BY-LAWS. THEY ALSO PROVIDE FOR A MECHANISM FOR SETTLEMENT OF DISPUTE BETWEEN THE BRO KERS AND CUSTOMERS. STOCK EXCHANGES DO NOT INVOLVE THEM IN P ROVIDING ANY TECHNICAL SERVICES TO ANY OF ITS MEMBERS. THE ASSESSING OFFICER IN COMING TO THE CONCLUSION T HAT THE PAYMENT WAS FOR FEE FOR TECHNICAL SERVICES HAD RELIED UPON THE FACT THAT THE SCREEN BASED TRADING WAS SOPHISTICATED METHOD OF TR ADING. THAT BY ITSELF WOULD NOT BE SUFFICIENT TO HOLD TECHNICAL SE RVICES BEING RENDERED. THE ASSESSING OFFICER HAD ALSO HELD THAT SERVICES WERE NOT AVAILABLE TO THE PUBLIC AT LARGE BUT ONLY TO REGIST ERED MEMBERS, AGAIN THAT BY ITSELF WOULD NOT MAKE THE SERVICES IN QUEST ION AS TECHNICAL SERVICES. ANOTHER REASON GIVEN BY THE ASSESSING OFF ICER WAS THAT SPEED AT WHICH TRANSACTIONS WERE COMPLETED AND THE EASE WITH WHICH TRANSACTIONS WERE DONE IN SCREEN BASED TRADING, WHI CH AGAIN WAS NOT RELEVANT CRITERIA FOR HOLDING THE SERVICES RENDERED AS TECHNICAL SERVICES. FACT THAT THE DATA PROVIDED ON SCREEN WOU LD PROVIDE BETTER DATA FOR CARRYING OUT TRANSACTION WOULD NOT AGAIN B E SUFFICIENT TO HOLD THAT TECHNICAL SERVICES WERE BEING RENDERED. ALL TH E ABOVE FEATURES PRESENT IN SCREEN BASED TRADING SAVE TIME. THIS IS THE RESULT OF ITA NOS. 5454 & 5497/MUM/2009 M/S. SANTOOR LEAFIN PVT. LTD. 6 IMPROVED TECHNOLOGY. THAT DOES NOT MEAN THAT STOCK EXCHANGE IS PROVIDING TECHNICAL SERVICES. MEMBERS OF THE STOCK EXCHANGE AND THE PUBLIC AT LARGE ARE BENEFICIARIES OF THESE TECHNICA L IMPROVEMENTS. STOCK EXCHANGES ARE NOT THE OWNER OF THIS TECHNOLOG Y TO PROVIDE IT FOR A FEE FOR PROSPECTIVE USE. THEY ARE THEMSELVES CONS UMERS OF THE TECHNOLOGY THEREFORE, THE PAYMENT IN QUESTION COULD NOT BE CON SIDERED AS FEE FOR TECHNICAL SERVICES RENDERED. THE ORDER OF THE COMMI SSIONER (APPEALS) WAS TO BE CONFIRMED. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THERE I S NO NEED TO DEVIATE FROM THE ORDER OF THE CIT(A). ACCORDINGLY THE GROUND IS DISMISSED. 11. GROUND NO. 2 IS WITH REFERENCE TO PENALTY OF ` 73,114/- PAID TO SHARE HOLDING CORPORATION LTD. FOR VIOLATION OF BYELAWS O F THE STOCK EXCHANGE ON THE REASON THAT IT IS STATUTORY IN CHARACTER AND TH IS AMOUNTED TO INFRINGEMENT OF LAW. THE CIT(A) IN HIS ORDER HELD T HAT STOCK EXCHANGES ARE NOT GOVERNMENT OR SEMI-GOVERNMENT BODIES BUT THEY A RE COMPANIES AND PAYMENT MADE TO STOCK EXCHANGES FOR VIOLATION OF TH EIR REGULATIONS ARE NOT EXPENDITURE WHICH VIOLATES ANY LAW OR PROHIBITED IN LAW. THEREFORE, THE AMOUNT IS AN ALLOWABLE EXPENDITURE. 12. BEFORE US THE LEARNED D.R. SUBMITTED THAT THE ASSES SEE HAS PAID PENALTY WHICH CANNOT BE ALLOWED AS A DEDUCTION WHER E THE LEARNED COUNSEL SUBMITTED THAT THIS CONTRACTUAL PAYMENT TO COMPENSA TE FOR DELAY IN PAYMENT OF DUES, THEREFORE, CANNOT BE CONSIDERED AS PENALTY AND RELIED ON THE ORDER OF THE ITAT CALCUTTA BENCH C IN THE CAS E OF ITO VS. TDP SHARES 3 SOT 569. 13. WE HAVE CONSIDERED THE ISSUE. AS SEEN FROM THE ORDE R OF THE ASSESSMENT, THERE IS NO DISCUSSION ABOUT THE NATURE OF AMOUNT PAID BY THE ASSESSEE EVENTHOUGH THE A.O. HAS TREATED IT AS A PE NALTY. IF IT IS A PAYMENT MADE FOR IRREGULARITIES SUCH CHARGES ARE PURELY COM PENSATORY IN NATURE AS SUBMITTED BY THE ASSESSEE. IF THE AMOUNT WAS PAID F OR ANY STATUTORY VIOLATION WHICH ATTRACTS EXPLANATION TO SECTION 37( 1) THEN THE AMOUNT CANNOT BE ALLOWED AS A DEDUCTION. WHEN THE NATURE O F AMOUNT WAS NOT EXAMINED PROPERLY IT IS DIFFICULT TO COME TO A CONC LUSION WHETHER THE PAYMENT IS FOR CONTRACTUAL LIABILITY OR STATUTORY V IOLATION. THE LEARNED ITA NOS. 5454 & 5497/MUM/2009 M/S. SANTOOR LEAFIN PVT. LTD. 7 COUNSEL EXPRESSED HIS INABILITY TO FURNISH THE ORDE R BY WHICH THE PENALTY WAS LEVIED. AS THIS ISSUE WAS NOT EXAMINED BY THE A .O. OR THE CIT(A), HE HAS NO OBJECTION IN RESTORING THE ISSUE TO THE A.O. TO EXAMINE THE NATURE OF THE AMOUNT PAID. THEREFORE, WITHOUT GIVING ANY FINDING ON THE ISSUE WE DEEM IT FIT TO RESTORE THE MATTER TO THE FILE OF THE A.O. T O EXAMINE THE RELEVANT ORDER BY WHICH THE PENALTY WAS DEMANDED AND ALSO TO EXAMI NE WHETHER THE AMOUNT WAS PAID FOR CONTRACTUAL VIOLATION OR STATUT ORY VIOLATION. AFTER EXAMINING THE NATURE OF PAYMENT THE A.O. IS FREE TO DETERMINE WHETHER THE AMOUNT IS ALLOWABLE OR NOT, KEEPING IN VIEW THE ORD ERS HIGHER JUDICIAL FORUMS ON THE ISSUE. THE ISSUE IS RESTORED TO THE FILE OF THE A.O. FOR NECESSARY EXAMINATION AND CONSIDERATION. 14. IN THE RESULT, ASSESSEES APPEAL IN ITA NO. 5497/MU M/2009 IS ALLOWED AND REVENUES APPEAL IN ITA NO.5454/MUM/2000 IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH APRIL 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 27 TH APRIL 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) IV, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.