M/s Mangal Keshav Securities Limited Vs. ACIT (ITAT Mumbai)

LEGAL CORNER – April 2016 – CASE LAW:

Topic:

No disallowance of Penalty paid for procedural non-compliances

Facts of the Case:-

• The assessee is a closely held company engaged in the business of share/stock broking and is a member of BSE, NSE, is a DP for CDSL & NSDL and Mutual Fund Distribution.
• The assessee has paid penalty/fine, levied by the Stock Exchange amounting to Rs.9,08,193/- and was mentioned as the business expenditure.

Assessing Officer held that

• In view of Explanation 1 to section 37, the aforesaid amount was not allowable as business expenditure.

Clarification by Assessee

The fines, penalty etc. have been paid for some procedural non-compliance, inadvertently done by the assesses company and therefore, the same could not be strictly construed as an ‘offence’ or something ‘which is prohibited by law’.

CIT (A) confirmed the disallowance.

Decision of ITAT

In the regular course of the business of the assesses company, certain procedural non-compliance are not unusual, for which assesses is required to pay some fines or penalties.

These routine fines or penalties are “compensatory” in nature; these are not punitive. Their levy depends upon facts and circumstances of the case, and peculiarities or complexities of the situations involved. Sometimes elements of discretion of levying authorities are also involved therein.

Only those payments, which have been made by the assesse for any purpose which is an ‘offence’ or which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37.

Relying upon the judgment of Hon’ble Tribunal in assessee’s own case for A.Y. 2007-08, it was found that the facts in this year is also same and dis allowance is contrary to law and the same is directed to be deleted.

Accordingly appeal disposed of.