DCIT, New Delhi v. M/s Lifeline Securities Ltd., New Delhi

ITA 3221/DEL/2011 | 2005-2006
Pronouncement Date: 27-07-2012 | Result: Dismissed

Appeal Details

RSA Number 322120114 RSA 2011
Assessee PAN AAACL3525A
Bench Delhi
Appeal Number ITA 3221/DEL/2011
Duration Of Justice 1 year(s) 1 month(s) 11 day(s)
Appellant DCIT, New Delhi
Respondent M/s Lifeline Securities Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2012
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 27-07-2012
Date Of Final Hearing 25-07-2012
Next Hearing Date 25-07-2012
Assessment Year 2005-2006
Appeal Filed On 15-06-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI D.K. TYAGI AND SHRI B.C. MEENA ITA NO. 3221/DEL/11 A.Y. 2005-06 DCIT CIR. 4(1) VS. M/S LIFELINE SECURITIES LTD. NEW DELHI. 107-A SHIVALOK HOSUE-1 KARAMPURA COMMERCIAL COMPLEX NEW DELHI-110015. PAN/ GIR NO. AAACL3525A ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI SHASHI BHUSHAN SHUKLA SR. DR RESPONDENT BY : SHRI R.S. SINGHVI FCA O R D E R PER D.K. TYAGI J.M: : THIS IS REVENUES APPEAL ASSAILING CIT(A)S ORDER DATED 1-4-2011 RELATING TO A.Y. 2005-06. FOLLOWING GROUNDS ARE RAI SED: 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS & CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE LEARNED CIT(APPEALS) HAS ERRED IN DIRECT ING THE AO FOR ASSESSING SPECULATIE INCOME AT RS. 37 04 470/- AS AGAINST RS. 18 20 012/-. 2.2. THE LD. CIT(A) IGNORED THE FINDING RECORDED B Y THE AO AND THE FACT THAT THE ASSESSEE DID NOT ADJUST ANY I NCOME AGAINST SPECULATIVE INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED CIT(APPEALS) HAS ERRED IN DELETI NG THE 2 ADDITION OF RS. 3 72 594/- MADE ON ACCOUNT OF INTER EST PAID FOR LATE DEPOSIT OF SEBI DUES. 3.1. THE LD. CIT(A) IGNORED THE FINDING RECORDED B Y THE AO AND THE FACT THAT THE ASSESSEE DID NOT PAY THE SEBI DUES IN TIME AND INTEREST PAID IS PENAL IN NATURE. 4. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF H EARING. 2. GROUND NOS. 1 AND 4 ARE GENERAL IN NATURE AND RE QUIRE NO ADJUDICATION. 3. FACTS OF THE CASE IN BRIEF ARE THAT ASSESSMENT FOR A.Y. 2005-06 WAS COMPLETED U/S 143(3) ON 18-10-2007 AT AN INCOME OF RS. 13 13 222/- AS AGAINST THE RETUNED INCOME OF RS. 12 90 500/-. SUBS EQUENTLY THE ASSESSMENT WAS REOPENED U/S 147 AND REASSESSMENT WAS COMPLETED AT AN INCOME OF RS. 34 29 103/- MAKING VARIOUS ADDITIONS. IN FIRST APP EAL THE CIT(A) INTER ALIA DELETED ADDITION OF RS. 3 72 594/- MADE BY THE AO O N ACCOUNT OF INTEREST PAID FOR LATE DEPOSIT OF SEBI DUES. THE CIT(A) ALS O DIRECTED THE AO TO ASSESS SPECULATIVE INCOME AT RS. 37 04 470/- AS AGA INST RS. 18 20 012/- AGAINST WHICH REVENUE IS IN APPEAL BEFORE US. 4. LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER. ON THE OTHER HAND LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE ORD ER OF CIT(A). 5. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MATERIAL AVAILABLE ON RECORD. 6. REGARDING ISSUE OF SPECULATIVE INCOME CIT(A) H AS CONCLUDED AS UNDER: 3 5.1 I HAVE CAREFULLY CONSIDERED THE WRITTEN SUBMISS ION MADE ON BEHALF OF THE APPELLANT THE FINDINGS OF ASSESSI NG OFFICER IN THE ASSESSMENT ORDER AND THE FACTS ON RECORD. DURI NG THE YEAR UNDER CONSIDERATION THE APPELLANT HAS CONSIDERED TR ADING IN THE DELIVERY BASIS AS DEEMED SPECULATION WHICH IS IN ACCORDANCE WITH THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. THE SAME METHOD WAS APPLIED IN THE EARLIER YEARS. THE PRINCIPLES OF CONSISTENCY DEMANDED THAT THE IDENTIC AL CLAIM OF THE ASSESSEE IN THE YEAR UNDER APPEAL I. E. A. Y. 2 005-06 SHOULD HAVE ALSO BEEN ALLOWED BY THE ASSESSING OFFICER. I N THIS CONTEXT RELIANCE IS PLACED ON THE DECISION OF HON BLE DELHI HIGH COURT IN CIT V. RAJEEV MILLS [2005] 279 ITR 86 (DELHI) WHEREIN THE DECISION IN THE CASE OF RADHASOAMI SATS ANG V. CIT [1992] 193 ITR 321 (SC) WAS FOLLOWED. THE HONBLE SUPREME COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT (SUP RA) HAD HELD THAT THOUGH THE PRINCIPLE OF RES JUDICATA OR E STOPPEL BY RECORD DOES NOT APPLY IN INCOME TAX PROCEEDINGS YE T FOR THE SAKE OF CONSISTENCY AND FOR THE PURPOSE OF FINALITY IN ALL LITIGATIONS INCLUDING LITIGATION ARISEN OF THE FIS CAL STATUTES EARLIER DECISIONS ON THE SAME QUESTIONS SHOULD NOT BE REOPENED UNLESS SOME FRESH FACTS ARE FOUND IN THE SUBSEQUENT YEAR. 5.2 ON MERITS THE MAIN ISSUE TO BE CONSIDERED IS W HETHER EXPLANATION TO SECTION 73 IS ATTRACTED IN THE PRESE NT SET OF FACTS OR NOT. A BARE REGARDING OF EXPLANATION TO SECTION 73 WOULD REVEAL THAT IF FOLLOWING INGREDIENTS ARE FULFILLED THEN EXPLANATION TO SECTION 73 WOULD BE ATTRACTED AND SE CONDLY THE TRANSACTIONS WOULD BE TREATED AS SPECULATIVE TRANSA CTIONS. (I) THE PART OF THE BUSINESS OF A COMPANY CONSISTS OF PURCHASE AND SALE OF SHARES OF OTHER COMPANIES. (II) THE GROSS TOTAL INCOME OF THE COMPANY DOES NOT CONSIST MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES INCOME FROM HOUSE PROPERTY CAPITAL GAINS AND INCOME FROM OTHER SOURCES. 4 (III) THE PRINCIPAL BUSINESS OF THE COMPANY IS NOT THAT OF BANKING OR GRANTING OF LOANS AND ADVANCES. 5.3 IN THE PRESENT APPEAL WE ARE MAINLY CONCERNED WITH THE FIRST INGREDIENT OF EXPLANATION. IT IS NO TEWORTHY THAT THE LEGISLATURE ITSELF HAS USED THE PHRASE PURCHAS E AND SALE OF SHARES IN THE EXPLANATION WITHOUT ANY QUALIFICATIO N IN CONTRA- DISTINCTION TO THE TERM USED IN SECTION 43(5) WHERE IT IS SPECIFICALLY STATED THAT THE TRANSACTIONS ARE SETTL ED OTHERWISE THEN BY WAY OF ACTUAL DELIVERY. THUS THE TERM PU RCHASE AND SALE HAS TO BE GIVEN FULL EFFECT AND ITS MEANING C ANNOT BE RESTRICTED ONLY WITH REFERENCE TO SUCH TRANSACTION WHERE DELIVERY OF SHARES HAS NOT BEEN TAKEN. ANY SUCH ATTEMPT WOU LD IMPLY DOING VIOLENCE WITH THE STATUTE WHICH IS NOT PERMIS SIBLE. 5.4 THE AOS CONTENTION IS THAT ONLY DELIVERY BASE D TRANSACTIONS AS CONTEMPLATED UNDER SECTION 43(5) WE RE TO BE CONSIDERED AS SPECULATIVE TRANSACTIONS. THIS ARGUM ENT IS DEVOID OF ANY MERIT BECAUSE THEN THERE WAS NO NECESSITY O F INCORPORATING EXPLANATION TO SECTION 73. AS A MATT ER OF FACT EXPLANATION TO SECTION 73 ENLARGES THE AMBIT OF SPE CULATIVE TRANSACTION IN CASE OF SUCH COMPANY WHERE PART OF I TS BUSINESS IS TO DEAL IN SHARES. THIS HAS BEEN SO HELD IN THE CASE OF STARLINE ISPAT & ALLOYS LTD. [2007] 14 SOT 140 (MUM) WHEREI N IT HAS BEEN OBSERVED AS UNDER : EXPLANATION TO SECTION 73 EXPANDS THE SCOPE OF SPECULATION BUSINESS A LITTLE FURTHER BY INTRODUCING A DEEMING FICTION. THIS DEEMING FICTION PROVIDES THAT WHERE BUSINESS OF A COMPANY INCLUDES PURCHASING AND SELLING OF SHARES OF OTHER COMPANIES TO THAT EXTENT THE COMPANY SHALL BE DEEMED TO BE CARRYING SPECULATION BUSINESS. 5.5 I AM THEREFORE OF THE CONSIDERED OPINION THAT IN CASE OF A COMPANY IF PART OF ITS BUSINESS CONSISTS OF DEALIN G IN SHARES THEN ALL TYPES OF TRANSACTIONS WHETHER DELIVERY BA SED OR NON- DELIVERY BASED WILL BE TREATED AS SPECULATIVE TRAN SACTIONS. THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF PRASAD AGENTS PVT. LTD. V. ITO [2009] 180 TAXMAN 17 8 (BOM) 5 : 226 CTR 13 (BOM) AS WELL AS THE DECISIONS OF THE TRIBUNAL IN SAMBA TRADING & INVESTMENT PVT. LTD. V. ACIT [1996] 58 ITD 360 (MUM) ACIT V. SUCHAM FINANCE & INVESTMENT (I) LTD.S [2007] 105 ITR 353 (MUM) AND JCIT V. KALINDI HOLDIN GS PVT. LTD. [2007] 106 TTJ (PUNE) 292 CLEARLY APPROVE THIS PROPOSITION OF LAW. IN VIEW OF THE AFORESAID IT I S HELD THAT THE SPECULATION INCOME OF RS. 37 04 470/- AS DETERMINED BY THE A. O. IN THE ORIGINAL ASSESSMENT ORDER DATED 18.10.200 7 IS IN ORDER. SUBJECT TO THE ABOVE REMARKS GROUND OF APPEAL NO. 2 IS ALLOWED. 7. REGARDING ISSUE OF CLAIM OF INTEREST PAID TO SEB I THE CONCLUSION OF CIT(A) IS AS UNDER 6.1 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MAD E ON BEHALF OF THE APPELLANT THE FINDINGS OF THE A. O. AND THE FACTS ON RECORD. IT IS WELL-SETTLED THAT IN ORDER TO BE ELIGIBLE FOR AN ALLOWANCE UNDER THE RESIDUARY PROVISION OF SECTION 37 OF THE ACT FOLLOWING CONDITIONS SHOULD BE SATISFIED : A) EXPENDITURE MUST NOT BE GOVERNED BY THE PROVI SIONS OF SEARCH & SEIZURE. 30 TO 36; B) THE EXPENDITURE MUST HAVE BEEN LAID OUT WHOLL Y AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE ; C) THE EXPENDITURE MUST NOT BE PERSONAL IN NAT URE ; D) THE EXPENDITURE MUST NOT BE CAPITAL IN NATU RE ; THE EXPLANATION TO SUB-SEC. (1) OF SEC. 37 HAS BEEN INSERTED BY THE FINANCE (NO. 2) ACT. 1998 WITH FULL RETROSPECT IVE EFFECT FROM 1 ST APRIL 1962. THE EXPLANATION SO INSERTED PROVIDES THAT FOR REMOVAL OF DOUBTS IT IS HEREBY DECLARED THAT A NY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSES 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 6 DEDUCTION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. 6.2 THE AMENDMENT BY WAY OF INSERTION OF EXPLANATIO N TO SUB-SECTION (1) OF SECTION 37 OF THE ACT IS EXPLAI NED IN THE BOARDS CIRCULAR NO. 772 DATED 23.12.1998 [(1999) 2 35 ITR (ST) 35 : (1999) 151 CTR (ST) 35] AS UNDER :- 20. DISALLOWANCE OF ILLEGAL EXPENSES 20.1 SECTION 37 OF THE INCOME-TAX ACT IS AMENDED TO PROVIDE 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 PURPOSES OF BUSINESS OR PROFESSION AND NO DEDUCTION OR ALLOWANCE SHALL BEEN MADE IN RESPECT OF SUCH EXPENDITURE. THIS AMENDMENT WILL RESULT IN DISALLOWANCE OF THE CLAIMS MADE BY CERTAIN ASSESSEES IN RESPECT OF PAYMENTS ON ACCOUNT OF PROTECTION MONEY EXTORTION HAFTA BRIBES ETC. AS BUSINESS EXPENDITURE. IT IS WELL DECIDED THAT UNLAWFUL EXPENDITURE IS NOT AN ALLOWABLE DEDUCTION IN COMPUTATION OF INCOME. 20.2 THIS AMENDMENT WILL TAKE EFFECT RETROSPECTIVELY FROM 1 ST APRIL 1962 AND WILL ACCORDINGLY APPLY IN RELATION TO THE ASSESSMENT YEAR 1962-63 AND SUBSEQUENT YEARS. 6.3 IT IS ALSO NOT IN DOUBT THAT BEFORE EVEN INSERT ION OF EXPLANATION TO SECTION 37(1) OF THE ACT THE EXPENS ES INCURRED IN CONNECTION WITH THE VIOLATION OF LAW ETC. WAS NO T ALLOWABLE. EXPLANATION TO SECTION 37(1) IS ONLY INSERTED WITH A VIEW TO REMOVE CERTAIN DOUBTS ABOUT THE ALLOWABILITY OF PAY MENT ON ACCOUNT OF PROTECTION MONEY EXTORTION HAFTA BRIB ES ETC. IT IS ALSO WELL SETTLED THAT A DISTINCTION CANNOT BE DRAW N BETWEEN THE EXPENSES INCURRED IN A CIVIL LITIGATION AND EXPENSE S INCURRED IN A CRIMINAL LITIGATION. IN BOTH THE CASES THE TEST I S WHETHER THE 7 EXPENDITURE IS INCURRED BY THE ASSESSEE IN THIS CHA RACTER AS A TRADER IN OTHER WORDS WHETHER THE TRANSACTION IN RESPECT OF WHICH THE PROCEEDINGS ARE TAKEN AROSE OUT OF AND IS INCIDENTAL TO THE ASSESSEES BUSINESS. THEREFORE IN THIS VIEW O F THE MATTER THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT EXPENSES INCURRED ONLY IN RESPECT OF PAYMENTS ON AC COUNT OF PROTECTION MONEY EXTORTION HAFTA BRIBES ETC. ARE COVERED BY EXPLANATION TO SECTION 37(1) IS NOT ACCEPTABLE AND IS THUS REJECTED. 6.4 IT IS WELL-SETTLED THAT COMMISSION OF OFFENCE O R INFRACTION OF LAW CANNOT BE SAID TO BE INCIDENTAL TO BUSINESS. IT IS NOT A NORMAL INCIDENT OF BUSINESS. FINES AND PENALTIES I MPOSED UNDER A STATUTE FOR INFRACTION OF LAW CANNOT BE SAID TO B E LAID OUT FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. IN O THER WORDS THE PAYMENT OF PENALTY CANNOT BE INCIDENTAL TO THE BUSI NESS OF THE ASSESSEE AND EXPENDITURE INCURRED ON ACCOUNT OF PEN ALTIES LEVIED FOR A BREACH OF LAW CANNOT BE SAID TO BE LAI D OUT FOR THE PURPOSES OF BUSINESS OF THE ASSESSEE. IN THIS SENS E OF THE TERM FINES AND PENALTIES IMPOSED UNDER A STATUTES FOR IN FRACTION OF LAW SUCH AS INFRACTION OF EXCISE OR CUSTOMS LAWS OR SALES TAX LAWS OR DELAY IN PAYMENT OF PROVIDENT FUND OR PENAL TY FOR VIOLATION OF FERA PENALTY PAID FOR NON-PAYMENT OF GOVERNMENT DUES PENALTY FOR NON-PAYMENT OF ARREARS OF SUGARCANE CESS SUM PAID BY WAY OF COMPOUNDING A CR IMINAL PROSECUTION OR PENALTY FOR DEFAULT IN PAYMENT OF MU NICIPAL TAXES CANNOT BE DESCRIBED AS ONE CONNECTED WITH OR ARISING OUT OF THE TRADE AND THUS CANNOT BE ALLOWED. HOWEVER IT IS EQUALLY WELL-SETTLED THAT THE PAYMENT WHICH IS MERELY COMPE NSATORY OR IN THE SHAPE OF INTEREST FOR DELAYED PAYMENT CANNOT BE DISALLOWED AND IN ORDER TO DECIDE THE ADMISSIBILITY OF THE DEDUCTION ONE HAS TO EXAMINE THE NATURE OF PAYMENT WHETHER IT IS MERELY COMPENSATORY OR IN THE SHAPE OF INTEREST FOR DELAYED PAYMENT OR PENAL IN CHARACTER. THE FOLLOWING OBSER VATIONS OF THE HONBLE SUPREME COURT IN THE CASE OF PRAKASH CO TTON MILLS PVT. LTD. V. CIT [1993] 201 ITR 684 ARE RELEVANT TO THE ISSUE :- WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST 8 IS CLAIMED AS AN ALLOWABLE EXPENDITURE UNDER SECTION 37(1) OF THE INCOME-TAX ACT THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) OF THE INCOME-TAX ACT WHEREVER SUCH EXAMINATION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN NATURE. WHEREVER SUCH IMPOST IS FOUND TO BE OF A COMPOSITE NATURE THAT I S PARTLY OF COMPENSATORY NATURE AND PARTLY OF PENAL NATURE THE AUTHORITIES ARE OBLIGATED TO BIFURCATE THE TWO COMPONENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSATORY IN NATURE AND REFUSED TO GIVE DEDUCTION TO THAT COMPONENT WHICH IS PENAL IN NATURE. (P. 690) 6.5 IN THIS CONNECTION REFERENCE MAY ALSO BE MADE TO THE CASE OF CIT V. AHMEDABAD COTTON MFG. CO. LTD. [1994 ] 205 ITR 163 (SC). DURING THE ACCOUNTING PERIOD RELEVAN T TO THE ASSESSMENT YEAR 1972-73 THE RESPONDENT-COMPANY WH ICH RAN A TEXTILE MILL INSTEAD OF PRODUCING AND PACKING THE MINIMUM QUANTITY OF SPECIFIED TYPE OF CLOTH AS REQUIRED BY THE TEXTILE COMMISSIONER IN DIRECTIONS ISSUED UNDER THE COTTON TEXTILES (CONTROL) ORDER 1948 PAID TO THE TEXTILE COMMISSI ONER A SUM OF RS. 1 70 766/- IN EXERCISE OF THE OPTION AVAILAB LE TO THE RESPONDENT UNDER CLAUSE 21C(1)(B) OF THE CONTROL OR DER. SIMILARLY SINCE IT HAS NOT FULFILLED ITS EXPORT OB LIGATION UNDER A BOND ENTERED INTO AS REGARDS EXPORTING A CERTAIN QU ANTITY OF SANFORIZED CLOTH THE RESPONDENT PAID RS. 5 17 781/ - TO THE TEXTILE COMMISSIONER IN EXERCISE OF ITS OPTION AVAI LABLE UNDER THE TERMS OF THE BOND. THE QUESTION WAS WHETHER TH ESE AMOUNTS WERE ALLOWABLE AS BUSINESS EXPENDITURE. THE HIGH C OURT HELD THAT THESE AMOUNTS WERE NOT IN THE NATURE OF PENALT Y OR SOMETHING AKIN TO PENALTY AND WERE ALLOWABLE AS BUS INESS EXPENDITURE. ON APPEAL THE SUPREME COURT AFFIRMI NG THE DECISION OF THE HIGH COURT THAT THE SUMS OF RS. 1 70 766/- AND 9 RS. 5 17 781/- WERE NOT IN THE NATURE OF PENALTY OR SOMETHING AKIN TO PENALTY BUT WERE MADE IN EXERCISE OF THE OP TION GIVEN TO THE RESPONDENT BY THE LAW OR THE STATUTORY SCHEME A ND THE EXPENDITURE WAS INCURRED IN THE COURSE OF BUSINESS AS A MEASURE OF BUSINESS EXPEDIENCY AND THE AMOUNTS WERE THEREF ORE ALLOWABLE AS BUSINESS EXPENDITURE UNDER SECTION 37 EXPRESSED THUS : WHAT NEEDS TO BE DONE BY AN ASSESSING AUTHORITY UNDER THE INCOME-TAX ACT 1961 IN EXAMINING THE CLAIM OF AN ASSESSEE THAT THE PAYMENT MADE BY SUCH ASSESSEE WAS A DEDUCTIBLE EXPENDITURE UNDER SECTION 37 OF THE INCOME-TAX ACT ALTHOUGH CALLED A PENALTY IS TO SEE WHETHER THE LAW OR SCHEME UNDER WHICH THE AMOUNT WAS PAID REQUIRED SUCH PAYMENT TO BE MADE AS PENALTY OR AS SOMETHING AKIN TO PENALTY THAT IS IMPOSED BY WAY OF PUNISHMENT FOR BREACH OR INFRACTION OF THE LAW OR THE 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 CONFERRED UPON HIM UNDER THE VERY LAW OR SCHEME CONCERNED THEN ONE HAS TO REGARD SUCH PAYMENT AS BUSINESS EXPENDITURE OF THE ASSESSEE ALLOWABLE UNDER SECTION 37 OF THE INCOME-TAX ACT AS AN INCIDENT OF BUSINESS LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS. HOWEVER SUCH PAYMENT OF THE ASSESSEE IS ONE WHICH IS MADE IN EXERCISE OF THE OPTION GIVEN TO SUCH ASSESSEE BY THE LAW OR THE STATUTORY SCHEME AND THERE ARISES NO NEED FOR THE ASSESSING AUTHORIT Y TO GO INTO THE QUESTION WHETHER THE PAYMENT COULD BE REGARDED AS ONE MADE AS A MEASURE OF BUSINESS EXPEDIENCY FOR IT CANNOT IGNORE THE FACT THAT THE LAW OR THE STATUTORY SCHEME ENABLES INCURRING OF SUCH EXPENDITURE IN THE COURSE OF THE ASSESSEES BUSINESS. (P. 174) 10 6.6 THE AFORESAID TWO RULINGS OF THE APEX COURT GIV E A WIDER SCOPE TO CONSIDER THE QUESTION IN A BROAD SPECTRUM ANALYSIS IN EXAMINING THE SCHEME OF THE PROVISIONS OF THE RELEV ANT STATUTE PROVIDING FOR PAYMENT OF SUCH IMPOSTS NOTWITHSTANDI NG THE NOMENCLATURE OF THE IMPOST AS GIVEN BY THE STATUTE TO FIND OUT WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE ASSESSING OFFICER HAS TO ALLOW DEDUCTION UNDER SECTION 37(1) WHENEVER SUCH EXAMINATION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN NATURE. WHENEVER SUCH IMPOST IS FO UND TO BE OF COMPOSITE NATURE THAT IS PARTLY OF COMPENSATOR Y NATURE AND PARTLY OF PENAL NATURE HE IS OBLIGED TO BIFURCATE THE TWO COMPONENTS OF THE IMPOST AND GIVE DEDUCTION TO THAT COMPONENT WHICH IS COMPENSATORY IN NATURE AND REFUSE TO GIVE DEDUCTION TO THAT COMPONENT WHICH IS PENAL IN NATURE. 6.7 REVERTING TO THE FACTS OF THE PRESENT CASE IT IS OBSERVED THAT THE ASSESSEE HAS PAID AN AMOUNT OF RS. 3 72 95 4/- BY WAY OF INTEREST ON DELAYED PAYMENT OF SEBI TURNOVER FEE S. IT IS NOT IN DISPUTE THAT (I) THE MATTER WAS PENDING BEFORE T HE COURTS OF LAW ; (II) HONBLE SUPREME COURT DIRECTED THE SEBI TO CHARGE REMAINING FEE IN FULL AND FURTHER ORDERED TO FRAME SCHEME FOR INTEREST PAYMENT (III) SEBI (INTEREST LIABILITY R EGULARIZATION) SCHEME 2004 WAS PROMULGATED BY SEBI/ GOVT. OF INDIA TO GIVE CONCESSION TO THE BROKERS ON THE DISPUTED SEBI FEES ; AND (IV) BY VIRTUE OF THE SAID NEW ENACTMENT THE ASSESSEE RE CEIVED CONCESSION OF RS. 14 91 815/- ON INTEREST PAYMENT A ND CONCESSIONAL INTEREST OF RS. 3 72 954/- WAS PAID ON 09.11.2004. ON PERUSAL OF THE RELATED DETAILS COMBINED WITH THE OTHER SURROUNDING CIRCUMSTANCES IT CANNOT BE SAID THAT T HE PAYMENT HAS BEEN MADE TOWARDS ANY FINE OR PENALTY FOR ANY P ROVED OFFENCE SO AS TO RENDER THE SAME TO BE INADMISSIBLE DEDUCTION WHILE DETERMINING THE ASSESSEES INCOME FROM BUSINE SS. THE ASSESSEE HAS NOT DONE ANYTHING IN BREACH OF THE STA TUTORY PROVISIONS. THE DEFICIENCY BY WAY OF THE DELAYED P AYMENT OF SEBI TURNOVER FEES WAS REGULARIZED ON PAYMENT OF IN TEREST ON TURNOVER FEES. THE ASSESSEE DID NOT CARRY OUT ANY ACT WHICH MAY BE TERMED AS ILLEGAL OR CONTRARY TO STATUTORY P ROVISIONS. INTEREST ON TURNOVER FEES WAS PAID AS PER RELEVANT SEBI (INTEREST LIABILITY REGULARIZATION) SCHEME 2004. SO THE AMOU NT IN 11 QUESTION WAS DEMANDED AND PAID BY THE ASSESSEE. HO WEVER PAYMENT IS NOT TO COVER ANY ACT OF THE ASSESSEE WHI CH COULD BE TERMED AS BREACH OF SOME LEGAL PROVISIONS. THE ASS ESSEE HAD NOT COMMITTED ANY INFRACTION OF LAW OR ILLEGALITY N OR WAS THE PAYMENT A PENALTY UNDER ANY SPECIFIC STATUTE OR AGR EEMENT OR OTHERWISE. IN THESE CIRCUMSTANCES I AM UNABLE TO AGREE WITH THE ASSESSING OFFICER THAT EXPENDITURE INVOLVED WAS INADMISSIBLE IN VIEW OF EXPLANATION TO SECTION 37 O F THE ACT AND THEREFORE COULD NOT BE ALLOWED. IN VIEW OF T HE AFORESAID IT IS HELD THAT THE PAYMENT OF INTEREST ON THE DELAYED PAYMENT OF THE TURNOVER FEES TO THE EXTENT OF RS. 3 72 954/- T O SEBI CANNOT BE REGARDED AS EXPENDITURE INCURRED FOR THE PURPOSE S WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW WITHIN THE MEANING SECTION 37 READ WITH EXPLANATION THERETO. AS A RES ULT GROUNDS OF APPEAL NO. 3 4 & 5 ARE ALLOWED. 8. APROPOS REVENUE GROUND RELATING TO SPECULATIVE I NCOME WE HAVE GONE THROUGH THE ORDER OF THE CIT(A) AND FIND NO INFIRMI TY IN THE SAME. AS OBSERVED BY CIT(A) THE ASSESSING OFFICER IN ORIGIN AL ORDER HAS CORRECTLY COMPUTED SPECULATIVE INCOME AT RS. 37 04 470/- BY A PPLYING PROVISIONS OF SECTION 73 EXPLANATION WHICH IS MANDATORY AND HAS O VERRIDING EFFECT. SECTION 73 EXPLANATION IS APPLICABLE TO ALL PRIVATE LIMITED COMPANIES AND CIT(A) HAS RIGHTLY EXAMINED AND CONSIDERED PROVISIO NS OF SECTION 73 EXPLANATION. IN THE LIGHT OF ABOVE POSITION THE OR DER OF THE CIT(A) ON THE ISSUE IN QUESTION IS UPHELD. CONSEQUENTLY GROUND N O. 2 & 2.1 TAKEN BY THE REVENUE STAND DISMISSED. 9. REGARDING ISSUE OF PAYMENT OF INTEREST TO SEBI IT HAS RIGHTLY BEEN CONCLUDED BY CIT(A) THAT SAME IS AN ACCORDANCE WITH PROVISIONS OF SEBI REGULATIONS AND INTEREST IS OF COMPENSATORY NATURE AND SAME IS NOT IN THE NATURE OF PENALTY OR DAMAGES FOR INFRACTION OF LAW. THE ISSUE IS FURTHER COVERED BY DECISION OF DELHI HIGH COURT IN THE CASE OF CIT V. PRASAD AND 12 CO. 341 ITR 480. IN THE LIGHT OF ABOVE POSITION TH E ORDER OF THE CIT(A) ON THE ISSUE IN QUESTION IS UPHELD. CONSEQUENTLY GROU ND NO. 3 & 3.1 RAISED BY THE REVENUE IN ITS APPEAL STAND DISMISSED. 10. IN THE RESULT REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 27-7-2012. SD/- SD/- ( B.C. MEENA ) ( D.K. TYAGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27-7-2012. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR