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2009 (1) TMI 766 - AT - Income TaxDisallowance u/s 37 - penalty paid for infraction of law - Whether the payment made under the scheme framed by the Government under the SEBI Regulations 1997 could be disallowed by the Revenue authorities u/s 37 - CIT(A) noted that the assessee was liable to penalty not exceeding Rs. 5,000 per day for the default that his non-compliance with SEBI regulations or delaying in making the compliance - he rejected the contention of the assessee that it was a normal payment - CIT(A) uphold the disallowance made by AO. HELD THAT:- The contention of ld counsel for the assessee is that the payment has not been made by the assessee u/s 15A of the SEBI Act. According to him, the payment was under an option given under the scheme of 2002 and therefore such payment cannot be said to be either as a penalty or akin to penalty. Hence, no disallowance could be made On persual of the "SEBI Regularization Scheme, 2002 for non-compliance with regulations 6 and 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, It is clear that once the payments prescribed under the scheme was made, the requirements under the 1997 Regulations are treated to be complied with and consequently, the provisions of sections 15A and 24 of the SEBI Act could not be enforced against such persons. Therefore, in our humble opinion, such payments cannot be said to be payment for violation of law and consequently, the same cannot be said to be a penalty u/s 15A of the SEBI Act. Following the decision of the hon'ble Supreme Court in the case of Ahmedabad Cotton Mfg. Co. Ltd. [1993 (10) TMI 1 - SUPREME COURT] if the amount paid is in the nature of penalty or akin to penalty then the amount paid can be disallowed. Otherwise, such payment has to be allowed if the payment is incidental to the carrying on of the business. The word "penalty" has been defined by various dictionaries including Black's Law Dictionary as punishment imposed on a wrongdoer for violation of law. The payment has not been made u/s 15A of the SEBI Act but under a scheme for regularising the default. The object of the scheme was to provide a one-time opportunity to defaulters for regularising the default which might have been committed by oversight or lack of knowledge. The purpose was, therefore, not to punish the person but to enable him to comply with the provisions of Regulations of 1997. Thus, the payments made by the assessee under the scheme of 2002 could not be treated as penalty or akin to penalty. Therefore, it is held that the payment could not be disallowed u/s 37. The order of the CIT(A) is therefore, set aside on this issue and consequently, the disallowance sustained by him is deleted. In the result, the appeal of the assessee is partly allowed.
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