TMI Blog2009 (1) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et aside on this issue and consequently, the Assessing Officer is directed to re-compute the profits after making adjustments with reference to opening stock, closing stock, purchases as well as sales. 5. The next issue arising from ground No. 3 in appeal for Assessment Year 2001-02 relates to the computation of total turnover for the purpose of computing deduction Under Section 80HHC. The issue is whether sales tax would form part of the total turnover or not. This issue stands covered in favour of the assessee by the decision of the Hon'ble Bombay High Court in the case of Sudarshan Chemical Industries Ltd. 245 ITR 769 wherein it has been held that sales tax would not form part of the total turnover. This view has been upheld by the Hon'ble Supreme Court in the case of Laxmi Machine Works 290 ITR 667. Therefore, following the same, the issue is decided in favour of the assessee. The order of the learned CIT(A) is therefore set aside on this issue and consequently the Assessing Officer is directed to exclude the sales tax amount of Rs. 2,02,53,672/- from the total turnover taken for the purpose of computing deduction Under Section 80HHC. 6. The next issue arising fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipt or income assessable under the head 'Other Sources'. It appears that the learned CIT(A) failed to take into consideration the provisions of Section 41(2) which provides that where any building, machinery, plant or furniture owned by the assessee and in respect of which depreciation has been claimed is sold, discarded, demolished or destroyed than any money payable over and above the Written Down Value (WDV) is chargeable to tax as business profits. However, necessary details are not on record. Accordingly, it requires re-adjudication. The order of the learned CIT(A) is therefore set aside on this aspect of the issue and the matter is restored to the file of the Assessing Officer for fresh adjudication after verification. 8. As far as interest income is concerned, both the authorities have observed that such interest income has been earned on bank deposits and the assessee has foiled to prove that there was any nexus with the business activity of the assessee. The learned CIT(A) also examined the aspect whether there was any nexus between the interest paid on interest received. The assessee had failed to furnish any evidence before the learned CIT(A). In view of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence was filed in this regard. In para 8.2 of his order, the learned CIT(A) has categorically mentioned that the assessee has not been able to give any evidence either before the Assessing Officer or before him that interest income had arisen as part of normal business activity. The detail of interest has been placed before us at page 26 of the paper book but the certificate given on the paper book clearly shows that such details were never filed before the lower authorities. The assessee has also not made any application for admission of additional evidence. Therefore, we do not find any merit in the ground raised by the learned Counsel for the assessee. The learned CIT(A) has also recorded a finding that the assessee had not produced any detail in respect of the expenditure incurred for earning of interest income. In view of the same, the netting was not allowed. Hence, there is no infirmity in the order of the learned CIT(A). The order of the learned CIT(A) is therefore upheld on this issue. 12. The next issue arising from ground No. 4 is that the learned CIT(A) erred in holding that job work receipts of Rs. 86,90,220/- and sale of scrap of Rs. 5,86,877/- should be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 5,000/- per day for the default that his non-compliance of SEBI regulations or delaying in making the compliance. The learned CIT(A) rejected the contention of the assessee that it was a normal payment. It was also noted by him that there was no option to the assessee for either making disclosure to the stock exchange or being paying compounding fees. Accordingly, it was held by him that Hon'ble Supreme Court decision in the case of Ahmedabad Cotton Manufacturing Company Ltd. 205 ITR 163 relied upon by the assessee was not applicable to the facts of the case. Consequently, the disallowance was upheld. Aggrieved by the same, the assessee is in appeal on this issue before the Tribunal. 17. The contention of the learned Counsel for the assessee is that the payment of Rs. 1,40,000/- was made under a scheme namely SEBI Regulation Scheme, 2002 (scheme of 2002) for non-compliance with regulations 6 8 of the SHBI ( Substantial Acquisition of Shares and Takeovers) Regulation, 1997. He drew our attention to the above scheme wherein it is stated that certain categories of persons were required to disclose their share holdings and/or control in a listed company to that company. Su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in respect of such expenditure. According to him, the non-compliance of the regulations framed under SEBI Act tantamount to infraction of law and therefore falls within the ambit of the Explanation of Section 37 of the Act. Therefore, the lower authorities were justified in disallowing such expenditure. 19. Rival submissions of the parties have been considered carefully. The question for our consideration is whether the payment made under the scheme framed by the government under the SEBI Regulations 1997 could be disallowed by the revenue authorities under Section 37 of the Act. The Explanation to Section 37 has been inserted by the legislature with retrospective effect from 01.04.1962 which reads as under: Section 37 (1) ... Explanation : For the removal of doubts, it is hereby declared 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 purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. The perusal of the above explanation shows that if expenditure is incurred for any purpose, which is either an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er to appreciate the controversy, it would be appropriate to reproduce the relevant provisions of the scheme as under: SEBI REGULARIZATION SCHEME, 2002 FOR NON-COMPLIANCE WITH REGULATIONS 6 AND 8 OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997 In terms of Chapter II of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'the Takeover Regulations, 1997') certain categories of persons are required to disclose their shareholding and/or control in a listed company to that company. Such companies, in turn, are required to disclose such details to the stock exchanges where shares of the company are listed. It has been observed that many listed companies and/or their promoters/shareholders have either not complied at all or have complied with the said requirements after the expiry of the time specified in the said regulations. In terms of Section 15A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'the SEBI Act'), such persons are liable to a penalty not exceeding five thousand rupees payable for ever day during which such failure to furnish i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity 2. Following are eligible for availing benefit under this scheme: a) Persons who have failed to comply with or who have complied with the requirements of regulations 6(1), 6(3), 8(1) and 8(2) of the Takeover Regulations, 1997, after expiry of the period specified in the said regulations. b) The listed companies which had failed to comply with or complied with the requirements of regulations 6(2), 6(4) and 8(3) of the Takeover Regulations, 1997, after expiry of the period specified in the said regulations. c) In respect of the listed companies where there was no change in the shareholding of persons specified under regulations 8(1) and 8(2) of the Takeover Regulations, 1997, in a particular year, the disclosure under regulation 8(3) for that year if not made earlier, can be made under this scheme specifying that there was no change in shareholding of the said persons. Such companies will not be required to pay any amount. This benefit will not be available to persons covered under regulations 8(1) and 8(2). Scheme not to apply in certain cases 3. The benefit of this Scheme will not be available I cases where penalty under the SEBI Act read with Takeover Reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, the assessing authority has to regard such payment as business expenditure of the assessee, allowable under Section 37 as an incident of business laid out and expended wholly and exclusively for the purpose of the business. 25. The perusal of the above clearly shows that 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 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. In the present case, the payment has not been made Under Section 15A of the SEBI Act but under a scheme for regularizing the default. The object of the scheme was to provide a one time opportunity to defaulters for regularizing 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, in our humble opinion, the payments made by the assessee under the scheme of 2002 could not be treated as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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