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2015 (11) TMI 111 - ITAT MUMBAI

2015 (11) TMI 111 - ITAT MUMBAI - [2016] 46 ITR (Trib) 458 - Business expenditure u/s 37 - Disallowance of fines, penalties etc., levied for non maintenance of KYC forms, short collection of margin money - Held that:- Nature of expenses incurred in the name of fines or penalties are same as have been incurred in assessment year 2007-08. These facts could not be controverted by the Ld DR during the course of hearing. Therefore, relying upon the judgment of Hon’ble Tribunal in assessee’s own case, .....

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a debt as ‘bad’ is not mandatory. Therefore, on legal principle, we hold that the impugned claim is allowable to the assessee. We send this issue back to the file of the AO for the limited purpose of verification of the details as were required by the Ld CIT(A) and which were allegedly not filed by the assessee. - Decided in favour of assessee for statistical purposes. - ITA NO.8047/Mum/2010 - Dated:- 29-9-2015 - Shri Joginder Singh, Judicial Member, and Shri Ashwani Taneja, Accountant Member Fo .....

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['the CIT (Appeals)], Mumbai on the facts and circumstances of the case and in law erred in upholding the disallowance of fines, penalties etc., levied for non maintenance of KYC forms, short collection of margin money etc., aggregating to ₹ 908,193 under the provisions of the Income-tax Act, 1961 ('the Act') on the premise that such payments are incurred in relation to offence which is prohibited by law. 1.2 The appellant submits that it has neither undertaken any activity wh .....

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delete the disallowance of ₹ 908, 193. 2 Ground No.2: Disallowance of Bad Debts of ₹ 211,109 2.1 On the facts and circumstances of the case and in law, the ACIT erred in disallowing the bad debts claim of ₹ 211,109. 2.2 The appellant submits that the CIT(Appeals) failed to appreciate the fact that the debts were written off as 'bad' as claimed as deduction since there has not been any recovery from the parties. The CIT(Appeals) ought to have allowed the deduction of bad .....

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d that such payments were incurred in relation to an offence which is prohibited by the law. 3.1 The brief facts are that 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. During the course of assessment proceedings, it was noted by the AO from the Tax Audit Report in Form No. 3CA, that the assessee has paid penalty/fine, levied by the Stock Exchange amounting to ₹ 9,0 .....

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and therefore, the same could not be strictly construed as an offence or something which is prohibited by law . But the AO was not satisfied and aforesaid amount was disallowed by invoking explanation to section 37 of the Act. 3.2. Being aggrieved, the assessee carried the matter to the Learned Commissioner of Income Tax (hereinafter called as Ld CIT(A) }, wherein detailed submissions were made by the assessee company. But the Ld CIT(A) was not satisfied and disallowance made by the AO was conf .....

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21/Mum/2010. 3.4. On other hand, Ld DR has relied upon the orders of the lower authorities. 3.5. We have gone through the submissions of both the parties and details & documentary evidences shown to us by Ld. Counsel. He has taken us through various pages of the paper book to show that the impugned payments have been made on account of routine fines for minor procedural irregularities, in day- to- day working of the assessee company. The assessee company is engaged into stock broking activit .....

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dural compliances by the concerned persons. Their levy depend upon facts and circumstances of the case, and peculiarities or complexities of the situations involved. Sometimes elements of discretions of levying authorities are also involved therein. 3.6. On the other hand, an offence would be the one which will arise as a result to commission of an action which is prohibited by law, and, in all the given situations, no element of any consent of the parties involved can bring any change in its le .....

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he Income Tax Law, and not merely its form. Thus, only those payments, which have been made by the assessee for any purpose which is an offence or which is prohibited by law , shall alone would be hit by the explanation to section 37. We take support from the orders of Hon ble Tribunal in assessee s own case for A.Y. 2007-08 in ITA No.121/Mum/2010 dated 04.11.2010, and the relevant portion is reproduced below: 2. The only issue in this appeal is against the deletion of addition made on account o .....

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37(1). He, therefore, made the addition, which came to be deleted in the first appeal. 3. After considering the rival submissions and perusing the relevant material on record it is noted that the penalty was paid by the assessee on account of execution of trades without submission of PAN card by the clients, nonsubmission of unique client code details, inspection, execution of option trades, short delivery, margin violation fees. From the very nature of the amounts paid it is palpable that there .....

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onsidered opinion, the learned CIT(A)was justified in ordering for the deletion of this addition. We, therefore, uphold the impugned order. 3.7. We find that the facts in this year are same. Nature of expenses incurred in the name of fines or penalties are same as have been incurred in assessment year 2007-08. These facts could not be controverted by the Ld DR during the course of hearing. Therefore, relying upon the judgment of Hon ble Tribunal in assessee s own case, we find that disallowance .....

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he basis of reply of the assessee, the AO found that the claim was justified partly and therefore, a sum of ₹ 2,11,109/- was disallowed on the ground that assessee was not able to establish that this amount had become bad . 4.2. Before the Ld CIT(A), the assessee submitted that, there was no requirement, as per law, to establish that the debt had become bad and mere write off in the books of accounts was enough. Ld CIT(A) was not satisfied on the ground that proper details wer not filed by .....

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