2010 (5) TMI 826 - AT - Income Tax

Summary

Issues involved: The judgment involves the appeal against orders related to assessment years 2005-06 and 2006-07, covering issues of disallowance of penalties paid to stock exchanges, treatment of sundry balances written off, and disallowance of long-term capital loss on redemption of preference shares.

Issue 1 - Disallowance of penalties paid to stock exchanges:
The Revenue appealed against the CIT(A)'s decision to allow penalties paid to stock exchanges, arguing that they were penal in nature. The Tribunal, citing various precedents, held that fines and penalties paid for violations of stock exchange regulations are not for infractions of law but are routine business expenses. The Tribunal upheld the CIT(A)'s decision, stating that such payments are allowable expenditures and not for infraction of law.

Issue 2 - Treatment of sundry balances written off:
The Revenue challenged the CIT(A)'s decision to allow the deduction of sundry balances written off, claiming they were not incidental to the business. The Tribunal noted that the Assessing Officer disallowed the claim as bad debt or business loss without considering the nature of the differences. The Tribunal directed the issue to be reconsidered by the Assessing Officer, emphasizing the need for a fresh adjudication based on the nature of the differences and the regular course of business.

Issue 3 - Disallowance of long-term capital loss on redemption of preference shares:
The Revenue disputed the CIT(A)'s decision to delete the disallowance of long-term capital loss on redemption of preference shares, based on earlier years' assessments. The Tribunal upheld the CIT(A)'s decision, citing precedents where similar disallowances were deleted. The Tribunal concluded that the assessee was entitled to claim indexation on the redemption of preference shares, following the precedent set in earlier years.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes in one case and dismissed the appeal in the other. The judgments emphasized the distinction between routine business expenses and penalties for legal infractions, the need for a detailed consideration of sundry balances, and the consistency in allowing indexation on redemption of preference shares based on past decisions.