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2012 (9) TMI 260 - AT - Income TaxDeemed Speculative Income trading in the delivery basis Held that - Section 73 explanation is mandatory and has overriding effect and is applicable to all Private Limited Companies. CIT(A) has rightly examined and considered provisions of section 73 explanation and observed that in case of a company if part of its business consists of dealing in shares then all types of transactions whether delivery based or nondelivery based will be treated as speculative transactions. Order of CIT(A) upheld Payment of interest to SEBI for late deposit of SEBI dues dis-allowance on contention of it being penal Held that - 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. See CIT v. Prasad and Co (2012 (2) TMI 124 - DELHI HIGH COURT). Order of the CIT(A) deleting the dis-allowance is upheld Decided against Revenue
Issues Involved:
1. Erroneous and contrary to facts and law order by CIT(A). 2. Assessment of speculative income. 3. Deletion of addition made on account of interest paid for late deposit of SEBI dues. Issue-wise Detailed Analysis: 1. Erroneous and Contrary to Facts and Law Order by CIT(A): The revenue contended that the order of the learned CIT(A) was erroneous and contrary to facts and law. However, this was a general ground that required no specific adjudication. 2. Assessment of Speculative Income: The CIT(A) directed the AO to assess speculative income at Rs. 37,04,470/- instead of Rs. 18,20,012/-. The CIT(A) considered trading on a delivery basis as "Deemed Speculation" in accordance with the provisions of Explanation to Section 73 of the Act. The principle of consistency was emphasized, referencing the Hon'ble Delhi High Court in CIT v. Rajeev Mills and the Supreme Court in Radhasoami Satsang v. CIT, which supported that earlier decisions should not be reopened unless fresh facts are found. The CIT(A) further explained that the term "purchase and sale of shares" in Explanation to Section 73 should be given full effect, and all types of transactions, whether delivery-based or non-delivery based, will be treated as speculative transactions. This position was supported by various judicial precedents, including the Bombay High Court and the Tribunal's decisions. Consequently, the CIT(A) upheld the speculative income assessment at Rs. 37,04,470/-, and the revenue's ground on this issue was dismissed. 3. Deletion of Addition Made on Account of Interest Paid for Late Deposit of SEBI Dues: The CIT(A) deleted the addition of Rs. 3,72,594/- made by the AO on account of interest paid for the late deposit of SEBI dues. The CIT(A) analyzed the conditions under Section 37 of the Act, which allows for business expenditure deductions unless the expenditure is for an offense or prohibited by law. The CIT(A) referred to the Supreme Court's decisions in Prakash Cotton Mills Pvt. Ltd. v. CIT and CIT v. Ahmedabad Cotton Mfg. Co. Ltd., which provided a framework for distinguishing between compensatory and penal payments. In this case, the interest paid was compensatory in nature, resulting from the SEBI (Interest Liability Regularization) Scheme 2004, and not penal. The CIT(A) concluded that the payment did not cover any act of the assessee that could be termed as illegal or contrary to statutory provisions. Therefore, the interest payment was considered an allowable business expenditure. The revenue's ground on this issue was dismissed. Conclusion: The Tribunal upheld the CIT(A)'s order on both issues, dismissing the revenue's appeal. The speculative income was correctly assessed at Rs. 37,04,470/-, and the interest paid to SEBI was deemed compensatory and allowable as a business expenditure. The revenue's appeal was dismissed in its entirety.
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