2015 (11) TMI 111 - AT - Income Tax

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 we find that disallowance is contrary to law and the same is directed to be deleted. - Decided in favour of assessee. Disallowance of Bad Debts - Held that - This issue on legal principles now stands covered in favour of the assessee by the judgment of Hon ble Supreme Court in the case of TRF Ltd. 2010 (2) TMI 211 - SUPREME COURT wherein it has been held that in view of the amended law the assessee is now required to merely show the write off of the debts and the establishing 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.

Summary

Issues:
1. Disallowance of fines, penalties, etc. of Rs. 908,193
2. Disallowance of Bad Debts of Rs. 211,109

Issue 1: Disallowance of fines, penalties, etc., of Rs. 908,193

The appeal was filed against the order disallowing fines, penalties, etc., under the Income-tax Act, 1961. The Assessing Officer disallowed the amount paid by the assessee to SEBI/Stock Exchange for non-maintenance of KYC forms and short collection of margin money, citing it as an offense prohibited by law. The assessee contended that the payments were compensatory for procedural non-compliance and not offenses. The CIT(A) upheld the disallowance, leading to the appeal. During the hearing, the counsel argued that the fines were routine compensatory payments for minor procedural irregularities, necessary for regulatory compliance in the stockbroking business. The Tribunal noted that fines were not punitive but compensatory, ensuring procedural compliance. Relying on a previous tribunal judgment, the disallowance was deemed contrary to law and was directed to be deleted.

Issue 2: Disallowance of Bad Debts of Rs. 211,109

The assessee claimed bad debts under section 36(1)(vii) of the Income Tax Act, 1961. The Assessing Officer disallowed a portion of the claim as the assessee failed to establish that the debt had become bad. The CIT(A) upheld the disallowance due to insufficient details provided. During the Tribunal hearing, the assessee argued that the write-off in the books was sufficient, citing legal precedent. The Tribunal found in favor of the assessee, referencing a Supreme Court judgment that establishing a debt as 'bad' was not mandatory. The issue was sent back to the AO for verification of details, with directions to follow the Supreme Court judgment. Consequently, the disallowance of bad debts was allowed for statistical purposes.

In conclusion, the Tribunal partly allowed the appeal, directing the deletion of the disallowance of fines, penalties, etc., and sending back the issue of bad debts for verification in line with legal principles.