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TMI Blog2016 (4) TMI 710X X X X Extracts X X X X X X X X Extracts X X X X ..... ER Per Shri S. S. Viswanethra Ravi, J.M. This appeal is filed by the assessee against the order dated 03.09.2012 passed by the CIT(Appeals)-VI, Kolkata for the assessment year 2006-07 framed under section 143(3) of the I.T.Act. 2. The grounds raised by the assessee are placed as below: 01. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) -VI, Kolkata has erred in law in upholding an addition of ₹ 5 Lakhs being Admission Fee and Broker Contingency Fund (non-refundable) paid to Bombay Stock Exchange by the appellant, treating the same as Capital Expenditure. 02. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-VI, Kolkata has erred in law in upholding the addition of ₹ 36,336/- being charges paid to Stock Exchanges treating same as a penalty on account of infringement of law . 03. That on the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals)-VI, Kolkata has erred in law in upholding the addition of ₹ 57,500/- treating the same 'as a Prior Period Expenses though the crystallization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding terminals and assessee earned additional brokerage and such expenditure for the extension of assessee s business and disallowed as inadmissible expenditure under section 37 of the Act. 5. Aggrieved with the above, the assessee preferred an appeal before the ld. CIT(A). The view taken by the ld. CIT(A) was that both the amounts were nonrefundable in nature and such payment was made to trade in the stock exchange, while confirming the view of AO, relied on the Judgements of Hon ble Jurisdictional Calcutta High Court in the case of Rajendra Kumar Bahavat vs- CIT reported in 276 ITR 567 and also relied on the orders of ITAT at Kolkata and Chandigarh benches and treated the said amounts as capital expenditure. 6. In challenge by the assessee before us, the ld. AR reiterated the submissions made before the ld. CIT(A) and relied on the case laws reported in 291 ITR 193 and 282 ITR 601 and sought to allow the ground no.1. The ld. DR relied on CIT(A) order and case laws of Hon ble Jurisdictional High Court of Calcutta reported in 276 ITR 567 and prayed to dismiss the ground no.1. 7. Heard both representatives and perused the materials available on record and considered the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law worth the name arises out of the Tribunal s order dt. 21st Sept., 2001. The petition of appeal is dismissed. 9. The ITAT, Kolkata Bench in the case of ACIT vs Ajoy Bhhauwala reported in 80 ITD 79 the relevant held portion and discussion thereon reproduced herein below: Held: On a reading of arts. 10 and 24 of articles of association of the Calcutta Stock Exchange it is clear that the payment of development fee and the entrance fee are necessary conditions for becoming a member of the Stock Association. By these the assessee acquires a right to carry on the business on the floor of the exchange. In such circumstances, it should be a capital expenditure and not revenue expenditure. To incur expenditure by way of development fee was to ensure the source for operating in the floor of the exchange without which it was not possible for him to carry on the business and, therefore, it would be an expenditure of capital in nature. The mere fact that although incidental, the expenditure would certainly help in the business of the assessee and may also help in profit-making, would not be sufficient to treat the same as revenue expenditure because it still retains the characte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated above, has acquired a right of carrying on of the business or to ensure the source thereof. Therefore, the said decision cannot be of any help to the assessee. We, therefore, reverse the order of the Dy. CIT(A) and restore that of the AO. 21. In the result, the appeal is allowed. 10. Respectfully following the aforesaid decisions and we hold that that the payments made to Bombay Stock Exchange towards broker contingency fund and admission fees are capital in nature, accordigly, ground no-1 fails and it is dismissed 11. Regarding ground no.2, the AO has narrated above the facts of the case that the assessee is a registered stock broker and obtained deposit based membership of Bombay Stock Exchange Ltd. The said membership was trading membership of cash segment of Bombay Stock Exchange. During the year under consideration, the assessee paid penalty charges for various types of defaults of ₹ 33,336/- as per the trading norms issued by the stock exchanges. The question that now arises is whether this amount was a payment in the nature of penalty in terms of section 37 of the Act. 12. The AO disallowed the payment of the said sum of ₹ 36,336/- observ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt, in the case of INCOME TAX OFFICER vs. GDB SHARE STOCK BROKING SERVICES LTD BY ITAT, KOLKATA 'C BENCH reported in 88 TTJ(KOL)352, the relevant portion of order is reproduced herein below: 10. So far as the disallowance of ₹ 13,967 from miscellaneous expenses being penalty charges are concerned, we have noticed from the details that the same have been paid to National Stock Exchange for delay in payment of the dues and for various other obligations arising out of carrying on business activities. We, therefore, agree with the learned CIT(A) that the penalty charges cannot be said to be for infringement of any law but has been paid by the assessee to compensate for delay in payment of the dues to the National Stock Exchange and for various other obligations. We, therefore, agree with the learned CIT(A) that the disallowance is, therefore, not justified and he has rightly directed the AO to delete ₹ 13,967 from the total income 18. In the aforesaid order the assessee paid penalty for delay in payment of the dues and for various other obligations arising out of carrying on business activities and the ITAT agreed with view taken by the CIT-A that that the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conduct as specified in r. IV(4)(e) of the NSE Rules cannot be equated with violation of a statutory rule or law. Though, the learned CIT(A) has referred r. 4C in Appendix 222 to SEBI Rules, 1992, this rule only specifies the condition to be satisfied for the SEBI Board to grant a certificate to a stock broker. It is true that working of stock exchanges can be regulated by SEBI under the SEBI enactment but violation of rules and regulations framed by such stock exchanges cannot be per se considered as violation of any provision of SEBI enactment. The fine imposed on the assessee by the disciplinary bench of the NSE was admittedly for violation of the regulation of NSE Ltd., and neither the AO nor the learned CIT(A) has been able to point out how such violation or breach of regulations could be treated on par with the breach of a rule under the SEBI enactment. Therefore, we are of the considered opinion that there was no violation of law by the assessee and the fine paid were only for non-observation of internal regulations of stock exchange. We derive support in taking this view from the decision of Coordinate Bench of this Tribunal in the case of Asstt. CIT vs. CFL Ltd. in ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X
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