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TMI Blog2016 (12) TMI 1721X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and now the revenue is in appeal before us aggrieved by the order of ld.CIT(A) on the following grounds: "1. "On the facts and in the circumstances of the case and in law, the CIT(A) erred in deleting the disallowance made by the A.O. u/s 37(1) on account of payment made to SEBI for infringement of law, which is a fee for compounding an offence as per clause 19 of SEBI circular No.EPD/ED/Cir-1/2007 dated 20.04.2007" 2. "On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in directing the AO to allow indexation benefit from AY 1998-99 and not from AY 2005-06 in spite of the fact that the shares of BSE were acquired by the assessee in the year 2005-06 only" 3. The first ground of appeal is against the deletion of disallowance made by the A.O. u/s 37(1) on account of payment made to SEBI for infringement of law, which is a fee for compounding an offence. 4. Brief facts of the case are that during the course of assessment proceedings the AO observed that the assessee had debited Rs. 5 lakhs under the head SEBI consent fees and Rs. 16,31,704/- towards penalty levied by the NSE for wrong reporting of margin to NSE. The AO was of the view that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al violations and they cannot be considered as "infraction of law". On the other hand, we notice that the revenue was mainly carried away by the expression "penalty" used in sections 15E to 15H of the SEBI Act. 15. However, we find force in the contentions of the assessee. The Circular issued by SEBI for "Consent application" clearly specifies that the action taken under section 11 of the Act fall in the category of "administrative or civil action". Further, order passed by SAT also clearly states that the irregularities alleged against the assessee are "technical violations". Most of all, the amount of Rs. 50.00 lakhs paid by the assessee are not related to the penalty, if any, imposed by the SEBI, rather it was a "Consent Fee" paid by the assessee for settlement of dispute, legal expenses and other administrative charges of SEBI. The said amount was paid clearly specifying that it was paid without admitting or denying the guilt. Hence, in our view, it cannot be said that the assessee has paid the amount of Rs. 50.00 lakhs by duly accepting or upon proving the irregularities alleged against it. On the contrary, it is the case of the assessee that it has taken the decision to set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the facts and circumstances of the case, HPAC has recommended that the case may be settled on payment of Rs. 50,00,000,/- (Rupees Fifty Lakhs only). In view of the recommendation of HPAC, SEBI has in principle agreed to the clause' Undertakings(Waivers vide your afore-mentioned consent application." 6.6 The Appellant further relied upon the following judgements to substantiate the same: * Fine and penalties are collected by a stock exchange from its members for various reasons. Where such payments were collected for alleged unfair trading practice or non- business like conduct, it is not a payment for violation of the regulations of- the stock exchange. It -was held, that such amounts cannot be disallowed in Gold Crest Capital Markets Limited v ITO (2010) 2 ITR (Trib) 355 (Mumbai). In coming to the conclusion, the Tribunal discussed the provisions of the Constitution of National Stock Exchange and the regulations applicable to brokers and sub-brokers stipulated by the Securities and Exchange Board of India with reference to which penalties are levied by Disciplinary Action Bench of National Stock Exchange. * The Hon'ble Murnbai Tribunal in the case of VRM Share Bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thing akin to penalty, that is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, then one has to regard such payment as business expenditure of the assessee, allowable under section 37, as an incident of business laid out and expended wholly and exclusively for the purposes of the business. If such payment by the assessee is that which is made in exercise of the option given to such assessee by the law or the statutory scheme, there arises no need for assessing authority to go into the question whether the payment could be regarded as that made as a measure of business expediency, for it cannot ignore the fact that the law or the statutory scheme enables incurring of such expenditure in the course of assessee's business - CIT v. Ahmedabad Cotton Mfg. Co. Ltd. 71 Taxman 56/[1994] 205 [ER 163 (SC). * The Hon'ble Apex Court in the case of Prakash Cotton Mills (P) Ltd V/s CIT (1993) 201 ITR 684 has been held that, "whene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant had been suspended from doing trading activity for a period of four months and had not been awarded any monetary fines. It has been mentioned in the said order that the consent application of the appellant was without admitting or denying the guilt. SEBI has also accepted the application on this basis. Thus, SEBI has accepted the position that guilt may or may not be established at the end of the appellate proceedings. The fee paid cannot therefore, be equated to a "penalty" which must necessarily be a punishment for infraction of a law or a regulation having statutory force. The fee is claimed to have been paid for the purposes of business, to settle a dispute with the regulator SEBI and to be able to conduct its business without interruption. It is also worth noting that various decisions have held that an examination of the nature of expenses, reveals that if the concerned impost is purely compensatory in nature, the same is an allowable expense u/s. 37 of the Act. In the circumstances, the fee cannot be equated with a penalty and is a payment to enable the assessee to carry on its business in the normal course. Hence, the disallowance made by the AO of Rs. 50,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appeal of the assessee vide para 3.2 and 3.3 of the appellate order as under : "3.2 I have considered the facts of the case, assessment order passed by he AO and the submission made by the appellant. It is seen that the issue of benefit of indexation was also involved in the case of M/ s. G. Das Capital Markets Pvt. Ltd. in A.Y. 2008 -09 decided by me in Appeal No. CIT (A)-8/Cir.4/374/2010-11, dated 20.02.2013. While deciding the issue, I have made the following observation :- "The Finance Act, 2003 also bring in the statute new sections such as 47(xiiia) and 55 (2)(ab). On the basis of the provisions of the Act as discussed in the foregoing paras, I am of the considered view that there is a no merit in the argument of the AO that the sale of the BSE shares be treated as short term capital gain, the law is very clear that since the holding is more than a year the sale of shares be treated as long term capital gain and the AO is directed to treat the receipts on sale of shares as long term capital gain. There is a considerable force in the arguments of the AR of the appellant that that the cost of indexation should be given from the date it acquired the membership card and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No.3187/Mum/2013 (AY-2008-09) dated 28.8.2014. The relevant part of the Tribunal order, for the sake of brevity, we reproduce below : "12. We have considered rival contentions and found that share allotted to the assessee by BSE in lieu of its membership card was sold by the assessee during the year under consideration. The long term capital gain arose thereon was computed by the AO by taking the WDV of membership ITA No.3187/13 15 card so allotted. The CIT(A) deleted the addition so made by observing that u/s.55(2)(ab) was introduced by Finance Act, 2001, according to which in case of sale of capital asset being equity share allotted to the shareholder of a recognized stock exchange in India under scheme of demutualization, shall be the cost of acquisition of its original membership of the exchange. The CIT(A) found that the original cost of acquisition of membership card at Rs. 91,23,000/-. Accordingly, the CIT(A) directed the AO to recomputed the capital gain on sale of shares of BSE by taking the cost of acquisition at Rs. 91,23,000/- and allowing indexation thereon as per provisions of law. Hence, we do not find any infirmity in the order of CIT(A) for directing the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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