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TMI Blog2019 (1) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... MBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri. D.G. Pansari (DR) For The Assessee : Shri Divyesh Fotaria,Advocate ORDER PER RAMIT KOCHAR, Accountant Member: This appeal, filed by Revenue, being ITA No. 6479/Mum/2017, is directed against appellate order dated 22.08.2017 passed by learned Commissioner of Income-tax (Appeals)-9, Mumbai (hereinafter called the CIT(A) ), for assessment year 2009-10, the appellate proceedings had arisen before learned CIT(A) from the penalty order dated 30.03.2015 passed by the learned Assessing Officer ( hereinafter called the AO ) u/s 271(1)(c) of the Income-tax Act,1961 for assessment year 2009-10. 2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing the appeal of the assessee and cancelling the penalty levied u/s 271(1)(C) of Rs, 69,67,950/- without appreciating the fact that consent fees paid by the assessee to SEBI was nothing but in the nature of compounding of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advisory Committee constituted by SEBI . The assessee remitted said amount towards settlement charges vide demand draft of ₹ 2,05,00,000/- drawn on ICICI Bank without accepting or denying the charges . With this, the enquiry initiated by SEBI stood disposed of. The AO invoked explanation 1 to Section37(1) of the 1961 Act to disallow the said expenditure in quantum assessment. The matter in quantum travelled upto tribunal and the tribunal was pleased to hold the issue in favour of the assessee in ITA no. 3986/Mum/2014 for AY 2009-10 , vide appellate order dated 16.06.2017 , by holding as under:- 12. We have heard the rival submissions and perused the material on record and gone through the case laws cited before us. The factual matrix of the issue emerging from the materials on record indicates that on receiving allegations relating to certain omissions and commissions in respect of share transactions relating to scrips of two companies viz. DSQ Software Ltd. And DSQ Biotech Ltd., SEBI appointed an enquiry officer to enquire into the allegation. Notably, in case of DSQ Software Led., the enquiry officer submitted his report stating therein that in the course of enquiry, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of disallowance of consent fee paid to SEBI more or less on identical facts and circumstances. While doing so, the Tribunal observed that the settlement of dispute by the assessee on payment of settlement charges is for business consideration, hence, cannot be equated to levy of penalty tor infraction of law. The Tribunal also found that as per the circular issued by SEBI consent application is for action taken u/s 11 of the SEB1 Act which falls in the category of administrative or civil action. The Tribunal also observed that the settlement charges / consent fee paid is not related to penalty imposed by SEBI but for settlement of dispute legal expenditure enc other administrative charges of SEBI. The Tribunal also took note of the fact that the assesses agreed for settlement of dispute without admitting or denying the charges. Thus ultimately, it was held by the Tribunal that the assessee has taken the decision to settle the dispute on commercial expediency and in business interest. Keeping in view the facts of the aforesaid case and the ratio laid down by the Tribunal, the assessee s case stands in a much better footing. As could be seen in the case of Reliance Share Stock Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee seeks rectification in the order dated 16th June 2017, passed by the Tribunal in the captioned appeals. 2. The learned Authorised Representative submitted before us that a mistake has crept in the order dated 16th June 2017, passed by the Tribunal. The learned Authorised Representative submitted, at Page-6, Para-8, line no 2, the Tribunal has mistakenly mentioned the amount as ₹ 2,05,000/- which , in fact, ought to have been mentioned as ₹ 2,05,00,000/- 3. On perusal of the records available before us, we find that the aforesaid mistake as pointed out by the assessee is apparent on record which needs rectification. Consequently, we proceed to rectify the same. 4. At page-6, Para-8, in line no.2 of the said order, the amount as wrongly shown as ₹ 2,05,000/- is hereby substituted and may be read as ₹ 2,05,00,000/- 5. The order dated 16th June 2017, is modified to the above extent only. 5. The AO levy penalty u/s 271(1)(c) of the 1961 Act vide orders dated 30.03.2015 on the disallowance so made of settlement and administrative charges as per consent order paid by the assessee . The AO considered erroneously an amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee has indulged in synchronized and manipulated transactions. Therefore, he recommended for suspension of registration certificate for a period of 12 months. Similarly, in case of transactions of shares relating to DSQ Biotech Ltd., the enquiry officer found that assessee has indulged in synchronized transactions, hence recommended for suspension of registration certificate for a period of three months. On the basis of enquiry report submitted by the enquiry officer, SEBI issued a show cause notice to the assessee calling upon it to explain why the recommendation of the enquiry officer should not be implemented. As appears from the facts on record, the assessee filed a show cause contesting the charges brought against him. However, before the final adjudication on the issue of violation of SEBI regulations assessee filed consent application and the issue was referred to a high powered committed constituted by the SEBI. The high powered advisory committee after considering the consent terms proposed by the assessee recommended the case for settlement subject to payment of ₹ 2.05 crore by the assessee. Undisputedly, the assessee has paid the amount of ₹ 2.05 crore throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was adjudication of the issue by SEBI and when the matter was pending before the appellate authority, the assessee applied for settlement of dispute which was accepted. Whereas, in case of present assessee there was no final adjudication on the issue of imposition of penalty by the SEBI. Possibly, there could have been a situation where SEBI after considering assessee's explanation might have dropped the proceedings. Thus, when there is no order passed by the adjudicating authority imposing penalty, the settlement charges/consent fee paid by the assessee to SEBI cannot be treated as penalty for infraction of any law. At best, the payment made by the assessee can be said to be for mitigating the consequences of the allegations/charges brought against it which still remained to be decided finally. The other decisions cited by the AR also support this view. Thus, in view of the aforesaid, we hold that the settlement charges / consent fee paid by the assessee to SEBI not being in the nature of penalty cannot be disallowed in terms of Explanation 1 to section 37. Accordingly, we delete the addition. This ground is allowed. As the quantum addition has been deleted by the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... travelled upto tribunal and the tribunal was pleased to hold the issue in favour of the assessee in ITA no. 3986/Mum/2014 for AY 2009-10 vide appellate order dated 16.06.2017 , by holding as under:- 12. We have heard the rival submissions and perused the material on record and gone through the case laws cited before us. The factual matrix of the issue emerging from the materials on record indicates that on receiving allegations relating to certain omissions and commissions in respect of share transactions relating to scrips of two companies viz. DSQ Software Ltd. And DSQ Biotech Ltd., SEBI appointed an enquiry officer to enquire into the allegation. Notably, in case of DSQ Software Led., the enquiry officer submitted his report stating therein that in the course of enquiry, it was found that the assessee has indulged in synchronized and manipulated transactions. Therefore, he recommended for suspension of registration certificate for a period of 12 months. Similarly, in case of transactions of shares relating to DSQ Biotech Ltd., the enquiry officer found that assessee has indulged in synchronized transactions, hence, recommended for suspension of registration certificate fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on taken u/s 11 of the SEB1 Act which falls in the category of administrative or civil action. The Tribunal also observed that the settlement charges / consent fee paid is not related to penalty imposed by SEBI but for settlement of dispute legal expenditure enc other administrative charges of SEBI. The Tribunal also took note of the fact that the assesses agreed for settlement of dispute without admitting or denying the charges. Thus ultimately, it was held by the Tribunal that the assessee has taken the decision to settle the dispute on commercial expediency and in business interest. Keeping in view the facts of the aforesaid case and the ratio laid down by the Tribunal, the assessee s case stands in a much better footing. As could be seen in the case of Reliance Share Stock Brokers Pvt. Ltd, (supra), there was adjudication of the issue by SEBI and when the matter was pending before the appellate authority, the assessee applied for settlement of dispute which was accepted. Whereas, in case of present assessee there was no final adjudication on the issue of imposition of penalty by the SEBI. Possibly, there could have been a situation where SEBI after considering assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X
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