ICICI SECURITIES LIMITED,MUMBAI vs. THE DEPUTY COMMISSIONER OF INCOME TAX - 4(1)(1), MUMBAI

The Assessee has raised the following grounds of appeal:- “GROUND NO I: VIOLATION OF PRINCIPLES OF NATURAL JUSTICE: 1. On the facts and circumstances of the case and in law, Hon'ble CIT (A) erred in in passing the impugned order without granting an opportunity of personal hearing to the Appellant. 2. The Appellant prays that the impugned order passed in violation of the principles of natural justice is bad in law and deserves to be quashed. WITHOUT PREJUDICE TO GROUND NO. L ABOVE: GROUND NO. II: NON-ADJUDICATION OF GROUNDS OF APPEAL BY HON'BLE 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in not specifically adjudicating each of the grounds of appeal filed before Hon'ble CIT (A). 2. The Appellant humbly prays that the impugned order passed by the Hon'ble CIT(A) be quashed. WITHOUT PREJUDICE TO GROUND NO. 1 & II ABOVE: GROUND NO. III: LEVY OF PENALTY AMOUNTING TO RS. 4.02.90,552/- U/S. 270A OF THE ACT: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the penalty levied by the Ld. AO u/s. 270A of the Act, on the alleged ground that the Appellant has under-reported his income qua the additions made on account of penalties paid to stock exchange in order u/s 143(3) r.w.s. 144B of the Act dated March 24, 2025. 2. The Appellant prays that levy of penalty u/s 270A of the Act is bad in law and thus the impugned order is liable to be quashed. WITHOUT PREJUDICE TO GROUND NO. I & II ABOVE: GROUND NO. IV: INCORRECT COMPUTATION OF PENALTY AMOUNT: 1. On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the levy of penalty amounting to Rs. 4,02,90,552/- u/s. 270A of the Act, without appreciating that the quantum of penalty has been incorrectly computed by the Ld. AO. 2. The Appellant therefore prays that the penalty be deleted, or in the alternative, the Ld. AO be directed to recompute the penalty in accordance with the provisions of section 270A of the Act, if at all leviable.”

Ld. Counsel for the assessee submitted that Ground No. I, which is in respect of violation of the principles of natural justice before the Ld. CIT(A) is not pressed. In view of the submission of the Ld. Counsel for the assessee, this ground is dismissed as not pressed.

Coming to Ground No. II, Ld. Counsel for the assessee submitted that the same is general in nature and needs no adjudication.

Ground No. III of the grounds of appeal is in respect of challenging the order of the Ld. CIT(A) in sustaining the penalty levied u/s 270A of the Act on the addition made on account of penalty paid to the Stock Exchange in the order passed u/s 143(3) r.w.s. 144B of the Act.

Ld. Counsel for the assessee submitted that an identical issue came up for consideration before the Tribunal in assessee’s own case for the assessment years 2007-08 and 2008-09 in ITA Nos. 2437/Mum/2011 and 1906/Mum/2012, and the Tribunal, vide order dated 15.09.2017, held that such payments made by the assessee to the Stock Exchange were not on account of any infraction of law and hence allowable as business expenditure.

Ld. Counsel for the assessee invited our attention to paragraphs 8 to 8.4 of the Tribunal’s order, which are placed at page 13 of the paper book, and submitted that the Tribunal following the decision of the Hon’ble Bombay High Court in the case of CIT vs. Angel Capital & Debit Market Ltd. in ITA (L) No. 475 of 2011, dated 28.07.2011 deleted the disallowance. Ld. Counsel for the assessee further invited our attention to pages 35 to 44 of the paper book, which is the Tribunal’s order for the assessment year 2020-21 in ITA No. 3766/Mum/2025 dated 06.01.2026 and submitted that identical issue was also considered by the Tribunal for the assessment year 2021-22, wherein it was held that the penalty levied by the Stock Exchange was on account of operational lapses and therefore was an allowable expenditure u/s 37(1) of the Act, and thus rejected the revisionary proceedings initiated by the Ld. CIT u/s 263 of the Act. Thus, the Ld. Counsel submitted that the penalty levied on such unsustainable addition is not justified.

Heard rival submissions and perused the orders of the authorities below. We observe that the Tribunal in assessee’s own case for the assessment years 2007-08 and 2008-09, held that the penalties paid by the assessee for violation of the bye-laws of the Stock Exchange on account of bad delivery / short delivery, wrong claim of corporate benefits, late reporting, security deposit shortages, fund shortage and client code modification, etc., are not penal in nature and therefore, are not hit by Explanation to section 37(1) of the Act. While coming to such conclusion, the Tribunal followed the decision of the Hon’ble Bombay High Court in the case of CIT vs. Angel Capital and Debit Market Ltd. (supra), wherein the Hon’ble High Court answered the question as to whether the Tribunal was justified in deleting the disallowance made by the assessee in respect of deduction of payment towards penalty paid to the Stock Exchange by applying Explanation to section 37(1) of the Act. The Hon’ble High Court agreed with the view of the Tribunal that 4 such penalty paid by the assessee to the Stock Exchange is allowable as business expenditure and is not hit by Explanation to section 37(1) of the Act.

In view of the above, there is no justification in levying penalty u/s 270A of the Act on account of disallowance of such penalties paid by the assessee to the Stock Exchange, which are otherwise allowable u/s 37(1) of the Act. Thus, we direct the Assessing Officer to delete the penalty levied u/s 270A of the Act on the disallowance made on account of penalties paid to the Stock Exchange in the order passed u/s 143(3) r.w.s. 144B of the Act. Ground No. III of the grounds of appeal of the assessee is allowed.

In the result, the appeal of the assessee is partly allowed as indicated above.