NARESH GUPTA,SRI GANGANAGAR vs. ACIT, CENTRAL CIRCLE-3, JAIPUR, JAIPUR

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCHES, ‘A’ JAIPUR. BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SH. UDAYAN DAS GUPTA, JUDICIAL MEMBER

I.T.A. No. 1551/JPR/2025 Assessment Year: 2013-14

Naresh Gupta Vs. ACIT, 168, New Mandi Yard Central Circle-03, Sri Ganganagar Jaipur [PAN:-ABMPK3234H] (Respondent) (Appellant)

Appellant by Sh. P. C. Parwal, CA Respondent by Sh. Abhimanyu Singh Yadav, Addl. CIT Date of Hearing 29.06.2026 Date of Pronouncement 06.07.2026 ORDER Per: Udayan Dasgupta, JM:

This appeal is filed by the assessee against the order of the ld. Commissioner of Income Tax, Appeal (in short ‘CIT(A)’), passed u/s 250 of the Income Tax Act,1961 dated 26.09.2025which has emanated from the order of the ITO, Ward 3, Sriganganagar passed u/s 143(3) of the I. T. Act, 1961 dated 22.03.2016.

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“1. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of expenditure of Rs. 10,730/- incurred on earning LIC commission income. 2 The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of Rs.5,37,471/- made by AO u/s 37 of the Act by not accepting the contention of the assessee that penalty levied by NCDEX for margin shortfall is not a payment for an offence OR prohibited by law and thus the same is an allowable business expenditure. 3. The Ld. CIT(A) has erred on facts and in law in confirming the disallowance of interest expenses of Rs.28,74,727/- made by AO u/s 36(1)(iii) of the Act by not appreciating that borrowed funds has been used for business purpose and by incorrectly holding that assessee has not brought any evidence to indicate that only interest free funds have been utilized for giving interest free advances. 4. The appellant craves to alter, amend and modify any ground of appeal. 5. Necessary cost to be awarded to the assessee.

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renewal commission and expenses incurred by the agents for earning the same are also variable and in this case since no separate figures are available the estimated disallowance by the Ld CIT(A) is justified and may be sustained. 5. We find that as per the old CBDT circular No 648 dated 30/03/1993, in case of small agents claiming expenses on LIC commission without separate books, are entitled to deduction of 50% on first year commission and 15% on renewal, and where separate figures are not available,adhoc claim of 33% of gross commission are justified. Though the circular being an old one (where the applicability is restricted to gross commission receipts at Rs.60,000/-),taking the same as a guiding principle ,in this case where separate figures are not available, we find that 33% of gross is Rs.42,454/- and the Ld CIT(A) has already allowed a deduction of Rs.42,921/-out of the total claim of Rs.53,651/-, which is perfectly in order, and no further deduction is allowable. 6. This ground of appeal of the assessee is dismissed being devoid of merits. 7. The second ground relates to the disallowance of Rs.5,37,471/- made by AO u/s 37 of the Act on the ground that penalty levied by NCDEX for margin shortfall is a penal offenceand is not an allowable expenditure. 8. During the course of hearing, the ld. AR of the assessee has submitted as under:- 4. The assessee in the present case paid the amount to NCDEX for margin shortfall. It is a compensatory payment. NCDEX is a public limited company and an online commodity exchange that is regulated by the Securities and Exchange Board of India

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(SEBI). It was incorporated under the Companies Act and operates as a recognized exchange for trading agricultural and other commodities, serving as an independent marketplace. The payment by way of penalty for margin money shortfall is thus a compensatory payment and is not for any purpose which is an offence or is prohibited by law. Hence, the same cannot be disallowed under explanation 1 to section 37 of the Act. In this connection, reliance is placed on the following cases: -

DJS Stock and Shares Ltd. vs DCIT (Mumbai): ITA No. 648/Mum/2022 dt. 22.07.2022.: Para 4 to 6 of this order is reproduced as under: -

"4. The Learned AR submitted that the assessee is required to maintain margin money with the Stock Exchange. Whenever margin money falls short, the assessee has to make good the same immediately, failing which, the Stock Exchange would levy a penalty upon the assessee. The Learned AR submitted that the said penalty is levied as per the terms and conditions entered with the Stock exchange with its members. It is only a practice of disciplining the members of stock exchange, i.e., it is only a deterrent under the usual business of carrying on the business by the members of stock exchange. The Ld A.R submitted that the said penalty cannot be equated with the penalty levied for infraction of any law and hence proviso to section 37(1) of the Act would not apply to the above said payment. Accordingly he submitted that learned CIT(A) was not justified in confirming the disallowance made by the Assessing Officer. The Learned AR submitted that an identical issue has been considered by the Coordinate Bench of the Tribunal in the case of ITO Vs. M/s. The Stock & Bond Trading Co. (ITA No. 6459/Mum/08 dated 2.2.2010) and the Tribunal has deleted the disallowance by holding that the penalty charges levied by the Stock Exchange cannot be treated to penalty falling within the ambit of proviso to section 37(1) of the Act. The Learned AR submitted that the above said decision of the Tribunal has since been uphold by Hon'ble High Court of Bombay in ITA No. 4117 of 2010 dated 14.10.2011.

"5. Ground No. 8 to 12 raised by the Revenue in this appeal involve a common issue relating to disallowance of Rs. 2,73,693/- made by the A.O. on account of penalty imposed by the stock exchange which stands deleted by the Id. CIT(A).

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share brokers by various notifications being risk management oriented, payment towards such penalty does not attract proviso to section 37(1) which is aimed at providing deterrence for infraction of laws of the country. To the similar effect in the decision of Chandigarh Bench of the ITAT in the case of Master Capital Services Ltd. Vs. DCIT, 108 TTJ 389 wherein it was held that fines and penalties paid by the assessee to NSE for trading beyond exposer limit, late submissions of margin certificates and delay in making deliveries of shares due to deficiencies are payments made in regular course of business and not for infraction of law as envisaged in proviso to section 37(1). In our opinion, these decisions of the Tribunal are squarely applicable to the issue under consideration and respectfully following the same, we uphold the impugned order of the ld. CIT(A) deleting the disallowance made by the A.O. on account of penalty paid by the assessee to BSE on violation of the bye laws of the stock exchange. Ground No. 8 to 12 of Revenue's appeal are accordingly dismissed."

 Indiabulls securities limited vs DCIT (Delhi): ITA No. 718/DEL/2025 dt. 24.10.2025;  DCIT vs. Edelweiss Financial Advisors Ltd. (2021) 188 ITD 834 (ITAT Ahmedabad)  ITO vs. GDB Share & Stock Broking Services Ltd. 88 TTJ 352 (ITAT-Kol.)

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advanced to various parties was Rs. 4.01 crores ( as per Schedule –M of A/F), leaving a net interest balance of Rs. 2.87 crores, claimed as business expenses. 15. He further submitted that out of the said claim the AO has made an estimated disallowance of 10% ( tenpercentage ) of the net of interest amounting to Rs. 28.74 lakhs,in absence of any evidence furnished by the assessee to indicate that only interest free funds have been utilised for giving interest free advances. 16. The Ld AR further explained that the assessee has given advances to four related parties ( as per schedule contained in page – 29 of CIT ( A ) order) against which interest has been charged / received amounting to Rs.3.06 crores, as reflected and there are no advances given to any unrelated parties without charging interest. 17. He further submitted that the unsecured loans are wholly and fully utilised for the purpose of business, in as much, the closing stock ( inventories) as on year end is Rs. 52.09 crores and the outstanding sundry debtors as on year end was Rs.30401 crores, which is indication enough that the entire unsecured borrowings being only Rs.18.70 crores ,are utilised in the business itself including interest charged on late payment for purchase , which also is directly related to business . 18. Moreover, the AO has examined the books of accounts and has not specifically pointed out any party from whom interest has not been charged and has not taken recourse to section 145 of the Act either.

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is evident from record that the loan funds are utilised in the business itself, and as such we are not able to sustain the same and the addition is deleted. 23. This ground of appeal is allowed. 24. In the result the appeal of the assessee is partly allowed as indicated above.

Order pronounced on 06.07.2026 under Rule 34(4) of the Income Tax Appellate Tribunal Rules 1963.

Sd/- Sd/-

(ANNAPURNA GUPTA) (UDAYAN DAS GUPTA) Accountant Member Judicial Member Dated 06.07.2026 * Ganesh Kumar, Sr. PS Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T.