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Facts
The assessee claimed a deduction for contribution to the Core Settlement Guarantee Fund (Core SGF). The revenue is aggrieved by the deletion of additions made under Section 14A, where the assessee had revised its disallowance claim.
Held
The Tribunal held that the contribution to Core SGF is an allowable business expenditure. For the Section 14A issue, the Tribunal set aside the CIT(A)'s order, restoring the matter to the CIT(A) for re-examination of the assessee's revised disallowance claim.
Key Issues
Whether contribution to Core SGF is a business expenditure, and whether the revised claim for disallowance under Section 14A requires proper examination.
Sections Cited
14A
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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
Before: SHRI B.R. BASKARAN & SHRI SANDEEP GOSAIN
These cross appeals are directed against the order dated 21-03-2023 passed by Ld CIT(A), NFAC, Delhi and they relate to the assessment year 2016-17. 2. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the disallowance of claim of Rs.143.00 crores relating to the contribution to Core Settlement Guarantee Fund (Core SGF) made by the AO.
The revenue is aggrieved by the decision of Ld CIT(A) in granting relief in respect of addition made by the assessee u/s 14A of the Act on the basis of revised workings, without appreciating that the assessee has made revised claim without filing revised return of income as mandated by the decision of Hon’ble Supreme Court rendered in the case of Goetze (India) Ltd vs. CIT (157 Taxman 1)(SC).
We shall first take up the appeal of the assessee first. The solitary issue urged therein is related to the disallowance of contribution to Core SGF. We notice that an identical issue has been decided by the co-ordinate bench in the assessee’s own case in AY 2015-16 and 2017-18 in & 1218/Mum/2023 dated 10-01-2025. We notice that the co-ordinate bench has held that the above said deduction claimed by the assessee is allowable and in this regard, it has followed the decision rendered by the coordinate bench in the case of NSE Ltd in & 731/Mum/2023 dated 26-10- 2023. For the sake of convenience, we extract below the relevant observations made by the co-ordinate bench in the assessee’s own case in AY 2015-16 & 2017-18:- “4. The assessee is a clearing corporation and is wholly owned subsidiary of National Stock Exchange of India Ltd (NSE). The assessee was earlier known as "National Securities Clearing Corporation Ltd" (NSCCL). It is responsible for clearing and settlement of all trades executed on NSE and also carries on collateral management and risk management functions. The assessee is bound by the rules, regulations, directives, circulars, guidelines etc., issued by the Securities and Exchange Board of India (SEBI), which is the statutory authority formed by the Central Government to protect the interests of investors in the securities and to promote development & regulate the securities market. The SEBI, in exercise of its powers granted u/s.11 of SEBI Act and in terms of Regulation 39 of Securities Contracts (Regulations) (SECC) Regulations, 2012 issued guidelines by way of Circular dated 27-08- 2014 for the setting up a "Core Settlement Guarantee Fund" (Core SGF). The above said Circular contains guidelines with regard to - --the objective of Core SGF, --Corpus of Core SGF, --Minimum Required Corpus (MRC), --Contribution to Core SGF.
& 1758/Mum/2023 NSE Clearing Limited --Management of Core SGF, --Access to (i.e., utilization of) funds of Core SGF, --Default waterfall mechanism for meeting the defaults of trading members, --Analysis of Credit risk through stress testing and back testing etc. …………………… 6. We heard the parties and perused the record. We notice that the assessee herein, besides its own contribution to Core SGF, is also receiving contributions from NSE and trading members towards Core SGF. As noticed earlier, the assessee has shown Core SGF fund as a liability in the Balance Sheet of the assessee. The Ld A.R submitted that the funds so received towards Core SGF are invested separately, i.e., the identity of the fund and the corresponding investments are maintained, even though they are reflected in the Balance Sheet of the assessee. The details of the contribution and the corresponding investments have been disclosed by the assessee in the annual report. For the sake of convenience, we extract below the disclosure made in the Annual report for the year ending 31-03-2015 in Note number 23:- Xxxxxxxx ……………….
Further, it is noticed that the Core SGF has been created as per the directions given by the Stock market regulatory authority, i.e., SEBI. The assessee, NSE and other trading members, being part of operation of Stock market, are regulated by the SEBI and hence they are bound to follow the directions/guidelines issued by the above said regulatory authority. The Circular dated August 27, 2014 issued by SEBI mentions the objective of creation of Core SGF as under:- "create a core fund (called Core settlement Guarantee Fund), within the SGF against which no exposure is given and which is readily and unconditionally available to meet settlement obligations of clearing corporation in case of clearing member(s) failing to honour settlement obligation". Thus, we notice that it appears to be intended that the "Core SGF" will act as akin to insurance mechanism in order to protect the stock market from the failures of the clearing members in settling their respective obligations.
We noticed earlier that the contributors to Core SGF are the assessee, NSE and other trading members. When the contributions are made by so many persons, it is difficult to accept the proposition of the AO that the assessee is the actual owner of all those funds. Further, the funds so received have been invested separately and their identity is well maintained. There cannot be any dispute that the funds available with & 1758/Mum/2023 NSE Clearing Limited Core CGF could be utilized only for the stated purposes, i.e., the assessee cannot use them for its own purposes. Further, as noticed earlier, the Core CGF has been recognized as a distinct and separate assessee by the Income tax department by allotting a separate Permanent Account Number. Further, a separate notification has been issued by the CBDT in order to exempt the income of Core CGF from AY 2016-17 onwards. Hence, we are of the view that the assessee is actually acting as a trustee of those funds, even though the relevant financial transactions are maintained in its books of accounts.
All these facts would show that the contribution made by the assessee to the MRC of Core CGF cannot be considered as an item of mere appropriation of profit by the assessee. Further, it is not a voluntary contribution made by the assessee, i.e., it is contribution made as per the directions given by SEBI and such directions has got statutory force. When a contribution is made to a fund as per the requirement of the direction given by the SEBI, which is regulating the business of the assessee and when the assessee loses its control over that contribution and further when the amount so accumulated could be used only for the stated purposes, in our view, the said contribution would go permanently out of the hands of the assessee. Since it is being contributed in furtherance of the business of the assessee, in our view, it can only be considered as a business expenditure in the hands of the assessee.” Then the co-ordinate bench extracted the order passed in the hands of NSE Ltd (supra) and finally held as under:- “12. In view of the foregoing discussions, we are of the view that the contribution made by the assessee to core SGF is allowable as business expenditure in both the years under consideration. Accordingly, we set & 1218/Mum/2023 aside the order passed by the Ld. CIT(A) and direct the AO to delete the impugned disallowance made in both the years under consideration.” 4.1 Since the facts surrounding this issue is identical with the facts prevailed in AY 2015-16 and 2017-18, following the decision rendered by the co-ordinate bench (referred above) in the assessee’s own case, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of contribution to Core SGF.
We shall now take up the appeal filed by the revenue. The relief granted by Ld CIT(A) in respect of addition made u/s 14A is being assailed by the revenue.
& 1758/Mum/2023 NSE Clearing Limited 5.1 The facts relating to this issue are stated in brief. The assessee earned exempt income of Rs.5,70,82,811/-. It suo moto disallowed a sum of Rs.4,55,83,118/- u/s 14A of the Act r.w. Rule 8D I T Rules in its return of income. During the course of assessment proceedings, the assessee revised the disallowance to be made u/s 14A of the Act to Rs.13,48,589/- and furnished the revised workings before the AO. However, the AO completed the assessment without considering the revised workings furnished by the assessee. 5.2 Before Ld CIT(A), the assessee contended that the assessing officer ought to have accepted the revised working of disallowance u/s 14A of the Act irrespective of the fact that the assessee had not made such a claim in the return of income. In support of this contention, the assessee relied upon the decision rendered by Hon’ble Supreme Court in the case of National Thermal Power Corporation vs. CIT (299 ITR 383)(SC) and also the Circular No.14 (XL- 35) dated 11-04-1955 issued by CBDT. It was further submitted that the revised working of disallowance u/s 14A was made in the light of decision rendered by ITAT in the assessee’s own case in AY 2008-09 and 2009-10. It also relied upon various case laws in support of its contentions. 5.3 The Ld CIT(A) passed the following order on this issue:- “6.3 As regards the issue of 14A, AO has not given reasons as to why he was not satisfied with computation made by the appellant. This ground of appeal is hence allowed and additions made u/s 14A are deleted.”
6. It is the contention of the revenue that the assessee has made revised claim without filing revised return of income as stated by Hon’ble Supreme Court in the case of Goetze (India) Ltd vs. CIT (157 Taxman 1)(SC). 6.1 The ld A.R, however, submitted that the AO did not record any dissatisfaction over the workings furnished by the assessee and hence he could not make any addition u/s 14A of the Act. In this regard, the Ld A.R placed his reliance on the decision rendered in the assessee’s own case in 2010-11 and 2011-12 in & 6727/Mum/2019 dated 03-01-2022.
& 1758/Mum/2023 NSE Clearing Limited 7. We have heard rival contentions and perused the record. We noticed earlier that the assessee had suo moto disallowed a sum of Rs.4,55,83,118/- u/s 14A while computing total income at the time of filing return of income. However, the assessee furnished a revised working of disallowance u/s 14A of the Act, wherein the assessee modified the amount to be disallowed to Rs.13,48,589/-. We notice that the assessing officer did not discuss anything about the disallowance made u/s 14A of the Act. From the grounds raised by the assessing officer before the Tribunal, it appears that the AO did not take cognizance of revised workings of disallowance u/s 14A of the Act for the reason that the assessee was making the said claim without filing return of income. Thus, the AO has accepted the original disallowance of Rs.4.55 crores made by the assessee in its return of income. The question of recording dissatisfaction would arise only if the AO was not satisfied with the working of disallowance made by the assessee that too having regard to the accounts of the assessee. In the instant case, there was no occasion of the AO to record dissatisfaction, since he was satisfied with the disallowance made by the assessee in its return of income. Hence the decision rendered by the co- ordinate benches in the earlier years will not be applicable in the facts discussed above. 7.1 We noticed that the Ld CIT(A) has deleted the addition on the ground of non-recording of dissatisfaction. The above said decision of Ld CIT(A) would show complete non-application of mind on his part. First of all, the AO did not make any disallowance which requires to be deleted. Hence his decision is totally out of context. Secondly, the Ld CIT(A) also appears to have missed the contention of the assessee for down sizing the suo moto disallowance, which requires proper examination. In this view of the matter, the order passed by Ld CIT(A), in our view, cannot be sustained. In our view, the Ld CIT(A) should have examined claim of the assessee with regard to the disallowance to be made u/s 14A of the Act in the revised working furnished by the assessee and should have taken appropriate decision in accordance with law. Accordingly, we set aside the order passed by Ld CIT(A) on the issue of disallowance u/s 14A of the Act and restore the same to his file for & 1758/Mum/2023 NSE Clearing Limited examining the claim of the assessee for reducing the suo moto disallowance in accordance with law.
8. In the result, the appeal of the assessee is allowed and the appeal of the revenue is treated as allowed for statistical purposes. Order pronounced in the open court on 17 March, 2025.