M/S.LAKESIDE PROPERTIES PVT. LTD,MUMBAI vs. DCIT ,CENTRAL CIRCLE -1(4), MUMBAI

PER OM PRAKASH KANT, AM

M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 2 ITA No. 1631/M/2022

1. On the facts and in the circumstance 1. On the facts and in the circumstances of the appellant's case and in s of the appellant's case and in law, the Ld. CIT(A) has erred in confirming the disallowance of Rs. law, the Ld. CIT(A) has erred in confirming the disallowance of Rs. law, the Ld. CIT(A) has erred in confirming the disallowance of Rs. 4,00.000 towards "Legal experises and filing fees' by invoking 4,00.000 towards "Legal experises and filing fees' by invoking 4,00.000 towards "Legal experises and filing fees' by invoking Explanation 1 to section 37(1) of the Act without appreciating the Explanation 1 to section 37(1) of the Act without appreciating the Explanation 1 to section 37(1) of the Act without appreciating the fact that the said expend fact that the said expenditure was incurred during the course of iture was incurred during the course of business and not for any purpose which is an offence or which is business and not for any purpose which is an offence or which is business and not for any purpose which is an offence or which is prohibited by any law prohibited by any law 2. Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed Briefly stated, facts of the case are that the assessee filed return of income u/s 139 of the Income return of income u/s 139 of the Income-tax Act, 1961 (in short ‘the tax Act, 1961 (in short ‘the Act’) on 13.09.2017 declaring total income at Act’) on 13.09.2017 declaring total income at ₹ Nil, which was further revised on 03.10.2017 however, the total income further revised on 03.10.2017 however, the total income further revised on 03.10.2017 however, the total income remained same. During the course of assessment proceedings, the Ld. . During the course of assessment proceedings, the Ld. . During the course of assessment proceedings, the Ld. Assessing Officer disallowed a sum of Assessing Officer disallowed a sum of ₹4,00,000/- claimed by the assessee as legal expenses and filing fees, by invoking the assessee as legal expenses and filing fees, by invoking the assessee as legal expenses and filing fees, by invoking the Explanation 1 to section 37(1) of the Act, which was confirmed Explanation 1 to section 37(1) of the Act, which was confirmed Explanation 1 to section 37(1) of the Act, which was confirmed by the Ld. CIT(A) vide impugned order dated 11.05.2020. the Ld. CIT(A) vide impugned order dated 11.05.2020. the Ld. CIT(A) vide impugned order dated 11.05.2020.

3. Aggrieved by the order of the Ld. CIT(A), the assessee is before Aggrieved by the order of the Ld. CIT(A), the assessee is before Aggrieved by the order of the Ld. CIT(A), the assessee is before the Tribunal by way of raising the grounds as reproduced above. the Tribunal by way of raising the grounds as reproduced above. the Tribunal by way of raising the grounds as reproduced above.

M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 3 ITA No. 1631/M/2022

M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 4 ITA No. 1631/M/2022 of 2016 is in respect of t is in respect of three entities including the assessee hree entities including the assessee supplied by the assessee is placed on record the assessee is placed on record. The relevant para . The relevant paras of the order giving brief reference of the dispute before the brief reference of the dispute before the Hon’ble Security Hon’ble Security Appellate Tribunal is reproduced as under: Tribunal is reproduced as under:

1. Appellants in all these appeals are aggrieved by the orders passed 1. Appellants in all these appeals are aggrieved by the orders passed 1. Appellants in all these appeals are aggrieved by the orders passed by the Adjudicating Officer (‘AO’ for short) of Securities and Exchange by the Adjudicating Officer (‘AO’ for short) of Securities and Exchange by the Adjudicating Officer (‘AO’ for short) of Securities and Exchange Board of India (‘SEBI’ for short). The AO of SEBI has imposed penalty Board of India (‘SEBI’ for short). The AO of SEBI has imposed penalty Board of India (‘SEBI’ for short). The AO of SEBI has imposed penalty against each appellant u/s. 15A(b) of Securi against each appellant u/s. 15A(b) of Securities and Exchange Board ties and Exchange Board of India Act, 1992 (‘SEBI Act’ for short) for violating the provisions of India Act, 1992 (‘SEBI Act’ for short) for violating the provisions of India Act, 1992 (‘SEBI Act’ for short) for violating the provisions contained in the Securities and Exchange Board of India (Substantial contained in the Securities and Exchange Board of India (Substantial contained in the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (‘1997 Acquisition of Shares and Takeovers) Regulations, 1997 (‘1997 Acquisition of Shares and Takeovers) Regulations, 1997 (‘1997 Regulations’ for short) read w Regulations’ for short) read with Securities and Exchange Board of ith Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, India (Substantial Acquisition of Shares and Takeovers) Regulations, India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘2011 Regulations’ for short) and the Securities and Exchange 2011 (‘2011 Regulations’ for short) and the Securities and Exchange 2011 (‘2011 Regulations’ for short) and the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 Board of India (Prohibition of Insider Trading) Regulations, 1992 Board of India (Prohibition of Insider Trading) Regulations, 1992 (‘PIT Regulation (‘PIT Regulations’ for short). Penalty is also imposed against each s’ for short). Penalty is also imposed against each appellant u/s. 15A(a) of SEBI Act for violating Section 11C(3) and appellant u/s. 15A(a) of SEBI Act for violating Section 11C(3) and appellant u/s. 15A(a) of SEBI Act for violating Section 11C(3) and Section 11C(5) of SEBI Act. Since the violations said to have been Section 11C(5) of SEBI Act. Since the violations said to have been Section 11C(5) of SEBI Act. Since the violations said to have been committed by each appellant is common, all these appeals are heard committed by each appellant is common, all these appeals are heard committed by each appellant is common, all these appeals are heard together and disposed of by this common decision. ether and disposed of by this common decision.

M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 5 ITA No. 1631/M/2022 (a) Appellant is (a) Appellant is a private limited company and the business of the a private limited company and the business of the appellant is to trade in materials and invest in securities; appellant is to trade in materials and invest in securities; (b) As on December 31,2009 Mahan Industries Limited (‘MIL’ for (b) As on December 31,2009 Mahan Industries Limited (‘MIL’ for (b) As on December 31,2009 Mahan Industries Limited (‘MIL’ for 10 each; short) had issued capital of 71,50,000 shares of short) had issued capital of 71,50,000 shares of ₹10 each; (c) On January 4, 201 (c) On January 4, 2010 MIL made preferential allotment of 0 MIL made preferential allotment of convertible equity warrants for convertible equity warrants for Rs. 30 crores. All appellants herein 30 crores. All appellants herein had subscribed to the said convertible equity warrants; had subscribed to the said convertible equity warrants; (d) On January 15, 2010 MIL split its one share of (d) On January 15, 2010 MIL split its one share of ₹10 each into 10 10 each into 10 equity shares of equity shares of ₹1 each. Hence, as on January 15, 2010 MIL had Hence, as on January 15, 2010 MIL had issued capital of issued capital of ₹7,15,00,000 divided into 7,15,00,000 shares of 7,15,00,000 divided into 7,15,00,000 shares of ₹1 each and outstanding convertible equity warrants of each and outstanding convertible equity warrants of ₹30 crores; 30 crores; (e) On February 20, 2010 the Board of Directors of MIL decided that (e) On February 20, 2010 the Board of Directors of MIL decided that (e) On February 20, 2010 the Board of Directors of MIL decided that convertible war convertible warrants, where full consideration was received by MIL rants, where full consideration was received by MIL may be converted into equal number of shares of may be converted into equal number of shares of Rs. Rs. 1 each. Accordingly, on February 20, 2010 MIL made allotment of Accordingly, on February 20, 2010 MIL made allotment of Accordingly, on February 20, 2010 MIL made allotment of 24,85,00,000 shares of 24,85,00,000 shares of Rs. 1 each (out of 30,00,00,000 shares of 1 each (out of 30,00,00,000 shares of Rs. 1 each). Out of 24, each). Out of 24,85,00,000 shares issued on February 20, 2010 the 85,00,000 shares issued on February 20, 2010 the appellant who had applied for convertible equity warrants received appellant who had applied for convertible equity warrants received appellant who had applied for convertible equity warrants received 1,69,50,000 shares. Balance 5,15,00,000 shares were issued by MIL to 1,69,50,000 shares. Balance 5,15,00,000 shares were issued by MIL to 1,69,50,000 shares. Balance 5,15,00,000 shares were issued by MIL to the remaining convertible equity warrant holders sometime in May the remaining convertible equity warrant holders sometime in May the remaining convertible equity warrant holders sometime in May 2010; (f) According to SEBI, on issuance of 24,85,00,000 shares on February (f) According to SEBI, on issuance of 24,85,00,000 shares on February (f) According to SEBI, on issuance of 24,85,00,000 shares on February 20, 2010, total shares issued by MIL stood at 32,00,00,000 shares and 20, 2010, total shares issued by MIL stood at 32,00,00,000 shares and 20, 2010, total shares issued by MIL stood at 32,00,00,000 shares and since the appellant on since the appellant on February 20, 2010 received 1,69,50,000 shares February 20, 2010 received 1,69,50,000 shares of MIL, the shareholding of the appellant in MIL exceeded 5% and of MIL, the shareholding of the appellant in MIL exceeded 5% and of MIL, the shareholding of the appellant in MIL exceeded 5% and hence disclosure obligation under Regulation 7(1) and 7(1A) read hence disclosure obligation under Regulation 7(1) and 7(1A) read hence disclosure obligation under Regulation 7(1) and 7(1A) read

M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 6 ITA No. 1631/M/2022 with Regulation 7(2) of 1997 Regulations and also under Regulation with Regulation 7(2) of 1997 Regulations and also under Regulation with Regulation 7(2) of 1997 Regulations and also under Regulation 13(1) of PIT 13(1) of PIT Regulations got triggered. Admittedly, the appellant Regulations got triggered. Admittedly, the appellant made no disclosure under any of the aforesaid regulations; made no disclosure under any of the aforesaid regulations; made no disclosure under any of the aforesaid regulations; (g) During the course of investigation it was also noticed by SEBI that (g) During the course of investigation it was also noticed by SEBI that (g) During the course of investigation it was also noticed by SEBI that the appellant had failed to furnish certain information called for, the appellant had failed to furnish certain information called for, the appellant had failed to furnish certain information called for, pursuant to the summons dated February 22, 2013 which was in suant to the summons dated February 22, 2013 which was in suant to the summons dated February 22, 2013 which was in violation of section 11C(3) of the SEBI Act. Similarly, it was also violation of section 11C(3) of the SEBI Act. Similarly, it was also violation of section 11C(3) of the SEBI Act. Similarly, it was also noticed that the appellant had failed to appear in person before the noticed that the appellant had failed to appear in person before the noticed that the appellant had failed to appear in person before the enquiry officer pursuant to summons dated March 8, 2013 which enquiry officer pursuant to summons dated March 8, 2013 which enquiry officer pursuant to summons dated March 8, 2013 which was in violation of section11C(5) of SEBI Act; in violation of section11C(5) of SEBI Act; (h) For the aforesaid violations committed by the appellant, SCN was (h) For the aforesaid violations committed by the appellant, SCN was (h) For the aforesaid violations committed by the appellant, SCN was issued to the appellant on October 1, 2014; issued to the appellant on October 1, 2014; (i) In view of the Show Cause Notice, appellant filed consent (i) In view of the Show Cause Notice, appellant filed consent (i) In view of the Show Cause Notice, appellant filed consent application which was rejected b application which was rejected by SEBI.

(j) Thereupon Show Cause Notice dated October 1, 2014 was heard (j) Thereupon Show Cause Notice dated October 1, 2014 was heard (j) Thereupon Show Cause Notice dated October 1, 2014 was heard and disposed of by passing the following order: and disposed of by passing the following order:-

(i) Penalty of ₹ ₹2,50,000 under section 15A(b) of SEBI Act for violating 2,50,000 under section 15A(b) of SEBI Act for violating Regulation 7(1) of 1997 Regulations read with Regulation 35 o Regulation 7(1) of 1997 Regulations read with Regulation 35 o Regulation 7(1) of 1997 Regulations read with Regulation 35 of 2011 Regulations; (ii) Penalty of (ii) Penalty of Rs. 2,50,000 under section 15A(b) of SEBI Act for 2,50,000 under section 15A(b) of SEBI Act for violating Regulation 13(1) of PIT Regulations; violating Regulation 13(1) of PIT Regulations; (iii) Penalty of (iii) Penalty of Rs. 2,00,000 under section 15A(a) of SEBI Act for 2,00,000 under section 15A(a) of SEBI Act for violating Section 11C(3) of SEBI Act; and violating Section 11C(3) of SEBI Act; and M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 7 ITA No. 1631/M/2022 (iv) Penalty of of Rs. 2,00,000 under section 15A(a) of SEBI Act for 2,00,000 under section 15A(a) of SEBI Act for violating section 11C(5) of SEBI Act. violating section 11C(5) of SEBI Act.

Challenging the aforesaid order appellant has filed the present Challenging the aforesaid order appellant has filed the present Challenging the aforesaid order appellant has filed the present appeal. In all other cases similar penalties have been imposed for appeal. In all other cases similar penalties have been imposed for appeal. In all other cases similar penalties have been imposed for committing similar violations. committing similar violations.

4.1 Thereafter, the Thereafter, the Hon’ble Security Appellate Hon’ble Security Appellate Tribunal has adjudicated the issue of penalty u/s 11C(3) and 11C(5) of the Act as adjudicated the issue of penalty u/s 11C(3) and 11C(5) of the Act as adjudicated the issue of penalty u/s 11C(3) and 11C(5) of the Act as under :

“9. As regards the penalty of 9. As regards the penalty of ₹2,00,000 imposed for violating section violating section 11C(3) and ₹2,00,000 for violating section 11C(5) of the SEBI Act it is 2,00,000 for violating section 11C(5) of the SEBI Act it is 2,00,000 for violating section 11C(5) of the SEBI Act it is not in dispute that the appellant had failed to furnish all particulars not in dispute that the appellant had failed to furnish all particulars not in dispute that the appellant had failed to furnish all particulars sought in the summons issued against the appellant and that the sought in the summons issued against the appellant and that the sought in the summons issued against the appellant and that the appellant had failed to appear inspite of receiving the sum appellant had failed to appear inspite of receiving the sum appellant had failed to appear inspite of receiving the summons. Counsel for the appellant, however, submitted that in the present Counsel for the appellant, however, submitted that in the present Counsel for the appellant, however, submitted that in the present case, inadvertently the date of summoning was mistaken to be the case, inadvertently the date of summoning was mistaken to be the case, inadvertently the date of summoning was mistaken to be the date before which the letters, documents were to be filed with SEBI date before which the letters, documents were to be filed with SEBI date before which the letters, documents were to be filed with SEBI and accordingly it is submitted that it is not a fi and accordingly it is submitted that it is not a fit case for imposing t case for imposing penalty on the ground the appellant has violated section 11C(3) and penalty on the ground the appellant has violated section 11C(3) and penalty on the ground the appellant has violated section 11C(3) and section 11C(5) of the SEBI Act. section 11C(5) of the SEBI Act.

4.2 On perusal of the above, it is evident that penalty of On perusal of the above, it is evident that penalty of On perusal of the above, it is evident that penalty of ₹4,00,000/- has been levied for violation of the relevant provisions has been levied for violation of the relevant provisions has been levied for violation of the relevant provisions of the SEBI Act, whi which has further been upheld by the ch has further been upheld by the Hon’ble

M/s Lakeside Properties Pvt. Ltd. M/s Lakeside Properties Pvt. Ltd. 9 ITA No. 1631/M/2022 Security Appellate Tribunal (SAT) Security Appellate Tribunal (SAT). Therefore, there is no doubt that . Therefore, there is no doubt that the penalty levied is in respect of violation of law and therefore it the penalty levied is in respect of violation of law and therefore it the penalty levied is in respect of violation of law and therefore it falls under Explanation 1 below section 37(1) of the Act which reads falls under Explanation 1 below section 37(1) of the Act which reads falls under Explanation 1 below section 37(1) of the Act which reads as under :

[Explanation 1.] “[Explanation 1.] -For the removal of doubts, it is hereby declared For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which that any expenditure incurred by an assessee for any purpose which that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by laws shall not be deemed to is an offence or which is prohibited by laws shall not be deemed to is an offence or which is prohibited by laws shall not be deemed to have been incurred for the purpose of business have been incurred for the purpose of business or profession and no or profession and no deduction or allowance shall be made in respect of such deduction or allowance shall be made in respect of such deduction or allowance shall be made in respect of such expenditure.] 4.3 In view of the above, we uphold the penalty levied by the In view of the above, we uphold the penalty levied by the In view of the above, we uphold the penalty levied by the Assessing Officer and confirme Assessing Officer and confirmed by the Ld. CIT(A). The ground d by the Ld. CIT(A). The ground raised by the assessee is raised by the assessee is accordingly dismissed.