SRI MANGALAM INVESTORS,HOOGHLY vs. ACIT, CIR-2, BURDWAN, BURDWAN
In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that these charges, levied for failure to comply with the bye-laws of the exchange in the course of business, are not penalties for an offence or against public policy. Therefore, they are allowable as business expenditure.
What were the facts?
The assessee, engaged in commodity and equity trading, incurred expenses totaling Rs. 1,75,602/- for fund shortage, late payment charges, and late delivery charges. These were imposed by the Multi Commodity Exchange of India due to non-compliance with its bye-laws.
What were the issues?
Whether charges imposed by a commodity exchange for non-compliance with its bye-laws are allowable as business expenditure under Section 37(1) of the Income Tax Act.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “SMC” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM]
For the Appellant: Shri Somnath Ghosh, Advocate For the Respondent: Shri Tanuj Niyogi, JCIT, Sr. DR ORDER
This appeal by assessee is arising out of order of CIT(A), Durgapur vide Appeal No. 447/CIT(A)/ASL/ACIT/Cir-2/BWN/2010-11 dated 31.03.2014. Assessment was framed by ACIT, Circle-2, Burdwan u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2008-09 vide his order dated 31.12.2010.
The only issue in this appeal of assessee is against the order of CIT(A) in confirming the action of AO making addition of Rs.1,75,602/- being the expenditure paid on account of fund shortage amounting to Rs.21,751/-, late payment charges of UCC amounting to Rs.39,160/- and late charges delivery to the tune of Rs. 1,14,681/- by invoking the Explanation to section 37(1) of the Act being in the nature of penalty.
I have heard rival submissions and gone through facts and circumstances of the case. I find that all the three items i.e. the expenses of fund shortage amounting to Rs.21,761/-, charges on UCC amounting to Rs.39,160/- and charges for late delivery to the tune of Rs.1,14,681/- are treated by the assessee as expenses related to the business. As the assessee is dealing in commodity and equity trading i.e. share business these payments are made to Stock Exchange as late payment charges or fund shortage charges. I find that in pursuance of its activities the assessee had to undertake various transactions on behalf of its clients dealing in multi commodity exchange. According to Ld. Counsel, the assessee had in certain instances failed to maintain the funds required for payment, had failed to obtain unique client code within stipulated time in respect of 2 Sri Mangalam Investors AY 2008-09 certain clients and/or make delivery of the requisite commodities within the scheduled time and on failure to act within such parameters, as required under bye laws, the Multi Commodity Exchange of India imposed penalty charges in accordance therewith. According to assessee’s counsel, in the instance case, incurring of the expenditure on penalty on three counts aggregating to Rs.1,75,602/- was not for an offence or is prohibited by law as being opposed to public policy. According to him, the bye laws of the Multi commodity Exchange of India contains specific clauses for imposition of penalty in case of failure to act within the parameters as specified therein which did not partake the character of payment of penalty for breach of any law of the land but is simply a compensation for breach of compliance of conditions. I find that in the instant case, there were specific requirements to be complied with in carrying on its activities and the failure thereof has led to the imposition of penalty. Thus, these rights and obligations arose in course of carrying on of the business of the assessee. Therefore, the penalty which was charged upon the assessee, in the instant case, could under no circumstances be regarded as payments which were opposed to public policy or on account of infraction of law. I further find that as long as the payment made is for the purposes of the business, and the payment made is not by way of default on account of infraction of any law of the land and/or opposed to public policy, the same would be allowable as a deduction. Therefore, the charges levied upon the assessee to comply with the provisions of regulations of the Multi Commodity Exchange of India which are directly connected or intrinsically related with the carrying on of its business which unequivocally qualifies as an allowable deduction u/s. 37(1) of the Act. I hold accordingly. Appeal of assessee is allowed.
In the result, appeal of assessee is allowed.
Order is pronounced in the open court on 16.12.2015. Sd/- (Mahavir Singh) Judicial Member Dated :16th December, 2015 Jd.(Sr.P.S.)
APPELLANT – Sri Mangalam Investors, C/o, Shri Somnath Ghosh, Advocate, “Seven Brothers’Lodge”, P.O. Buroshibtala, P.S. Chinsurah, Dist. Hooghly, Pin-712 105 Respondent –ACIT, Cir-2, Burdwan.. 2 3. The CIT(A), Durgapur 4. CIT , Durgapur 5. DR, Kolkata Benches, Kolkata
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