2011 (9) TMI 1076 - AT - Income Tax

Tribunal upholds business loss claim and allows penalty as revenue expenditure under Income Tax Act

The Tribunal dismissed the Department's appeals for assessment years 1999-2000 and 2000-01, upholding the decisions of the Ld. CIT(A) in both issues. The ... Business loss u/s. 28 - Held that:- We observe that assessee has made the analysis of the situation and only after arriving to the conclusion that stock had become worthless/amount was not recoverable and thereafter the business decision had been taken by the assessee to write off of the same in the assessment years under consideration. We observe that Department has not disputed the observation of Ld. CIT(A) that assessee company is consistently following the Accounting policy of writing off of the share lost and also writing back the recoveries of share lost over the period. Considering the above facts and in the absence of any contrary material brought on record by department, we are of the considered view that orders of Ld. CIT(A) is justifiable for both assessment years under consideration. Therefore we uphold the same by rejecting the grounds of appeal for assessment year 1999-2000 and grounds No. 1 &2 of appeal for assessment year 2000-01. Disallowance of penalty paid to Stock Exchange - Held that:- In the case of Master Capital Services Ltd. Vs DCIT (2007 (2) TMI 241 - ITAT CHANDIGARH-A) wherein it was held that fine paid for delay in making delivery of shares due to deficiencies in the documents like non-matching of signatures etc. cannot be considered as penal in nature. It was held that fine paid on account of irregularities cannot be considered payment which is penal in nature. But it is the payment due to irregularities and is in the regular course of business. Hence the same is allowable. The said payment paid by assessee is not on account of violation/infraction of statutory law but is only on account of irregularities committed by assessee in the regular course of its business. Hence the same is allowable as revenue expenditure to the assessee. Issues:1. Disallowance of claimed loss on account of shortage in stock in trade for assessment years 1999-2000 and 2000-01.2. Dispute regarding the deletion of penalty paid to Stock Exchange for procedural delay in delivery of shares.Analysis:Issue 1: Disallowance of claimed loss on account of shortage in stock in trade:The Appellate Tribunal considered the appeals against the orders of the Ld. CIT(A) for assessment years 1999-2000 and 2000-01. The Department disputed the claim of loss made by the assessee, a share broker, for both years, amounting to Rs. 25,78,082/- and Rs. 15,84,078/- respectively. The Department disallowed the claim stating it was merely estimated and lacked external evidence. The assessee argued that the loss was a small percentage of the total turnover and provided details of the lost stocks. The Ld. CIT(A) allowed the claim as a business loss under section 28 of the Income Tax Act, emphasizing the company's accounting policy. The Tribunal upheld the Ld. CIT(A)'s decision, noting the consistent policy of writing off lost shares and lack of contrary evidence from the Department.Issue 2: Dispute regarding deletion of penalty paid to Stock Exchange:The second issue involved a penalty of Rs. 10,00,000/- paid by the assessee to the Stock Exchange for procedural delays in share delivery. The AO disallowed the amount, considering it a penalty for contravention of rules. The assessee contended that the payment was due to irregularities, not a violation of statutory law. The Ld. CIT(A) deleted the disallowance, and the Tribunal upheld this decision, citing a similar case where fines for document deficiencies were considered regular business expenses. Therefore, the penalty payment was deemed allowable as revenue expenditure.In conclusion, both appeals filed by the Department for assessment years 1999-2000 and 2000-01 were dismissed by the Tribunal, upholding the decisions of the Ld. CIT(A) in both issues.