Mandatory settlement guarantee fund contributions qualify as business expenditure, while revised exempt-income disallowance claims require merits-based examination.

Mandatory contributions to a Core Settlement Guarantee Fund are described as deductible business expenditure where required by the securities-market regulator, permanently beyond the taxpayer's control, and restricted to meeting clearing-member settlement defaults. The notes distinguish such expenditure from an appropriation of profits. A claim to reduce a self-disallowance relating to exempt income requires examination of the revised computation on merits; absence of recorded dissatisfaction with the original accepted computation does not itself support deletion. The revised disallowance claim therefore requires fresh adjudication.

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Issues: (i) Whether the contribution made to the Core Settlement Guarantee Fund is allowable as business expenditure; (ii) Whether the reduction of the suo motu disallowance relating to exempt income could be granted without examining the revised working.

Issue (i): Whether the contribution made to the Core Settlement Guarantee Fund is allowable as business expenditure.

Analysis: The contribution was mandated by the securities-market regulator for maintaining the minimum required corpus of a fund available exclusively to meet settlement obligations upon default by clearing members. The fund was separately identifiable, could not be used for the assessee's own purposes, and the contribution permanently went out of the assessee's control. It was therefore not an appropriation of profits but an outlay incurred in furtherance of the business.

Conclusion: The contribution to the Core Settlement Guarantee Fund is allowable as business expenditure, in favour of the assessee.

Issue (ii): Whether the reduction of the suo motu disallowance relating to exempt income could be granted without examining the revised working.

Analysis: The original suo motu disallowance made in the return was accepted by the Assessing Officer; consequently, there was no occasion to record dissatisfaction with that original computation. The appellate deletion on the ground of absence of dissatisfaction was unsustainable because no fresh disallowance had been made. The revised working seeking reduction required examination on merits in accordance with law.

Conclusion: The appellate decision on the revised disallowance claim is set aside and the matter is restored for fresh examination, against the assessee at this stage.

Final Conclusion: The deduction for the mandatory Core Settlement Guarantee Fund contribution stands recognised, while the claim to reduce the disallowance relating to exempt income requires fresh adjudication.

Ratio Decidendi: A compulsory regulatory contribution that permanently leaves the taxpayer's control and is confined to business-risk settlement purposes is deductible as business expenditure.

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