TaxTMI 
TaxTMI 
2009 (1) TMI 766
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....l as sales. These decisions are Hawkins Cookers Ltd. v. ITO ITA No. 505/Mum/2004 dated 11-8-2008; Gandhar Oil Refinery ITA No. 856/Mum/03 dated 23.03.2006; Metal Twice P. Ltd. ITA No. 3857/Mum/05 dated 5.11.2008. Further, the Hon'ble Delhi High Court in the case of CIT v. Mahavir Aluminum Ltd. 297 ITR 77 (Del) has held that adjustment has to be made not only with reference to closing stock but also with reference to opening stock. Section 145A itself provides that adjustment has to be made with respect to purchases, sales as well as inventories. The word 'inventory' shall include opening stock as well as closing stock. Therefore, following the aforesaid decisions, the issue is decided in favour of the assessee. The orders of the learned CIT(A) for both the years are set aside on this issue and consequently, the Assessing Officer is directed to re-compute the profits after making adjustments with reference to opening stock, closing stock, purchases as well as sales. 5. The next issue arising from ground No. 3 in appeal for Assessment Year 2001-02 relates to the computation of total turnover for the purpose of computing deduction Under Section 80HHC. The issue is whether....
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....le of scrap Rs. 4.14 lakhs and recovery of packing and forwarding charges Rs. 10.79 lakhs were in the nature of business receipts. Regarding the insurance claim amounting to Rs. 12.53 lakhs, it was held tat it was in the nature of capital receipt since insurance was received on account of loss of capital asset. However, it was further held that such receipt was assessable as income from Other Sources' Under Section 56 and hence, the same is to be excluded from business profits. Aggrieved by the same, the assessee has preferred this appeal in respect of insurance, interest income, miscellaneous receipts. 7. Both the parties have been heard on this issue. As far as insurance receipt is concerned, the learned CIT(A) appears to be incorrect in holding it to be capital receipt or income assessable under the head 'Other Sources'. It appears that the learned CIT(A) failed to take into consideration the provisions of Section 41(2) which provides that where any building, machinery, plant or furniture owned by the assessee and in respect of which depreciation has been claimed is sold, discarded, demolished or destroyed than any money payable over and above the Written Down Value....
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.... to the interest income of Rs. l0,16,454/- which has been excluded from the profits of business under Clause (baa) to Section 80HHC on the ground that such interest is assessable under the head 'Income from Other Sources'. The only contention raised by the learned Counsel for the assessee is that part of the interest was recovered from customers on account of late payment charges and therefore, to this extent, the amount of interest should be assessed as 'Business Income'. Reliance has been placed on Hon'ble Bombay High Court judgment reported as 266 ITR 418. We have gone through the orders of the lower authorities and found that no detail was furnished before the Assessing Officer in respect of interest income. Even before the learned CIT(A) no evidence was filed in this regard. In para 8.2 of his order, the learned CIT(A) has categorically mentioned that the assessee has not been able to give any evidence either before the Assessing Officer or before him that interest income had arisen as part of normal business activity. The detail of interest has been placed before us at page 26 of the paper book but the certificate given on the paper book clearly shows that....
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.... was for the purpose of business. Since no bifurcation of expenses were given before the lower authorities, the disallowance was justified. 15. The last issue arising from ground No. 1 in appeal for the Assessment Year 2003-04 relates to disallowance of Rs. 1,40,000/- on account of penalty paid for infraction of law. It was noted by the AO that the assessee had failed to make disclosure of details as required in the disclosure norms of Rule 6 & 8 under SEBI regularization scheme 2002. On account of this default the payment of Rs. 1,40,000/- was made. The Assessing Officer considered the same as payment being penal in nature and consequently disallowed the same. 16. On appeal, the learned CIT(A) noted that the assessee was liable to penalty not exceeding Rs. 5,000/- per day for the default that his non-compliance of SEBI regulations or delaying in making the compliance. The learned CIT(A) rejected the contention of the assessee that it was a normal payment. It was also noted by him that there was no option to the assessee for either making disclosure to the stock exchange or being paying compounding fees. Accordingly, it was held by him that Hon'ble Supreme Court decision in t....
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....the judgment of Hon'ble Supreme Court in the case of Prakash Cotton Mills P. Ltd. 201 ITR 684 (SC). 18. On the other hand, the learned D.R. has submitted that any payment for infraction of law cannot be allowed as deduction in view of the judgment of the Hon'ble Supreme Court in the case of Haji Aziz and Abdul Shakur Brothers 41 ITR 350 (SC). Reliance was also placed on the provisions of Explanation to Section 37 of the Act inserted with retrospective effect from 01.04.1962 by Finance (No. 2) Act, 1998 which provides that any expenditure incurred for any purpose which is an offence or which is prohibited by law shall not be due to have been incurred for the purpose of business or profession and consequently, no deduction or allowance shall be made in respect of such expenditure. According to him, the non-compliance of the regulations framed under SEBI Act tantamount to infraction of law and therefore falls within the ambit of the Explanation of Section 37 of the Act. Therefore, the lower authorities were justified in disallowing such expenditure. 19. Rival submissions of the parties have been considered carefully. The question for our consideration is whether the payment ....
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....r the provisions of Section 15A of SEBI Act, than such payment cannot be allowed as deduction Under Section 37 read with Explanation. 22. However, the contention of the learned Counsel for the assessee is that the payment has not been made by the assessee Under Section 15A of SEBI Act. According to him, the payment was under an option given under the scheme of 2002 and therefore such payment cannot be said to be either as a penalty or akin to penalty. Hence, no disallowance could be made as per the decision of the apex court in the case of Ahmedabad Cotton Manufacturing Company Ltd. (supra). After going through the scheme, we find force in the contention of the learned Counsel for the assessee for the reasons given hereafter. In order to appreciate the controversy, it would be appropriate to reproduce the relevant provisions of the scheme as under: SEBI REGULARIZATION SCHEME, 2002 FOR NON-COMPLIANCE WITH REGULATIONS 6 AND 8 OF THE SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 1997 In terms of Chapter II of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (hereinafter referred to as 'the Takeover Regulations, 1997') cert....
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....herefore, take full advantage of this Scheme. It is also clarified that after the expiry of the Scheme, SEBI may have to initiate appropriate action against defaulting persons and the companies, which may result in heavy penalties against such persons and companies, as per the provisions of the SEBI Act. Therefore, in exercise of the powers under Section 11 of the SEBI Act read with regulations 6 and 8 of the Takeover Regulations, 1997, SEBI hereby introduces the said Scheme. The salient features of the Scheme are as under: Regularization of the Defaults 1. Under the Scheme, the eligible persons and companies may make disclosures and pay the lump-sum amount within the period specified under the Scheme. Eligibility 2. Following are eligible for availing benefit under this scheme: a) Persons who have failed to comply with or who have complied with the requirements of regulations 6(1), 6(3), 8(1) and 8(2) of the Takeover Regulations, 1997, after expiry of the period specified in the said regulations. b) The listed companies which had failed to comply with or complied with the requirements of regulations 6(2), 6(4) and 8(3) of the Takeover Regulations, 1997, after expiry ....
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..... (supra) wherein it was held as under: In examining the claim of an assessee that a payment made by him is a deductible expenditure under Section 37 of the Income-tax Act, 1961, what needs to be done by the assessing authority, is to see whether the law or scheme under which the amount was paid required such payment to be made as a penalty or something akin to penalty imposed by the way of punishment for breach or infraction of the law or the statutory scheme; if the amount so paid (although called a penalty) is found to be not a penalty or something akin to penalty due to the fact that the amount paid by the assessee was in exercise of the option conferred upon him under the very law or scheme concerned, the assessing authority has to regard such payment as business expenditure of the assessee, allowable under Section 37 as an incident of business laid out and expended wholly and exclusively for the purpose of the business. 25. The perusal of the above clearly shows that if the amount paid is in the nature of penalty or akin to penalty then the amount paid can be disallowed. Otherwise, such payment has to be allowed if the payment is incidental to the carrying on the business.....