TaxTMI 
TaxTMI 
2012 (9) TMI 260
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....essee did not pay the SEBI dues in time and interest paid is penal in nature. 4. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of hearing. 2. Ground nos. 1 and 4 are general in nature and require no adjudication. 3. Facts of the case, in brief, are that assessment for A.Y. 2005-06 was completed u/s 143(3) on 18-10-2007 at an income of Rs. 13,13,222/- as against the retuned income of Rs. 12,90,500/-. Subsequently the assessment was reopened u/s 147 and reassessment was completed at an income of Rs. 34,29,103/-, making various additions. In first appeal, the CIT(A), inter alia, deleted addition of Rs. 3,72,594/- made by the AO on account of interest paid for late deposit of SEBI dues. The CIT(A) also directed the AO to assess speculative income at Rs. 37,04,470/- as against Rs. 18,20,012/-, against which revenue is in appeal before us. 4. Ld. DR relied on the order of Assessing Officer. On the other hand, learned counsel for the assessee relied on the order of CIT(A). 5. We have heard rival contentions and gone through the relevant material available on record. 6. Regarding issue of speculative inco....
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.... it is specifically stated that the transactions are settled otherwise then by way of actual delivery. Thus, the term "purchase and sale" has to be given full effect and its meaning cannot be restricted only with reference to such transaction where delivery of shares has not been taken. Any such attempt would imply doing violence with the statute which is not permissible. 5.4 The AO's contention is that only delivery based transactions as contemplated under section 43(5) were to be considered as speculative transactions. This argument is devoid of any merit because, then there was no necessity of incorporating Explanation to section 73. As a matter of fact, Explanation to section 73 enlarges the ambit of speculative transaction in case of such company where part of its business is to deal in shares. This has been so held in the case of Starline Ispat & Alloys Ltd. [2007] 14 SOT 140 (Mum), wherein, it has been observed as under : "Explanation to section 73 expands the scope of 'speculation business' a little further, by introducing a deeming fiction. This deeming fiction provides that where business of a company includes purchasing and selling of shares of other companies, to that....
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....151 CTR (St) 35] as under :- "20. Disallowance of illegal expenses 20.1 Section 37 of the Income-tax Act is amended to provide that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purposes of business or profession and no deduction or allowance shall been made in respect of such expenditure. This amendment will result in disallowance of the claims made by certain assessees in respect of payments on account of protection money, extortion, hafta, bribes etc. as business expenditure. It is well decided that unlawful expenditure is not an allowable deduction in computation of income. 20.2 This amendment will take effect retrospectively from 1st April, 1962 and will, accordingly, apply in relation to the assessment year 1962-63 and subsequent years." 6.3 It is also not in doubt that before even insertion of Explanation to section 37(1) of the Act, the expenses incurred in connection with the violation of law etc. was not allowable. Explanation to section 37(1) is only inserted with a view to remove certain doubts about the allowability of payment on account of protection money,....
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....way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Income-tax Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) of the Income-tax Act, wherever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refused to give deduction to that component which is penal in nature." (p. 690) 6.5 In this connection, reference may also be made to the case of CIT v. Ahmedabad Cotton Mfg. Co. Ltd. [1994] 205 ITR 163 (SC). During the accounting period relevant to the assessment year 1972-73, the respondent-company, which ran a textile mill, instead of producing and packing....
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....there arises no need for the assessing authority to go into the question whether the payment could be regarded as one made as a measure of business expediency, for it cannot ignore the fact that the law or the statutory scheme enables incurring of such expenditure in the course of the assessee's business." (p. 174) 6.6 The aforesaid two rulings of the Apex Court give a wider scope to consider the question in a broad spectrum analysis, in examining the scheme of the provisions of the relevant statute, providing for payment of such imposts notwithstanding the nomenclature of the impost as given by the statute, to find out whether it is compensatory or penal in nature. The Assessing Officer has to allow deduction under section 37(1), whenever such examination reveals the concerned impost to be purely compensatory in nature. Whenever such impost is found to be of composite nature, that is, partly of compensatory nature and partly of penal nature, he is obliged to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to that component which is penal in nature. 6.7 Reverting to the facts of the pres....