TaxTMI 
TaxTMI 
2014 (10) TMI 781
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.... as exempt from taxation. It appears that the assessee did not make any disallowance u/s 14A of the Act. Hence, the assessing officer asked the assessee to compute the disallowance to be made in terms of sec. 14A of the Income Tax Act, 1961 (the Act). The assessee furnished workings, wherein the interest disallowance was worked out at Rs. 29,91,393/- and the expenses to be disallowed was worked out at Rs. 15,58,023/-. The assessing officer accepted the working given for disallowing expenses, but did not agree with the assessee with regard to the interest disallowance. The AO took the view that the provisions of Rule 8D of the Income Tax Rules, 1962 (the Rules) have to be adopted in letter and spirit and accordingly took the view that the interest disallowance needs to be computed in terms of Rule 8D(2)(ii) of the Rules. Accordingly, the AO worked out the interest disallowance at Rs. 2,50,84,476/-. Accordingly, the assessing officer disallowed a sum of Rs. 2,66,42,967/- (Rs.2,50,84,476/- + Rs. 15,58,203/-) u/s 14A of the Act. (There is a casting error, the addition should have been Rs. 2,66,42,679/-). 4. The AO further noticed that the assessee has paid a sum of Rs. 50.00 lakhs t....
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....e Ld CIT(A) held that the consent fee should be allowable as business expenditure, since it was paid for the purpose of business, i.e., in order to enable the assessee to conduct the business without interruption. Before the Ld CIT(A), the assessee had placed reliance on hosts of case law and the first appellate authority held that all the decisions relied upon by the assessee also support the case of the assessee. Accordingly, he deleted the disallowance of Rs. 50.00 lakhs made by the AO. Aggrieved by the decision of Ld CIT(A) rendered on both the issues referred above, the revenue has filed this appeal before us. 6. The first issue relates to the interest disallowance made u/s 14A of the Act. We heard the parties on this issue. We have already noticed that the assessing officer has computed the interest disallowance in accordance with Rule 8D(2)(ii) of I.T Rules. As rightly pointed out by Ld CIT(A), the requirement of making disallowance under Rule 8D(2)(ii) would arise only if the nexus between the borrowings and investments could not be clearly established. In the instant case, the ld CIT(A) has noticed that the assessee was able to prove the nexus between the borrowings and....
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....07 323 (1,103,142) (10,000,000) Repaid -Reliance Securities Ltd-shares. 1.4.07 22.05.07 315 (860,656) (94,500,000) Repaid -Reliance Securities Ltd.-shares 1.4.07 23.05.07 314 (8,107,377) 50,000,000 Opt-Reliance Land Pvt.Ltdshares 1.4.07 31.03.08 365 5,000,000 (50.000,000) Repaid-Reliance Land Pvt.ltdshares. 1.4.07 23.05.07 314 (4,289,617) 20,500,000 Shares of Menon and Menon Pvt.Ltd 14.1.08 31.03.08 78 436,885 298,900,000 67,367,295 2,991,393 The assessee had also submitted before Ld CIT(A) that the nexus between the borrowings and investments made prior to 31.3.2007 was also established in the like manner in the earlier years. 7. It is now settled principle that the assessing officer has to examine the disallowance made by the assessee by having regard to the accounts of the assessee and only thereafter the AO, if he is not satisfied with the correctness of the claim, shall determine the disallowance to be made u/s 14A of the Act in accordance Rule 8D. In this regard, a gai....
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.... powers given to SEBI to take certain administrative or civil action. The Ld A.R invited our attention to paragraph 61 of the order dated 11-12-2006 passed by the Securities Appellate Tribunal (SAT), wherein the SAT had observed that the violations are technical in nature. In this regard, the Ld A.R carried us through the Securities and Exchange Board of India Act, 1992, more particularly to section 11 of the Act, which elaborates the Powers and Functions of the Board. The Ld Counsel submitted that the Board has the power to regulate the working of stock brokers etc., levy fees or other charges from them and take the measures specified in sec. 11(4) of the above said Act in the interests of investors or securities market. The actions specified in sec. 11(4), inter alia, are that the Board may restrain persons from accessing the securities market; direct any intermediary or any person associated with the securities market in any manner not to dispose of or alineate an asset forming part of any transaction which is under investigation etc. The Ld Counsel submitted that the assessee herein was alleged to have committed certain irregularities and hence the officials recommended for sus....
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.... the Guidelines for Consent Orders and for considering requests for composition of offences are given. He submitted that the SEBI has made it clear in paragraph 3 of the above said circular that the Consent orders cannot be constued as waiver of statutory powers by the Board and the Board always has the right to proceed for appropriate action if it cannot achieve its objectives through consent order. The Ld Counsel, then, invited our attention to paragraph 5 of the Circular which reads as under:- "5 Therefore, it has been decided that all appropriate administrative or civil actions, eg. Proceedings under sections 11, 11B, 11D, 12(3) and 15I of SEBI Act......may be settled between SEBI and a person (party) who may prima facie be found to have violated the securities laws or against whom administrative or civil action has been commenced for such violation." The ld Counsel submitted that the action was taken against the assessee under section 11 of the Act and the same is made clear that it was an "administrative or civil action". Further the consent order is permissible only if there was a prima facie case, meaning thereby there was only a prima facie case against the assessee ....
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.....00 lakhs paid by the assessee cannot be equated to penalty levied for infraction of law. In the alternative, the contention of the Ld A.R is that the penalties prescribed in sections 15E to 15H are related to technical violations and they cannot be considered as "infraction of law". On the other hand, we notice that the revenue was mainly carried away by the expression "penalty" used in sections 15E to 15H of the SEBI Act. 15. However, we find force in the contentions of the assessee. The Circular issued by SEBI for "Consent application" clearly specifies that the action taken under section 11 of the Act fall in the category of "administrative or civil action". Further, order passed by SAT also clearly states that the irregularities alleged against the assessee are "technical violations". Most of all, the amount of Rs. 50.00 lakhs paid by the assessee are not related to the penalty, if any, imposed by the SEBI, rather it was a "Consent Fee" paid by the assessee for settlement of dispute, legal expenses and other administrative charges of SEBI. The said amount was paid clearly specifying that it was paid without admitting or denying the guilt. Hence, in our view, it cannot be sa....
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....s, legal expenses and administrative expenses a in the matter. In this regards, we inform you, that the terms proposed by you were examined by the Independent High Powered Advisory Committee (HPAC) and having considered the facts and circumstances of the case, HPAC has recommended that the case may be settled on payment of Rs. 50,00,000,/- (Rupees Fifty Lakhs only). In view of the recommendation of HPAC, SEBI has in principle agreed to the clause' Undertakings(Waivers vide your afore-mentioned consent application." 6.6 The Appellant further relied upon the following judgements to substantiate the same: * Fine and penalties are collected by a stock exchange from its members for various reasons. Where such payments were collected for alleged unfair trading practice or non- business like conduct, it is not a payment for violation of the regulations of-the stock exchange. It -was held, that such amounts cannot be disallowed in Gold Crest Capital Markets Limited v ITO (2010) 2 ITR (Trib) 355 (Mumbai). In coming to the conclusion, the Tribunal discussed the provisions of the Constitution of National Stock Exchange and the regulations applicable to brokers and subbrokers stip....
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....such 'assessee was a deductible expenditure under section 37, although called penalty, is to see whether the law or scheme under which the amount was paid requires such payment to be made, as penalty or as something akin to penalty, that is imposed by way of punishment for breach or infraction of the law or the statutory scheme. If the amount so paid 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, then one 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 purposes of the business. If such payment by the assessee is that which is made in exercise of the option given to such assessee by the law or the statutory scheme, there arises no need for assessing authority to go into the question whether the payment could be regarded as that 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 assessee's....