TaxTMI 
TaxTMI 
2019 (11) TMI 1354
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....he Learned Principal Commissioner of Income Tax - 2 ("Ld. PCIT - 2") erred in initiating revision proceedings under section 263 of the Income Tax Act, 1961 ("the Act"). Your Appellants submit that the initiation of proceedings under section 263 of the Income Tax Act, 1961 is illegal and bad in law and the order of the Ld. PCIT -2 be quashed. 2. The Ld. PCIT - 2 erred in stating that the order passed by the then Learned Assessing Officer ("Ld. AO") for A.Y. 2015-16 is erroneous and prejudicial to the interest of the revenue on the ground that, Ld. AO had passed the Assessment Order without making inquiries and verification which were required and directing the Ld. AO to disallow the amount of Rs. 25,78,84,501/- and Rs. 6,75,00,000/- contributed towards Settlement Guarantee Fund and Investor Service Fund respectively. Looking into the facts and circumstances of your Appellant, it is submitted that specific queries with respect to contribution made to Settlement Guarantee Fund and Investor Service Fund were raised by the Ld. AO in his notices dated November 23, 2017 and December 9, 2017. In response your Appellant vide acknowledgement nos. 15121710015292, 30111710012737 and 1....
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.... due to the reasons stated here under; 4. It has been observed that (a) Rs. 25,78,84,501/- had been reduced while computing taxable income as 'Contribution towards settlement guarantee fund' (b) Rs. 6.75 Crore had been debited to P&L A/c as contribution towards investors service fund." 4.1 While carrying out assessment proceedings for assessment year 2016-17 details were asked for allowability of contribution towards aforementioned funds as business expenditure. Based on the details is has been held in the assessment order that a) Contribution towards settlement / core settlement guarantee fund is in the nature of deposit / contingency reserve for the assessee. The SEBI Circular on the contribution itself says that It is 'transfer of profit'. Hence, it cannot be allowed as business expenditure. b) Contribution towards investors service fund is Just set-aside amount as mandated by SEBI. This set-aside amount cannot be allowed as deductible business expenditure unless it was actually spent during the year for the purpose of business." 4.2 In view of the above, since the facts and circumstances of the case ....
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....upporting documents." It was explained in response to the aforementioned questionnaire vide letter dated 15.12.2017 (Refer Annexure 3), BSE had uploaded online on the Income Tax Portal a detailed note along with the Annexures as follows; "Point 17: Mandatory Contribution to settlement guarantee fund of Rs. 25,78,84,501/-. Objective of the Core SGF: In order to protect the interest of the investors in securities & to regulate the securities market, Securities and Exchange Board of India (SEBI) vide circular no CIR/MRD/DRMNP/25/2015 dated August 27, 2014 (Annexure 22.1) (presently refer annexure 3) directed the Clearing Corporation (CC) to create a fund coiled Core Settlement Guarantee Fund (Core SGF) for each segment of each Recognized Stock Exchange (SE) to guarantee the settlement of trades executed in respective segment of the SE. In the event of a clearing member (member) failing to honour settlement commitments, the Core SGF shall be used to fulfill obligations of that member and complete the settlement without affecting the normal settlement process. Corpus of Core SGF: As per SEBI Circular, the corpus of the fund should be adequate....
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.... be credited to Core SGF corpus. • Interest on cash contribution to core SGF shall also accrue to the core SGF and pro-rota attributed to the contributors in proportion to their cash contribution. • CC shall ordinarily accept cash collateral from Core SGF contributions. However, CC may accept clearing member contribution in the form of bank FD5 too. CC shall adhere to specific guidance which may be issued by SEBI from time to time in this regard. As mandated by Circular CIR/MRD/DRMNP/25/2014 dated August 27, 2014 (refer Annexure 22.1) (presently refer annexure 3), BSE, implemented the provisions of this circular with effect from December 1, 2014 and contributed to the "Core SGF" of Indian Clearing Corporation Ltd (ICCL) total amount of 25,78,84,501/- as at March 31, 2015. At the time of finalizing the accounts for FY 2014-15, since there was no clarity regarding the regulation and its implementation, the said amount of 25,78,84,501/- contributed by SSE Limited to the Core SGF of Indian Clearing Corporation Limited was shown as "Contribution to Settlement Guarantee Fund" under the head "Other Current Assets". After receiving necessary clarification....
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.... query was raised by the AO. A detailed note along with the annexures was submitted by BSE. Thereafter considering all the facts, AO allowed the claim of BSE of contribution made to Core Settlement Guarantee Fund (CSGF) of Rs. 25,78,84,501/-. It is therefore submitted that once the conclusion is arrived at by the AO is in accordance with law after detailed enquiry then such conclusion of allowability of claim of contribution to CSGF of Rs. 25,78,84,501/- cannot be termed to be erroneous and prejudicial to the interest of revenue. 9. As regards to the issue raised in para 4(b) of Show Cause Notice with respect to the amount set aside to Investor Service Fund. It is submitted that the AO had issued a notice u/s. 142(1) of the Act dated 23.11. 2017 (refer point no. 24 of Annexure 1) particularly asking BSE to "Please refer to Rare: Other Liability includes; a) Investors' Service Fund" and furnish the details of Annual Listing Fees Received vis-à-vis expenses incurred towards investors services and its treatment in the books of account along with the supporting documents. In response to the aforementioned questionnaire dated 30.11.2017 (refer Annexure 2) BSE had uploaded ....
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....) SEBl, vide its Circular No. MDR/DA/C&D/84135/07 doted 09th January 2007 and vide its Circular No. MDR/OOP/SE/Cir-38/2004 dated 28" October 2004 (attached as Annexure 29.1) directed the exchange to contribute 10% of the listing fees collected during the quarter, within 15 days of end of each quarter of a financial year to SEW and 1% of the listing fee received during the quarter to Investor Protection Fund (IPF) respectively. Accordingly, as a practice for the past many years, BSE Limited has been making these timely contributions to SEBI & IPF on quarterly basis and thus, paid Rs. 6,22,80,123 to SEBI and Rs. 62,28,013 to IPF for the financial year 2014-2015. *Note: The details of the Investors Service Fund during financial year 2014-15 has already been uploaded in reply to Point 24 of the notice u/s 142(1) of the Income Tax Act, 1961 dated November 23, 2017." 11. These details were once again re-uploaded online on the Income Tax Portal on 20.12.2018 (refer Annexure 8). From these details it is clear that a specific query was raised by the AO. A detailed note alongwith the annexures were submitted by BSE. Thereafter considering all the facts, AO allow....
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....he methodology to arrive at a figure of contribution to CSGF and therefore it's not an appropriation of profit as alleged. This fact was already explained before the AO and has also been considered in the assessment order. 13. We noted from the observations made in para 4.1(b) of Show Cause Notice with respect to the amount set aside to Investor Service Fund that the said issue was already examined by the AO during the course of assessment. Moreover, the contribution to the Investors Service Fund is being made by BSE from 1992 onwards and has been claimed as expense under section 37 of the Act. The said claim has been allowed and accepted by the department till date and there is no change in facts compared to earlier years. If there are no changes in the facts or circumstances over the years, then it would not be appropriate on part of the department to change the opinion in subsequent years. The details are as under: - Sr. No. AY Contribution to Investor Service Fund Whether order u/s 143(3) was passed Whether Contribution was allowed 1. 2006-07 1,75,00,000 Yes Yes 2. 2007-08 2,99,00,000 Yes Yes 3. 2008-09 3,13,00,000 ....
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....ns of the law accepted the stand of the BSE. Therefore, revision u/s 263 of the Act cannot be made on the basis of the assessment order passed u/s 143(3) of the Act of the subsequent assessment year. Hence, the order passed by the AO is in accordance with law and cannot be considered as erroneous and prejudicial to the interest of the revenue. 15. In this respect, our attention was invited to the decision of the jurisdictional High Court in the case of CIT v/s. Gabriel India Limited (203 ITR 108) wherein upholding the order of the Tribunal, which had set aside the revision order of the CIT, held as under: - "The power of suo motu revision under sub-section (1) is in the nature of supervisory jurisdiction and the same can be exercised only if the circumstances specified therein exist. Two circumstances must exist to enable the Commissioner to exercise power of revision under this sub-section, viz., (i) the order is erroneous; (ii) by virtue of the order being erroneous prejudice has been caused to the interests of the Revenue. It has, therefore, to be considered firstly as to when an order can be said to be erroneous. We find that the expressions "erroneous", "erroneous ....
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.... requirement, viz., that the order is erroneous, is absent. Similarly, if an order is erroneous but not prejudicial to the interests of the Revenue, then also the power of suo motu revision cannot be exercised. Any and every erroneous order cannot be the subject-matter of revision because the second requirement also must be fulfilled. As observed in Dawjee Dadabhoy and Co. vs. S. P. Jam [19571 31 ITR 872 (Cal), "the words" "prejudicial to the interests of the Revenue" have not been defined, but it must mean that the orders of assessment challenged are such as are not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else". The aforesaid observations were also applied by the Gujarat High Court in Addl. CIT v. Mukur Corporation [1978] 111 ITR 312. We are of the opinion that the aforesaid interpretation given by the Calcutta High Court to the expression "prejudicial to the interests of the Revenue" is the correct interpretation." 16. We have also gone through the judgment of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v/s CIT 243 ITR 83 (SC). Where....