TaxTMI 
TaxTMI 
2026 (2) TMI 198
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....complete scrutiny and to verify expenses debited to profit and loss account for earning exempt income and to verify low income in comparison to high loans/advances/investment in shares appearing in balance sheet. The submissions of the assessee did not appeal to the AO and addition of Rs. 5,16,00,000/- was made on account of unexplained cash credit under Section 68 of the Act and by disallowing the amount of Rs. 10,00,000/- on account of expenditure claimed by the assessee under Section 37(1) of the Act for which assessee approached Ld. First Appellate Authority and had succeeded for which revenue is in appeal raising following grounds: "1. Whether on the facts and circumstances of the case and in law, the ld. CIT(A)/NFAC has erred in deleting the addition of Rs. 10,00,000/- under Section 37 of the Income Tax Act, 1961 without appreciating the facts that the addition was made by the AO on the fact that penalty levied by SEBI is not an allowable expense u/s 37(1) of the IT Act, 1961. 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A)/NFAC has erred in deleting the addition of Rs. 5,16,00,000/- on account of unexplained cash cred....
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....The Explanation does not apply to payments arising as a consequence of an offence. Such payments may be disallowable under general principles - on the principle that payment of penalties is not for the purpose of business. The payment made by the Respondent was not in the nature of payment sought to be covered within the ambit of Explanation 1 to section 37(1) of the Act and the same was also not by way of penalty ". "46. The payment so made by assessee was a payment for the purpose of the profession carried on by the assessee - to save the time, cost and hassle of a longwinded litigation as also to protect the reputation of the assessee. Hence, the payment has to be allowed as an expenditure under section 37(1) of the Act." In this regard, the submission of the appellant, judgements of the various Courts/Tribunals as cited by the appellant in the written submission dt. 14.03.2024 and assessment order of the A.O was carefully perused and considered. The appellant has paid penalty u/s 15HA of SEBI Act, 1992 amounting to Rs. 10 lakhs during the conduct of regular business operation allegedly on account of unfair trade practices as per SEBI laws. The section....
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.... company on account of getting piece of mind toward unnecessary disruption caused by long drawn litigations processes, to save time and resources, reputation of appellant etc. Further, from the bare perusal of provision of section 15HA of SEBI Act it transpires that impugned penalty has been imposed upon the appellant during the course of his business activity and more importantly payment/expenditure has been made in exercise of the option provided/ permissible to such appellant company by provision of law under which such penalty is being levied. Further, the careful perusal of provision of section 15HA of SEBI act, 1992 also reveals that penalty levied shall be of an amount proportionate to the amount of profit made out of such practices, which may be Rs. 25 Crores or three times the amount of profits made out of such practices, whichever is higher, meaning thereby the imposition/ levy of penalty is compensatory in nature. Furthermore, the Finance (No.2), Act, 1988 vide circular No. 772 dated 23.12.1998 has explained the nature of disallowance which is not to be allowed/permissible as expenses will be the payment on account of protection money, extortion, hafta'....
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....d laws cannot be claimed as a deduction or allowance under the Income tax Act from AY 2025-26 onwards while we are dealing with AY 2017-18. Thus the proposition of law relied by the ld. DR needs no interference. The ground has no substance. 5. In regard to ground 2 the findings of Ld. CIT(A) are as under: "4.2.1 I have carefully considered the submissions filed by the appellant and assessment order. The assessment proceedings of the appellant has been opened for complete scrutiny to verify the expenses claimed and the loans and advances appearing in the balance sheet. 4.2.2 During the course of assessment proceedings, on perusal of the bank account no. 02712500000243 statement maintained with HDFC bank, the AO found that the assessee company had received an amount of Rs. 2,00,00,000/- and 3,00,00,000/- on 16.12.2016 and Rs. 16,00,000/- on 27.12.2016 from M/s FairlinkCommotrade Pvt Ltd.('FCPL') The assessee company was asked to file complete details of transaction alongwith name and address, copy of bank account and ITR of the said party for the period 01.04.2016 to 31.03.2017. In response to above, the assessee company vide letter dated 13.11.2019 submitted the....
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....at the said company is indeed in the business of trading in shares and stocks. It is evident from the records that the appellant has been able to duly discharged its onus with regard to the identity and creditworthiness of the said company. 4.2.7 However, in order to verify the genuineness of the transaction, the material information received from the investigation wing, Kolkata and relied upon by the AO was submitted by the appellant alongwith written submission, the same was carefully perused and analysed as under :- 4.2.8 It is the case of the AO that the appellant is a beneficiary of accommodation entries provided by lender company, M/s FairlinkCommotradePvt. Ltd. (FCPL) through the entry operator Shri Vikas Kumar Agarwal. In other words, the said lender company, M/s FairlinkCommotradePvt. Ltd. (FCPL) is allegedly operated, controlled and managed by Shri Vikas Kumar Agarwal. It has been brought on record by the appellant that Shri Vikas Kumar Agarwal in his statements recorded on 15th December 2016 and 18th May 2017 has stated that he had given 'list' of all the bogus companies which were controlled and managed by him for the sole purpose of providing accommod....
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....L does not find any mention in the list provided by Mr. Vikas Kumar Aggarwal. (vii) The AO has failed to establish any nexus by bringing any material evidence between FCPL and Sh. Vikas Kumar Aggarwal. (viii) The onus to prove source of source under section 68 of the Act in cases involving credits other than share application money is not perceived under law during the year under consideration. Even otherwise, from the bare perusal of the bank statement of M/s FCPL filed during the assessment proceeding the source of the source as appearing in the bank statement of M/s FCPL is M/s India Nivesh Capitals Ltd, which has a significant net worth, as can be seen from information available in the public domain itself. Moreover, it is also relevant to mention here that it is not the case of the AO that M/s India Nivesh Capitals Ltd i.e. source of the source credit entries from where the pay out has been made to the appellant company, is in any way connected, controlled and managed by entry operator Vikas Kumar Aggarwal. Therefore, after the careful consideration of the assessment order, above narrated facts and circumstances of the case, the submissions of the Appellant a....