Penalty Charges levied by IRDA can’t be disallowed: ITAT [Read Order]

IRDA

The Income Tax Appellate Tribunal ( ITAT ), Kolkata bench in an appeal filed by the assessee directed against the order of Ld.CIT(Appeals) considered the issue relating to the disallowance of Rs. 5,00,000/- made by AO and confirmed by Ld.CIT(A) on account of penalty charges paid to IRDA.

In the instant case, the assessee is a company carrying on the business of insurance broker. In the return filed for the year under consideration, in profit and loss filed along with the said return a sum of Rs.5,00,000 was debited by the assessee on account of penalty charges which was disallowed by the AO observing that penal expenses are not allowable as the deduction as per the Income Tax Act, 1961.

 The counsel for the assessee submitted that amount of penalty levied by IRDA for non –compliance of its regulations which are requirements and restriction which brokers are required to observe and follow.  He contended that non-compliance of regulations results in levying of penalty and if it continues, the license of the broker could be cancelled or suspended and such non-compliance cannot be treated as the infraction of any statute or law warranting disallowance. He relied on the decision of the tribunal in case of M/s. Dayco Securities Private Limited vs. DCIT  ITA No. 1798/K/2012 wherein it was held that members of NSE are bound to abide by the regulations, by-laws and violation of the same cannot be treated as a violation of statutory law or rule. The learned DA, in his contentions, supported the order of Ld. CIT(A).

The ITAT relying on the decision in  M/s. Dayco Securities Private Limited vs. DCIT held that fine paid by the assessee was only on account of non-observation of internal regulation of Stock Exchange and it cannot be equated with violation of the statutory rule or law warranting disallowance of fine. In it’s decision, the appeal was allowed and the orders of Ld.CIT(A) along with the order of  AO got deleted.

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