Income Tax Appellate Tribunal (ITAT), Mumbai held that penalty levied by SEBI for shortfall in margin money eligible for Deduction u/s 37.
The assessee company, DJS Stock and Shares Ltd is engaged in the business of the share broking and trading in shares and securities. During the year under consideration, the assessee has paid a sum of Rs. 3,69,661/- as penalty to the Stock Exchange. The Assessing Officer disallowed the same holding that the penalty is not allowable as deduction. The CIT(A) confirmed the same. Hence the assessee is in appeal before the Tribunal.
The solitary issue urged in this appeal relates to disallowance of Rs.3,69,661/-, being penalty levied upon the assessee by the Stock Exchange for maintaining short margins.
The Counsel for the assessee, Ravikant Pathak submitted that the assessee is required to maintain margin money with the Stock Exchange. Whenever margin money falls short, the assessee has to make good the same immediately, failing which, the Stock Exchange would levy a penalty upon the assessee.
The Counsel also submitted that the said penalty is levied as per the terms and conditions entered with the Stock exchange with its members. It is only a practice of disciplining the members of the stock exchange, i.e., it is only a deterrent under the usual business of carrying on the business by the members of stock exchange. The A.R further submitted that the said penalty cannot be equated with the penalty levied for infraction of any law and hence proviso to section 37(1) of the Act would not apply to the above said payment. Accordingly, the Counsel submitted that CIT(A) was not justified in confirming the disallowance made by the Assessing Officer.
B R Baskaran, Accountant Member observed that “In the instant case also penalty charged levied by the SEBI are related to shortfall in the margin money and is not for infraction of any law. Accordingly, the said payment cannot be considered as penalty for violation of any law falling within the ambit of proviso to section 37(1) of the Act.”
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