ITAT Rules in Favor of NSE: Rs 170 Crore SGF Contribution Allowable as Business Expense [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench has allowed the appeal filed by National Stock Exchange of India (NSE) against the revisionary order passed by the Principal Commissioner of Income Tax-7 (PCIT) under section 263 of the Income Tax Act, 1961. The appeal pertained to Assessment Year 2015–16 and challenged the disallowance of Rs 170 crore contributed by NSE to the Core Settlement Guarantee Fund (Core SGF) maintained by the National Securities Clearing Corporation Ltd. (NSCCL).

The appellant had filed its return of income declaring total income of Rs 968.20 crore, which was assessed at Rs 968.33 crore by the Assessing Officer (AO) under section 143(3) of the Act. Later, the PCIT initiated revisionary proceedings under section 263 on the ground that the AO failed to properly examine the deductibility of the Rs 170 crore contribution to Core SGF, terming it a contingent liability.

In the revisionary order dated 3 December 2019, the PCIT observed that the contribution constituted a contingent liability and should not have been allowed as a business expense. The PCIT further directed the AO to disallow the said amount and to verify if any part of the Core SGF had been utilized during the year to meet defaults by clearing members.

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In response, NSE contended that the contribution to Core SGF was made in compliance with SEBI’s circular dated 27 August 2014, which mandated that stock exchanges contribute 25% of the Minimum Required Corpus to the fund. The company argued that this was a statutory obligation incurred during the ordinary course of business, and that full details were submitted during the original assessment proceedings. The AO had accepted the claim after due verification, and therefore, the assessment could not be termed erroneous or prejudicial to the interest of the Revenue.

After reviewing the case records and submissions, the Tribunal comprising B.R. Baskaran (Accountant Member) and Sandeep Singh Karhail (Judicial Member) held that the AO had duly examined the issue during the assessment proceedings and accepted the claim based on facts and applicable SEBI regulations. The Tribunal also noted that its Coordinate Bench had already allowed the same claim in NSE’s own case for subsequent years.

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Concluding that the AO had adopted one plausible view in law, the Tribunal ruled that the PCIT erred in invoking revisionary jurisdiction under section 263. It held that the contribution to the Core SGF constituted an allowable business expense under section 37(1) and accordingly set aside the impugned order.

In Conclusion, the appeal was allowed in favour of the assessee.

To Read the full text of the Order CLICK HERE

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