Case Law Details
Brief of the Case
ITAT Mumbai held in the case of Mangal Keshav Securities Limited vs. ACIT that as per the nature of business of the assessee, certain procedural non-compliance are not unusual, for which assessee is required to pay some fines or penalties. In our considered view, these routine fines or penalties are “compensatory” in nature; these are not punitive. Their levy depends upon facts and circumstances of the case, and peculiarities or complexities of the situations involved. On the other hand, being an ‘offence’ would be the one which will arise as a result to commission of an action which is prohibited by law, and, in all the given situations, no element of any consent of the parties involved can bring any change in its legal consequences. Thus, only those payments, which have been made by the assessee for any purpose which is an ‘offence’ or which is ‘prohibited by law’, shall alone would be hit by the explanation to section 37. In the present case, penalties/fines paid only for procedural non-compliance, hence allowed.
Facts of the Case
The assesses is a closely held company engaged in the business of share/stock brooking and is a member of BSE, NSE, is a DP for CDSL & NSDL and Mutual Fund Distribution. During the course of assessment proceedings, it was noted by the AO from the Tax Audit Report in Form No. 3CA, that the assesses has paid penalty/fine, levied by the Stock Exchange amounting to Rs.9,08,193/-. The AO informed the assesses that in view of Explanation 1 to section 37, the aforesaid amount was not allowable as business expenditure. The assesses, in reply, submitted that it has neither undertaken any activities which were in ‘violation’ or ‘offence’ of any law, nor has conducted any activities which were prohibited by law. It was submitted by the assesses that fines, penalty etc. have been paid for some procedural non-compliance, inadvertently done by the assesses company and therefore, the same could not be strictly construed as an ‘offence’ or something ‘which is prohibited by law’. But the AO was not satisfied and aforesaid amount was disallowed by invoking explanation to section 37.
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