NSE’s Core SGF Contribution is allowable expense, not Contingency Reserve

National Stock Exchange of India Vs DCIT (ITAT Mumbai)

Introduction: The case of National Stock Exchange of India (NSE) vs. DCIT revolves around the controversy of whether NSE’s contribution to the Core Settlement Guarantee Fund (Core SGF) should be treated as a contingency reserve. The Income Tax Appellate Tribunal (ITAT) Mumbai addressed this issue in detail, offering significant insights into the nature of NSE’s contribution.

Detailed Analysis: The crux of the matter lies in the assessment year 2016-17, where the Assessing Officer (AO) increased the book profit under section 115JB of the Income Tax Act by adjusting NSE’s contribution to Core SGF. The AO deemed this contribution as a provision for an unascertained liability, thereby adding it to the book profit.

However, the tribunal, upon thorough examination, concluded that NSE’s contribution to Core SGF cannot be classified as a contingency reserve. This decision was based on previous rulings and SEBI circulars, which established that such contributions are not akin to deposits or reserves but rather essential expenses incurred in the normal course of business.

Moreover, the tribunal noted that NSE’s contribution to Core SGF is debited to the Profit and Loss Account, indicating a certain liability rather than an uncertain contingency. This aligns with previous decisions where similar contributions were allowed as deductible expenses under section 37(1) of the Act.

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