Mangal Keshav Securities Limited vs. ACIT ITAT “B” Bench, Mumbai Before Joginder Singh (J. M.) and Ashwani Taneja (A. M.) ITA No.: 8047/Mum/2010 A.Y.:2006-07, Date of Order:29th September, 2015 Counsel for Assessee / Revenue: Nishan Thakkar & Prasant J. Thacker / J. K. Garg

Facts
The assessee is a closely held company engaged in the business of share/stock broking and is a member of BSE, NSE and 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 that the assessee had paid penalty/fine levied by the Stock Exchange amounting to Rs.9.08 lakh. According to the assessee the fines, penalty etc. were paid for some procedural non-compliances, inadvertently done by the assessee and it had neither undertaken any activities which were in ‘violation’ or ‘offence’ of any law, nor has conducted any activities which were prohibited by law. But the AO was not satisfied and he disallowed the said amount by invoking Explanation to section 37. On appeal the CIT(A) confirmed the order of the AO.

Held
The Tribunal noted that the impugned amount was paid on account of minor procedural irregularities, in day- today working of the assessee. The assessee’s business involved substantial compliance requirements with various regulatory authorities e.g. BSE, NSE, CDSL, NSDL, & SEBI etc. According to it, in the regular course of the assessee’s business certain procedural non-compliances were not unusual, for which the assessee is required to pay some fines or penalties.

It further observed that these routine fines or penalties were “compensatory” in nature; these were not punitive. These fines were generally levied to ensure procedural compliances by the concerned authorities. Their levy depended upon the facts and circumstances of the case, and peculiarities or complexities of the situations involved. It further observed that under the income tax law, one is required to go into the real nature of the transactions and not to the nomenclature that may have been assigned by the parties. Further, relying upon the judgment of the Tribunal in assessee’s own case for A.Y. 2007-08 in ITA No.121/Mum/2010 dated 04.11.2010, the Tribunal allowed the appeal of the assessee.