CIT vs. The Stock and Bond Trading Company (Bombay High Court)

DATE: (Date of pronouncement)
DATE: November 25, 2011 (Date of publication)

Click here to download the judgement (stock_bond_penalty_infringment_law.pdf)

Penalty/ Fine for violation of procedural law not hit by Explanation to s. 37(1)

The assessee paid penalty/fine to BSE/NSE for infringement of procedural rules such as failure to maintain margins, trading beyond exposure limits, late submission of margin certificates, delay in making payment & deliveries etc. The AO disallowed the claim for deduction on the ground that there was an infringement of statutory law laid down by SEBI and the Explanation to s. 37(1) was attracted. This was reversed by the Tribunal on the ground that the penalty was for violation of procedural regulations and compensatory in nature and there was no infringement of law. On appeal by the department, HELD dismissing the appeal:

As the payments made by the assessee to the Stock Exchange for violation of their regulation was not an account of an offence or which is prohibited by law, the invocation of the Explanation to s. 37 of the Act was not justified.

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