ITAT Allows Deduction On Penalty Levied By SEBI For Shortfall In Margin Money

The bench of B.R. Baskaran (Accountant Member) has observed that the penalty levied by SEBI for shortfall in margin money cannot be considered as a penalty for violation of any law falling within the ambit of section 37(1) of the Income Tax Act.

The appellant/assessee company is in the business of share broking and trading in shares and securities. During the year under consideration, the assessee has paid a sum of Rs. 3,69,661 as a penalty to the Stock Exchange. The Assessing Officer disallowed the claim, holding that the penalty is not allowable as a deduction. The CIT(A) confirmed the disallowance.

The assessee submitted that the assessee was required to maintain margin money with the Stock Exchange. Whenever margin money falls short, the assessee has to make good on the same immediately, failing which, the Stock Exchange will levy a penalty upon the assessee. The penalty was levied as per the terms and conditions entered with the stock exchange by its members. It is only a practise of disciplining the members of the stock exchange, i.e., it is only a deterrent to the usual business of carrying on the business by the members of the stock exchange. The penalty cannot be equated with the penalty levied for infraction of any law and, hence, the proviso to section 37(1) of the Act would not apply.

The ITAT allowed the appeal of the assessee, quashed the order of the CIT(A) and directed the assessing officer to delete the disallowance.

Case Title: DJS Stock and Shares Ltd. Versus DCIT

Citation: I.T.A. No. 648/Mum/2022

Dated: 22.07.2022

Counsel For Appellant: Advocate Ravikant Pathak

Counsel For Respondent: Advocate Naina Krishnakumar

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