Contribution Made By NSE To Core SGF Is Not In The Nature Of Any Deposit/Contingency/Reserve: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the contribution made by the assessee stock exchange to Core SGF is not in the nature of any deposit, contingency, or reserve.

The bench of Aby T. Varkey (Judicial Member) and S. Rifaur Rahman (Accountant Member) has observed that the AO/CIT(A) erred in holding that the contribution made by the assessee to Core SGF is an unascertained liability. Since the liability of payment to Core SGF by the assessee is certain, it cannot be added back as per clause (c) of Explanation-1 to Section 115JB(2) of the Income Tax Act.

The assessee filed its return of income, declaring total income, and claimed a refund. Later on, the case of the assessee was selected for scrutiny. Pursuant to notice, the assessee filed a revised return of income. The AO disallowed the lease premium amortized and disallowed the contribution to Core SGF.

Thus, the AO computed the total income in place of the assessee's revised ITR. The assessee preferred appeals that traveled to the tribunal. The Tribunal restored the amortization of lease premiums back to the file of AO, allowed the assessee's appeal in respect of the contribution made by the assessee to Core SGF to the tune of Rs. 761,52,00,000 as expenses allowable under Section 37(1), and deleted the addition.

Meanwhile, the AO passed the rectification order, in which it was noted from the perusal of the P&L account that the assessee has claimed an expense of Rs.761.52 crore under the heading “Other Expenses” on account of its contribution to the Core SGF.

As per the AO, in the original assessment, it was disallowed as expenses and held to be contingency reserves to meet contingent liability. Therefore, according to the AO, as per Section 115JB, the amount should have been added to the “book profit while computing the MAT liability as well. The AO in the original assessment had omitted to add the same in the book profit, which omission (in the original assessment) is a mistake apparent from the record. Therefore, exercising his power under Section 154 issued notice, and after taking note of the objection raised by the assessee against exercising the power under Section 154 of the Act as well as it's contention that contribution towards Core SGF was an ascertained liability, no adjustment is required; the AO rejected the same and was of the opinion that the contribution made by the assessee towards Core SGF was an unascertained liability and therefore needs to be added while computing book profit under Section 115JB of the Income Tax Act.

The issue raised was whether the assessee's contribution to Core SGF is a certain or uncertain liability.

The tribunal noted that statutory contributions made by the assessee to the Core SGF on which it had no control are allowable under Section 37(1) as they have been incurred exclusively in the course of carrying on its business.

Counsel For Appellant: Shailesh S. Shah

Counsel For Respondent: Vijay Bhatt

Case Title: National Stock Exchange of India Versus DCIT

Case No.: I.T.A. No.3695/Mum/2023

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