By TIOL News Service

KOLKATA, JUNE 09, 2018: THE ISSUE IS - Whether penalty charges paid by insurance broker to IRDA for the violation of their rules can be disallowed when the same can not be equated with violation of statutory law warranting disallowance of fine. NO IS THE VERDICT.

Facts of the case

The assessee company, carrying on the business of insurance broker had filed return for relevant AY. During assessment AO noted that assessee had claimed deduction of penalty charges paid to IRDA for the violation of their rules. The AO disallowed the penalty charges observing that penal expenses were not allowable as deduction and completed the assessment. On appeal, CIT(A) upheld the order of AO.

Tribunal held that,

++ the penalty in question was levied by IRDA for non-compliance of Regulation 34(2) of IRDA (insurance brokers) Regulations, 2002. The assessee company as a broker was required to observe certain restrictions and follow certain procedures as prescribed in regulation 34. There was however a non-compliance on the part of the assessee of the said regulation which resulted in imposition of penalty by IRDA. In the case of M/s. Dayco Securities Pvt. Ltd, the assessee as a member of NSE as bound to abide by rules and regulations and by-laws of the NSE. There was however violation of such rules and regulations by the assessee and when the question of allowability of fine imposed by the National Stock Exchange for such violation arose, the Division Bench of Tribunal held that violation of such rules and regulations could not be treated as violation of statutory law or rule. It was also held by the Tribunal that the fine paid by the assessee for such violation was only for non observation of internal regulation of Stock Exchange and the same could not be equated with violation of statutory rule or law warranting disallowance of fine. The ratio of the decision of Division Bench of Tribunal in the case of M/s. Dayco Securities Pvt. Ltd. is squarely applicable to the issue involved in the present case and respectfully following the same, it was decided to delete the disallowance made by the AO and confirmed by the CIT(A) on account of penalty charges levied by the IRDA on the assessee. In the result, the appeal of the assessee is allowed.

(See 2018-TIOL-823-ITAT-KOL )