IN THE HIGH COURT OF DELHI AT NEW DELHI 
 . 
  11.11.2010 
.
 Present:       Mr. Sanjeev Sabharwal, Sr. Standing Counsel for the Revenue. 
 Ms. Rani Kiyala, Adv. for the respondent. 
.
 +ITA No.1744/2010 
.
 The assessee company is engaged, inter alia, in the business of 
 registrar and share transfer agent. In the relevant assessment year, it acted as 
 Registrar of public issues for ONGC and Power Trading Corporation, who had come 
 out with public issue.  In respect of this public issue, the assessee was made 
 to pay certain amount on account of settlement of claims, particulars whereof 
 are given in Para 7 of the orders of the Tribunal.  The assessee claimed these 
 as allowable expenses.  The Assessing Officer disallowed those expenses on the 
 ground that as per Clause (3) in the Memorandum of Understanding (MoU) entered 
 into between the assessee and the ONGC, etc., such a liability was that of 
 ONGC/Power Trading Corporation and the MoU categorically provided that the 
 assessee would not be liable for any such claims of the third party. 
 The CIT (A), however, reversed this decision of the AO and the 
 order of the CIT (A) has been confirmed by the Tribunal vide its impugned 
 decision dated 06.11.2009.  The Tribunal has noted that notwithstanding the 
 aforesaid clause in MoU, the MoU also provided vide Clauses (9), (11) and (21) 
 that the assessee was to act with prudence and due diligence.  A fining of fact 
 is recorded that since there was a negligence on the part of the assessee in 
 performing its obligation under the aforesaid MoU while acting as Registrar of 
 the issue, the assessee was made to pay the claims qua the third party arising 
 out of the said public issue.  In fact, this payment was made after the 
 adjudication of the dispute between the assessee and the ONGC/Power Trading 
 Corporation of India and specific orders having been passed by the Adjudicating 
 Officer of the SEBI held that the assessee as Registrar of the issue is liable 
 to pay the said amount. 
 In these circumstances, when the expenses were incurred and 
 liability was fastened upon the assessee on the basis of orders passed by the 
 competent quasi judicial authority, we see no reason as to why the said expenses 
 were not allowable.  The facts analyzed by the Tribunal are as follows: 
 ?68.       The learned CIT (A) has also accorded the order passed by the 
 Adjudicating Officer of SEBI in respect of public issue of shares of ONGC and 
 Power Trading Corporation of India in respect of which the assessee was 
 Registrar to the issue and also Registrar and share transfer agent.  SEBI found 
 that the assessee did not exercise due skill, care and caution while processing 
 the application forms, allotment procedures, credit of shares to various 
 investors? accounts with the depositories etc.  It was also found that the 
.
.
 assessee uploaded wrong file in the ONGC issue leading to excess allotment of 
 shares.  It was also held that as Registrar to issue failed to discharge its 
 duties diligently, the learned CIT(A) after considering the decision cited had 
 held that the loss is incidental to business and hence allowable as such.  Even 
 if the nature of agreement as referred to by the Assessing Officer is 
 considered, none of the clause refers to any specific portion of agreement 
 whereby the assessee is not held responsible for failure to act diligently. 
 When the assessee is carrying on work as Registrar to issue and also as share 
 transfer agent, the assessee is expected to render proper services to its 
 clients.  If any of its employee plays fraud whereby the clients are incurring 
 losses, the assessee is under obligation to defray such losses.  Hon?ble Supreme 
 Court in the case of Abdullahbhai Abdulkadar (supra) held that if the losses 
 spring directly from and are incidental to the business of the assessee, the 
 same are allowable as such.  In the case of Commonwealth Trust (India) Ltd. 
 (supra), it was held that if there is direct and proximate nexus between the 
 business operation and the loss, or it is incidental to it, then the loss is 
 deductible.  In the present case also it is seen that either because of fraud by 
 its employees or due to delayed data processing order, the assessee was required 
 to compensate or when the respective clients were called upon to pay 
 interest/compensation it, was for the assessee to make good such losses to the 
 respective clients.  The agreements with different companies fix the 
 responsibilities of the assessee in case of negligence and hence the claims 
 settled and paid by the assesses were rightly held to be allowable.  The 
 Commissioner (Appeals) has not admitted any additional evidence and hence there 
 is no violation of Rule 46A of the Income Tax Rules.  We, therefore, hold that 
 the loss was allowable as such.? 
.
 The order of the Tribunal is without any blemish.  No question of 
 law arises.  This appeal is accordingly dismissed. 
.
 A.K. SIKRI, J. 
.
 SURESH KAIT, J. 
 NOVEMBER 11, 2010 
 pmc 
.
.
 #3 and 6