TMI Blog2022 (7) TMI 591X X X X Extracts X X X X X X X X Extracts X X X X ..... AT:- As the value of shares is an unexplained income of the assessee . It is obvious that the addition made by the Ld. AO was not based on any sound legal foundations but on conjecture and surmises. The Ld. CIT(A) quoted extensively from Circular No. 395 of NSE dated 07.04.2004 which allows the brokers to provide margin trading facility to their clients. For this purpose a broker may use his own funds or borrow from scheduled commercial bank and/or NBFCs, regulated by Reserve Bank of India. CIT(A), therefore came to the conclusion that the assessee pledged shares of the clients with banks for obtaining bank finance in order to meet the requirement of depositing margin money by each of the clients as per the regulation of SEBI. We concur with the view of the CIT(A) and hold that the Ld. AO was not at all justified in taking value of shares pledged as security for taking loans from the banks as undisclosed investment of the assessee. The impugned addition has rightly been deleted by the Ld. CIT(A). We, accordingly reject this ground No. 2 of the Revenue. Disallowance of directors' remuneration - According to the Ld. AO the above remuneration paid to the directors was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Rules from Rs. 26,50,909/- to Rs. 22,721/-. 2. On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of income from other sources of Rs. 24,86,72,622/-. 3. On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of disallowance of Directors' remuneration of Rs. 73,91,440/-. 4. On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in deleting the addition on account of disallowance of lead charges of Rs. 1,94,90,650/-. 5. That the appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 4. Both the parties have been heard. The Ld. DR supported the order of the Ld. Assessing Officer ( AO ). The Ld. AR submitted a paper book containing 265 pages. He also filed written submissions which have been taken on record. 5. The assessee is a company which is a member of National Stock Exchange ( NSE ) and also of Bombay Stock Exchange ( BSE ). It is engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here was no investment on which disallowance is called for...'' It can therefore be safely inferred from the impugned order that the satisfaction of the AO for disallowance of expenses, in view of the presumed tax-exempt dividend income, u/s. 14A of the Act is drawn from the fact that the appellant suo motu did not make any such disallowance. Also, there appears to have been no objective analysis of the appellant's expense in this regard vis- - vis its accounts. Again, the legislative intent of Section 14A which is to disallow the expenditure in relation to income, which does not form part of total income - requires proper identification rather than disallowing all or proportionate interest and administrative expenses on an ad hoc basis. However, the appellant is in receipt of dividend income of Rs. 87,971/- which is otherwise covered u/s. 10(34) of the Act. Therefore, I am not in agreement with the appellant's contention that as it had offered the entire dividend income [otherwise not included in the total income u/s. 10(34)] it will come out of the ambit of Section 14A r/w Rule 8D(2) regarding the disallowance of expenditure related to income that is not incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively. On perusal of details filed by the banks, the Ld. AO found that the assessee has pledged shares of total value of Rs. 11,70,78,843/- with Citi bank and shares of total value of Rs. 13,64,71,060/- with Kotak Mahendra Bank Ltd. as on 31.03.2014. The value of assessee's own shares in stock as per book was Rs. 48,76,981/- as on 31.03.2014. 7.2. Vide questionnaire dated 07.11.2016 the Ld. AO required the assessee to explain overdraft facility availed from Citi Bank. The assessee furnished explanation vide letter dated 07.11.2016 that the pledge value of shares with Citi Bank as on 31.03.2014 (Rs. 11,70,78,543/-) included assessee's own shares as well as excess shares of clients. The overdraft facility is provided by the bank on the basis of total value of shares pledged with them. 7.3. The explanation was not acceptable to the Ld. AO. He observed that the shares of clients cannot be pledged for obtaining loans and that confirmation from clients has not been submitted. He, therefore, added the value of difference in shares between book value and pledge value as income of the assessee reducing therefrom value of assessee's own shares which worked out to Rs. 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall not use the funds of any client for providing the margin trading facility to another client, even if the same is authorized by the client... ... The initial and maintenance margin for the client shall be a minimum of 50% and 40% respectively, to be paid in cash. For this purpose; (i) initial margin would mean the minimum account, calculated as a percentage of the transaction value, to be placed by the client, with the broker, before the actual purchase. The broker may advance the balance amount to meet full settlement obligations. (ii) Maintenance margin would mean the minimum amount, calculated as a percentage of the market value of the securities, calculated with respect to the last trading day's closing price, to be maintained by the client with the broker... ... The broker shall disclose to the stock exchange/s details on gross exposure including name of the client, Unique Identification Number (UIN) under the SEBI (Central Database of Market Participants) Regulations, 2003, name of the scrip and if the broker has borrowed funds for the purpose of providing margin trading facility, name of the lender and amount borrowed, on or before 12 noon on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clients. For this purpose a broker may use his own funds or borrow from scheduled commercial bank and/or NBFCs, regulated by Reserve Bank of India. The Ld. CIT(A), therefore came to the conclusion that the assessee pledged shares of the clients with banks for obtaining bank finance in order to meet the requirement of depositing margin money by each of the clients as per the regulation of SEBI. We concur with the view of the Ld. CIT(A) and hold that the Ld. AO was not at all justified in taking value of shares pledged as security for taking loans from the banks as undisclosed investment of the assessee. The impugned addition has rightly been deleted by the Ld. CIT(A). We, accordingly reject this ground No. 2 of the Revenue. 8. Ground No. 3 relates to disallowance of directors' remuneration of Rs. 73,91,440/- which has been deleted by the Ld. CIT(A). The Ld. AO discussed this issue in para 7 of the assessment order. He found that the assessee had paid remuneration to the two directors as under:- 1) Shri Mukesh Kansal Rs. 60,00,000/- 2) Shri Vinay Kumar Gupta Rs. 19,96,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regard, the Ld. AO made the impugned disallowance. 9.1. On appeal, the Ld. CIT(A) deleted the disallowance by observing in para 5.6a as under:- 5.6a It is gathered from the appellant's submissions that para 7.13.1 of the Model Bye Laws prescribed by SEBI for operations by stock brokers states, inter alia, A trading member may share brokerage with a sub-broker, remisier or employee in his own exclusive employment subject to the provisions contained in Bye-law 7.5.2 and further subject to such terms of brokerage as agreed upon in writing by way of an agreement. He may similarly share brokerage with any other person introducing a client provided such person- 7.13.1.1 is not one for or with whom trading members are forbidden to do business under the Rules, Bye- laws and Regulations of the Exchange; 7.13.1.2 is not a sub-broker or remisier of any other trading member of the Exchange; 7.13.1.3 is not an employee of any other trading member; 7.13.1.4 does not advertise in the public, press or in any other manner that he is acting as a broker; 7.13.1.5 does not pass contracts in this own name... Thus, it is clear that the appellant's conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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