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2009 (1) TMI 553 - AT - Income TaxDisallowances on fines paid to NSE - Whether violations of the Rules and Regulations of NSE Ltd. by its members could be treated as an offence or as an act prohibited by law - claim for Business expenditure - HELD THAT:- Fines and penalties levied for violation on account of ‘unfair trading practice’ as specified in regn. 4.6 of the NSE Regulations and ‘un-business like conduct’ as specified in r. IV(4)(e) of the NSE Rules cannot be equated with violation of a statutory rule or law. Though, the ld CIT(A) has referred r. 4C in Appendix 222 to SEBI Rules, 1992, this rule only specifies the condition to be satisfied for the SEBI Board to grant a certificate to a stock broker. It is true that working of stock exchanges can be regulated by SEBI under the SEBI enactment but violation of rules and regulations framed by such stock exchanges cannot be per se considered as violation of any provision of SEBI enactment. The fine imposed on the assessee by the disciplinary bench of the NSE was admittedly for violation of the regulation of NSE Ltd., and neither the AO nor the CIT(A) has been able to point out how such violation or breach of regulations could be treated on par with the breach of a rule under the SEBI enactment. Therefore, we are of the considered opinion that there was no violation of law by the assessee and the fine paid were only for non-observation of internal regulations of stock exchange. We find no reason to interfere in the order of CIT. In the result, grounds 1 and 2 of the assessee are allowed whereas the sole effective ground raised by the Revenue is dismissed. Disallowance of salary - HELD THAT:- Assessee has furnished full information regarding salary payments. The comparative year-wise cost furnished by the assessee before CIT(A) clearly show that the increase in salary was due to higher payments paid to individual employees and also on account of the reason that such payments were made for full year in majority of the cases. Payments of salaries and employment of staff are the prerogative of a businessman and if he feels that employees should be paid well so as to get optimum productivity it could only be considered as a commercially prudent decision. In any case, no defect was pointed out in the accounts of the assessee, but the disallowance was only made for the reason that share trading and other income of the assessee had come down in the relevant previous year. In our opinion, this is not a criteria to judge the commercial expediency of salary payment and assessee’s contention that hire and fire policy would not be conducive for its business, was correctly appreciated by the CIT(A). Therefore, we find no necessity to interfere with the orders of the CIT(A) in this regard. In the result, ground of the Revenue stands dismissed.
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