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2022 (7) TMI 591 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - CIT-A restricted the addition - HELD THAT:- As observed that apart from the investment of Rs. 5,95,53,892/- in shares, the assessee being a share broker had certain shares in stock on which dividend income of Rs. 87,971/- was received during the year. The Ld. CIT(A) restricted the disallowance u/s. 14A to Rs. 22,721/- being 0.5% of average holding of shares as stock in-trade of Rs. 45,44,163/-. In doing so, the Ld. CIT(A) relied on numerous precedents mentioned in para 5.1d of his order including the judgment in ACB India Ltd. vs. ACIT [2015 (4) TMI 224 - DELHI HIGH COURT]. We have not found any flaw in the finding of the Ld. CIT(A) which is backed by the judgment (supra) of the jurisdictional High Court. This ground is therefore rejected. Addition under the head 'Income from other sources' - While making the impugned addition the Ld. AO observed that "it seems that the shares pledged by the assessee company with bank for obtaining working capital facilities were their own shares - Addition deleted by the Ld. CIT(A) - HELD THAT:- 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 in accordance with provisions of section 197 of Companies Act, 2013. He therefore calculated allowable remuneration which worked out to Rs. 6,04,560/- and disallowed excess remuneration - CIT-A deleted the addition - HELD THAT:- We observe that the Ld. CIT(A) has taken note of the fact that the assessee company is a nongovernment public limited company not listed in the Stock market (shares of the assessee company are not traded). It is because of this reason that the provisions of the Companies Act, 1956/2013 do not apply to the case of the assessee company. We agree with the findings of the Ld. CIT(A) and hold that he has rightly deleted the impugned disallowance. Accordingly ground No. 3 of the Revenue is rejected. Disallowance of lead charges - AR submitted that the assessee in order to develop its clientele had entered into agreement with certain persons who were introducing new clients and had been sharing brokerage income with them - HELD THAT:- On consideration of the rival submissions, we are of the opinion that the disallowance made by the Ld. AO does not rest on sound footing as despite requisite details filed by the assesses before him, he made the impugned disallowance which is not sustainable. Agreeing with the findings of the Ld. CIT(A) which is backed by the judgment of the Hon'ble Supreme Court in SA Builders Ltd. [2006 (12) TMI 82 - SUPREME COURT] we reject ground No. 4 of the Revenue as well.
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