Income Tax Appellate Tribunal (ITAT), New Delhi deleted addition against share broker as pledging of shares of clients with banks for obtaining bank finance and for depositing margin money not violation of regulation of SEBI.
The assessee, Trustline Securities Pvt. Ltd 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 share broking and depository service and brokerage from such services. The Assessing Officer (AO) was of the view that the assessee had taken overdraft facility against pledge of shares from Citi Bank and Kotak Mahendra Bank Ltd. The outstanding balance as on 31.03.2014 was Rs. 4,04,41,488/- and Rs. 3,72,99,393/- respectively. 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.
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 ownshares 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.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. 24,86,72,622/- as income from other sources.
The CIT deleted the addition made by AO. Hence the Revenue is in appeal before the Tribunal. The bench consisting of G S Pannu, President and Astha Chandra, Judicial Member observed that “The CIT, 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 and hold that the 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.”
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