DCIT, New Delhi V. Shri Subhash Rohilla, New Delhi

ITA 1388/DEL/2010

• Counselvise Citation: 138820114 RSA 2010
• Duration Of Justice: 2 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 09-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 30-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SURJANI MOHANTY
• Assessee Lawyers: RAKESH GUPTA
• Keywords: Business income
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH G NEW DELHI) BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.1388/DEL/2010 ASSESSMENT YEAR : 2006-07 DCIT, SHRI SUBASH ROHILLA, CIRCLE-3 (1), 43/13, EAST PATEL NAGAR, NEW DELHI. V. NEW DELHI. (APPELLANT) (RESPONDENT) PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO. PAN /GIR/NO.AAEPR AAEPR AAEPR AAEPR- -- -8805 8805 8805 8805- -- -J JJ J APPELLANT BY : SMT. SURJANI MOHANTY, SR. DR. RESPONDENT BY : SHRI RAKESH GUPTA, FCA. ORDER PER TS KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORD ER OF LD CIT(A) DATED NIL. THE GROUNDS RAISED BY THE REVENUE A RE AS UNDER:- LD CIT(A) HAS ERRED IN TREATING THE INCOME OF THE A SSESSEE AS CAPITAL GAIN INSTEAD OF BUSINESS INCOME WITHOUT CO NSIDERING THE FACT THAT THE ASSESSING OFFICER HAD CLEARLY ESTABLI SHED IN HER ASSESSMENT ORDER THAT THE INCOME OF THE ASSESSEE HAD ALL TH E CHARACTERISTICS OF BUSINESS INCOME 2. THE BRIEF FACTS OF THE CASE ARE THAT AS PER ASSESSMENT ORDER THE ASSESSEE IS DERIVING INCOME FROM HOUSE PROPERTY, INCOME FROM ITA NO1388/DEL/2010 2 BUSINESS AND PROFESSION BEING PARTNER IN TWO FIRMS, INCOM E FROM CAPITAL GAIN AND INCOME FROM OTHER SOURCES. THE RETUR N OF INCOME FOR ASSESSMENT YEAR 2006-07 WAS FILED DECLARING INCOME OF ` .1,44,18,670/- ON 6.11.2006. THE CASE WAS SELECTED FOR SCRUTINY. DURIN G ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE I S THE PROPRIETOR OF M/S S.R. INVESTMENT WHICH WAS ENGAGED IN THE BUSINESS OF SALE & PURCHASE OF SHARES, SECURITIES. DURING PROCEEDINGS THE ASSESSEE FILED A COPY OF AUDIT REPORT UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT. THE ASSESSEE, HOWEVER, SHOWED THE INCOME FROM M/S SR INVESTMENT AS INCOME FROM SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN AND DID NOT DECLARE ANY BUSINESS INCOME F ROM THIS PROPRIETARY CONCERN. VIDE ORDER SHEET ENTRY DATED 15 .,12.2008, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY INCOME SHOWN IN P &L ACCOUNT OF M/S SR INVESTMENT SHOULD NOT BE TREATED AS I NCOME FROM BUSINESS & PROFESSION AS IN EARLIER YEARS. IN RESPONSE TO T HE SHOW CAUSE NOTICE, THE LD AR OF THE ASSESSEE REPLIED BY LETT ER DATED 18.12.2008 THAT UP TILL LAST YEAR THE INCOME OF M/S S R INVESTMENT WAS TAKEN AS BUSINESS INCOME WRONGLY AND THE ERROR HAS NOW BEEN DETECTED AND CORRECTED. THE ASSESSING OFFICER NOTED TH AT ASSESSEE WAS A REGULAR INCOME TAX ASSESSEE AND THE CASE OF THE ASSESSEE WAS SCRUTINIZED IN EARLIER YEAR ALSO AND IN ALL THESE PREC EDING ASSESSMENT YEARS THE ASSESSEE HAD DECLARED INCOME FROM M/S SR INVEST MENT AS HIS BUSINESS INCOME AND HAD CLAIMED EXPENSES AGAINST THE INC OME SHOWN FROM THIS CONCERN. HE FURTHER OBSERVED THAT THIS YEAR THE ASSESSEE HAD FILED AUDIT REPORT OF HIS PROPRIETARY CONCERN M/S SR INVESTMENT AND HAD DECLARED NET PROFIT AFTER CLAIMING VARIOUS EXPENSES. T HE ASSESSING OFFICER OBSERVED THAT FILING OF AUDIT REPORT U/S 44A B AND PREPARATION OF P&L ACCOUNT ITSELF PROVES THAT THE ASSESSEE WAS ENGAGED IN CARRYING ON CERTAIN BUSINESS OR PROFESSION AND THEREFORE HIS INCO ME SHOULD BE TAXABLE AS BUSINESS INCOME INSTEAD OF INCOME FROM CAPIT AL GAIN. THE ITA NO1388/DEL/2010 3 ASSESSEE SUBMITTED THAT HE HAD NOT DONE ANY BUSINESS OF PU RCHASE AND SALE OF SHARES AND SECURITIES AND MUTUAL FUNDS IN TH IS YEAR AND THE ACTIVITIES IN THIS YEAR ARE DIFFERENT FROM EARLIER YE ARS. HE FURTHER SUBMITTED THAT THE ENTIRE GAIN AS SHOWN IN THE P&L AC COUNT OF M/S SR INVESTMENTS WAS EARNED FROM TWO FUNDS OF KOTAK SECURITI ES NAMELY SHD 27 AND SPTQ 3 UNDER THE PORTFOLIO MANAGEMENT SC HEME AND MAINTAINED THAT THE NUMBER OF TRANSACTIONS IN SHARE T RADING WERE QUITE LESS WHICH THE ASSESSING OFFICER OBSERVED THAT IN EA RLIER YEARS ALSO NUMBER OF TRANSACTIONS WERE NOT SO MANY. HOWEVER T HE ASSESSEE REITERATED THAT UP TILL LAST YEAR THE INCOME OF M/S S R INVESTMENT WAS TAKEN AS BUSINESS INCOME WRONGLY AND THE ERROR HAS NOW BEEN DETECTED AND CORRECTED, HOWEVER, THE ASSESSING OFFICER, DID NOT BUY THE JUSTIFICATION PUT FORTH BY THE ASSESSEE AND TREATED THE INCOME OF CAPITAL GAIN AS CLAIMED BY THE ASSESSEE AS BUSINESS INCOME OF THE ASSESSEE. 3. AGGRIEVED THE ASSESSEE FILED APPEAL BEFORE THE LD CI T(A) AND SUBMITTED THE FOLLOWING SUBMISSIONS:- A) THAT LD ASSESSING OFFICER HAD FAILED TO APPRECIATE THE TRUE NATURE INCOME ARISING FROM PORTFOLIO MANAGEMENT SCHEME (PMS ) TO M/S SR INVESTMENT, THE PROPRIETARY CONCERN OF THE ASSESSEE. IT WAS CONTENDED THAT SAID M/S SR INVESTMENT WAS CONSTITUTED T O ROUTE ROUTE APPELLANTS INVESTMENTS THROUGH THE PORTFOLIO MA NAGERS. IT WAS ALSO SUBMITTED THAT THE SAID M/S S.R. INVESTMENT ENTE RED INTO AN AGREEMENT WITH M/S KOTAK MAHINDRA W.E.F. 24. 11.2004 WHEREBY THE APPELLANT MADE INVESTMENT IN THE FORTUNE PORTFOLIO MANAGEMENT SCHEME WITH A LOCK-IN PERIOD TILL 31.3.2 006. B) THAT ONCE THE APPELLANT HAD MADE THE INVESTMENT IN P MS, HE HAD NO ROLE IN RESPECT OF MANAGEMENT OF HIS PORTFOLIO AND THE ITA NO1388/DEL/2010 4 PORTFOLIO MANAGER WAS COMPLETELY INDEPENDENT TO MANA GE THE PORTFOLIO BY SELLING/PURCHASING SECURITIES OR MAKING IN VESTMENTS IN MUTUAL FUNDS ETC. C)THAT ON THE DATE OF CLOSURE I.E. 31.3.2006, THE PO RTFOLIO MANAGER WAS REQUIRED TO PAY TO THE APPELLANT THE PRO CEEDS OF SCHEME AFTER DEDUCTING HIS MANAGEMENT FEES AND TAXES I F AN ETC. THEREFORE, IT WAS PLEADED THAT THE APPELLANT DI D A SINGLE TRANSACTION OF MAKING INVESTMENT WITHOUT HAVING ANY G UARANTEE OR ANY ASSURED RETURN AND AT THE END OF SCHEME ALSO, AN OTHER SINGLE TRANSACTION WAS DONE WHEREBY THE PORTFOLIO MANA GER HAD PAID BACK THE PROCEEDS WHICH INCLUDED THE CORPUS AND NET PROFIT EARNED THEREON. D)THAT THE INCOME DERIVED FROM M/S SR INVESTMENT DURI NG THE YEAR UNDER CONSIDERATION WAS FROM PMS FROM KOTAK SECU RITIES WHICH COMMENCED FROM 24.11.2004 AND INCOME RELATABL E TO ASSESSMENT YEAR 2005-06 WAS ALSO TREATED AS CAPITAL GAIN B Y THE ASSESSING OFFICER IN THE ORDER U/.S 143(3) OF THE ACT FO R THAT YEAR. 4. THE LD AR ALSO PLACED BEFORE LD CIT(A) A COPY OF PMS AGREEMENT ENTERED INTO BY THE ASSESSEE WITH KOTAK SECURITIES AND A LSO PLACED BEFORE HIM A COPY OF ADVICE OBTAINED FROM M/S PWC O N CHARACTERIZATION OF INCOME FROM PMS AS BUSINESS INCOME OR CAPITAL GAINS IN THE HANDS OF THE INVESTOR CLIENTS. THE REPOR T OF PWC HAD SUMMARIZED THE INVESTMENT UNDER PMC AS FOLLOWS:- A) A CLIENT PUTS IN HIS SURPLUS FUNDS WITH A PORTFOLIO MAN AGER WITH AN OBJECTIVE TO EARN REGULAR RETURNS AND CAPITAL APPREC IATION OVER A LONGER PERIOD OF TIME; ITA NO1388/DEL/2010 5 B) THAT CLIENT PUTS MONEY IN PMS SCHEME FOR A LONGER PE RIOD OF TIME AND DOES NOT LIQUIDATE PMS INVESTMENTS AT REGULAR /FREQUENT INTERVALS SO AS TO INDICATE THAT INVESTMENTS WERE MADE W ITH THE INTENTION TO MAKE PROFITS OVER A SHORT TERM PERIOD. C) THAT SUCH INVESTMENT UNDER THE PMS SCHEME SHOULD AL, SO BE CHARACTERIZED ON CAPITAL ACCOUNT AND CONSEQUENTLY IN COME FROM SUCH INVESTMENTS SHOULD BE REGARDED AS CAPITAL GAIN AND NOT AS BUSINESS INCOME. THE MERE FACT THAT THE INCOME IS GENER ATED OUT OF FREQUENT PURCHASE/SALE TRANSACTION SHOULD NOT ALTE R THE ABOVE CONCLUSION IF THE OTHER CONDITIONS ARE SATISFIED. D) THAT THERE IS NO SIGNIFICANT DIFFERENCE BETWEEN PMS I NVESTMENTS AND MUTUAL FUNDS INVESTMENTS AND THEREFORE THE CHARACT ERIZATION OF INCOME UNDER BOTH THE SCENARIOS SHOULD BE THE SAME. THE NATURE OF INCOME SHOULD BE INVESTMENT INCOME AND THE INHERENT NATURE OF ACTIVITIES UNDER BOTH PMS AND MUTUAL FUNDS VIS-A-VIS THE INVESTOR IS INVESTMENT AND NOT TRADING BUSINESS. 5. THE LD CIT(A) ON THE BASIS OF SUBMISSIONS FILED BY THE ASSESSEE REVERSED THE DECISION ARRIVED AT BY THE ASSESSING OFFICER AND ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PORTION OF LD CIT(A)S ORDER IS REPRODUCED BELOW:- IN THE INSTANT APPEAL, I FIND THAT THE IMPUGNED INC OME RECEIVED BY THE PROPRIETORSHIP CONCERN OF THE APPELL ANT, M/S SR INVESTMENT IS FROM THE PMS OF M/S KOTAK MAHINDRA NAMELY FUTURE PORTFOLIO MANAGEMENT SCHEME FOR THE PERIOD 1.4.2005 TO 31.3.206 AFTER WHICH THE SCHEME W AS CLOSED. THE INCOME FROM THE DATE OF COMMENCEMENT I.E . 24.11.2004 TILL 31.3.2005 WAS OFFERED FOR TAXATION A S CAPITAL GAINS IN THE RETURN OF INCOME FOR ASSESSMENT YEA R ITA NO1388/DEL/2010 6 2005-06 WHICH WAS ACCEPTED BY THE LD ASSESSING OFFICER. THE LD ASSESSING OFFICER IN THE INSTANT CASE DID NOT ASCERTAIN THE NATURE OF TRANSACTION COMPRISED IN THE INCOME OF M/S SR INVESTMENTS AND TREATED THE INCOME OF M/S SR INVESTMENT OF THIS YEAR ALSO AS BUSINESS INCOME AS INCOME OF M/S SR INVESTMENT IN ASSESSMENT YEAR 2004-05 WAS TREATED AS BUSINESS INCOME BY THE APPELLANT HIMSELF. HOWEVER, THE LD ASSESSING OFFICER DID NOT BOTHER TO ASCERTAIN THE INGREDIENTS AND NATURE THEREOF OF RECEI PTS EMBEDDED IN INCOMES FOR DIFFERENT YEARS. IF THAT MUCH DETAIL WERE APPRECIATED BY THE LD ASSESSING OFFICER, IT WOULD HAVE GIVEN THE ASSESSING OFFICER AMPLE GROUNDS TO APPRECIATE THE TRUE NATURE OF THE INCOME OF APPELLA NT FROM PMS. I FIND THAT THE GROUNDS TAKEN BY THE ASSESSING OFFI CER TO TREAT THE INCOME OF APPELLANT FROM M/S SR INVESTME NT AS BUSINESS INCOME WERE INADEQUATE, FEEBLE AND BASED ON SUPERFICIAL UNDERSTANDING OF THE FACTS. WHILE IT COULD BE USEFUL TO OBSERVE WHAT NATURE HAS BEEN GIVEN BY THE ASSESSEE TO A PARTICULAR INCOME IN HIS BOOKS AND WHY TA X AUDIT WAS RESORTED TO BUT IN ITSELF IT DOES NOT ABSOLVE THE ASSESSING OFFICER TO NOT GATHER RELEVANT FACTS AND DECID E THE TRUE NATURE OF INCOME ON THE BASIS OF WELL ESTABL ISHED GUIDING PRINCIPLES AND THE ENABLING CIRCULARS OF CBDT . MOREOVER, IN RESPECT OF WHAT TREATMENT THE APPELLANT GAVE TO INCOME FROM PMS IN HIS OWN BOOKS, THE ASSESSING OFFICE R MADE SELECTIVE OBSERVATION THAT IN ASSESSMENT YEAR 2004- 05 INCOME FROM SR INVESTMENT WAS SHOWN AS BUSINESS INCOME, WHILE CONVENIENTLY IGNORING THE FACT PART O F THE IMPUGNED INCOME THAT WAS RECEIVED IN ASSESSMENT YEAR 2005-06 FROM THE SAME PMS AS IN THE CURRENT YEAR WAS ITA NO1388/DEL/2010 7 SHOWN AS CAPITAL GAINS IN THAT YEAR., I APPRECIATE THA T THE APPELLANT WAS NOT REQUIRED TO GET TAX AUDIT DONE U/S 44AB HOWEVER, THIS IN ITSELF CANNOT BE SOLE AND ADEQUATE GR OUND TO TREAT THE IMPUGNED INCOME AS BUSINESS INCOME WITHOUT EXAMINING THE OTHER MORE RELEVANT CRITERIA FOR DISTINGUISHING BETWEEN INVESTMENT AND TRADING. 6. AGGRIEVED THE REVENUE FILED APPEAL BEFORE THIS TR IBUNAL. 7. AT THE OUTSET, THE LD DR SUBMITTED AN ORDER PASSED B Y F BENCH OF ITAT, DELHI IN I.T.A. NO.1368/DEL/2010 AND STATED THAT THE CASE OF THE ASSESSEE IS COVERED BY THIS ORDER AND THE CASE WAS DECI DED IN FAVOUR OF REVENUE. HE FURTHER STATED THAT HON'BLE T RIBUNAL HAD TREATED THE INCOME FROM PMS AS BUSINESS INCOME INSTEAD OF INCOM E FROM CAPITAL GAIN AND THEREFORE HE ARGUED THAT THE ORDER OF LD CIT(A) BE REVERSED AND THAT OF ASSESSING OFFICER BE UPHELD. 8. THE LD AR, ON THE OTHER HAND, STATED THAT PMS IS O NLY A CONDUIT FOR INVESTMENT AND IT IS THE PREROGATIVE OF THE ASSESSEE AS TO HOW HE TREATS THE INCOME THERE FROM DEPENDING UPON THE PERI OD OF SCHEME. HE FURTHER ARGUED THAT INVESTMENTS THROUGH PMS I.E. A SCH EME BY WHICH PORTFOLIO MANAGER INVESTS ON BEHALF OF INVESTOR IN LIE U OF CERTAIN CHARGES. RELIANCE WAS PLACED ON THE FOLLOWING JUDGMEN TS WHEREIN IT WAS HELD THAT INCOME FROM INVESTMENT THROUGH PMS IS A CAPITAL GAIN AND NOT AS BUSINESS INCOME. 1. I.T.A. NO.705/CHD/2011 ACIT V. YOGESH CHANDRA (CHD. BENCH). 2. I.T.A. NO.910/CHD/2009 ACIT V. HERO HONDA PVT. LTD. ITA NO1388/DEL/2010 8 I.T.A. NO.911/CHD.2009 ACIT V. BAHADURCHAND INVESTME NT P.LTD. I.T.A. NO.1320/500/434/PN/2008 KR HOLDINGS & TRADING V. DCIT (PUNE BENCH). I.T.A. NO.1424/PN/2008 ABOTT HOTEL V. DCIT (PUNE BE NCH). THEREFORE, IN VIEW OF THE ABOVE JUDGMENT, HE ARGUED THAT ORDER OF LD CIT(A) BE UPHELD. 9. THE LD DR IN HIS REJOINDER ARGUED THAT JUDGMENT R ELIED UPON BY HIM WAS A JURISDICTIONAL JUDGMENT AND IT SHOULD PREVAI L UPON THE JUDGMENTS RELIED UPON BY LD AR. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. BEFO RE DECIDING THE MATTER UNDER DISPUTE. IT IS BETTER TO FIRST UNDERSTAND AS TO WHAT PMS IS. PMS IS A PORTFOLIO MANAGEMENT SCHEME WHEREIN AN INVE STOR GIVES A MANDATE TO A PORTFOLIO MANAGER TO INVEST A PARTICULA R AMOUNT IN SHARES ON HIS BEHALF IN LIEU OF SOME FEE. THE RISK OF LOSS OR PROFIT REMAINS WITH THE INVESTOR AS ALWAYS AS IN ANY INVESTMENT MADE BY AN I NVESTOR. THE PORTFOLIO MANAGER INVESTS THE SAME IN SHARES OF HIS CHOIC E AND AT THE END OF SCHEME RETURNS BACK TO INVESTOR THE TOTAL PROCE EDS OF INVESTMENT INCLUDING PROFIT OR DEDUCTING THERE FROM LOSS IF ANY AND AFTER DEDUCTING HIS FEE. IN THE PERIOD OF INVESTMENT HE MAY SHUFFLE OR RESHUFFLE THE PORTFOLIO OF THE ASSESSEE DEPENDING UPON H IS KNOWLEDGE AND ABILITY. SIMILARLY, ORDINARY MAN MAKES INVESTMENT IN TO SHARE ACCORDING TO HIS OWN KNOWLEDGE AND BELIEF AND FROM TIME TO TIME MAKES CHANGES IN HIS PORTFOLIO DEPENDING UPON THE CIRC UMSTANCES PREVAILING IN THE ECONOMY. THEREFORE, IT EMERGES TH AT IN BOTH CASES INVESTMENT IS MADE IN TO SHARES. NOW WHETHER THE INVESTM ENT IS MADE ITA NO1388/DEL/2010 9 WITH A VIEW OF MAXIMIZE PROFIT OR TO EARN CAPITAL A PPRECIATION WILL DEPEND UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. 11. ON THE ISSUE OF CAPITAL GAIN OR BUSINESS INCOME VARI OUS COURTS HAS GIVEN DIFFERENT JUDGMENTS UNDER VARIOUS CASES DEPEND ING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. EVEN CBDT HAS TRI ED TO CLARIFY THROUGH VARIOUS INSTRUCTIONS REGARDING CERTAIN PRINCI PLES TO BE KEPT IN MIND WHILE DECIDING THE NATURE OF INCOME OF AN ASSESSEE FROM SHARES. TWO OF THE PRINCIPLES CARVED OUT OF VARIOUS JUDGMENTS AND VARIOUS INSTRUCTIONS OF CBDT ARE THE HOLDING PERIOD OF SHARE A ND INTENTION OF A PARTICULAR INVESTOR. HOLDING PERIOD CAN EASILY BE VER IFIED FROM THE DATES OF PURCHASE AND SALE OF SHARES AND INTENTION OF ASSESSEE C AN BE VERIFIED FROM ENTRIES MADE BY HIM IN HIS BOOKS OF ACCO UNTS AND ITS TREATMENT IN THE BALANCE SHEET. COURTS HAVE ALSO HELD THAT MERELY BECAUSE THE ASSESSEE HAS ENTERED INTO MULTIPLE TRANSACTIO NS AND MADE PROFITS IN A SHORT SPAN OF TIME DOES NOT ESTABLISH THAT THE ASSESSEE WAS CARRYING ON THE SAID ACTIVITY ONLY FOR EARNING PROFI TS. 12. NOW LET US EXAMINE THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. IN THE PRESENT CASE, THE ASSESSEE HAD MADE INVESTMENT UNDER PMS WITH KOTAK SECURITIES UNDER TWO PORTFOLIO AND DE CLARED THE INCOME THERE FROM UNDER THE HEAD CAPITAL GAIN BOTH LONG TE RM AND SHORT TERM DEPENDING UPON THE HOLDING PERIOD OF SHARE. HE CLASSI FIED THE INVESTMENT UNDER THE HEAD INVESTMENT IN THE BALANCE S HEET. A PART OF THE PROFIT EARNED UNDER THE SCHEME HAD OCCURRED TO THE ASSESSEE IN THE ASSESSMENT YEAR 2005-06 WHICH HE HAD DECLARED AS SHOR T TERM CAPITAL GAIN AND WHICH WAS ACCEPTED BY THE ASSESSING OFF ICER ALSO. FOR THE CURRENT YEAR UNDER CONSIDERATION, HE DECLARED TH E INCOME EARNED FROM PORTFOLIO AS SHORT TERM CAPITAL GAIN AND LONG T ERM CAP[ITAL GAIN AND DIVIDEND INCOME BUT HE ALSO PREPARED P&L ACCOUNT WITH RESPECT TO ITA NO1388/DEL/2010 10 HIS GAIN IN THE PMS SCHEME AND OTHER GAIN ON DIRECT INVESTMENT AND ALSO GOT HIS ACCOUNTS AUDITED U/S 44AB OF THE ACT FOR CARRYING ON BUSINESS OR PROFESSION. THE OBJECTION OF THE ASSESSING OFFIC ER WAS THAT SINCE THE ASSESSEE HAD GOT HIS ACCOUNTS AUDITED, THEREFORE , HE HIMSELF HAD ADMITTED THAT HE WAS CARRYING ON BUSINESS. MOREOVER AS PER ASSESSING OFFICER IN THE EARLIER YEAR I.E. ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD SIMILARLY GOT HIS ACCOUNTS AUDITED AND HAD DE CLARED INCOME FROM PMS AS BUSINESS INCOME INSTEAD OF CAPITAL GA IN AS CLAIMED BY THE ASSESSEE. WE HAVE OBSERVED THAT THIS OBSE RVATION MADE BY THE ASSESSING OFFICER IS NOT CORRECT AS AT PAGE 9 2 & 93 OF PAPER BOOK THERE PLACED A COPY OF COMPUTATION OF I NCOME FOR THE ASSESSMENT YEAR 2005-06 WHEREIN SUCH INCOME FROM PMS WAS OFFERED AS CAPITAL GAIN AND WHICH WAS ACCEPTED BY THE ASSESSING O FFICER. NOW GETTING ACCOUNTS AUDITED U/S 4AB ON SOME MISCONCEPTION OF LAW CANNOT CHANGE THE CHARACTER OF INCOME EARNED BY THE ASSESSEE. 13. THE PORTFOLIO MANAGER WHICH IS KOTAK SECURITIES I N THE PRESENT CASE IN HIS ACCOUNT RELATING TO ASSESSEE HAS CHARACTERIZE D THE GAINS EARNED BY THE ASSESSEE INTO THREE PARTS I.E. PROFIT REAL IZED FROM SHARES WHICH WERE HELD FOR NOT LES THAN ONE YEAR, THE PROFI T REALIZED FROM SHARES WHICH WERE HELD FOR LESS THAN A YEAR AND DIVIDE ND INCOME EARNED FROM SUCH SHARE. PAPER BOOK 245 IS RELEVANT FO R THIS PURPOSE WHEREIN STATEMENT OF ASSESSEE AS CERTIFIED BY KOTAK SECUR ITIES IS PLACED WHERE PROFIT OR LOSS AS EARNED BY THE ASSESSEE HAS B EEN SHOWN INTO TWO PARTS I.E. NET PROFIT FROM SHARES HELD FOR A PERIOD OF NOT LESS THAN ONE YEAR AND NET PROFIT FROM SHARES HELD FOR A P ERIOD OF LESS THAN ONE YEAR. PAPER BOOK PAGE 219 ALSO REVEALS THAT PORTF OLIO MANAGER HAD PARTLY INVESTED THE FUNDS OF ASSESSEE INTO SCHEMES OF MUTU AL FUNDS SUCH AS ING, KOTAK EQUITY FUNDS, K BALANCE AND K. LIQ UIDIT FUNDS. THE PROFITS FROM THESE SCHEMES HAS ALSO BEEN SHOWN AS INVESTMENT HELD ITA NO1388/DEL/2010 11 FOR MORE THAN ONE YEAR AND FROM INVESTMENT HELD FOR LE SS THAN ONE YEAR. 14. THEREFORE, FROM THE FACTS AND CIRCUMSTANCES OF THE CASE, IT CAN BE SAFELY SAID THAT PORTFOLIO MANAGER HAD NOT ENTERED INTO MANY TRANSACTIONS AND HIS INTENTION WAS TO EARN CAPITAL GAIN AND INVESTMENT WAS NOT FOR MAXIMIZATION. THE CASE LAW RELIED UPON B Y LD DR DIFFERS FROM THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AS I N THAT CASE THE ASSESSING OFFICER HAD NOTED THAT THE ASSESSEE HAD MADE NUMEROUS TRANSACTIONS OF SALE & PURCHASE OF SHARES AND HOLDING PE RIOD OF SHARES RANGED FROM TWO DAYS TO FEW MONTHS WHEREAS IN THE PRESE NT CASE AS PER STATEMENT FURNISHED BY THE ASSESSEE AS CERTIFIED BY KO TAK SECURITIES PLACED IN THE PAPER BOOK THE GAIN HAS BEEN SHOWN TO HAVE OCCURRED IN TWO TYPES OF INVESTMENT I.E. INVESTMENT HE LD FOR PERIOD NOT LESS THAN ONE YEAR AND FROM INVESTMENT HELD FOR A PERI OD LESS THAN ONE YEAR. 15. THE ASSESSEE HAD CLASSIFIED THE INVESTMENT UNDER PMS A S INVESTMENT IN THE BALANCE SHEET AND MOREOVER DURING T HE ASSESSMENT YEAR 2005-06 THE INCOME EARNED FROM THIS PMS WAS DECL ARED AS CAPITAL GAIN AND THE SAME WAS ACCEPTED BY THE ASSESSING OFFICER. 16. THEREFORE, APPLYING ALL TESTS OF ESTABLISHING WHET HER THE INCOME AROSE FROM CAPITAL GAIN OR FROM BUSINESS INCOME, IT CAN BE CONCLUDED THAT INCOME HAD ARISEN FROM CAPITAL GAIN AND LD CIT( A) HAS THEREFORE RIGHTLY DELETED THE ADDITION MADE BY THE ASSESSING OFFI CER. IN VIEW OF THE ABOVE, WE DO NOT SEE ANY REASON TO INTERFERE IN T HE ORDER PASSED BY THE LD CIT(A). 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ITA NO1388/DEL/2010 12 18. ORDER PRONOUNCED IN THE OPEN COURT ON 28TH DAY OF SEPTEMBER, 2012. SD/- SD/- (I.C. SUDHIR) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DT. 28.9.2012. HMS COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). DATE OF HEARING 9.8.2012 DATE OF DICTATION 24.9.2012 DATE OF TYPING 25.9.2012 DATE OF ORDER SIGNED BY 28.9.2012 BOTH THE MEMBERS & PRONOUNCEMENT. DATE OF ORDER UPLOADED ON NET & SENT TO THE BENCH CONCERNED.