Deputy Commissioner of Income-tax, V. Mrs. Sadhana Ashokkumar Patni, Pune

ITA 1509/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2723 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 28-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Business income

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , ! , # $ BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1508/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE-2, PUNE . / APPELLANT V/S SHRI ARIHANT GAJENDRAKUMAR PATNI, S.NO.1A, IRANI MARKET COMPOUND, YERAWADA, PUNE 411006 PAN NO.AGUPP5917H . / RESPONDENT . / ITA NO.1509/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE-2, PUNE . / APPELLANT V/S MRS. SADHANA ASHOKKUMAR PATNI, S.NO.1A, IRANI MARKET COMPOUND, YERAWADA, PUNE 411006 PAN NO.AAUPP2868H . / RESPONDENT . / ITA NO.1510/PN/2014 #& & / ASSESSMENT YEAR : 2010-11 DCIT, CIRCLE-2, PUNE . / APPELLANT V/S MRS. SHRUTI ARIHANT PATNI, S.NO.1A, IRANI MARKET COMPOUND, YERAWADA, PUNE 411006 PAN NO.ALSPS5573R . / RESPONDENT 2 ITA NOS.1508 TO 1510/PN/2014 / ASSESSEE BY : SHRI C.H. NANIWADEKAR / REVENUE BY : SHRI HITENDRA NINAWE / ORDER PER R.K. PANDA, AM : THE ABOVE 3 APPEALS FILED BY THE REVENUE ARE DIRECTED AG AINST THE SEPARATE ORDERS DATED 30-04-2014 OF THE CIT(A)-II , PUNE RELATING TO ASSESSMENT YEAR 2010-11. SINCE IDENTICAL GROUNDS HAV E BEEN TAKEN BY THE REVENUE IN THE ABOVE APPEALS, THEREFORE, TH ESE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 2. FIRST WE TAKE UP ITA NO.1508/PN/2014 AS THE LEAD CA SE. IN GROUNDS OF APPEAL NO.1 TO 4 THE REVENUE HAS CHALLENGED T HE ORDER OF THE CIT(A) IN HOLDING THAT THE ACTIVITY OF TRANSACTION IN SHARES/MUTUAL FUND BY ENGAGING PMS WAS AN INVESTMENT AC TIVITY AND RESULTANT GAIN/LOSS WAS ASSESSABLE UNDER THE HEAD C APITAL GAIN. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND HAS RETURNED INCOME OF RS.88,39,449/- WHICH ALS O COMPRISED OF INCOME EARNED ON SALE OF SHARES AND THE SA ME HAD BEEN SHOWN AS CAPITAL GAINS/LOSS IN THE RETURN OF INCOME FILE D. DURING THE YEAR, THE ASSESSEE HAD ENTERED INTO PORTFOLIO MANAGEMENT SERVICES (PMS IN SHORT) AGREEMENT WITH HDFCPM S, DSPMERRILLYNCHPMS AND ENAMPMS TO WHOM THE ASSESSEE HA D ENTRUSTED CERTAIN FUNDS. AS PER THE PMS AGREEMENT, THE FUNDS OF THE ASSESSEE WERE INVESTED IN STOCK MARKET BY THE ABO VE PARTY AND THE ASSESSEE HAD EARNED SHORT-TERM CAPITAL GAINS/LOSS A ND LONG / DATE OF HEARING :08.02.2016 / DATE OF PRONOUNCEMENT:12.02.2016 3 ITA NOS.1508 TO 1510/PN/2014 TERM CAPITAL GAINS ON SALE OF SHARES. THE A.O. FOLLOWING THE ST AND TAKEN AND THE REASONING GIVEN IN THIS REGARD IN ASSESSEE S CASE FOR A.Y. 2006-07, A.Y. 2007-08 AND A.Y. 2008-09, HELD THE GAINS/LO SS IN RESPECT OF INVESTMENTS THROUGH PMS TAXABLE AS BUSINES S INCOME AND ALLOWED THE RELATED EXPENDITURE, VIZ PMS FEES AS DEDUC TION FOR THE YEAR UNDER CONSIDERATION. 4. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR A.Y.2008-09 VIDE ITA NO.1569/P N/2011 AND OTHER CONNECTED APPEALS ORDER DATED 27-09-2012 H ELD THAT THE ACTIVITY OF TRANSACTIONS IN SHARES/MUTUAL FUNDS BY ENGAGING PMS WAS AN INVESTMENT ACTIVITY AND THE RESULTANT GAIN IS ASSE SSABLE UNDER THE HEAD CAPITAL GAINS. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6. AFTER HEARING BOTH THE SIDES, WE FIND THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2008-09 WHICH HAS BEEN FOLLOWED BY THE CIT(A). WE FIND FOLLOWING THE ABOVE DECIS ION THE TRIBUNAL IN THE CASE OF SMT. SADHANA ASHOK KUMAR PAT NI AND OTHER CONNECTED APPEALS VIDE ITA NO.1835 TO 1837/PN/20 13 AND ITA NO.1847/PN/2013 ORDER DATED 24-09-2014 FOR A.Y. 200 9-10 HAS HELD THAT ACTIVITY OF TRANSACTION IN SHARES/MUTUAL FUN DS BY ENGAGING PMS WAS AN INVESTMENT ACTIVITY AND THEREFORE TH E RESULTANT GAIN WAS ASSESSABLE UNDER THE HEAD CAPITAL GA INS. ACCORDINGLY, THE APPEALS FILED BY THE REVENUE WERE DISMISS ED. SINCE THE CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2008-09 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE 4 ITA NOS.1508 TO 1510/PN/2014 AND IN THE SUBSEQUENT YEAR THE TRIBUNAL IN THE CASE OF OTHER RELATED PARTIES HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE ASSES SEE AND AGAINST THE REVENUE, THEREFORE, IN ABSENCE OF ANY CONTRAR Y MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DEPARTMENTAL REPRESEN TATIVE AGAINST THE ORDER OF THE TRIBUNAL, WE FIND NO INFIRMITY IN TH E ORDER OF THE CIT(A) DELETING THE DISALLOWANCE MADE BY THE AO. ACCORDINGLY, THE SAME IS UPHELD AND THE GROUNDS OF APPEA L NO.1 TO 4 BY THE REVENUE ARE DISMISSED. 7. IN GROUNDS OF APPEAL NO.5 THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS.10,95,9 83/- U/S.14A OF THE I.T. ACT. 8. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE WH ILE DISCLOSING THE INCOME UNDER CAPITAL GAINS IN THE RETURN OF INCOME FILED HAS NOT CLAIMED ANY SUCH EXPENSES WHICH WERE INCURRE D BY HIM AND WHICH WERE ARISING OUT OF PMS ACTIVITY. THE AO HELD THE CAPITAL GAIN AS BUSINESS INCOME AND THEREAFTER DISALLOWED TH E TOTAL EXPENSES ON ACCOUNT OF PMS AND OTHER CHARGES AT RS.10 ,95,983/- UNDER RULE 8D OF THE I.T. RULES. 9. IN APPEAL THE LD.CIT(A) FOLLOWING THE DECISION OF THE TRIBU NAL IN ASSESSEES OWN CASE FOR A.Y.2008-09 DELETED THE DISALLOW ANCE BY OBSERVING AS UNDER : 4.2 THE A.O. HAS APPLIED THE RULE 8D TO ARRIVE AT T HE DISALLOWANCE OF RS.10,95,983/-. HOWEVER, DISALLOWANCE U/S.14A REQUIRE S FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS INCURRED OR CLAIM ED, DISALLOWANCE U/S.14A CANNOT STAND. THE EXPENDITURE ON PMS HAS NOT BEEN CLAIMED BY THE ASSESSEE AND, THEREFORE, THERE DOE S NOT REMAIN ANY OTHER EXPENDITURE OTHER THAN THIS EXPENDITURE WHICH IS OTHERWISE LIABLE TO BE DISALLOWED UNDER RULE 8D OF THE I.T. RU LES. 4.3 THIS HAS ALSO BEEN ELABORATELY DISCUSSED IN THE APPEL LATE ORDER PASSED BY THE UNDERSIGNED VIDE ORDER DATED 06-09-2011 AND UPHELD BY THE HONBLE ITAT PUNE, VIDE COMBINED ORDER DATED 27 -09-2012 PASSED 5 ITA NOS.1508 TO 1510/PN/2014 IN THE CASE OF THE APPELLANT AND OTHER RELATED CASES I N ITA NOS. 1534, 1535, 1568, 1569, 1570 AND 1571/PN/11. THE HONBLE ITAT HELD AS UNDER : 10. AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRMI TY IN THE ORDER OF THE CIT(A). THE LEARNED CIT(A) HAS GIVEN A CATEGORICAL FINDING THAT EXPENDITURE ON PMS HAS NOT BEEN CLAIMED BY THE ASSESSEE AND THERE DOES NOT REMAIN ANY OTHER EXPENDITURE OTHER THAN THIS EXPENDITURE, THEREFORE, NO DISALLOWAN CE U/S.14A R.W. RULE 8D CAN BE MADE. THE ABOVE FACTUAL FINDIN G GIVEN BY THE LEARNED CIT(A) COULD NOT BE CONTROVERTED BY THE LEARNED DR. UNDER THESE CIRCUMSTANCES, WE HOLD THAT THE LEARNED CI T(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE AO . GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. IN VIEW OF THE ABOVE FACTS, THE DISALLOWANCE MADE OF RS.10,95,983/- IS DIRECTED TO BE DELETED. 10. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 11. AFTER HEARING BOTH THE SIDES WE FIND THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2008-09 VIDE ITA NO.1569/PN/ 2011 AND OTHER CONNECTED APPEALS ORDER DATED 27-09-2012 W HEREIN THE TRIBUNAL AT PARA 9 AND 10 OF THE ORDER HAS DISCUSSED TH E ISSUE AND DISMISSED THE GROUND RAISED BY THE REVENUE. THE RELEVAN T OBSERVATION OF THE TRIBUNAL READS AS UNDER : 9. AFTER HEARING BOTH THE SIDES, WE FIND THE AO DISA LLOWED AN AMOUNT OF RS.5,57,396/- BEING 0.5% OF THE AVERAGE IN VESTMENT OF THE FUNDS DEPLOYED AS EXPENDITURE INCURRED FOR EARNING T AX FREE DIVIDEND INCOME. IN APPEAL THE LEARNED CIT(A) DELETED SUCH DI SALLOWANCE ON THE GROUND THAT DISALLOWANCE U/S.14A REQUIRES FINDING OF I NCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING E XEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED OR CLAIMED DISALLOW ANCE U/S.14A CANNOT STAND. HE OBSERVED THAT THE EXPENDITURE ON PMS HAS NOT BEEN CLAIMED BY THE ASSESSEE AND THEREFORE THERE DOES NOT REM AIN ANY OTHER EXPENDITURE OTHER THAN THIS EXPENDITURE WHICH OTHERW ISE IS LIABLE TO BE DISALLOWED UNDER RULE8D OF THE INCOME TAX RULES. HE A CCORDINGLY DIRECTED THE AO TO DELETE THE DISALLOWANCE MADE AT R S.5,57,396/-. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 10. AFTER HEARING BOTH THE SIDES, WE FIND NO INFIRMIT Y IN THE ORDER OF THE CIT(A). THE LEARNED CIT(A) HAS GIVEN A CATEGORICAL F INDING THAT EXPENDITURE ON PMS HAS NOT BEEN CLAIMED BY THE ASSESSEE AND THERE 6 ITA NOS.1508 TO 1510/PN/2014 DOES NOT REMAIN ANY OTHER EXPENDITURE OTHER THAN THI S EXPENDITURE, THEREFORE, NO DISALLOWANCE U/S.14A R.W. RULE8D CAN BE MADE. THE ABOVE FACTUAL FINDING GIVEN BY THE LEARNED CIT(A) C OULD NOT BE CONTROVERTED BY THE LEARNED DR. UNDER THESE CIRCUMSTA NCES, WE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE AO. GROUNDS RAISED BY THE REVENUE ARE ACCORDIN GLY DISMISSED. 12. SINCE THE LD.CIT(A) WHILE DECIDING THE ISSUE HAS FOLLOWED T HE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE WHICH HAS BEEN FOLLOWED BY THE TRIBUNAL IN A.Y. 2009-10 IN THE CASE OF OTHE R RELATED PARTIES, I.E. SMT. SADHANA ASHOKKUMAR PATNI AND OTHER CONN ECTED APPEALS VIDE ITA NO.1835/PN/2013 TO 1837/PN/2013 AND I TA NO.1847/PN/2013 ORDER DATED 24-09-2014, THEREFORE, IN AB SENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A) ALLOWING THE CLAIM OF THE ASSESSEE AND DELETING THE DISALLOWANCE MADE BY THE AO. GROUND RAISED B Y THE REVENUE IS ACCORDINGLY DISMISSED. ITA NOS. 1509 AND 1510/PN/2014 : 13. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUNDS RAIS ED BY THE REVENUE IN THE ABOVE APPEALS ARE IDENTICAL TO THE GR OUNDS RAISED IN ITA NO.1508/PN/2014. WE HAVE ALREADY DECIDED THE GRO UNDS IN THE PRECEDING PARAGRAPHS AND THE APPEAL FILED BY THE REV ENUE HAS BEEN DISMISSED. FOLLOWING THE SAME REASONINGS THE GROUND S RAISED BY THE REVENUE IN THE ABOVE APPEALS ARE DISMISSED. 14. IN THE RESULT, ALL THE 3 APPEALS FILED BY THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12-02-2016. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE ; DATED : 12 TH FEBRUARY, 2016. 7 ITA NOS.1508 TO 1510/PN/2014 ) *#,! -! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A ) - II, PUNE 4. 5. 6. THE CIT-II, PUNE $ ''(, (, / DR, ITAT, B PUNE; - / GUARD FILE. / BY ORDER , // TRUE COPY // // TRUE COPY // // $ ' //TRUE C // /0 ' ( / SR. PRIVATE SECRETARY (, / ITAT, PUNE