Dy. Comm. of Income-tax, Pune V. Ruchi A Patni, Pune

ITA 1570/PUN/2011

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0001 (ITAT-PUNE)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV HARIT
• Keywords: Business income
• Section: 11

Judgement Text

1 INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER SL. NO ITA NO. ASSTT. YEAR APPELLANT RESPONDENT/PAN NO. 1. 1534/PN/11 2008-09 ITO WARD-2(3), IST FLOOR, A WING, PMT BUILDING, S.S. ROAD, SWARGATE, PUNE 411 037 SHRI AMIT GAJENDRAKUMAR PATNI, S.NO.1/A, IRANI MARKET COMPOUND, YERWADA, PUNE 411 006 PAN NO. AAUPP 2869G 2. 1535/PN/11 2008-09 ITO WARD-2(3), IST FLOOR, A WING, PMT BUILDING, S.S. ROAD, SWARGATE, PUNE 411 037 SMT SADHANA ASHOK KUMAR PATNI, S.NO 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE - 411006 PAN NO. AAUPP2868H 3. 1568/PN/11 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE - 411037 APOORVA A PATNI, S.NO 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE - 411006 PAN NO. AGUPP5918J 4. 1569/PN/11 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE - 411037 ARIHANT G. PATNI S.NO 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE - 411006 PAN NO. AGUPP 5917H 5. 1570/PN/11 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE - 411037 RUCHI A. PATNI, S.NO 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE - 411006 PAN NO.AARPP 6091R 6. 1571/PN/11 2008-09 DY. COMMISSIONER OF INCOME TAX, CIRCLE-2, PUNE - 411037 SHRUTI PATNI, S.NO 1A, IRANI MARKET COMPOUND, YERAWADA, PUNE - 411006 PAN NO.ALSPS 5573R ASSESSEE BY : SRI C.H. NANIWADEKAR DEPARTMENT BY : SRI RAJEEV HARIT DATE OF HEARING : 25-09-2012 DATE OF PRONOUNCEMENT : 27 -09-2012 ORDER PER BENCH : THE ABOVE SIX APPEALS FILED BY THE RESPECTIVE ASSES SEES ARE DIRECTED AGAINST THE SEPARATE ORDERS DATED 06-09-2011 OF THE CIT(A)- II, PUNE RELATING TO ASSESSMENT YEAR 2008-09. SINCE COMMON GROUNDS ARE INVOLVED IN ALL THESE APPEALS, THEREFORE, THESE WERE HEARD TOGETHER AND A RE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NO. 1534/PN/2011 (A.Y.2008-09) (AMIT G. PATNI): 2. IN GROUNDS OF APPEAL NO. 1 TO 10 THE REVENUE HAS CHALLENGED THE ORDER THE LEARNED CIT(A) IN HOLDING THAT THE ACTIVITY OF TRAN SACTING IN SHARES/MUTUAL FUNDS BY ENGAGING A PORTFOLIO MANAGEMENT SERVICE (IN SHORT PMS) WAS AN INVESTMENT ACTIVITY SO AS TO ASSESS THE RESULTANT GAINS UNDER THE HEAD CAPITAL GAINS AND NOT AS BUSINESS INCOME AS CONTENDED BY THE AO. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE AO DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS CONTINUE D INVESTMENTS IN SHARES AND MUTUAL FUNDS THROUGH PMS. FROM THE RECORDS HE NOTE D THAT THE ISSUE REGARDING TREATMENT OF GAIN IN RESPECT OF INVESTMENTS THROUGH PMS AS CAPITAL GAINS OR BUSINESS INCOME HAS BEEN DEALT WITH IN THE A.Y. 200 7-08 WHEREIN IT HAS BEEN HELD THAT THE GAIN IN RESPECT OF INVESTMENT THROUGH PMS IS BUSINESS PROFIT AND IT WAS ACCORDINGLY TAXED UNDER THE HEAD INCOME FROM BUSIN ESS. HE OBSERVED THAT ALTHOUGH AN APPEAL HAS BEEN FILED BEFORE THE CIT(A) BY THE ASSESSEE FOR A.Y. 2007- 08 THE SAME IS STILL PENDING. THE AO, THEREFORE, F OLLOWING THE REASONINGS GIVEN IN THE ORDER FOR A.Y. 2007-08 TREATED THE GAINS IN RES PECT OF INVESTMENTS THROUGH PMS AS BUSINESS INCOME AND HELD THAT THE ASSESSEE SHALL BE ALLOWED THE RELATED EXPENDITURE, I.E. PMS FEES AS DEDUCTION. HE ACCORD INGLY COMPUTED THE TAXABLE INCOME FROM PMS ACTIVITIES AMOUNTING TO RS.45,01,61 8/- UNDER THE HEAD INCOME FROM BUSINESS AS AGAINST CAPITAL GAINS SHOWN BY TH E ASSESSEE. 4. IN APPEAL THE LEARNED CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR FOR A.Y. 2007-08 WHEREIN IT HAS BEEN HELD THAT THE ACTIVITY OF TRANSACTIONS IN SHARES/MUTUAL FUNDS BY ENGAGING THE PMS WAS INVESTMENT ACTIVITY A ND THE RESULTANT GAINS WAS ASSESSABLE UNDER THE HEAD CAPITAL GAINS ALLOWED THE CLAIM OF THE ASSESSEE. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 3 5. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE OUTS ET FILED THE ORDER OF THE TRIBUNAL IN THE CASE OF RELATED PARTIES FOR A.Y. 20 06-07 AND 2007-08 AND SUBMITTED THAT THE ISSUE STANDS FULLY COVERED IN FAVOUR OF TH E ASSESSEE AND AGAINST THE REVENUE. THE LEARNED DR ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE AO. 6. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN THE CASE OF APOORVA A. PATNI FOR THE A. Y. 2007-08. WE FIND THE TRIBUNAL, FOLLOWING THE ORDER OF THE TRIBUNAL IN TH E GROUP CASES FOR A.Y. 2006-07, ALLOWED THE CLAIM OF SHORT TERM CAPITAL GAIN AND LO NG TERM CAPITAL GAIN FROM GAINS IN RESPECT OF INVESTMENT THROUGH PMS SERVICE AS AGA INST BUSINESS INCOME TREATED BY THE AO BY HOLDING AS UNDER : 3. AFTER HEARING BOTH THE SIDES, WE FIND IDENTICAL ISSUE HAD COME UP BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN THE IMMEDIATE PRECEEDING ASS ESSMENT YEAR. WE FIND THE TRIBUNAL IN THE CONSOLIDATED ORDER VIDE ITA NO. 239/PN/2011 AND OTH ER CONNECTED APPEALS VIDE ORDER DATED 21- 06-2012 FOR ASSESSMENT YEAR 2006-07 HAS DECIDED THE ISSUE AND ALLOWED THE CLAIM OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FROM PARA 9 TO 15 OF THE ORDER ARE AS UNDER : 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. OSTENSIBLY, IN THE PRESENT CASE, THE TRANSACTIONS IN FOCUS ARE THE TRA NSACTIONS IN SHARES AND SECURITIES CARRIED OUT BY THE ASSESSEE THROUGH THE PMS PROVIDER. FURTHER, AS IT EMERGES FROM THE RECORD THAT IN THE PRESENT CASE, T HE PORTFOLIO MANAGEMENT SERVICES ENGAGED BY THE ASSESSEE WERE IN THE NATURE OF DISCRETIONARY PORTFOLIO MANAGEMENT SERVICES. THE FEATURES OF SUCH A SCHEME HAVE BEEN ADEQUATELY ELABORATED BY THE COMMISSIONER OF INCOME-TAX (APPEA LS) IN THE IMPUGNED ORDER AND IS ALSO BORNE OUT OF THE COPIES OF A FEW AGREEM ENTS WITH THE PMS PROVIDER, WHICH HAVE BEEN PLACED IN THE PAPER BOOK AT PAGES 1 37 TO 183. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS BROUGHT OU T THE FEATURES OF THE DISCRETIONARY PORTFOLIO MANAGEMENT SERVICES AGREEME NT WHEREIN THE PMS PROVIDER HAS GOT ABSOLUTE INDEPENDENCE IN TAKING DA Y-TO-DAY DECISIONS SO FAR AS INVESTMENTS IN SHARES ETC. ARE CONCERNED. THE PMS P ROVIDER RECEIVES A LUMP- SUM AMOUNT FROM THE CLIENT AND IN A DISCRETIONARY P ORTFOLIO MANAGEMENT SERVICE ARRANGEMENT, AND THE PMS PROVIDER MAKES THE INVESTM ENTS AS PER HIS OWN JUDGMENT REACHED ON THE BASIS OF HIS OWN PROFESSION AL EXPERTISE AND ACCORDINGLY UNDERTAKES DAY-TO-DAY DECISIONS FOR PURCHASE AND SA LE OF A PARTICULAR SCRIP WITHOUT RECOURSE TO THE CLIENT. IT IS ALSO EVIDENT THAT SUCH DECISIONS TAKEN BY THE PMS PROVIDER ARE NOT CLIENT-SPECIFIC, BUT IS TAKEN FOR A WHOLE RANGE OF CLIENTS IN HIS PORTFOLIO. NO DOUBT, THE PMS PROVIDER UNDERTAK ES THESE TRANSACTIONS IN THE NAME OF THE ASSESSEE AND THE SHARES ARE ALSO KEPT I N DEMATERIALIZED FORM IN THE DEMAT ACCOUNT OF THE ASSESSEE. SO, HOWEVER, ALL SUC H ACTIVITIES ARE CARRIED OUT IN A FIDUCIARY CAPACITY. HAVING REGARD TO THE OPERATIN G MECHANICS OF A DISCRETIONARY PORTFOLIO MANAGEMENT AGREEMENT, WHICH IS IN QUESTIO N BEFORE US, THE RELATIONSHIP BETWEEN THE PMS PROVIDER AND THE ASSESSEE CANNOT BE CONTEMPLATED AS THAT OF A MERE AGENT AS UNDERSTOOD IN THE COMMON PARLANCE. ALL DECISIONS REGARDING INVESTMENTS, ITS TIMINGS ETC, ARE MADE BY THE PMS P ROVIDER AND NOT BY THE INVESTOR PER SE, THOUGH THE RESULTANT GAIN/LOSS IS ON ACCOUNT OF THE ASSESSEE INVESTOR. IN THE PRESENT CASE, WE MAY ALSO NOTICE T HAT AT THE TIME OF ENGAGING THE PMS PROVIDER, THE ASSESSEE MANDATED HIS INVESTMENT OBJECTIVE WHICH CLEARLY INDICATES THE INTENTION OF THE ASSESSEE BEHIND THE PARKING OF FUNDS WITH THE PMS PROVIDER. THE INVESTMENT OBJECTIVE MANDATED BY THE ASSESSEE AND WHICH FORMS PART OF THE AGREEMENT WITH THE PMS PROVIDER HAS BEE N PLACED IN THE PAPER BOOK AT PAGE 159 IN THE CASE OF AGREEMENT WITH DSP MERRI LL LYNCH FUND MANAGERS LTD. WE ARE TEMPTED TO REPRODUCE THE SAME, WHICH I S AS UNDER, 4 THE OBJECTIVE IS TO ACHIEVE REASONABLE RETURNS OVE R THE LONG TERM BY INVESTING IN A FOCUSED PORTFOLIO OF 15-20 STOCKS WITH GOOD GROWTH PROSPECTS, ACROSS VARIOUS SECTORS. WE DO NOT WANT EXPOSURE TO ANY COMPANY IN THE INFOR MATION TECHNOLOGY SECTOR AND SPECIFICALLY TO PATNI COMPUTER SYSTEMS LIMITED AND PCS INDUSTRIES LIMITED. FOR THE REASON THAT THE SAME GIVES AWAY THE DOMINAN T INTENTION OF THE ASSESSEE OF MAKING INVESTMENTS WITH A VIEW OF GROWTH PROSPECTS . CLEARLY, IT ENVISAGES THAT WHAT THE ASSESSEE WAS LOOKING FOR BY ENGAGING THE SERVICES O F AN EXPERT, NAMELY, THE PMS PROVIDER, WAS APPRECIATION AND MAXIMIZATION OF WEAL TH AND NOT MERELY ENCASHING OF PROFITS WITH A VIEW OF A TRADER. IN THE CASE SPECIF IC BEFORE US, WE FIND THAT IN THIS FACTUAL BACKGROUND, THE PLEA OF THE REVENUE THAT THE ARRANG EMENT OF APPOINTING A PMS PROVIDER TO MANAGE THE INVESTMENTS WAS WITH AN INTENTION OF A TRADE, CANNOT BE ACCEPTED. 10. IN ANY CASE, IN SO FAR AS THE VERY NATURE OF DI SCRETIONARY PORTFOLIO MANAGEMENT SCHEME IS CONCERNED, THE SAME HAS ALREADY BEEN CONS IDERED BY OUR CO-ORDINATE BENCH IN THE CASE OF ARA TRADING AND INVESTMENT P. LTD. A ND KRA HOLDING AND TRADING P. LTD (SUPRA). ACCORDING TO THE TRIBUNAL, THE SCHEME IS F OR AN ACTIVITY OF WEALTH MAXIMIZATION RATHER THAN A PROFIT MAXIMIZATION AND ACCORDINGLY, IT HAS BEEN HELD THAT GAIN FROM SUCH ACTIVITY WAS LIABLE TO BE CONSIDERED AS DERIVED FRO M AN ACTIVITY OF INVESTMENTS AND NOT TRADING. THEREFORE, ON THIS ASPECT OF THE CONTROVER SY, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) MADE NO MISTAKE IN FOLLOWING T HE ORDER OF THE TRIBUNAL IN THE CASE OF ARA TRADING AND INVESTMENT P. LTD. AND KRA HOLDI NG AND TRADING P. LTD (SUPRA) AND IN HOLDING THAT THE ASSESSEE WAS INDEED ENGAGED IN AN INVESTMENT ACTIVITY WHILE APPOINTING THE PMS PROVIDER WITH REGARD TO THE STAT ED TRANSACTIONS. 11. IN SO FAR AS OTHER OBJECTIONS OF THE ASSESSING OFFICER THAT THERE WAS VOLUME AND FREQUENCY OF TRANSACTIONS WAS LARGE SO AS TO CONSTI TUTE BUSINESS ACTIVITY, WE FIND THAT THE FACTUAL MATRIX HAS BEEN APPROPRIATELY ANALYZED BY T HE COMMISSIONER OF INCOME-TAX (APPEALS) IN PARA 4.20 OF THE IMPUGNED ORDER, WHICH IS AS UNDER: SO FAR AS VOLUME AND FREQUENCY OF TRANSACTIONS ARE CONCERNED, IT HAS BEEN EXPLAINED THAT ACTUALLY THE NUMBER OF SCRIP TRADED WAS NOT VERY LARGE BEING 62 ACROSS ALL THE 3 PMSS, ENGAGED DURING THE YEAR, WHI CH WAS NOT MUCH CONSIDERING THAT ABOUT 2000 COMPANIES SHARES WERE ACTIVELY TRADED IN THE STOCK EXCHANGES. IT WAS ALSO CLARIFIED THAT THE FREQUENCI ES OF TRANSACTIONS WAS NOT MUCH. SOMETIMES SEVERAL TRANSACTIONS MAY HAVE TO BE MADE IN THE SAME SCRIP, WHICH INCREASES THE FREQUENCY. IT WAS EMPHASISED TH AT THE TOTAL SALES TURNOVER IN THE INVESTMENTS MADE THROUGH PMS DURING THE YEAR WA S 19.06 CRORES INVOLVING 62 SCRIPS, WHEREAS, IN THE SHARE TRADING BUSINESS S EPARATELY SHOWN BY THE APPELLANT, THE SALES TURNOVER WAS 73.21 CRORES INVO LVING 76 SCRIPS. THIS SHOWS THAT IN THE SHARE TRADING BUSINESS ACTIVITY, THE TU RNOVER WAS ALMOST 4 TIMES HIGHER EVEN THOUGH THE NUMBER OF SCRIPS WERE ONLY MARGINAL LY HIGH. IT WAS EMPHASIZED THAT IN THE TRADING ACTIVITY EVEN THOUGH THE SHARES INVOLVED WERE PROPORTIONATELY MUCH LESS AS COMPARED TO THE TURNOVER, SINCE THE IN TENTION WAS TO CARRY ON BUSINESS ACTIVITY, THE SAME WAS SHOWN UNDER THE HEA D BUSINESS INCOME. IT ALSO INCLUDED SPECULATIVE TRANSACTION AND DAY TRADING, W HEREAS NO SUCH TRANSACTIONS WERE ENTERED INTO BY THE PMS. THE APPELLANT HAS ALS O EMPHASIZED THAT I WAS PRUDENT INVESTMENT ACTIVITY OF THE PMS TO BUY A TAR GET QUANTITY OF A PARTICULAR SCRIP IN SMALL LOTS FOR AVERAGING PURPOSE; AND IT S HOULD NOT BE TREATED AS FREQUENT AND REPETITIVE TRANSACTIONS. THE APPELLANT THEN GOE S ON TO CITE THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF JANAK S. RANGWALA , 11 SOT 627 IN WHICH IT WAS OBSERVED THAT MERE VOLUME AND MAGNITUDE OF TRAN SACTION WILL NOT ALTER THE NATURE OF TRANSACTION IF THE INTENTION WAS TO HLD T HE SHARES AS INVESTMENT AND NOT AS STOCK IN TRADE. SIMILAR EXPLANATION HAS BEEN GIV EN ONCE AGAIN BY THE LETTER DT 14.6.2010 BY THE APPELLANT IN RESPONSE TO THE AOS REPORT. WE HAVE EXAMINED THE POSITION, IN PARTICULAR THE AN ALYSIS MADE OUT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN THE EXTRACT ED PORTION WITH REFERENCE TO THE STATEMENT AND TRANSACTIONS WHICH HAVE BEEN PLACED N THE PAPER BOOK FILED BEFORE US. IN OUR CONSIDERED OPINION, THE INFERENCE DRAWN OUT BY THE COMMISSIONER OF INCOME-TAX (APPEALS) CLEARLY ESTABLISHES THAT THE VOLUME AND F REQUENCY OF TRANSACTIONS SOUGHT TO BE MADE OUT BY THE ASSESSING OFFICER WITH REGARD TO TH E IMPUGNED ACTIVITY STANDS ON AN ENTIRELY DIFFERENT FOOTING AND IS QUITE DISTINCT FR OM THE ACTIVITY OF TRADING IN SHARES CARRIED OUT BY THE ASSESSEE. IN FACT, IT IS NOTABLE THAT IN THE SHARE TRADING BUSINESS CARRIED ON BY THE ASSESSEE, HE HAS CARRIED OUT CERTAIN SPECULATIV E AND TRADING ACTIVITIES AND THAT IN THE CASE OF A PMS PROVIDER, SUCH ACTIVITIES ARE PROHIBI TED IN LAW. HAVING REGARD TO THE AFORESAID DISCUSSION BY THE COMMISSIONER OF INCOME- TAX (APPEALS), WHICH IS BORNE OUT 5 OF THE RECORD, WE, THEREFORE, FIND NO REASONS TO UP HOLD THE PLEA OF THE ASSESSING OFFICER ON THE BASIS OF THE VOLUME AND FREQUENCY OF TRANSAC TIONS. 12. THE ASSESSING OFFICER HAS ALSO POINTED OUT THAT EARNING OF DIVIDENDS WAS NOT AT ALL THE MOTIVE OF SUCH TRANSACTIONS, BECAUSE THE SH ARES HAVE BEEN SOLD JUST BEFORE THE SAME BECAME EX-DIVIDEND ON THE STOCK EXCHANGES. IN THIS REGARD, WE FIND THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS FACTUALLY FOUND THE SAME TO BE CONTRARY TO MATERIAL ON RECORD AS PER THE DISCUSSION IN PARA 4. 15 OF THE ORDER, WHICH IS AS UNDER: 4.15 FOR THE PROPOSITION THAT EARNING OF DIVIDEND WAS NOT THE MOTIVE, THE AO HAS CITED INSTANCES WHEN THE APPELLANT HAS SOLD SOM E SHARES JUST BEFORE THE DATES OF THE SHARES BECOMING EX-DIVIDEND OR THE STO CK EXCHANGES. HOWEVER, A PERUSAL OF THE CHART GIVEN IN THE ASSESSMENT ORDER SHOWED THAT THE INFORMATION REGARDING DATE OF DECLARATION OF DIVIDEND HAS NOT B EEN GIVEN. FOR EXAMPLE, IN THE CASE OF SCRIP OF AMTEK AUTO, THE SALE WAS MADE ON 1 9.9.2005 WHEREAS THE EX- DIVIDEND DATE WAS 22.12.2005; I.E. THE SALE WAS MAD E MORE THAN 3 MONTHS BEFORE THE SHARES BECAME EX-DIVIDEND. IT DOES NOT N ECESSARILY FOLLOW THAT THE DIVIDEND WAS ALREADY DECLARED IN THIS CASE AND STIL L THE APPELLANT SOLD THE SAME BEFORE THE SHARES BECOMING EX-DIVIDEND. SIMILARLY, IN THE CASE OF ACC, TWO PARTICULAR SALE DATES MENTIONED WHEN THE SCRIP WAS TRANSACTED BY DSPML, WERE 24.3.2005 AND 16.11.05, WHEREAS THE EX-DIVIDEND DAT E HAS BEEN MENTIONED AS 29.3.2006. IT CANNOT THEREFORE BE SAID THAT THE APP ELLANT HAD KNOWINGLY SOLD THE SHARES AFTER DECLARATION OF THE DIVIDEND BEFORE IT BECAME EX-DIVIDEND. AGAIN IN RESPECT OF SHARES OF JET AIRWAYS, THE EX-DIVIDEND D ATE HAS BEEN MENTIONED AS 14.9.2005 BY THE AO, AND THE DATE OF SALE HAS BEEN MENTIONED AS 17.10.2005 AND 23.1.2006 IN THE CASE OF TWO DIFFERENT PMSS. T HIS INSTANCE POINTS OUT TO A WRONG CONCLUSION BY THE AO AS HERE THE SHARES HAVE BEEN SOLD AFTER THOSE HAVE BECOME EX-DIVIDEND. COMING TO TWO MORE INSTANCES PO INTED OUT BY THE AO IN THIS CHART, SHARES OF NALCO HAVE BEEN SOLD ON 30.3.2006 WHICH WAS AFTER THE EX- DIVIDEND DATE OF 23.9.2005; AND THE SALE OF ONGC SH ARES BY DSPML WAS MADE ON 30.12.2005, WHICH ALSO IS AFTER THE EX-DIVIDEND DATE OF 1.9.2005. IT IS, THEREFORE, CLEAR THAT THE INSTANCES POINTED OUT BY THE AO DID NOT SUPPORT THIS ARGUMENT, EXCEPT IN THE CASE OF TWO OR THREE INSTAN CES, WHERE THE SALE HAS BEEN MADE JUST BEFORE THE SHARES BECOMING EX-DIVIDEND; A ND THERE WAS A POSSIBILITY THAT THE DIVIDEND WOULD HAVE BEEN DECLARED AND KNOW N TO THE PMS. HOWEVER, SUCH INSTANCES ARE FEW AND FAR BETWEEN; AND IT CANN OT LEAD TO A CONCLUSION OF INDULGING IN A BUSINESS ACTIVITY. MOREOVER, AS HAS BEEN EXPLAINED ELSEWHERE BY THE APPELLANT, SUCH DAY TO DAY DECISIONS REGARDING PURCHASE AND SALE OF PARTICULAR SCRIPS ARE NOT THAT OF THE APPELLANT, BU T OF THE PORTFOLIO MANAGER SINCE THE APPELLANTS CASE WAS THAT OF ENGAGEMENT OF DISC RETIONARY PORTFOLIO MANAGEMENT SERVICES. IT WAS EXPLAINED THAT AS PER S EBI REGULATIONS, THERE WERE TWO TYPES OF PMSS I.E. DISCRETIONARY AND NON-D ISCRETIONARY. IT WAS EXPLAINED THAT IN CASE OF DISCRETIONARY PMS AS AVAI LED BY THE APPELLANT, HE APPELLANT DID NOT HAVE CONTROL ON THE DAY TO DAY AC TIVITIES AND DID NOT GIVE ANY DIRECTIONS, EXCEPT FOR THE BROAD GUIDELINE FOR NOT PURCHASING THE SHARES OF PATNI COMPUTERS SYSTEMS LTD. SINCE IT WAS PROMOTED BY THE APPELLANT AND HIS FAMILY MEMBERS. IT WAS ALSO EXPLAINED DURING THE APPELLATE PROCEEDINGS THAT IN ACCORDANCE WITH THE ACCOUNTING STANDARD AND CBDT CI RCULAR, DIVIDEND EARNING WAS NOT THE ONLY CRITERION AND IN ANY CASE SUBSTANT IAL AMOUNT OF DIVIDEND OF RS 16,31,796/- WAS ALSO EARNED DURING THE YEAR IN THE INVESTMENTS THROUGH THE PMS. THUS, THIS POINT IS ADEQUATELY EXPLAINED. ON THIS ASPECT ALSO, WE FIND NO MATERIAL TO DIFFER WITH THE FINDINGS OF THE COMMISSIONER OF INCOME-TAX (APPEALS), WHICH WE HEREBY AFFIRM. 13. ANOTHER ASPECT MADE OUT BY THE ASSESSING OFFICE R WAS TO THE EFFECT THAT BY ITS VERY NATURE, SALES AND PURCHASES CARRIED OUT BY THE PMS PROVIDER WAS OF SHORT-TERM NATURE AND, THEREFORE, IT WAS TO BE REGARDED AS A B USINESS ACTIVITY. FACTUALLY SPEAKING, ON THIS ASPECT THE COMMISSIONER OF INCOME-TAX (APPE ALS) HAS DEALT WITH THE SAME IN PARA 4.17 OF HIS ORDER, WHICH IS AS UNDER: 4.17 THE AO ALSO POINTED OUT TO SOME INSTANCES WHE N SHARES OF THE SAME COMPANY HAVE BEEN REPURCHASED SOMETIMES AFTER THE S ALE. IN THIS CONNECTION, IT IS EXPLAINED THAT SUCH INSTANCES WERE NOT MUCH AND THERE WERE REASONS FOR CHURNING OF THE INVESTMENTS BY THE PORTFOLIO MANAG ER AT DIFFERENT INSTANCES DURING THE YEAR. IT IS RELEVANT TO NOTICE THAT THE APPELLANT ALSO POINTED OUT THAT THRE WERE MANY SHARES HELD FOR A LONG TIME, EVEN UPTO 18 MONTHS, BY THE PMS, AND SUBSTANTIAL AMOUNT OF LONG TERM CAPITAL GAIN OF RS 83,09,187/- WAS ALSO SHOWN. IN 6 FACT, THE AO HAS TREATED EVEN THIS LTCG OF RS 83,09 ,187/- AS BUSINESS INCOME, WHICH CANNOT BE JUSTIFIED. ON THE OTHER HAND, DEPEN DING ON THE MARKET CONDITIONS, VIS-A-VIS THE ANALYSIS OF THE FUNDAMENT ALS OF PARTICULAR SCRIP, DECISION MAY HAVE TO BE TAKEN TO EXIT AT A PARTICULAR POINT OF TIME, AND TO RE-ENTER AFTER A FEW MONTHS ON CHANGE OF FUNDAMENTALS. THIS DOES NOT MEAN THAT IT WAS IN THE NATURE OF REPEATED TRADING ACTIVITIES IN THE SAME C OMMODITY; IN WHICH CASE THERE COULD BE MULTIPLE REPETITIONS WITHIN A FEW DAYS; OR EVEN DURING THE SAME DAY. 14. IN THIS CONTEXT, WE FIND THAT THE ASSESSING OFF ICER HAS TREATED EVEN THE GAIN ON INVESTMENTS HELD FOR MORE THAN 12 MONTHS ALSO AS BU SINESS INCOME. QUITE CLEARLY AS PER THE STATEMENT IN RESPECT OF GAINS AND INVESTMENT IN SHARES THROUGH PMS PROVIDER PLACED AT PAGE 73 OF THE PAPER BOOK, THE HOLDING PERIOD GO ES UPTO EVEN 18 MONTHS BEFORE THE INVESTMENT WAS LIQUIDATED. BE THAT AS IT MAY, THE F ACTOR OF PERIOD OF HOLDING CANNOT BE ASCRIBED TO THE ASSESSEE, INASMUCH AS IT HAS NO CON TROL ON SUCH DECISION MAKING IN A DISCRETIONARY PMS ARRANGEMENT, BECAUSE SUCH DECISIO NS ARE TAKEN BY THE PMS PROVIDER AS WE HAVE OBSERVED EARLIER. IN ANY CASE, IN SO FAR AS THE PRESENT CASE IS CONCERNED, THE INVESTMENT OBJECTIVE OF THE ASSESSEE MANDATED TO TH E PMS PROVIDER WAS TO ACHIEVE GROWTH PROSPECTS AND THE ACTUALITY OF TRANSACTIONS CARRIED OUT BY THE PMS PROVIDER IN ORDER TO ACHIEVE THE STATED INVESTMENT OBJECTIVE OF THE ASSESSEE CANNOT BE MADE A BASIS TO CHARGE THE ASSESSEE OF HAVING A DIFFERENT OBJECTIVE. CONSIDERING THE AFORESAID MATTERS, WE, THEREFORE, ARE OF THE VIEW THAT THE OB JECTIONS MADE OUT BY THE ASSESSING OFFICER HAVE BEEN ADEQUATELY ADDRESSED BY THE COMMI SSIONER OF INCOME-TAX (APPEALS) IN COMING TO HIS FINDINGS THAT THE INVESTMENTS CARR IED OUT BY THE ASSESSEE THROUGH THE PMS PROVIDER DO NOT RESULT IN A GAIN ASSESSABLE AS BUSINESS INCOME. 15. IN VIEW OF THE AFORESAID DISCUSSION, AND HAVING REGARD TO THE REASONINGS EXTENDED BY THE COMMISSIONER OF INCOME-TAX (APPEALS ) WITH WHICH WE HEREBY AFFIRM, WE FIND THAT THE GRIEVANCE OF THE REVENUE IN THIS APPE AL IS MISDIRECTED AND ACCORDINGLY THE CONCLUSION ARRIVED AT BY THE COMMISSIONER OF INCOME -TAX (APPEALS) ON THIS ASPECT IS HEREBY AFFIRMED. THUS, ON THIS GROUND, REVENUE FAIL S. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE BY THE REVE NUE THE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE DISMISSED. 7. ACCORDINGLY THE REVENUE APPEAL WAS DISMISSED. S INCE NOTHING CONTRARY WAS BROUGHT TO OUR NOTICE AGAINST THE ORDER OF THE TRIB UNAL IN THE CONNECTED CASES, THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN THE GROUP CASES WE UPHOLD THE ORDER OF THE CIT(A). CONSEQUENTLY THE G ROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8. IN GROUNDS OF APPEAL NOS. 11 AND 12 THE REVENUE HAS CHALLENGED THE ORDER OF THE CIT(A) IN DELETING THE DISALLOWANCE OF RS.5, 57,396/- MADE BY THE AO U/S.14A OF THE INCOME TAX ACT R.W. RULE 8D OF THE I NCOME TAX RULES. 9. AFTER HEARING BOTH THE SIDES, WE FIND THE AO DIS ALLOWED AN AMOUNT OF RS.5,57,396/- BEING 0.5% OF THE AVERAGE INVESTMENT OF THE FUNDS DEPLOYED AS EXPENDITURE INCURRED FOR EARNING TAX FREE DIVIDEND INCOME. IN APPEAL THE LEARNED CIT(A) DELETED SUCH DISALLOWANCE ON THE GROUND THAT DISALLOWANCE U/S.14A 7 REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WH ERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED OR CLAIMED DISALLOWANCE U/S.14A CANNOT STAND. HE OBSERVED THAT THE EXPENDI TURE ON PMS HAS NOT BEEN CLAIMED BY THE ASSESSEE AND THEREFORE THERE DOES NO T REMAIN ANY OTHER EXPENDITURE OTHER THAN THIS EXPENDITURE WHICH OTHERWISE IS LIAB LE TO BE DISALLOWED UNDER RULE8D OF THE INCOME TAX RULES. HE ACCORDINGLY DIRE CTED THE AO TO DELETE THE DISALLOWANCE MADE AT RS.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 INFIRM ITY 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 DISALLOW ANCE U/S.14A R.W. RULE8D CAN BE MADE. THE ABOVE FACTUAL FINDING GIVEN BY THE LEARN ED CIT(A) COULD NOT BE CONTROVERTED BY THE LEARNED DR. UNDER THESE CIRCUM STANCES, WE HOLD THAT THE LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE DISALL OWANCE MADE BY THE AO. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMI SSED. 10.1 THE OTHER GROUND BEING GENERAL IN NATURE IS DI SMISSED. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 1535/PN/2011 (A.Y. 2008-09) (SMT. SADHANA A .PATNI) : ITA NO. 1568/PN/2011 (A.Y. 2008-09) (APOORVA A.PATN I) : ITA NO. 1569/PN/2011 (A.Y. 2008-09) (SRIHANT G. PAT NI) : ITA NO. 1570/PN/2011 (A.Y. 2008-09) (RUCHI A. PATNI ) : ITA NO. 1571/PN/2011 (A.Y. 2008-09) (SHRUTI PATNI) : 12. AFTER HEARING BOTH THE SIDES, WE FIND THE GROUN DS RAISED BY THE REVENUE IN THE ABOVE APPEALS ARE IDENTICAL TO THE GROUNDS RAISED I N ITA NO. 1534/PN/2011. WE HAVE ALREADY DECIDED THE ISSUES AND THE GROUNDS RAI SED BY THE REVENUE HAVE BEEN DISMISSED. FOLLOWING THE SAME RATIO, THE GROUNDS R AISED BY THE REVENUE IN ALL THE ABOVE APPEALS ARE DISMISSED. 8 13. IN THE RESULT, ALL THE ABOVE APPEALS FILED BY T HE REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF SEPTEMBER, 2012. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE DATED: THE 27 TH SEPTEMBER 2012 SATISH COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-II, PUNE 4. THE D.R, B PUNE BENCH 5. 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