The ACIT, Circle-6, Ahmedabad V. Shri Darshan Naranbhai Patel, Ahmedabad

ITA 2374/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1323 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 23-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Assessee Lawyers: A C SHAH
• Keywords: Business income; Earning of tax free income; Source of fund; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ACIT, CIRCLE - 6, AHMEDABAD (APPELLANT) VS SHRI DARSHAN NARANBHAI PATEL, 19, ROYAL CRESANT BUNGLOW, NR. ASOPALAV BUNGLOW, THALTEJ, AHMEDABAD - 380052 PAN:ABCPP4905C (RESPONDENT) REVENUE BY : S H RI R.I. PATEL, C IT - D . R. ASSESSEE BY: S H RI A.C. SHAH , A.R. DATE OF HEARING : 18 - 04 - 2 016 DATE OF PRONOUNCEMENT : 29 - 06 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THIS REVENUE S APPEAL FOR A.Y. 2009 - 10 , AR I SES FROM ORDER OF THE CIT(A) - XI, AHMEDABAD DATED 23 - 08 - 2012 IN APPEAL NO. CIT(A) - XI/343/ACIT CIR. 6/11 - 12 , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T A NO . 2374 / A HD/20 12 A SSESSMENT YEAR 200 9 - 10 I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 2 2. THE REVENU E RAISES THE FOLLOWING SUBSTANTIVE GROUNDS IN THE INSTANT APPEAL. I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN HOLDING THAT THE ASSESSEE IS AN INVESTOR IN SHARES/M.F. UNITS AND ACCORDINGLY INCOME DERI VED AS A RESULT OF SALES OF SHARES AND REDEMPTION OF UNITS OF MUTUAL FUND IS TO BE TAXED AS LTCG/STCG AS THE CASE MAY BE. II THE LD. COMMISSIONER OF INCOME - TAX (A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O. TO TREAT THE LOSS OF RS.5 1,24,792/. - IN PMS AS SHORT TERM CAPITAL LOSS. III. THE LD. COMMISSIONER OF INCOME - TAX (A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO TREAT GAINS ARISEN AS A RESULT OF SELLING OF SHARES AND REDEMPTION OF UNITS OF MUTUAL FUND OF RS .82,98,814 AS SHORT TERM CAPITAL GAIN. IV. THE LD. COMMISSIONER OF INCOME - TAX (A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO TAX THE GAINS OF RS.6,68,91,385/ - ON REDEMPTION UNITS OF M.F AS LTCG. V. THE LD. COMMISSIONER OF INCOME - TAX (A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DIRECTING THE A.O TO TAX THE GAIN OF RS.76,657/ - ACCRUED AS A RESULT OF REDEMPTION OF UNITS OF M.F. IS AS LTCG. VI. THE LD. COMMISSIONER OF INCOME - TAX (A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS I N DIRECTING THE A.O TO TREAT LOSS OF RS.21,45,045/ - AS LTCL AND ALLOW THE SAME TO BE CARRIED FORWARD. VII. THE LD. COMMISSIONER OF INCOME - TAX (A) - XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS. 57,72,237/ - MADE U/S 14A OF T HE I.T. ACT EVEN THOUGH THE SAME HAS BEEN MADE IN ACCORDANCE TO THE RULE 6D OF I.T. RULES. I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 3 BOTH THE LEARNED REPRESENTATIVES INVITE OUR ATTENTION TOWARDS GROUNDS (I) TO (VI) EXTRACTED HEREINABOVE AND UNANIMOUSLY STATE THAT THESE PLEADINGS RAISE A COMMON ISSUE AS TO WHETHER THE ASSESSEE S PROFITS/LOSSES DERIVED FROM S ALE OF SHARES AND REDEMPTION OF MUTUAL FUNDS UNITS ARE TO BE TREATED AS CAPITAL GAIN S (LONG TERM AND SHORT TERM) O R BUSINESS INCOME ; AS THE CASE MAY BE. 3. THE ASSESSEE - INDIVIDUAL DERIV ES INCOME FROM INTEREST, SALARY , CAPITAL GAINS AND OTHER SOURCES. HE CARRIES ON BUSINESS OF SHARES TRADING AND MUTUAL FUNDS. THE ASSESSEE FILED RETURN ON 31 - 07 - 2009 ADMITTING INCOME OF RS. 80,17,050/ - . THE SAME STOOD PROCESSED. THE ASSESSING OFFICER TOOK UP SCRUTINY . THE ASSESSEE HAD SHOWN CAPITAL GAINS OF RS. 62,87,095/ - ALONG WITH LONG TERM CAPITAL LOSS OF RS. 19,83,397/ - , SECTION 10(34) EXEMPT INCOME OF RS. 2,12,425/ - AND MUTUAL FUNDS DIVIDENDS OF RS. 1,79,11,191/ - . THE ASSESSING OFFICER S PRIMA FACI E VIEW WAS THAT ALL THESE TRANSACTIONS WERE ADVENTURE IN THE NATURE OF TRADING GIVING RISE TO BUSINESS INCOME AND NOT CAPITAL GAINS INTER ALIA ON THE GROUND THAT THE ASSESSEE WAS ALREADY IN THE VERY BUSINESS, HE HAD NO OTHER VOCATION, THE COMPARATIVE CHART OF INVESTMENTS INDICATED A SYSTEMATIC APPROACH AND HE HAD ALSO AVAILED LOANS OF RS. 20 CRORES FROM CITY BANK. THE ASSESSING OFFICER CAME TO ASSESSEE S INVESTMENT CHART TO OBSERVE THAT THE SCRIPTS IN QUESTION HAD SEEN HOLDING PERIOD OF 1/2/3 DAYS AS WELL AS LESS THAN ONE MONTH IN SOME CASES, HIS BALANCE SHEET TREATING SHARES AS INVESTMENT WAS NOT CONCLUSIVE AND CLASSIFICATIONS OF THESE INVESTMENTS IN THE TWO CATEGORIES WAS NOT A DECISIVE FACTOR. THE ASSESSEE FILED REPLY INTER I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 4 ALIA PLEADING THEREIN THAT HE HAD MADE THE IMPUGNED INVESTMENT THROUGH PMS (PORTFOLIO MANAGEMENT SERVICES) AND SEPARATELY CARRIED OUT HIS TRADING BUSINESS. THE ASSESSING OFFICER REITERATED CONTENTS OF HIS SHOW NOTICE AS NARRATED HEREINABOVE TO COMPUTE PROFITS OF R S. 6,79,97,021/ - AS BUSINESS INCOME. HE THEREAFTER SET OFF VARIOUS EXPENSES AGAINST THE S AME TO ARRIVE AT NET INCOME OF R S. 6,13,14,127/ - IN ASSESSMENT ORDER DATED 30 - 12 - 2011. 4. THE ASSESSEE PREFERRED APPEAL. THE C IT(A) ACCEPTS HIS CONTENTIONS AS UNDER: - 2.3 I HAVE CA REFULLY CONSIDERED THE RIVAL CONTENTIONS. I HAVE PERUSED VARIOUS CASE LAWS RELIED UPON BY THE A.O. AND THE APPELLANT. I HAVE ALSO PERUSED OTHER EVIDENCES AVAILABLE ON RECORD. TAKING INTO ENTIRETY OF FACTS IN VIEW, I AM INCLINED TO AGREE WITH THE CONTENTION S OF THE ID. A.R. FOR THE FOLLOWING REASONS: (I) PERUSAL OF THE BALANCE SHEET FOR A.Y. 2007 - 08 AND 2008 - 09 AND 2009 - 10 REVEALS THAT APPELLANT IS CONSISTENTLY DECLARING CLOSING STOCK OF MUTUAL FUND UNITS, SHARES AND EQUITY FUNDS UNDER THE HEAD INVEST MENTS. TO BE PRECISE IN A.Y. 2007 - 08 APPELLANT HAS DECLARED INVESTMENT OF RS.95.26 CRORES, IN A.Y. 2008 - 09 APPELLANT HAS DECLARED INVESTMENT OF RS.109.47 CRORES AND IN A.Y. 2009 - 10 INVESTMENT OF RS.92.00 CRORES HAS BEEN DECLARED IN MUTUAL FUND UNITS, EQUIT Y SHARES ETC. THIS CLEARLY MANIFEST THE INTENTION OF THE APPELLANT THAT MUTUAL FUND UNITS AND SHARES WERE PURCHASED AS AN INVESTOR. (II) DURING THE YEAR UNDER CONSIDERATION APPELLANT HAS REDEEMED INVESTMENTS IN MUTUAL FUND UNITS WORTH RS.63.38 CRORES. THE COST OF PURCHASE OF THESE M.F. UNITS IS RS.56.70 CRORES. IN THE BALANCE SHEET FOR IMMEDIATELY PRECEDING YEAR I.E. A.Y. 2008 - 09 APPELLANT HAS DECLARED INVESTMENT IN FMPS OF RS.56.50 CRORES AND ANOTHER INVESTMENT OF RS.20 LACS IN KOTAK DYNAMIC ASSET ALLOCAT ION IS CLUBBED WITH DEBT FUNDS I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 5 WHICH IS ALSO DECLARED UNDER THE HEAD INVESTMENTS. THUS, THE MUTUAL FUND UNITS, WHICH WERE PURCHASED BY THE APPELLANT IN THE A.Y. 08 - 09 WERE DECLARED AS INVESTMENT IN THE BALANCE SHEET FOR THE A.Y. 08 - 09. APART FROM THIS, APP ELLANT HAS ALSO DECLARED STCG ON SALE OF SHARES. THESE SHARES WERE HELD BY THE APPELLANT FOR LESS THAN ONE YEAR. SOME OF THESE SHARES WERE PURCHASED IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 08 - 09 AND THESE SHARES ARE ALSO DECLARED AS INVESTME NT IN THE BALANCE SHEET FOR A.Y. 08 - 09. THE DETAILS OF THIS DECLARATION IS ELABORATED IN THE FOLLOWING LINES. THE INVESTMENT IN SHARES IS GROUPED UNDER SUB HEADS FMPS 08 - 09, DEBT FUNDS AND LIQUID FUNDS WHICH FORMS PART OF INVESTMENTS. APART FROM THESE, INV ESTMENT IN PMS IS ALSO REFLECTED IN THE BALANCE SHEET UNDER THE HEAD INVESTMENTS. THESE FACTS MAKES IT VERY CLEAR THAT APPELLANT WAS CONSISTENTLY DECLARING INVESTMENT I N M.F. UNITS, SHARES AND PMS AS I NVESTMENT IN THE BALANCE SHEET. THIS CLEARLY INDICATE T HE INTENTION OF THE' ASSESSEE THAT HE HAS MADE INVESTMENTS IN M.F. UNITS, SHARES AND PMS. (III) THE APPELLANT HAS ALSO CONSISTENTLY DECLARED PROFIT AND LOSS FROM REDEMPTION OF M.F. UNITS AND SALE OF SHARES AND PMS AS LONG TERM/SHORT TERM CAPITAL GAIN. TO BE PRECISE THE APPELLANT HAD DECLARED A LTCG OF RS. 115,40,54, 754/ - ON SALE OF SH ARES OF PARAS PHARMACEUTICALS LTD. IN THE ASST. YEAR 2007 - 08. IN THE A.Y. 2008 - 09, LTCG OF RS.26,03,258/ - AND STCG OF RS.62,87,095/ - WAS DECLARED. IN THE A.Y. 2009 - 10 LTCG OF RS.57,30 ,973/ - AND STCG OF RS.19,83,397/ - HAD BEEN DECLARED. THIS FURTHER INDICATES THAT APPELLANT IS AN INVESTOR AND NOT A TRADER. NOT ONLY THIS UPTO A.Y. 2008 - 09 INCOME FROM REDEMPTION OF M.F. UNITS AND SALE SHARES WERE ASSESSED AS LONG TERM/SHORT TERM C APITAL GAIN AND NOT AS BUSINESS INCOME. THE A.O. HAS TREATED SHORT TERM/LONG TERM CAPITAL GAIN AS BUSINESS INCOME FOR THE FIRST TIME IN THE CURRENT A.Y. I.E. IN A.Y. 2009 - 10. (IV) THE OTHER IMPORTANT CRITERION TO DETERMINE WHETHER AN ASSESSEE IS AN INVES TOR OR DOING TRADING IN SHARE TRADING IS NUMBER OF SHARE TRANSACTIONS CONDUCTED DURING THE YEAR UNDER CONSIDERATION. IF THE NUMBER OF SHARE TRANSACTIONS ARE MORE, IT CAN BE INFERRED THAT THE APPELLANT IS DOING TRADING IN SHARES BUT IF THE SHARE TRANSACTION S ARE SMALL, IT IS STRONG INDICATOR THAT I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 6 THE ASSESSEE IS AN INVESTOR. PERUSAL OF FACTS AVAILABLE ON RECORD REVEALS THAT APPELLANT HAS CONDUCTED SMALL NUMBER OF TRANSACTIONS DURING THE YEAR UNDER CONSIDERATION. TO BE PRECISE, APPELLANT HAS UNDERTAKEN TWENTY SHARE TRANSACTIONS ON WHICH SHORT TERM /CAPITAL GAIN OF RS.82.98 LACS IS ACCRUED. APART FRORRI THIS, [APPELLANT HAS ALSO UNDERTAKEN FIFTEEN REDEMPTION TRANSACTIONS OF M.F. UNITS. AS A RESULT OF THESE TRANSACTIONS, GAIN OF RS.6,68,91,385/ - IS ACCRUED TO T HE APPELLANT. THE APPELLANT HAS ALSO UNDERTAKEN TWENTY SIX , TRANSACTIONS OF EQUITY SHARES OR UNITS OF AN EQUITY ORIENTED FUND WHICH RESULTED INTO LONG TERM CAPITAL LOSS OF RS.5,06,311/. THE APPELLANT HAS ALSO UNDERTAKEN ONE TRANSACTION OF SALE/PURCHASE OF GOLD THROUGH COMMODITY EXCHANGE. AS A RESULT OF THIS TRANSACTION, CAPITAL GAIN OF RS.33.18 LACS IS ACCRUED TO THE APPELLANT. IN PORTFOLIO MANAGEMENT SCHEME (PMS) MANY TRANSACTIONS OF SALE/PURCHASE OF SHARES HAS BEEN CONDUCTED. HOWEVER, THESE TRANSACTIONS H AS BEEN CONDUCTED BY PORTFOLIO MANAGER AND NOT BY THE APPELLANT. THE ABOVE FACTS CLEARLY ESTABLISH THAT ON HIS OWN BEHALF THE APPELLANT HAS UNDERTAKEN SIXTY TWO TRANSACTIONS OF REDEMPTION OF MUTUAL FUND UNITS, SALE OF SHARES AND GOLD DURING THE YEAR UNDER CONSIDERATION. THUS THE APPELLANT ON AN AVERAGE HAD UNDERTAKEN ONE TRANSACTION IN SIX DAYS. THE ABOVE FACTS REVEAL THAT THE APPELLANT WAS NOT ENGAGED IN THE SALE/PURCHASE OF SHARES ON A LARGE SCALE. THESE TRANSACTIONS WERE OCCASIONAL AND ACCORDINGLY IN MY CONSIDERED VIEW, THESE FACTS ALSO INDICATE THAT THE APPELLANT WAS AN INVESTOR IN UNITS OF MUTUAL FUND AND SHARES. (V) THE SHARES/M.F. UNITS PURCHASED BY THE APPELLANT WERE NO T SOLD AFTER A FEW DAYS OF PURCHASES OR DURING THE DAY OF PURCHASE . IN FACT, M.F. UNITS/SHARES ON WHICH LONG TERM CAPITAL GAIN/EXEMPT LONG TERM CAPITAL GAIN ACCRUED TO THE APPELLANT WERE HELD FOR MORE THAN 12 MONTHS. THE SHARES ON WHICH SHORT TERM CAPITAL GAIN HAS ACCRUED TO THE A'PPELLANT WERE ALSO HELD FOR A PERIOD RANGING FROM 6 TO 9 MONTHS. AS FAR AS PMS IS CONCERNED TRANSACTIONS WERE CONDUCTED BY PORTFOLIO MANAGER AND NOT BY THE APPELLANT. THE ABOVE FACTS CLEARLY INDICATE THAT APPELLANT HAS HELD THE INVESTMENTS IN SHARES FOR SUFFICIENTLY LONG TIME AND THESE FACTS FURTHER INDI CATE THAT APPELLANT WAS ENGAGED IN PURCHASE OF SHARES AND UNITS OF MUTUAL FUND AS INVESTOR ONLY. I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 7 (VI) IT IS ALSO SEEN THAT MAJOR CAPITAL GAIN HAS ARISEN AS A RESULT OF REDEMPTION OF M.F. UNITS. THE UNITS OF M.F. ARE NEVER TRADED ON STOCK EXCHANGE. UNIT S OF M.F. ARE PURCHASED DIRECTLY FROM MUTUAL FUND COMPANIES AND AT THE TIME OF REDEMPTION THESE UNITS ARE SURRENDERED TO THE MUTUAL FUND COMPANIES. THE APPELLANT HAS FOLLOWED THE SAME PRACTICE. THE ABOVE PROCEDURE CLEARLY INDICATES THAT ONE CANNOT TRADE IN MUTUAL FUND UNITS AND ACCORDINGLY THE GAINS ACCRUED AS A RESULT OF REDEMPTION CANNOT BE TREATED AS BUSINESS GAINS. THESE GAINS HAVE TO NECESSARILY TAXED AS LTCG/STCG AS THE CASE MAY BE. (VII) APPELLANT HAS MADE INVESTMENTS IN M.F./SHARES OUT OF HIS OWN FUNDS. PERUSA L OF BALANCE SHEET FOR A.Y. 2008 - 09 REVEALS THAT APPELLANT WAS HAVING CAPITAL OF RS.112.33 CRORES. APPELLANT HAS RAISED TEMPORARY LOAN OF RS.12 CRORES ON 16/3/2008 AND RS.8 CRORES ON 27/3/2008 FROM BANKS. THIS LOAN WAS UTILIZED TO MAKE INVEST MENTS IN MUTUAL FUND UNITS. THE LOAN WAS REPAID FROM 4/4/2008 TO 11/4/2008. THIS WAY, LOAN FOR A VERY SHORT PERIOD WAS RAISED TOWARDS FAG END OF THE YEAR WHICH WAS PAID IN 1 ST AND 2 ND WEEK OF APRIL, 2008. THE ABOVE FACTS CLEARLY INDICATE THAT INVESTMENTS HAS BEEN MADE BY THE APPELLANT PREDOMINANTLY OUT OF HIS OWN FUNDS. (VIII) KEEPING IN VIEW THE ABOVE FACTS, I AM OF THE CONSIDERED VIEW THAT APPELLANT IS AN INVESTOR. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING CASES, WHEREIN IT WAS HELD THAT THE ASSESSEE WILL BE AN INVESTOR IF SHARES WERE REGISTERED IN HIS NAME. (A) SANATH I NFRASTCUTURE PVT.LTD. V/S. ACIT 122TTJ216 I (B) GOPAL PUROHIT V/S. JCIT 29 SOT 117 (MUM.) (C) SUGAMCHAND C.SHAH V/S. ACIT 37DTR345 (AHD.) IN THE INSTANT CASE, THE MUTUAL F UND UNITS AND THE EQUITY SHARES WERE REGISTERED IN THE NAME OF APPELLANT. IN FACT THE APPELLANT HAS DECLARED DIVIDEND OF RS. 1, 81,23,610/ - ON THESE UNITS AND SHARES DURING THE YEAR UNDER CONSIDERATION. THE I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 8 A.O. HAD PLACED RELIANCE ON SYNTHETIC FIBRE TRADING COMPANY ITA NO.3022/3444/2009 AND SADHANA NABERA V/S. ACIT 41 DTP 393 (MUM). PERUSAL OF THESE CASES REVEALS THAT THE CASES WERE DELIVERED WITH DIFFERENT SET OF FACTS AND ACCORDINGLY IT WILL NOT BE PROPER TO PLACE RELIANCE ON THESE CASES. (IX) AS FAR AS INVESTMENT IN PMS IS CONCERNED THE PREDOMINANT VIEW IS THAT INCOME EARNED ON INVESTMENT IN PMS IS TO BE TAXED AS STCG AS APPELLANT IS INVESTING MONEY IN THIS SCHEME. IN THIS REGARD APPELLANT HAS RIGHTLY PLACED RELIANCE ON SMT. NALINI NAVIN BHAGWATI ITA NO. 53/MUM/2010 AND SAR INVESTMENT P. LTD. V/S. DCIT 40 SOT 566 (AHD.) RECENTLY, HON'BLE MUMBAI ITAT IN ITO 19(2) V/S. RADHA BIRJU PATEL 46 SOT 23 (2011) HAS HELD THAT PROFITS UNDER PMS IS TO BE TAXED AS STCG. SIMILAR VIEW WAS HELD BY THE HON'BLE PUNE ITAT IN ITA NO.499/PN/2008 A.Y. 2004 - 05 IN THE CASE OF M/S.ARA TRADING & INVESTMENTS PVT.LTD. V/S. DCIT AND IN ITA NO.500/PN/2008 IN THE CASE OF M/S.KRA HOLDINGS & TRADING PVT.LTD. A.Y. 2004 - 05. THESE ORDERS WERE PASSED BY HON'BLE PUNE ITAT ON 31 - 8 - 2009. 2.4 IN V IEW OF ABOVE DISCUSSIONS I DO NOT HAVE ANY HESITATION IN HOLDING THAT APPELLANT IS AN INVESTOR IN SHARES/M.F. UNITS AND ACCORDINGLY GAINS ACCRUED AS A RESULT OF SALES OF SHARES AND REDEMPTION OF UNITS OF MUTUAL FUND IS TO BE TAXED AS LTCG/STCG AS THE CASE MAY BE. THE REST OF THE GROUNDS ARE TO BE DEC IDED KEEPING THIS FACT IN VIEW. 5. BOTHE PARTIES HEARD. CASE RECORDS PERUSED. THERE IS NO DISPUTE THAT THE ASSESSEE ADMITTEDLY IS TRADER IN SHARES. THE INSTANT LITIGATION HOWEVER DOES NOT ARISE FROM HIS TRA DING TRANSACTIONS. THE DISPUTE RATHER IS THAT THE REVENUE SEEKS TO TREAT HIS PROFITS/LOSSES FRO M SHARE INVESTMENTS AND REDEMPTION OF INVESTMENTS AS BUSINESS INCOME BY GIVING COLOUR OF ADVENTURE IN THE NATURE OF TRADE TO BE INVOLVED THEREIN. WE PUT UP A QU ERY FIRST OF ALL AS TO WHETHER HE HAS BEEN TREATED AS A INVESTOR OR TRADER IN EARLIER ASSESSMENT YEARS. THE I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 9 ASSESSEE FILES BEFORE US COPY OF REGULAR ASSESSMENTS FRAMED IN ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2011 - 12 TREATING HIM AS AN INVESTOR. THIS CRU CIAL FACT HAS GON E UN - REBUT T ED AT REVENUE S BEHEST. IT IS A SETTLED LEGAL PROPOSITION THAT THIS QUESTION AS TO WHETHER AN ASSESSEE IS AN INVESTOR OR A TRADER IN SHARE TRANSACTIONS HAS TO BE DECIDED ON THE BASIS OF VARIOUS FACTORS I.E. HIS INTENTION FOLLO WED BY TREATMENT OF THE INVESTMENTS IN QUESTION IN THE BOOKS, FREQUENCY AND MAGNITUDE OF TRANSACTIONS , HOLDING PERIOD, SOURCE OF FUNDS AND HIS STATUS AS CONSTANTLY ACCEPTED BY THE REVENUE AUTHORITIES ETC. WE FIND THAT THE ASSESSEE HAS RATHER ENGAGED PORTF OLIO MANAGEMENT SERVICES TO MANAGE HIS INVESTMENTS. THE RELEVANT AGREEMENTS ARE ALSO PLACED ON RECORD. THEY ARE DISCRETIONARY AS WELL AS NON DISCRETIONARY IN NATURE. THAT MEANS ITS PORTFOLIO MANAGER HAS CONTROL OVER HIS INVESTMENTS IN SOME CASES AND NOT IN ALL. OUR VIEW ON THE BASIS OF THESE PECULIAR FACTS AND CIRCUMSTANCES IS THAT THIS ASSESSEE IS HIMSELF A SHARE TRADER AND HE STILL ENGAGED PMS SERVICES TO MANAGE HIS INVE STMENTS. WE FIND THAT HON BLE D E LHI HIGH COURT IN (2014) 367 ITR 01 (DEL) RADIALS INTERNATIONAL VS. ACIT TREATS PROFITS ARISING OUT OF SIMILAR INVESTMENTS AS CAPITAL GAINS AND NOT BUSINESS INCOME. 6 . WE PROCEED FURTHER AND NOTICE FROM ASSESSEE S INVESTMENT CHART REGARDING LONG AND SHORT TERM CAPITAL GAINS THAT MOST OF T HE INVESTMENT S HAV E SEEN HOLDING PERIOD FOR QUITE A LONGER DURATION. THERE IS A VERY MINISCULE PERCENTAGE OF SHARE INVESTMENTS BEING MADE AND SOLD IN A VERY SHORT SPAN OF TIME LESS THAN A WEE K . THE ASSESSEE S LONG TERM CAPITAL GAINS ARISE FROM INVESTMENT HELD FOR I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 10 MUC H LONGER DURATION OF MORE THAN A YEAR. IT HAS COME ON RECORD THAT HIS BALANCE SHEET SHOWS TWO DIFFERENT PATTERNS OF TRADI NG AND INVESTMENT PORTFOLIO. WE COME TO HIS CITY BANK BORROWINGS OF RS. 20 CRORES. IT EMANATES THAT THE ASSESSEE HAD INDEED AVAILED THIS LOAN . BUT THE SAME WAS FOR A PERIOD OF LESS THAN ONE MONTH WHEREAS HIS INVESTMEN T S ARE SEEN TO HAVE CARRIED FORWARD SINCE LONG. THE REVENUE FAILS TO REBUT ALL THESE CRUCIAL FINDINGS RECORDED BY THE LOWER AUTHORITIES. WE ADOPT JUDICIAL CONS ISTENCY IN THESE FACTS AND CIRCU M STANC ES TO HOLD THAT THE CIT(A) HAS RIGHTLY TREATED ASSESSEE S PROFITS/LOSSES ARISING FROM SHARES INVESTMENTS AS IN THE NATURE OF CAPITAL GAINS THAN BUSINESS INCOME. WE REJECT REVENUE S ARGUMENTS SUPPORTING THIS FIRST ISSUE. 7 . WE COME TO THE LATTER ISSUE OF SECTION 14A DISALLOWANCE OF RS. 57,27,237/ - RELATING TO HIS EXEMPT INCOME FROM DIVIDENDS OF RS. 1,81,23,616/ - . THERE IS NO DISPUTE ABOUT THE FACTS THAT HE HAD AVAILED CITY BANK LOAN OF RS. 20 CRORES AND PAID INTEREST THERE UPON OF RS. 26,18,569/ - . THE ASSESSING OFFICER INVOKED RULE 8D TO COMPUTE PROPORTIONATE INTEREST DISALLOWANCE OF RS. 14,54,767/ - AND THAT OF ADMINISTRATIVE EXPENSES @ 0.5% OF AVERAGE VALUE COMING TO RS. 43,17,470/ - AGGREGATING TO THE IMPUGNED AMOUNT OF RS . 57,72,237/ - . 8 . THE CIT(A) DELETES THE IMPUGNED DISALLOWANCE BY OBSERVING AS FOLLOWS: I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 11 11. VIDE GROUND NO.4, APPELLANT HAD CHALLENGED DISALLOWANCE OF RS. 57,72,237/ - U/S.14A OF IT. ACT. APPELLANT CONTENDED THAT HE HAS NOT CLAIMED THE EXPENSES MENTIO NED IN THE PROFIT AND LOSS ACCOUNT AND ACCORDINGLY DISALLOWANCE U/S.14A CANNOT BE MADE. PERUSAL OF COMPUTATION OF INCOME REVEALS THAT APPELLANT HAS DECLARED CAPITAL GAINS ON THE SALE OF UNITS OF M.F./ SHARES. APPELLANT HAS NOT CLAIMED EXPENSES, WHICH ARE C ONSIDERED BY THE A.O. FOR THE PURPOSE OF DISALLOWANCE U/S.14A OF IT. ACT, 1961. SINCE APPELLANT HAS NOT CLAIMED DEDUCTION OF THESE EXPENSES, ACCORDINGLY I HOLD THAT DISALLOWANCE AGAINST THESE EXPENSES CANNOT BE MADE AS PER PROVISIONS OF SECTION 14A. RELIAN CE IN THIS REGARD IS PLACED ON CIT V/S. HERO CYCLES LTD. (2010) 323 ITR 518 ( P&H). IN THIS CASE, IT WAS HELD THAT IF FOR EARNING EXEMPT INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S.14A CANNOT BE MADE. IN VIEW OF ABOVE, I HOLD THAT DISALLOWANCE OF EXPENSES OF RS.57,72,237/ - IS UNTENABLE. THE A.O. IS DIRECTED TO DELETE DISALLOWANCE OF RS.57,72,237/ - . THIS GROUND OF APPEAL IS ALLOWED. 9 . WE HAVE HEARD RIVAL CONTENTIONS. WE DO NOT DEEM IT APPROPRIATE THE FACTS NARRATED HEREINABOVE FOR T HE SAKE OF BREVITY. A PE RUS AL OF SECTION 14A(2) REVEALS THAT THE ASSESSING OFFICER HAS TO RECORD A NON SATISFACTION HAVING REGARD TO AN ASSESSEE S ACCOUNT THAT THE SAME ARE NOT CORRECT IN RESPECT TO EXPENDITURE IN RELATION TO EXEMPT INCOME NOT FORMING PART OF THE TOTAL INCOME UNDER THE ACT. THERE IS NO DISPUTE THAT R ULE 8D IS APPLICABLE W.E.F . ASSESSMENT YEAR. 2008 - 09. HOWEVER, WE NOTICE FROM THE ASSESSMENT ORDER THAT THERE IS NO SUCH SATISFACTION OR NON SATISFACTION BEING RECORDED BEFORE INVOKING R ULE 8D RESUL TING IN THE IMPUGNED DISALLOWANCE . THE REVENUE FURTHER FAILS TO REBUT THE L OWER APPELLATE FINDING THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE AS HELD BY THE HON BLE PUNJAB AND HARIYANA HIGH COURT (SUPRA). ITS ARGUMENTS SEEKING T O REVIVE THE IMPUGN ED DISALLOWANCE ACCORDINGLY FAIL I.T.A NO. 2374/AHD/2012 A.Y. 2009 - 10 PAGE NO ACIT VS. SHRI DARSHAN NARANBHAI PATEL 12 10 . THIS REVENUE S APPEAL IS DISMISSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 29 - 06 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMB ER AHMEDABAD : DATED 29 /06 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,