ACIT 19(3), MUMBAI V. SACHIN R. TENDULKAR, MUMBAI

ITA 3217/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8851 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 06-05-2014
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Assessee Lawyers: JITENDRA JIAN
• Keywords: Capital asset; Business income; Depreciation; Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , E, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.3217/MUM/2014 ASSESSMENT YEAR: 2010-11 & ITA NO.1411/MUM/2015 ASSESSMENT YEAR: 2011-12 ACIT 19(3), R.NO.305, 3 RD FLOOR, PIRMAL CHANBERS, PAREL MUMBAI-400012 / VS. SHRI SACHIN R. TENDULKAR, 19-A PERRY RD, BANDRA (E) MUMBAI-400050 ( REVENUE ) (RESPONDENT ) P.A. NO. AAAPT4135B REVENUE BY SHRI TA KHAN ( D R) RESPONDENT BY SHRI JITENDRA JIAN ( A R) / DATE OF HEARING: 28/11/2016 / DATE OF ORDER: 25 /01/2017 / O R D E R PER ASHWANI TANEJA: THESE APPEALS PERTAIN TO SAME ASSESSEE FOR THE TWO DIFFERENT YEARS INVOLVING IDENTICAL ISSUES, THEREFORE, THESE WERE HEARD TOGETHER AND BEING DISPOSED OF BY THIS COMMON ORDER : 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE BY SHRI JITENDRA JAIN, AUTHORISED REPRESENTATIVES (AR) ON BEHALF SACHIN R. TENDULKAR 2 OF THE ASSESSEE AND BY SHRI TA KHAN, DEPARTMENTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3. FIRST WE SHALL TAKE APPEAL FOR A.Y. 2010-11 FILE D BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 27.02 .2014 PASSED AGAINST THE ASSESSMENT ORDER OF THE AO U/S 1 43(3) DATED 15.02.2013 FOR A.Y. 2010-11 ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) ERRED IN HOLDING THAT TH E INCOME ON ACCOUNT OF SALE OF SHARES AND MUTUAL FUND S IS LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAI N AND NOT BUSINESS INCOME.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) ERRED IN DELETING TH E DISALLOWANCE U/S 14A R. W. RULE 8D OF RS. 76,55,841 1- BY HOLDING THAT THE ASSESSING OFFICER (A.O.) HAS NOT RECORDED IN THE ORDER AS TO HOW IN REGARD TO THE ACCOUNTS, THE A.O. WAS SATISFIED WITH THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE IN ORDER TO PROVE THAT THE EXPENSES 3. 'THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A ) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE AO BE RESTORED.' 4. 'THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER AN Y GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' 4. GROUND NO.1: IN THIS GROUND, THE REVENUE IS AGGRIEVED WITH THE ACTION OF LD. CIT(A) IN REVERSING THE ACTION OF AO IN TREATING THE GAIN ARISING ON SALE OF SHARES AS BUS INESS INCOME WHICH WAS SHOWN BY THE ASSESSEE AS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS. 5. THE BRIEF BACKGROUND AND FACTS OF THE CASE AS CULLE D OUT FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT D URING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTED BY TH E AO THAT SACHIN R. TENDULKAR 3 THE ASSESSEE HAD SHOWN IN ITS RETURN OF INCOME LONG TERM CAPITAL GAINS AND LOSS ON SALE OF SHARES FOR RS.85. 56 LAKHS AND RS.23.82 LAKHS RESPECTIVELY. FURTHER, SHORT TERM CA PITAL GAINS OF RS.90.89 LACS AND SHORT TERM CAPITAL LOSS OF RS. 7.78 LACS WAS ALSO SHOWN IN THE RETURN FILED BY THE ASSESSEE. IT WAS NOTED BY THE AO THAT ASSESSEE HAS BEEN DISCLOSING C APITAL GAIN FROM SALE OF SHARES EVERY YEAR IN PAST AND THAT PUR CHASE/SALE OF SHARES AND UNITS OF MUTUAL FUNDS WAS MANAGED BY PORTFOLIO MANAGERS SUCH AS KOTAK SECURITIES AND DSP MERRIL LY NCH (HEREIN AFTER CALLED AS PMS). IT WAS NOTED BY HIM T HAT ASSESSEE HAD ENGAGED THE SERVICES OF PORTFOLIO MANAGERS TO C ARRY OUT THE TRANSACTIONS OF THE SALE-PURCHASE OF SHARES FOR WHI CH HUGE AMOUNT OF PMS CHARGES OF RS.52 LACS WERE PAID. ACCO RDING TO THE AO, IT WAS NOT AN ORDINARY THING FOR A NORMAL I NVESTOR. FURTHER, HE REFERRED TO THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF M/S RADIALS INTERNATIONAL VS. ACIT AND ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE ASKING HIM TO EXP LAIN AS TO WHY PROFITS ON SALE OF SHARES/ UNIT SHOULD NOT BE T REATED AS BUSINESS INCOME OF THE ASSESSEE AS AGAINST THE C APITAL GAINS AS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME. 6. IN REPLY, THE ASSESSEE SUBMITTED THAT MAJOR ACTIVI TY OF THE ASSESSEE WAS INCOME FROM SPORTS ENDORSEMENTS WHICH HAS BEEN SHOWN UNDER THE HEAD INCOME FROM BUSINESS. IN ADDITION TO THAT ASSESSEE HAD MADE INVESTMENT IN SHARES FROM A LONG TERM POINT OF VIEW MAINLY TO EARN DIVIDEND AND TO M AXIMIZE HIS WEALTH AS A RESULT OF APPRECIATION IN VALUE OF SHAR ES. HOWEVER KEEPING IN VIEW FLUCTUATIONS IN THE STOCK MARKET, T HE SHARES WERE SOLD TIME TO TIME TO MINIMIZE A RISK OF EROSIO N IN THE SACHIN R. TENDULKAR 4 VALUE OF SHARES AND TO BOOK THE AMOUNT OF GAIN ACCR UED TO THE ASSESSEE. IT WAS ALSO EXPLAINED THAT ASSESSEE WAS N OT A TRADER/DEALER IN SHARES AND THEREFORE, THE INCOME R ETURNED UNDER THE HEAD INCOME FROM CAPITAL GAINS IN THE I DENTICAL FACTS IN THE EARLIER YEARS HAS BEEN ACCEPTED AS SUC H BY THE AO, ALL ALONG. HE DISTINGUISHED THE DECISION OF THE TRI BUNAL RELIED UPON BY THE AO IN THE CASE OF M/S RADIAL INTERNATIO NAL ON FACTS AND PLACED RELIANCE IN HIS SUPPORT ON TWO DEC ISIONS OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MRS. RA DHA BIRJU PATEL (ITA NO.5382/MUM/2009) AND MRS. NALINI NAVIN BHAGWATI (ITA NO.53/MUM/2010) FOR THE PROPOSITION T HAT MERELY BECAUSE THE ASSESSEE AVAILED SERVICES OF THE PORTFOLIO MANAGER FOR BETTER ADMINISTRATION AND MAXIMIZATION OF HIS WEALTH HELD IN THE FORM OF SHARES, IT WOULD NOT MEA N THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SALE-PURCHA SE OF SHARES. IT WAS ALSO SUBMITTED ON WITHOUT PREJUDICE BASIS THAT PROFIT ARISING ON SALE OF SHARES THROUGH PMS WAS ME RELY TO THE EXTENT OF RS.14,31,330/- AND IN CASE IT WAS TO BE T REATED AS INCOME FROM BUSINESS, THE EXPENDITURE RELATING TO P ROFIT EARNED ON SALE OF SHARES I.E. MANAGEMENT FEE OF RS.18,33,258/- WAS ELIGIBLE FOR DEDUCTION, AND ONLY NET AMOUNT OF PROFIT/LOSS COULD BE ASSESSED AS PART OF TAXABLE INCOME. IF IT IS SO DONE, THERE WOULD ARISE A LOSS OF RS.4,01,928/- FROM THE TRANSACTIONS ENTERED DONE TH ROUGH PMS, AND THUS NOTHING WOULD BE TAXABLE ON THIS ACCO UNT. 7. BUT, THE AO REJECTED ALL THE SUBMISSIONS OF THE AS SESSEE AS WELL AS JUDGMENTS RELIED UPON BY THE ASSESSEE BY ME NTIONING THAT FACTS INVOLVED IN THESE CASES WERE NOT IDENTIC AL TO THE CASE SACHIN R. TENDULKAR 5 OF THE ASSESSEE. HE ALSO REFERRED TO THE GUIDELINES LAID DOWN BY THE CBDT IN ITS CIRCULAR NO.4/2007 DTD. 15.06.07 TO DETERMINE WHETHER THE SHARE TRANSACTIONS CARRIED OU T BY THE ASSESSEE FALL UNDER THE HEAD OF 'BUSINESS' OR 'CAPI TAL GAINS' AND DISMISSED THE ASSESSEE'S CONTENTION THAT THE AC TIVITY OF SALE-PURCHASE OF SHARES CARRIED OUT BY HIM WAS AS A N INVESTOR, BUT CONSTITUTES ADVENTURE IN THE NATURE O F TRADE. IT WAS ALSO OBSERVED THAT THE MANNER OF ACTIVITY IN TH E STOCK MARKET, VIZ, LARGE VOLUME OF PURCHASE AND SALE OF S HARES, MULTIPLICITY OF TRANSACTIONS, REGULARITY OF THE TRA NSACTION FROM YEAR TO YEAR, ENGAGEMENT OF PORTFOLIO MANAGER FOR SYSTEMATIC TRANSACTION OF SHARES AND EARNING FROM T HE SALE OF SHARES SYSTEMATICALLY, REINVESTING FOR ACQUISITI ON OF SHARES ON REGULAR BASIS TO MAKE PROFIT ETC GO TO SH OW THE EXISTENCE OF INTENT ON THE PART OF THE ASSESSEE TO TRADE IN STOCK AS A BUSINESS ACTIVITY. ACCORDINGLY, AO ASSES SED THE INCOME AT RS.1,35,76,244/- EARNED BY THE ASSESSEE O UT OF SALE AND PURCHASE OF SHARES UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS'. HOWEVER, WHILE ASSESSING THE INCOME UNDER THE HEAD INCOME FROM BUSINESS THE AO DID NOT DIST INGUISH BETWEEN THE SHARES PURCHASED AND SOLD WITH THE HELP OF PMS OR WITHOUT IT. 8. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFO RE THE LD. CIT(A) AND MADE DETAILED SUBMISSIONS ALONG WITH VAR IOUS EVIDENCES TO JUSTIFY ITS CLAIM THAT THE ASSESSEE HA D RIGHTLY DISCLOSED GAIN ARISING ON SALE AND PURCHASE OF SHAR ES AS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS . LD. CIT(A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE A ND ALSO SACHIN R. TENDULKAR 6 ANALYZED VARIOUS EVIDENCES IN THE LIGHT OF OBSERVA TIONS MADE BY THE AO IN THE ASSESSMENT ORDER AND ALSO CONSIDER ED THE JUDGMENTS RELIED UPON BY BOTH THE SIDES. IT WAS HEL D BY HIM THAT ASSESSEE HAD MADE INVESTMENT IN SHARES AND THE PURCHASE AND SALE OF SHARES WAS DONE AS INVESTOR, T HEREFORE, RESULTANT GAIN WOULD BE ASSESSABLE UNDER THE HEAD O F CAPITAL GAIN AS HAS ALWAYS BEEN ACCEPTED BY THE AO IN ALL T HE PRECEDING YEARS. IT WAS ALSO HELD BY HIM THAT THE S HARES SOLD THROUGH PMS CONSTITUTED ONLY SMALL PORTION OF THE T OTAL INVESTMENT AND IN ANY CASE MERELY BECAUSE ASSESSEE ENGAGED PORTFOLIO MANAGER, IT WOULD NOT MEAN THAT ASSESSEE CARRIED OUT THE ACTIVITIES WOULD BECOME OF THE NATURE OF BUSINE SS. BEING AGGRIEVED, THE REVENUE FILED AN APPEAL BEFORE THE T RIBUNAL. 9. DURING THE COURSE OF HEARING BEFORE US, LD. DR HEA VILY RELIED UPON THE ORDER OF THE AO. PER CONTRA, LD. CO UNSEL OF THE ASSESSEE TOOK US THROUGH VARIOUS PAGES OF THE PAPER BOOK IN SUPPORT OF DETAILED FINDINGS GIVEN BY THE LD. CIT(A ) AND ALSO SUBMITTED THAT INCOME FROM SALE OF SHARES HAS ALWAY S BEEN DISCLOSED ASSESSABLE UNDER THE HEAD OF CAPITAL GAIN , CONSISTENTLY BY THE ASSESSEE SINCE LAST MANY YEARS AND ACCEPTED AS SUCH BY THE REVENUE ALWAYS. IN SOME OF THE YEARS, ORDERS WERE PASSED U/S 143(3). IT WAS IN NUTSHELL S UBMITTED BY HIM THAT FOLLOWING FACTS AND FIGURES CAN BE VERIFIE D FROM THE EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AS WELL AS BEFORE THE TRIBUNAL:- 1. INCOME FROM BUSINESS AND OTHER SOURCES IS MORE THAN 97.5% OF CAPITAL GAINS (PAGE NO. 51) 2. THE INVESTMENT ARE MADE OUT OF OWN FUNDS EARNED BY THE APPELLANT FROM HIS REGULAR BUSINESS ACTIVITY AND NO T FROM SACHIN R. TENDULKAR 7 BORROWINGS (PAGE NO. 31). 3. THE INCOME FROM INVESTMENTS IN SHARES / MUTUAL FUND S HAS BEEN ASSESSED AS CAPITAL GAINS IN ALL THE EARLI ER YEARS VIDE ORDERS PASSED UNDER SECTION 143(3) AND T HAT THERE ARE NO CHARGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE DURING THE YEAR UNDER CONSIDERATION. 4. THE APPELLANT HAS DISCLOSED THE AMOUNTS INVESTED UNDER THE CATEGORY 'INVESTMENT' AND HAS NOT REVALUED THE SAME IN THE BOOKS TO ADJUST THE REDUCTION IN MA RKET VALUE, IF ANY (PAGE NO.36). 5. THE INVESTMENT IN SHARES WITH PMS IS 4.86% OF THE T OTAL INVESTMENTS (PAGE NO. 54). 6. THE DIVIDEND INCOME IS FAR IN EXCESS OF THE CAPITAL GAINS (DIVIDEND INCOME IS 125 TIMES THE CAPITAL GAINS) (P AGE NO. 52). 7. INVESTMENT IN SHARES HELD UNDER PMS IS 7.6% OF TOTA L INVESTMENT UNDER PMS (PAGE NO. 55). INCOME UNDER THE HEAD CAPITAL GAIN IS 2.34% OF GROS S TOTAL INCOME (PAGE NO.51) 10. IT WAS ALSO SUBMITTED BY HIM THAT THE VIEW WHICH H AS FINALLY EMERGED ON THE BASIS OF JUDGMENTS OF VARIOU S COURTS WITH REGARD TO PMS ISSUE IS THAT MERELY BECAUSE SHA RES WERE PURCHASED AND SOLD WITH THE HELP OF PORTFOLIO MANAG ERS, IT WOULD NOT BECOME BUSINESS INCOME IF OTHERWISE AN AS SESSEE IS AN INVESTOR AND ALWAYS HELD THE SHARES AS PART OF I NVESTMENT. THE GAIN ARISING ON PURCHASE AND SALE OF SHARES WOU LD BE ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS . THE RELIANCE WAS PLACED BY HIM ON THE FOLLOWING JUDGMEN TS: 1. NALIN PRAVIN SHAH (1575/MUM/2012) MUMBAI 2. NALINI NAVIN BHAGWAT (53/MUM/20 10) MUMBAI 3. RADHA BIRJU PATEL (5382/MUM/2009) MUMBAI 4. ARA TRADING (13 TAXRNANN.COM 20) PUNE 5. APOORVA PATNI (54 SOT 9) PUNE 6. KRA TRADING (46 SOT 19) PUNE 7. JANAK S RANGWALA (11 SOT 627) MUMBAI SACHIN R. TENDULKAR 8 11. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AND SUBMISSIONS MADE AND EVIDENCES BROU GHT BEFORE US BY BOTH THE SIDES AS WELL AS JUDGMENTS RE LIED UPON BY THE AO, LD. CIT(A) AS WELL AS LD. COUNSEL OF THE ASSESSEE BEFORE US. IT HAS BEEN NOTED BY US AT THE VERY OUTS ET THAT THE ASSESSING OFFICERS MAIN THRUST WAS THAT INCOME ARI SING TO THE ASSESSEE FROM PURCHASE ON SALE OF SHARES WOULD BE A SSESSABLE AS BUSINESS INCOME BECAUSE THE ASSESSEE HAD AVAILED THE SERVICE OF PORTFOLIO MANAGERS. THOUGH, THE ASSESSEE HAD POINTED OUT TO THE AO ON WITHOUT PREJUDICE BASIS TH AT THE GAIN ARISING ON SHARES SOLD THROUGH PORTFOLIO MANGER WAS OF A MINOR AMOUNT AND SUBSTANTIAL AMOUNT OF GAIN WAS EARNED TH ROUGH SHARES SOLD WITHOUT THE HELP OF PORTFOLIO MANAGER, BUT DESPITE THAT AO ASSESSED THE ENTIRE AMOUNT OF GAIN AS BUSIN ESS INCOME, COMPRISING OF GAIN EARNED ON SHARE SOLD WIT H OR WITHOUT THE SERVICE OF PORTFOLIO MANAGERS. THUS, IT IS INDICATIVE OF THE FACT THAT ASSESSMENT ORDER WAS PASSED BY THE AO WITHOUT PROPERLY ANALYZING THE FACT AND FIGURES AND DISREGARDING THE SUBMISSIONS OF THE ASSESSEE AS WEL L AS PAST HISTORY OF THE ASSESSEE WHICH HAS BEEN ACCEPTED ALL ALONG BY THE PREDECESSORS OF THE AO IN ALL OF THE PAST YEARS . LD. CIT(A) MADE PROPER ANALYSIS OF FACTS BEFORE DECIDING THIS ISSUE AND RECORDED DETAILED FINDINGS BEFORE HOLDING THAT THE GAIN EARNED BY THE ASSESSEE ON SALE AND PURCHASE OF SHARES WAS ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS . THE RELEVANT PART OF FINDINGS OF LD. CIT(A) IS REPRODUC ED HEREUNDER: I HAVE DULY CONSIDERED THE ABOVE SUBMISSIONS OF THE APPELLANT. IN PARA 8 OF THE ORDER, THE AO HAS MENTIONED THAT THE PROFIT ON SALE OF SHARES SHOWN B Y SACHIN R. TENDULKAR 9 THE APPELLANT IS RS.1,44,85,693/- (RS.85,56,188 + 83,11,319 - 23,81,814) WHICH HE HAS TREATED AS INCOME FROM BUSINESS. 7.1. DURING THE COURSE OF APPELLATE PROCEEDINGS, DETAILED BREAK UP OF ABOVE PROFITS HAS BEEN FURNISH ED. THE SAME BEING AS FOLLOWS: AS PER INCO ME TAX LONG TERM CAPITAL GAINS SHORT TERM CAPITAL GAINS TOTAL C APITAL GAINS M.F. PARTI CULAR S SHARES M.F. DEB /FUNDS SHARES/ MF(STT) M.F. SHARES M.F. DEB/ FUNDS TOTAL PM S 9,913,151 2,629 9265237 6683623 902107 (3,229,528) 904,799 9,265,237 6,940,508 DIRE CT INVE ST MEN T 1,779,977 5039683 -. 2405326 91679801 4,185,303 3,3 59,882 - 7,545,185 TOTA L 8,133,174 5042312 9265237 9088949 777631 955,775 4, 264,681 9,265,237 14,485,693 7.2. FURTHER, THE ANALYSIS OF SHORT TERM CAPITAL GA IN FURNISHED BY THE APPELLANT IS AS FOLLOWS: PARTICULARS PMS DIRECT TOTAL EQUITY (STT PAID) 2270494 2405327 4675821 MUTUAL FUNDS (STT PAID) 4413129 - 4413129 TOTAL 6683623 2405327 9088950 THE HOLDING PERIOD OF SHARES UNDER THE PMS AND DECL ARED UNDER THE HEAD SHORT TERM CAPITAL GAIN HAS ALSO BEE N FURNISHED BY THE APPELLANT AS FOLLOWS: STCG AVG. P.O, HOLDING PMS ICICI-80063A RELIANCE CAP-100821 1285897 984597 2270494 123 DAYS 174 DAYS POA SACHIN R. TENDULKAR 10 DIRECT HOLDING 2405327 82 DAYS TOTAL 6946315 7.3. THE ABOVE ANALYSIS, THEREFORE, WOULD SHOW: (1)FROM THE SALE OF SHARES HELD UNDER THE PMS FOR A PERIOD OF MORE THAN 12 MONTHS, THERE IS NO PROFIT. ON THE CONTRARY, THERE IS LOSS OF RS.99,13,151/-. THE LONG TERM CAPITAL GAIN UNDER THE PMS IS RECORDE D ON SALE OF MUTUAL FUNDS AND DEBENTURES/ FUNDS ONLY. BESIDES, THE PMS, THERE IS LTCG FROM DIRECT INVESTM ENT MADE BY THE APPELLANT TO THE EXTENT OF RS.17,17,977 /- AND UNDER THE HEAD OF MUTUAL FUND, IT IS RS.34,686/ - ONLY. OVERALL, THERE IS A LOSS OF RS.81,33,174/- FR OM SHARES HELD AS LONG TERM CAPITAL ASSETS. SIMILARLY, THERE IS PROFIT OF RS.66,83,623/- ONLY FROM SHARES HELD FOR LESS THAN ONE YEAR AND FROM THE SHARES HELD AS DIRECT INVESTMENT, THERE IS SHORT TERM CAPI TAL GAIN OF RS.24,05,326/-. OVERALL SHORT TERM CAPITAL GAIN IS RS.90,88,949/-. THE APPELLANT HAS ALSO RECORDED LOSS OF RS.16,79,801/- ON SHARES OF MUTUAL FUNDS UNDER 'DIRECT INVESTMENT', AS SHORT TERM CAPI TAL LOSS. (2) THE AVERAGE HOLDING PERIOD OF SHARES UNDER THE PMS IS 123 DAYS UNDER THE ICICI PORTFOLIO AND 174 DAYS IN THE RELIANCE PORTFOLIO, WHEREAS, IT IS 82 DAYS WHERE SHARES HAVE BEEN HELD UNDER THE HEAD 'DIRECT INVESTMENTS'. (3) OUT OF THE TOTAL INCOME OF RS.29.20 CR. DECLARE D BY THE APPELLANT RS. 19.78 CR. HAS BEEN DECLARED UNDER THE HEAD 'BUSINESS INCOME' WHICH IS 67.66% OF THE TOTAL INCOME WHEREAS, INCOME DECLARED UNDER THE HEAD' 'CAPITAL GAINS' IS RS.68,46,150/- WHICH IS 2.34% ONLY, AND INCOME T RS.8.76 CR. FROM 'OTHER SOURCES' CONSTITUTES 30% OF THE GROSS TOT, INCOME. (4) THE TOTAL OF DIVIDEND AND CAPITAL GAIN DECLARED BY THE APPELLANT RS.6. 16 CR., OUT OF WHICH DIVIDEN D INCOME FROM INVESTMENT IN SHARES MUTUAL FUND IS RS.4.71 CR., WHICH IS 76.49% OF THE TOTAL INCOME AND CAPITAL GAIN FROM INVESTMENT IN SHARES IN MUTUAL FUNDS IS RS.1.44 C WHICH IS 23.51% OF THE AB OVE INCOME. SACHIN R. TENDULKAR 11 (5) ON ANALYSIS OF INVESTMENT OF THE APPELLANT, IT IS SEEN THAT OUT OF THE TOTE INVESTMENT OF RS, 155.17 CR., INVESTMENT IN PMS IS RS-21.73 CR. LC 14.01% OF THE TOTAL INVESTMENT. (6) THE APPELLANT'S MAJOR SOURCE OF INCOME DURING T HE YEAR IS FROM SPORT RELATED ACTIVITIES INCLUDING ENDORSEMENTS. (7) THE APPELLANT IS NOT A TRADER IN SHARES AND THE OVERALL INVESTMENT PATTERN SHOWS THAT THE INVESTMEN T IN SHARES IS TO EARN DIVIDEND AN INCOME FROM SHARES AS AND WHEN OPPORTUNITY ARISES. 7.3.2 UPON DUE CONSIDERATION OF THE SUBMISSIONS OF THE APPELLANT, I FIND THAT THE SHORT TERM CAPITAL GAIN HAS BEEN ACCOUNTED IN THE TWO SCHEMES OPERATED UNDER TH E PMS. IN SO FAR AS THE INCOME UNDER THE HEAD CAPITAL GAINS ARISING UNDER PMS IS CONCERNED, THE ISSUE AS TO WHETHER IT IS 'BUSINESS' OR 'CAPITA GAINS' WAS DECI DED IN FAVOUR OF THE REVENUE IN THE CASE OF M/S. RADIAL INTERNATIONAL, RELIED UPON BY THE A.O., WHEREIN ITA T, DELHI HELD THAT IT IS 'BUSINESS' INCOME. HOWEVER, T HE MUMBAI BENCH OF THE ITAT IN THE CASE OF M/S SALIL S HAH FAMILY TRUST (ITA NO.2446/MUM/2012) HAS DULY CONSIDERED THE DECISION OF THE ITAT DELHI BENCH IN THE CASE OF RADIALS INTERNATIONAL AND HELD, AS FOLLOWS: 'THE ISSUE, WHETHER THE INCOME FROM SALE AND PURCHA SE OF SHARES IN A PARTICULAR CASE SHOULD BE TREATED AS CAPITAL GAIN OR BUSINESS, INCOME HAS BEEN A DEBATABLE ISSUE AND THERE ARE CONFLICTING DECISIONS OF THE TRIBUNAL ON THIS ISSUE. EACH CASE IS, THEREF ORE, TO BE BASED ON ITS OWN FACTUAL SITUATION. IT IS POSSIB LE FOR AN INVESTOR TO SELL SHARES AFTER HOLDING FOR LESS THAN A YEAR IN ORDER TO RESHUFFLE PORTFOLIO. IN THE PRESENT CAS E, IT IS NOT IN DISPUTE THAT: THE AVERAGE HOLDING PERIOD IS 178 DAYS. THE 1TAT PUNE BENCH IN THE CASE OF APOORVA PATNI VS ACIT (SUPRA) HAS HELD THAT 'HAVING REGARD TO OPERAT ING MAXIMUM OF A DISCRETIONARY PORTFOLIO MANAGEMENT AGREEMENT, THE RELATIONSHIP BETWEEN THE PMS PROVIDER AND THE ASSESSEE CANNOT BE CONTEMPT AS THA T OF A MERE AGENT AS UNDERSTOOD IN THE COMMON PARLANCE.' IN THIS BACKGROUND, THE FINDING OF THE LD. CIT (A) THAT THE PMS ARE NOTHING BUT AGENTS WORKING FOR AND ON BEHALF SACHIN R. TENDULKAR 12 OF THE ASSESSEE IS NOT CORRECT. ALL DECISIONS REGAR DING INVESTMENTS, ITS TIMINGS ETC ARE MADE BY THE PMS PROVIDER AND NOT BY THE ASSESSOR'S INVESTMENT. THE CONTENTION OF THE REVENUE AUTHORITIES THAT IN THE A SSESSEE INASMUCH AS IT HAD NO CONTROL ON SUCH DECISION MAKI NG IN A PMS ARRANGEMENT BECAUSE SUCH DECISIONS WERE TAKEN BY THE PMS PROVIDER. IN SO FAR AS OTHER OBJECTIONS OF THE REVENUE AUTHO RITIES THAT THERE WAS VOLUME AND FREQUENCY OF TRANSACTIONS WERE LARGE SO AS TO CONSTITUTE BUSINESS ACTIVITY. W E FIND THAT THE ASSESSEE HAS ENGAGED 4 PMS PROVIDER, HAS TRANSACTED IN 7 SHARES AND THE TOTAL NUMBER OF TRANSACTION IS 110. IN A STOCK EXCHANGE, WERE MORE THAN 5000 SHARES ARE TRADED VERY DAY, THE OBSERVATI ONS OF THE LOWER AUTHORITIES DO NOT CARRY MUCH WEIGHT.. ...... IT IS ALSO WORTH NOTHING THAT FOR THE METHOD OF VAL UATION OF STOCK OF SHARES REFLECTED IN THE BALANCE SHEET, THE ADMITTED POSITION IS THAT THE ASSESSEE HAS NOT ADOP TED BY A BUSINESS CONCERN. A BUSINESS ASSET IS VALUED A T THE COST OR MARKET PRICE WHICHEVER IS LESS BUT IN T HE ASSESSEE'S CASE, IT IS NOT SO. THE ASSESSEE HAS NOT ADOPTED THE PREVALENT METHOD RATHER THE INVESTMENTS HAVE BE EN SHOWN AT COST PRICE ONLY. THE MOST IMPORTANT FACTOR WHICH HAS BEEN IGNORED BY THE LOWER AUTHORITIES IS THAT THERE ARE NO BORROWED FUNDS. THE ENTIRE INVESTMENTS HAVE COME OUT OF THE CORPUS FUND OF THE ASSESSEE. THEREFORE, THE CLAIM OF REVENUE AUTHORITIES THAT THE ASSESSEE HAS INDULGED IN BUSINESS ACTIVITI ES IN THE GUISE OF SHARE INVESTMENT DOES NOT HOLD ANY WAT ER. CONSIDERING THE FACTS ANT THE SUBMISSION AND THE JU DICIAL DECISIONS CONSIDERED HEREINABOVE, IN OVER CONSIDERA TE VIEW, THE DECISION OF THE LD. CIT(A) SOLELY BASED O F LD. CIT(A) WE HAVE NOT HESITATION TO HOLD THAT CONSIDER ING THE NATURE OF TRANSACTION THROUGH PORTFOLIO MANAGEMENT SERVICES PROVIDERS IN THE LIGHT OF THE JUDICIAL PRONOUNCEMENT DISCUSSED HEREINABOVE, THE TRANSACTIONS HAVE RESULTED INTO CAPITAL GAINS, STCG AND LTCG AS RETURNED BY THE ASSESSEE. THEREFORE, TH E A.O. IS DIRECTED TO ACCEPT THE CAPITAL GAINS AS RET URNED BY THE ASSESSEE.' 7.3.3 IN YET ANOTHER RECENT DECISION DTD 13.11.20 1 3 IN SACHIN R. TENDULKAR 13 IT A NO. 3159/ MUM/ 2012 IN THE CASE OF ANUSUYA SUR EN MIRCHANDANI, THE ITAT HELD AS FOLLOWS: 'WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THAT MATERIAL BEFORE US. WE FIND THAT SIMILAR ISSUE WAS DECIDED BY US IN THE CASE OF MANAN NALIN SHAH (SUPR A). IN THAT MATTER THE ONLY ISSUE WAS AS WHETHER THE PR OFIT ARISING TO THE ASSESSEE THROUGH THE TRANSACTION CAR RIED OUT FOR PURCHASE AND SALE OF SHARES AND MUTUAL FUND S THROUGH PMS WAS TO BE ASSESSED UNDER THE HEAD BUSINESS INCOME OR CAPITAL GAINS. AFTER CONSIDERING THE DECISION DELIVERED BY THE PUNE BENCH OF THE TRIBUNA L IN ARA TRADING & INVESTMENT PUT LTD (SUPRA), IT WAS HE LD THAT IN THE PMS THERE WAS NOT ASSURED GUARANTEE AGAINST THE LOSS OR DEGENERATION OF CAPITAL. AS PER THE SEBI GUIDELINES, THE PORTFOLIO MANAGER WAS AUTHORIZ ED TO PURCHASE AND SALE OF SHARES ON BEHALF OF THE CLIENT AGAINST UNDERTAKE PURCHASE/SALE OF SECURITIES, THAT THEY COULD MAKE INVESTMENT AT THEIR OWN DISCRETIONS , THAT THE INVESTMENT MADE BY THE ASSESSEE THROUGH PM S WAS MEANT FOR MAXIMIZATION OF WEALTH AND NOT WITH A VIEW TO PURCHASE/SALE OF SHARES, THAT DEPARTMENT HA D NOT DISPUTED THE FACT THAT PORTFOLIO MANAGERS HAD THE SALE AND ABSOLUTE DISCRETIONS TO MAKE INVESTMEN T FOR AND ON BEHALF OF THE ASSESSEE, THAT ASSESSEE HA D NO ROLE TO PLAY WITH REGARD TO MAKING OF INVESTMENT , THAT THE VERY NATURE OF PMS WAS THAT THE PROFIT WAS TO BE ASSESSED UNDER THE HEAD CAPITAL GAINS. WHILE PAS SING THE ORDER, WE HAVE TAKEN INTO CONSIDERATION THE ORD ER OF THE DELHI TRIBUNAL REFERRED ABOVE AS WELL AS THE ORDERS OF THE PUNE TRIBUNAL, CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT FAA WAS NOT JUSTIFIED IN HOLDING THAT SHARE TRANSACTIONS CARRIED OUT BY THE ASSESSEE THROUGH PMS WAS TAXABLE UNDER THE HEAD BUSINESS.' 7.3.4 IN VIEW OF THE ABOVE TWO DECISIONS OF THE MUM BAI BENCHES OF THE ITAT, IT IS NOW CLEAR THAT CAPITAL G AINS ARISING OUT OF TRANSACTIONS UNDER PMS ARE NOT FALLI NG UNDER THE 'BUSINESS' HEAD AND THEREFORE CANNOT BE TAXED AS BUSINESS RECEIPTS. 7.3.5. WHEN THE CAPITAL GAINS UNDER PMS ARE, EXCLUD ED, THE LONG TERM CAPITAL GAIN UNDER 'DIRECT INVESTMENT ' IS RS. 17.79 LAC, ON ACCOUNT OF SALE OF SHARES AND RS.50.3 9 LAC, SACHIN R. TENDULKAR 14 ON ACCOUNT OF SALE OF MUTUAL FUNDS AND, SHORT TERM CAPITAL GAIN UNDER 'DIRECT INVESTMENT' IS RS.24.05 LAC FROM SALE OF SHARES AND SHORT TERM CAPITAL LOSS UNDER 'D IRECT INVESTMENT' IS AT RS. 16.79 LAC. CONSIDERING THE OV ERALL INVESTMENT PATTERN, AND THE GROSS TOTAL INCOME OF T HE APPELLANT, THE LONG TERM CAPITAL GAIN CAN UNDER NO CIRCUMSTANCES BE CONSIDERED BUSINESS INCOME OF THE APPELLANT. THE SHORT TERM CAPITAL GAIN UNDER 'DIREC T INVESTMENT' IS RS.24.05 LAC ONLY AND THERE IS NO EVIDENCE TO SHOW THAT THE APPELLANT HAS TRADED IN SHARES TO MAKE PROFIT. THE CRITERIA APPLIED BY THE A.O., THEREFORE, DO NOT FIT INTO THE FACT OF THE APPELLAN T'S CASE. I, THEREFORE, CONSIDERING THE FACTS DISCUSSED ABOVE AN D STATED BY THE APPELLANT VIDE LETTER DTD.24.02.2014, REPRODUCED ABOVE, CANCEL THE AO'S ORDER TREATING TH E LONG TERM AND SHORT TERM CAPITAL GAINS DECLARED BY THE APPELLANT AS BUSINESS INCOME. 12. WE HAVE CAREFULLY EXAMINED ALL THE FACTUAL FINDING S RECORDED BY THE LD. CIT(A). IT IS NOTED BY US THAT MAJOR INCOME OF THE ASSESSEE IS INCOME FROM SPORTS ENDORSEMENT A ND OTHER SHARES. IN ADDITION TO THAT ASSESSEE HAD MADE INVES TMENT INTO SHARES. THE ENTIRE INVESTMENT HAS BEEN MADE BY THE ASSESSEE OUT OF ITS OWN FUNDS. NO AMOUNT OF SHARES HAS BEEN INVESTED FROM ANY BORROWING. HUGE AMOUNT OF DIVIDEND INCOME HAS BEEN EARNED BY THE ASSESSEE WHICH IS ROUGHLY 3.25 T IMES OF THE AMOUNT OF CAPITAL GAIN. THE INVESTMENT IN SHARES WI TH PORTFOLIO MANAGER IS MERELY TO THE EXTENT OF 4.8% OF THE TOTA L INVESTMENTS. THE ASSESSEE HAS DISCLOSED THE AMOUNTS INVESTED IN THE SHARES IN THE CATEGORY OF INVESTMENTS RIGH T FROM BEGINNING. THE SHARES HAVE NEVER BEEN REVALUED TO B RING THEM IN LINE WITH THE MARKET VALUE AS WOULD HAVE OTHERWI SE BEEN DONE IN THE CASE OF STOCK-IN-TRADE. THE STOCK IN TR ADE IS ALWAYS DISCLOSED AT COST OR MARKET PRICE WHICH IS LOWER. N O SUCH EXERCISE HAS BEEN DONE BY THE ASSESSEE IN THE CASE OF SHARES SACHIN R. TENDULKAR 15 SINCE THESE HAVE BEEN HELD UNDER THE HEAD OF INVES TMENTS. IT IS ALSO NOTED FROM THE FACTS BROUGHT BEFORE US THAT IN THE CASE OF SHORT TERM CAPITAL GAINS AVERAGE PERIOD OF HOLDI NG RANGED BETWEEN FROM 82 DAYS TO 123 DAYS. IT IS NOT THE CAS E OF THE AO THAT SHARES HAVE BEEN PURCHASED AND SOLD ON DAILY B ASIS OR WITHOUT TAKING DELIVERY AND GIVING DELIVERY. IT IS FURTHER NOTED BY US THAT LD. CIT(A) HAS RIGHTLY ANALYSED THE FACT S WITH PROPER REASONING TO REACH ON THE CONCLUSION THAT CONDUCT O F THE ASSESSEE AND FACTS AND CIRCUMSTANCES OF THE CASE IN DICATE THAT THE ASSESSEE DID NOT CARRY OUT THE ACTIVITY OF MAKI NG INVESTMENT IN SHARES AS A SYSTEMATIC AND ORGANIZED ACTIVITY OF CARRYING OUT SHARE TRADING OR BUSINESS. 13. IN ADDITION TO THE ABOVE, IT IS NOTED BY US THAT T HOUGH IN THE CASE OF ASSESSEE BEFORE US, THE SHARES HAVE ALW AYS BEEN SHOWN AS PART OF INVESTMENT IN ITS BALANCE SHEET IN ALL THE PAST YEARS CONSISTENTLY, BUT OTHERWISE TAXPAYERS HA VE EVEN BEEN PERMITTED TO SIMULTANEOUSLY CARRY OUT BUSINESS OF SHARES TRADING AS WELL INVESTMENTS INTO SHARES. THE CHOICE HAS BEEN GIVEN TO THE TAXPAYERS UNDER THE LAW THAT WHETHER S HARES ARE TO BE KEPT BY THEM AS PART OF INVESTMENT OR STOCK-I N-TRADE FOR THE PURPOSE OF BUSINESS. IT IS NOTED THAT CENTRAL BOARD OF DIRECT TAXES BY WAY OF ITS CIRCULAR NO.4/7 DATED 15 -06-2007 CLARIFIED THAT AN ASSESSEE CAN HAVE TWO PORTFOLIOS, I.E. ONE FOR INVESTMENT PURPOSES AND THE OTHER FOR BUSINESS PURP OSES. THE AMOUNT HELD IN THE INVESTMENT PORTFOLIO WOULD B E ASSESSABLE AS INCOME UNDER THE HEAD CAPITAL GAINS . RELEVANT PART OF THE CIRCULAR IS REPRODUCED BELOW: '10. CBDT ALSO WISHES TO EMPHASISE THAT IT IS POSSI BLE FOR A TAX PAYER TO HAVE TWO PORTFOLIOS, I.E., AN SACHIN R. TENDULKAR 16 INVESTMENT PORTFOLIO COMPRISING OF SECURITIES WHICH ARE TO BE TREATED AS CAPITAL ASSETS AND A TRADING PORTF OLIO COMPRISING OF STOCK-IN-TRADE WHICH ARE TO BE TREATE D AS TRADING AS-SETS. WHERE AN ASSESSEE HAS TWO PORTFOLI OS, THE ASSESSEE MAY HAVE INCOME UNDER BOTH HEADS I.E. CAPITAL GAINS AS WELL AS BUSINESS INCOME. 11. ASSESSING OFFICERS ARE ADVISED THAT THE ABOVE PRINCIPLES SHOULD GUIDE THEM IN DETERMINING WHETHER , IN A GIVEN CASE, THE SHARES ARE HELD BY THE ASSESSEE A S INVESTMENT (AND THEREFORE GIVING RISE TO CAPITAL GA INS) OR AS STOCK-IN-TRADE (AND THEREFORE GIVING RISE TO BUS INESS PROFITS). THE ASSESSING OFFICERS ARE FURTHER ADVISE D 'THAT NO SINGLE PRINCIPLE WOULD BE DECISIVE AND THE TOTAL EFFECT OF ALL THE PRINCIPLES SHOULD BE CONSIDERED TO DETER MINE WHETHER, IN A GIVEN CASE, THE SHARES ARE HELD BY TH E ASSESSEE AS INVESTMENT OR STOCK-IN-TRADE.' 14. OUR ATTENTION WAS ALSO DRAWN ON CBDT CIRCULAR NO.6 OF 2016 DATED 29-02-2016 WHEREIN THE BOARD GAVE FURTHE R GUIDELINES WITH REGARD TO THE TREATMENT OF PROFIT A S ARISING ON SALE / PURCHASE OF SHARES. IT WAS INTER-ALIA OBSERVED IN THE CIRCULAR THAT THE AO SHALL TAKE INTO ACCOUNT THE FO LLOWING GUIDELINES IN DECIDING WHETHER THE SURPLUS GENERATE D FROM SALE OF LISTED SHARES OR OTHER SECURITIES WOULD BE TREAT ED AS CAPITAL GAINS OR BUSINESS INCOME :- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS T O TREAT THEM AS STOCK-IN-TRADE, THE INCOME ARISING FROM TRA NSFER OR SUCH SHARES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING , THE DATE OF ITS TRANSFER, IF THE ASSESSEE DESIRES T O TREAT THE INCOME ARISING FROM THE TRANSFER THEREOF AS CAP ITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TAKEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REMAIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED SACHIN R. TENDULKAR 17 TO ADOPT A DIFFERENT/CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; C) IN ALL OTHER CASES, THE NATURE OF TRANSACTION (I .E. WHETHER THE SAME IS IN THE NATURE OF CAPITAL GAIN O R BUSINESS INCOME) SHALL CONTINUE TO BE DECIDED KEEPI NG IN VIEW THE AFORESAID CIRCULARS ISSUED BY THE CBDT. 15. IT WAS FURTHER OBSERVED IN THE CIRCULAR AS UNDER:- 5. IT IS REITERATED THAT THE ABOVE PRINCIPLES HAVE BEEN FORMULATED WITH THE SOLE OBJECTIVE OF REDUCING LITI GATION AND MAINTAINING CONSISTENCY IN APPROACH ON THE ISSU E OF TREATMENT OF INCOME DERIVED FROM TRANSFER OF SHA RES AND SECURITIES. ALL THE RELEVANT PROVISIONS OF THE ACT SHALL CONTINUE TO APPLY ON THE TRANSACTIONS INVOLVI NG TRANSFER OR SHARES AND SECURITIES. 16. THUS, FROM THE PERUSAL OF THE ABOVE SAID CIRCULARS , I.E. CIRCULAR NO.4/2007 AND CIRCULAR NO.6/2016, INTER-ALIA , FOLLOWING POINTS CAN BE NOTED:- (I) AN ASSESSEE CAN HAVE EVEN TWO PORTFOLIOS, I.E. INVESTMENT AND BUSINESS; (II) THE ASSESSEE HAS CHOICE OF DECIDING WHETHER THE SHARES ARE PURCHASED IN INVESTMENT PORTFOLIO OR BUSINESS PORTFOLIO. ONCE A PARTICULAR DECISION IS TAKEN BY THE ASSESSEE, THEN HE IS OBLIGED TO FOLLOW THE SAME IN ALL SUBSEQUENT YEARS; IT WOULD IN TURN MEAN THAT AO SHALL ALSO BE BOUND TO FOLLOW CONSISTENT APPROACH; (III) CBDT ALSO WANTS REDUCTION IN LITIGATION AND MAINTAINING THE CONSISTENCY BY THE REVENUE AS WELL AS BY THE ASSESSEE IN APPROACH FOLLOWED ON THE ISSUE OF TREATMENT OF INCOME DERIVED FROM SALE OF SHARES. 17. THUS, FROM THE ABOVE, IT IS CLEAR THAT THE AS PER LAW INITIAL CHOICE WAS WITH THE ASSESSEE THAT WHETHER INITIAL A MOUNT SACHIN R. TENDULKAR 18 INVESTED IN THE SHARES WAS TO BE TREATED AS PART OF INVESTMENTS OR STOCK-IN-TRADE. THE ASSESSEE EXE RCISED ITS CHOICE AND KEPT THE SAME AS PART OF INVESTMENTS. IT IS WELL SETTLED LAW THAT A TAX PAYER CAN VERY WELL PLAN IT S AFFAIRS IN SUCH A MANNER SO AS TO MINIMIZE THE BURDEN OF TAX S O LONG AS NO MALA FIDE OR BOGUS PRACTICES ARE FOLLOWED AND TAX PLANNING IS DONE BY THE ASSESSEE STRICTLY WITHIN THE FRAMEWO RK OF LAW. 18. WE HAVE ANALYSED THIS ISSUE FROM ANOTHER PERSPECTI VE ALSO. THE INCOME ARISING ON ACCOUNT OF SALE -PURCHASE OF SHARES IF ASSESSED UNDER THE HEAD OF CAPITAL WOULD OF COURSE BE TAXABLE AT RELATIVELY LOWER RATE OF TAX AND IS ALSO EXEMPT IN SOME CASES, AS COMPARED TO THE BUSINESS INCOME WHICH IS TAXABLE AT RELATIVELY HIGHER RATE OF TAX. BUT, IF SUCH INCOME IS ASSESSABLE UNDER THE HEAD INCOME FROM BUSINESS THEN THE ASSESS EE WOULD BE ENTITLED FOR CLAIM OF SET OF EXPENSES INCURRED I N THE NORMAL COURSE OF BUSINESS TO EARN SUCH INCOME AND THE TAX WOULD BE PAYABLE ONLY ON THE AMOUNT OF NET PROFIT. THEREFORE , WHILE DRAFTING THE PROVISIONS THE LEGISLATURE DID NOT MAK E ANY WATER TIGHT RULE FOR DETERMINATION OF NATURE OF INCOME AR ISING FROM PURCHASE AND SALE OF SHARES TO BE ASSESSED UNDER TH E HEAD OF CAPITAL GAINS OR BUSINESS INCOME. IT HAS BEEN LEFT UPON THE WISDOM OF THE ASSESSEE AND FACTS AND CIRCUMSTANCES OF THE CASE. UNDER THESE CIRCUMSTANCES, IF ASSESSEE HAS CH OSEN A PARTICULAR COURSE AFTER DECIDING ALL THE PROS AND C ONS OF BOTH THE OPTIONS AVAILABLE TO IT AND IF THE CHOICE HAS B EEN EXERCISED IN A BONAFIDE MANNER, THE BOARD HAS ADVISED AS DISCUSSED ABOVE THAT THE AO DOES NOT HAVE LIBERTY UNDER THE L AW TO SACHIN R. TENDULKAR 19 THRUST HIS OPINION UPON THE ASSESSEE, SO LONG AS TH E ASSESSEE FOLLOWS HIS CHOICE ON CONSISTENT BASIS. 19. TURNING BACK TO THE FACTS OF THE CASE BEFORE US, I T IS APPARENT THAT THE ASSESSEE HAD ADOPTED A PARTICULAR COURSE. HE EXPLICITLY CATEGORISED THE AMOUNT INVESTED IN SH ARES AS PART OF INVESTMENTS AND NOT AS PART OF STOCK-IN-TRADE . IN OUR CONSIDERED OPINION, AOS ALLEGATION THAT ASSESSEE D ID NOT MAKE INVESTMENT INTO SHARES BUT CARRIED IT OUT AS BUSI NESS ACTIVITY MERELY RELYING UPON FACTORS LIKE VOLUME OR FREQUENC Y OF TRANSACTIONS ALONE, WAS NOT IN ACCORDANCE WITH LAW AND FACTS OF THIS CASE. 20. FURTHER, THE AO HAD RELIED UPON THE JUDGMENT OF DE LHI BENCH ITAT IN THE CASE OF RADIAL INTERNATIONAL (SUP RA) TO HOLD THAT GAIN ARISING ON SALE OF SHARES BY AVAILING SER VICES OF PORTFOLIO MANAGER SHALL AMOUNT TO BUSINESS INCOME. IN THIS REGARD IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE A FORESAID DECISION HAS BEEN REVERSED BY THE HONBLE DELHI HIG H COURT IN ITS ORDER PASSED ON 25 TH APRIL 2014 REPORTED IN 367 ITR 1 (DELHI) WHEREIN IT HAS BEEN HELD BY THEIR LORDSHIPS AFTER CONSIDERING ENTIRE SCHEME OF PMS AS WELL AS PROVISI ONS OF LAW THAT CATEGORIZATION OF THE TRANSACTIONS WHETHER GIV ING RISE TO BUSINESS INCOME OR INCOME FROM CAPITAL GAINS WOULD NOT NECESSARILY BE DEPENDING UPON THE FACT THAT WHETHER PURCHASE AND SALE OF SHARES ARE DONE WITH THE HELP OF PORTFO LIO MANAGER OR NOT. IT WAS HELD THAT PMS AGREEMENT IS MERE AGRE EMENT OF AGENCY AND CANNOT BE USED TO INFER ANY INTENTION TO MAKE PROFIT. SIMILARLY, IN THE CASE OF CIT V. KAPUR INVESTMENTS P. LTD. 61 TAXMANN.COM 91 HONBLE KARNATAKA HIGH COURT HAD SACHIN R. TENDULKAR 20 ADOPTED THE SIMILAR VIEW FOLLOWING THE AFORESAID JU DGMENTS OF HONBLE DELHI HIGH COURT BY INTER ALIA OBSERVING AS UNDER: IN OUR OPINION, INVESTMENT THROUGH PORTFOLIO MANAGEMEN T SERVICE, WHICH MAY DEAL WITH THE SHARES OF THE ASSE SSEE SO AS TO DERIVE MAXIMUM PROFITS CANNOT BE TERMED AS BUSINESS OF THE ASSESSEE BUT WOULD ONLY BE A CASE O F A MORE CAREFUL AND PRUDENT MODE OF INVESTMENT, WHICH HAS BEEN DONE BY THE ASSESSEE. FUNDS WHICH LIE WITH THE ASSESSEE CAN ALWAYS BE INVESTED (FOR EARNING HIGHER RETURNS) IN THE SHARES EITHER DIRECTLY OR TH ROUGH PROFESSIONALLY MANAGED PORTFOLIO MANAGEMENT SCHEME AND BY DOING SO, IT WOULD NOT MEAN THAT THE ASSESSE E IS CARRYING ON THE BUSINESS OF INVESTMENT IN SHARES. PROFITS FROM SUCH INVESTMENT, EITHER DIRECTLY OR TH ROUGH PROFESSIONALLY MANAGED FIRM, WOULD STILL REMAIN AS PROFITS TO BE TAXED AS CAPITAL GAINS AS THE SAME WI LL NOT CHANGE THE NATURE OF INVESTMENT WHICH IS IN SHARES, AND THE LAW PERMITS IT TO BE TAXED AS CAPITAL GAINS AND NOT AS BUSINESS INCOME 21. THUS, THE REASONING GIVEN BY THE AO THAT THE IMPUG NED INCOME WOULD BE ASSESSABLE UNDER THE HEAD INCOME FR OM BUSINESS MERELY BECAUSE THE ASSESSEE HAS AVAILED TH E SERVICE OF PORTFOLIO MANAGER IS NOT SUSTAINABLE IN VIEW OF THE AFORESAID JUDGMENTS AND FACTS OF THE CASE BEFORE US. 22. WE HAVE ALSO ANALYSED CONSISTENCY PART AND NOTED T HAT THE ASSESSEE HAS RIGHT FROM BEGINNING TREATED THE AMOUN T HELD IN SHARES AS PART OF INVESTMENT. IN A.Y. 2005-06 THE A SSESSEE KEPT THE SHARES AS PART OF INVESTMENT AND RESULTANT GAIN WAS OFFERED TO TAX AS INCOME ASSESSABLE UNDER THE HEAD INCOME FROM CAPITAL GAINS. FEW QUERIES WERE RAISED BY THE AO IN THIS REGARD. IN RESPONSE, PROPER REPLIES WERE GIVEN BY T HE ASSESSEE AND THEREAFTER AO ACCEPTED THE SAME AS INCOME ASSES SABLE UNDER THE HEAD INCOME OF CAPITAL GAIN VIDE ORDER PA SSED U/S 143(3) DATED 14-12-2007. SIMILARLY IN A.Y. 2006-07, SACHIN R. TENDULKAR 21 ASSESSMENT ORDER WAS PASSED U/S 143(3) VIDE ORDER D ATED 26.12.2008 WHEREIN GAIN ARISING ON SALE OF PURCHASE OF SHARES WAS ASSESSED UNDER THE HEAD INCOME FROM CAPITAL GAI NS. SIMILARLY IN A.Y. 2007-08 ALSO THE ASSESSMENT PROCE EDINGS WERE DONE U/S 143(3) WHEREIN QUARRIES WERE RAISED B Y THE AO WHICH WERE REPLIED BY THE ASSESSEE BY FILING DETAIL ED REPLY TO JUSTIFY ITS CLAIM. AFTER CONSIDERING THE SAME, THE AMOUNT OF GAIN ARISING FROM SALE OF PURCHASE OF SHARES WAS AS SESSED AS INCOME FROM CAPITAL GAINS BY THE AO. SIMILARLY, IN A.Y. 2008- 09 ALSO ASSESSMENT PROCEEDINGS U/S 143(3) WHEREIN A O ACCEPTED THE CLAIM BY THE ASSESSEE WHEREIN INCOME F ROM SHARES WAS ACCEPTED AS ASSESSABLE UNDER THE HEAD CA PITAL GAINS. IT WAS FURTHER BROUGHT TO OUR NOTICE THAT EV EN IN THE SUBSEQUENT YEARS I.E. A.YS. 2012-13 AND 2013-14 & 2 014-15 ALSO GAIN ARISING ON SALE AND PURCHASE OF SHARES WA S SHOWN UNDER THE HEAD INCOME FROM CAPITAL GAIN AND HAS BEE N ACCEPTED AS SUCH BY THE AO IN THE ORDERS PASSED U/S 143(3) OF THE ACT. 23. IT WAS SPECIFICALLY BROUGHT TO OUR NOTICE THAT IN A.Y. 2012- 13, SPECIFIC QUERY WAS RAISED BY THE AO FOR TREATIN G THE INCOME ARISING ON SALE OF SHARES THROUGH PORTFOLIO MANAGER SERVICE AS BUSINESS INCOME. THE ASSESSEE FILED A DETAILED REPL IED TO THE AO VIDE ITS LETTER DATED 12 TH JANUARY 2015 WHEREIN IT WAS SUBMITTED THAT THOUGH THE ASSESSEE HAD AVAILED SERV ICE OF PORTFOLIO MANAGER, BUT THE ASSESSEE HAD MADE INVEST MENT IN SHARES AND WAS NOT TRADER OF SHARES. IT WAS ALSO SU BMITTED THAT IN VIEW OF THIS FACT, DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RADIAL INTERNATIONAL (SUPRA ) WAS NOT SACHIN R. TENDULKAR 22 APPLICABLE. THE AO CONSIDERED THE REPLY AND ACCEPTE D THE CLAIM OF ASSESSEE IN ASSESSMENT ORDER PASSED U/S 14 3(3) DATED 13-01-2015. SIMILARLY, QUERIES WERE RAISED IN A.Y. 2013-14 ALSO BUT AFTER CONSIDERING REPLY BY THE ASSESSEE, T HE CLAIM OF THE ASSESSEE WAS ACCEPTED IN THE ASSESSMENT ORDER P ASSED BY THE AO U/S 143(3) DATED 30 TH MARCH, 2016. 24. THUS, IN VIEW OF JUDGMENTS OF HONBLE SUPREME COUR T IN THE CASE OF RADHA SWAMI SAT SANG, VS. CIT 293 ITR 321(SC) AND CIT V. EXCEL INDUSTRIES LTD. 358 ITR 295(SC) , UPHOLDING PRINCIPAL OF CONSISTENCY AND IN VIEW OF T HE AFORESAID CIRCULAR OF THE CBDT AND IN VIEW OF FACTS OF THIS CASE AS DISCUSSED ABOVE, CLAIM OF THE ASSESSEE DESERVES TO BE UPHELD. THEREFORE, AFTER TAKING INTO ALL THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN VIEW OF THE DETAILED DISCUSSION MAD E BY US IN EARLIER PART OF OUR ORDER, WE FIND THAT THE DETAILE D FINDINGS RECORDED BY LD. CIT(A) FOR UPHOLDING THE CLAIM OF T HE ASSESSEE BY TREATING THE INCOME ARISING FROM PURCHASE AND SA LE OF SHARES AS ASSESSABLE UNDER THE HEAD OF CAPITAL GAI NS ARE WELL REASONED AND DO NOT REQUIRE ANY INTERFERENCE FROM O UR SIDE. THEREFORE, ORDER PASSED BY THE LD. CIT(A) ON THIS I SSUE IS UPHELD AND GROUND NO.1 RAISED BY THE REVENUE IS HER EBY DISMISSED. 25. GROUND NO.2: IN THIS GROUND THE REVENUE IS AGGRIEVED THAT THE ACTION OF LD. CIT(A) IN DELETING THE DISAL LOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D FOR RS.76,55,84 1/-. 26. THE BRIEF BACKGROUND AS CULLED OUT FROM THE ORDERS OF THE LOWER AUTHORITIES IS THAT THE AO OBSERVED THAT THE ASSESSEE RECEIVED EXEMPT INCOME IN THE NATURE OF SACHIN R. TENDULKAR 23 DIVIDEND TO THE EXTENT OF RS.68,02,975/-, HOWEVER, NO EXPENDITURE HAS BEEN DISALLOWED FOR EARNING OF THE SAID INCOME. THEREFORE, THE ASSESSEE WAS ASKED TO EXPLAI N AS TO WHY DISALLOWANCE U/S14A SHOULD NOT BE MADE. IN RESPONSE, THE ASSESSEE VIDE ITS LETTER DT. 22.1.13 STATED THAT ALL INVESTMENTS MADE BY HIM WERE ROUTED THROUGH SPECIALIZED ADVISORS APPOINTED BY HIM I.E. KOTAK & DSP MERILL LYNCH FOR HANDLING HIS INVESTMENTS AND DURING THE YEAR HE HAS PAID RS. 34,51,220/- ON THE SAID ACCOUNT, WHICH IS REFLECTED IN HIS 'CAPITAL ACCOUNT ' AND NOT DEBITED TO THE P&L ACCOUNT. IT WAS FURTHER STATED T HAT OUT OF THE ABOVE AMOUNT OF RS.31.51 LACS, AN AMOUNT OF RS.9,09,449/- WAS CLAIMED AGAINST CAPITAL GAINS AND BALANCE AMOUNT OF RS.25,41,771/- HAS BEEN DISALLOWED VOLUNTARILY U/S 14A BY NOT CLAIMING IT A S AN ALLOWABLE EXPENDITURE. THE ASSESSEES ASSERTION WAS THAT BESIDES THE ABOVE EXPENDITURE, HE DID NOT INCUR ANY OTHER EXPENDITURE FOR HANDLING HIS INVESTMENTS OR EARNING EXEMPT INCOME. BUT, AO DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE, AND INVOKED SECTION 14A READ WITH RULE 8D AND MADE DISALLOWANCE OF RS. 26,55,841/ - AS PER THE FO RMULA PRESCRIBED THEREIN. 27. IN APPEAL BEFORE THE LD. CIT(A), DETAILED SUBMISSI ONS WERE MADE. IT WAS INTER-ALIA ARGUED THAT ASSESSEE DID NOT CLAIM ANY EXPENDITURE RELATING TO EXEMPT INCOME. THEREFORE, A O HAS WRONGLY MADE DISALLOWANCE U/S 14A. LD. CIT(A) CONSI DERED THE SUBMISSIONS OF THE ASSESSEE AND DELETED THE DIS ALLOWANCE AFTER RECORDING THE DETAILED FINDINGS IN HIS ORDER. SACHIN R. TENDULKAR 24 28. DURING THE COURSE OF HEARING BEFORE US, LD. DR VEH EMENTLY SUPPORTED THE ORDER OF THE AO. HOWEVER, IN RESPONSE TO OUR QUERY THAT WHETHER ASSESSEE HAD DEBITED ANY EXPENSE S IN THE P & L ACCOUNT WHICH COULD HAVE DISALLOWED BY THE AO , HE WAS NOT ABLE TO SHOW ANY THING AND WAS NOT ABLE TO REBU T THE FACTUAL FINDINGS WHICH WERE RECORDED IN ITS APPEAL ORDER BY LD. CIT(A) WHILE DELETING THE DISALLOWANCE. 29. PER CONTRA, LD. COUNSEL OF THE ASSESSEE VEHEMENTLY SUPPORTED THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT DISALLOWANCE HAS RIGHTLY BEEN DELETED SINCE IT WAS CONTRARY TO LAW AND FACTS IN AS MUCH AS NO EXPENSES WERE CLAIME D IN THE P& L ACCOUNT MUCH LESS ANY EXPENSE ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. THEREFORE, NO DISALLOWANC E WAS POSSIBLE UNDER THE LAW. IN ADDITION TO THAT, LD. CO UNSEL SUBMITTED A BRIEF NOTE SUMMARIZING HIS ARGUMENTS FOR AGITATING DISALLOWANCE MADE U/S 14A; SAME IS REPROD UCED HEREUNDER: WITH RESPECT TO DISALLOWANCE UNDER SECTION 14A, THE ASSESSEE SUBMITS THAT IT HAS INCURRED NET EXPENSES OF RS.25.51 LACS IN RELATION TO INVESTMENT ACTIVITIES WHICH HAS BEEN CHARGED TO CAPITAL ACCOUNT AND THEREFORE HAS NOT CLAIMED ANY EXPENDITURE UNDER THE ACT AND THEREFORE DISALLOWANC E UNDER SECTION 14A IS NOT WARRANTED. 16. IT IS SUBMITTED THAT THE ASSESSEE MAINTAINS SEPARATE INCOME AND EXPENDITURE ACCOUNT FOR ITS BUSINESS INCOME. THE SURPLUS IN THE SAID ACCOUNT IS RS.19.61 CRORES (PG 32). THE BUSINESS INCOME AS PER SECTION 28-44 IS ARRIVED AT RS. 19.78 CRORES (PG 24 ) WHICH HAS BEEN ACCEPTED BY THE AO IN HIS ASSESSMENT ORDER. SINCE THE AO HAS ACCEPTED ALL THE EXPENDITURE AS ALLOWABLE AGAINST BUSINESS INCOME AN D THE ASSESSEE HAVING NOT CLAIMED ANY EXPENDITURE SACHIN R. TENDULKAR 25 AGAINST EXEMPT INCOME, PROVISIONS OF SECTION 14A AR E NOT APPLICABLE. 17. IN EARLIER YEARS I.E. AY 2007-08 AND 2008-09 THERE HAS BEEN NO DISALLOWANCE ON ACCOUNT OF SECTIO N 14A OF THE ACT (PGS 59-78). 18.THE SHARE TRANSACTION CHARGES AND PMS MANAGEMENT FEES ARE DEBITED TO CAPITAL ACCOUNT (PG 33) AND NOT CLAIMED AS EXPENDITURE EXCEPT RS. 9.09 LACS ON PROPORTIONATE BASIS AGAINST TAXABLE CAPITAL GAINS (PG 24 AND 26) WHICH HAS BEEN ALLOWE D IN THE ASSESSMENT ORDER. 19. ALTERNATIVELY, THE COMMON EXPENSES CHARGED TO PROFIT & LOSS ACCOUNT, IF ANY, IS ONLY TO THE EXTEN T OF RS. 22 LACS (PG 21 AND 32) AND THE RATIO OF INDIREC T COST TO PROFESSIONAL RECEIPT IS LESS THAN 1% AND IF THE EXPENSES NOT CLAIMED ON ACCOUNT OF PMS FEES AND SHARE TRANSFER ARE CONSIDERED THEN NO DISALLOWANCE IS WARRANTED. THE ASSESSEE HIMSELF IN THE RETURN OF INCOME DISALLOWED RS 12 LACS TOWAR DS PERSONAL EXPENSES (PG 50). 20. THE AO HAS NOT RECORDED THE SATISFACTION THAT ACCOUNTS MAINTAINED AND AUDITED ARE NOT CORRECT AS STATED ABOVE SO AS TO INVOKE SECTION 14A OF THE ACT. 21. THE ASSESSEE RELIES UPON THE FINDINGS OF CIT(A) AT PAGE 28 PARA 9 OF HIS ORDER AND SUBMISSIONS MADE BEFORE THE LD. CIT(A)(PGS 16-22) ON THE ISSUE OF SECTION 14A OF THE ACT. 30. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE LOWE R AUTHORITIES AND SUBMISSIONS MADE BEFORE US. LD. CIT (A) CONSIDERED THE FACTS OF THE CASE IN DETAIL AND DELE TED THE DISALLOWANCE BY OBSERVING AS UNDER: I HAVE, DULY CONSIDERED THE ABOVE SUBMISSION OF TH E APPELLANT AND FIND THAT THE APPELLANT HAS INCURRED TOTAL EXPENDITURE OF RS.34,51,220/- WHICH HAS BEEN PAID TO KOTAK/DSP FOR HANDLING OF HIS INVESTMENTS. THE ENTIRE AMOUNT HAS NOT BEEN DEBITED TO THE P&L ACCOUNT, BUT TO HIS CAPITAL ACCOUNT. THE APPELLANT HAS OUT OF THE SAID AMOUNT CLAIMED RS.9,09,449/- ON PROPORTIONATE BASIS BEING THE EXPENDITURE RELATED T O SACHIN R. TENDULKAR 26 EARNING OF CAPITAL GAINS. THUS, AMOUNT OF RS.25,41,771/- DEBITED IN THE 'CAPITAL ACCOUNT' OF THE APPELLANT IS THE DIRECT EXPENDITURE RELATING TO EARNING OF THE EXEMPT INCOME WHICH HAS NOT BEEN CLAIMED BY THE APPELLANT. AS FOR THE INDIRECT EXPENSES, THE APPELLANT'S ARGUMENT, WHICH IS WITHOUT PREJUDICE TO ITS SUBMISSION, IS THAT THE TOTAL AMOUNT OF EXPENDITURE CLAIMED IN THE P&L ACCOUNT IS RS.2,01,17,805/- OUT OF WHICH RS. 1,78,45,499/- IS DIRECTLY RELATABLE TO 'BUSINESS', ON ACCOUNT OF SERVICE TAX AND PROFESSIONAL FEES, DONATION, LEGAL AND PROFESSIONAL EXPENSES AND DEPRECIATION ON BUSINESS ASSETS AND AMOUNT OF RS.22,72,306/- ONLY IS THE COMMON EXPENDITURE WHICH HAS BEEN CHARGED TO THE P&L ACCOUNT. THE APPELLANT'S CONTENTION, THEREFORE, IS THAT EVEN IF DISALLOWANCE OF ANY EXPENDITURE IS WARRANTED UNDER THE ABOVE SECTION, THE SAME CANNOT EXCEED THE ABOVE AMOUNT OF RS.22,72,306/-. I HAVE DULY CONSIDERED THE SUBMISSION OF THE APPELLANT. AS PRESCRIBED UNDER RULE 8D, EXPENSES OF RS.25,41,771/- DIRECTLY RELATED TO EARNING OF EXEMP T INCOME HAS NOT BEEN CLAIMED IN THE P&L ACCOUNT, HENCE NOT APPLICABLE. SIMILARLY, INTEREST EXPENSES BEING 'NIL', THE SAME WILL NOT BE APPLICABLE. HOWEV ER, AT THE MOST AND WITHOUT PREJUDICE TO APPELLANT'S CL AIM DEEMED EXPENSES OF RS.22,72,306/- CAN BE CONSIDERED AS PER THE FORMULA PRESCRIBED THEREIN, I.E. 0.5% AVERAGE INVESTMENTS WHICH IS COMING TO RS.67,46,392/-. HOWEVER, THE TOTAL DIRECT EXPENSES BEING RS.22,72,306/-, IT CANNOT EXCEED THE SAID AMOUNT. AS FAR AS THE DIRECT EXPENSES OF RS.9,09,449/TAKEN BY THE APPELLANT FOR DISALLOWANCE & U/S 14A OF THE ACT IS CONCERNED, THE SAME IS RELATI NG TO EARNING OF CAPITAL GAINS, HENCE, CANNOT BE CONSIDER ED UNDER THE ABOVE SECTION. IN THIS REGARD APPELLANT'S CONTENTION THAT A.O. HAS INVOKED RULE 8D R/W SEC. 14A OF THE ACT, WITHOUT RECORDING IN THE ORDER AS T O HOW IN REGARD TO THE ACCOUNTS, HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SACHIN R. TENDULKAR 27 ACT, AS LAID DOWN IN SUB-SECTION (2) OF SECTION 14A OF THE ACT, IS FOUND VALID. 31. THEREAFTER, LD. CIT(A) CONSIDERED THE DECISION OF PUNE BENCH OF TRIBUNAL IN THE CASE OF KALYANI STEELS LTD . IN ITA NO.1733/PN/2012 AND HELD THAT AO HAD INVOLVED RULE 8D WITHOUT COMPLYING WITH THE REQUIREMENT OF SECTION 1 4A(2) OF THE ACT AND ALSO NOTED THAT SINCE THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE RELATING TO THE EXEMPT INCOME, THER EFORE, NO DISALLOWANCE WAS LIABLE TO BE MADE AND THEREFORE DI SALLOWANCE MADE BY THE AO WAS DELETED. IT IS NOTED THAT WHILE MAKING DISALLOWANCE, THE AO OMITTED TO CONSIDER THE FACT T HAT THE ASSESSEE IS INDIVIDUAL AND NOT ANY CORPORATE ASSESS EE. THE ASSESSEE HAS MAINTAINED SEPARATE ACCOUNTS WITH REGA RD TO ITS BUSINESS INCOME AND EXPENSES INCURRED IN EARNING TH E BUSINESS INCOME. IT IS FURTHER BROUGHT TO OUR NOTIC E THAT THE EXPENSES INCURRED WITH REGARD TO THE ACTIVITY OF MA KING INVESTMENT IN SHARES HAVE BEEN DEBITED TO THE CAPIT AL ACCOUNT AND HAVE NOT BEEN DEBITED TO P & L ACCOUNT. THE P & L A/C PREPARED BY THE ASSESSEE IS EXCLUSIVELY FOR THE PUR POSE OF REFLECTING ITS TRANSACTIONS ARISING OUT OF BUSINESS ACTIVITIES I.E. COMPRISING OF BUSINESS INCOME AND BUSINESS EXPENSES . UNDER THESE CIRCUMSTANCES, THERE WAS HEAVY ONUS UPON THE SHOULDERS OF THE AO TO ESTABLISH IF ANY OF THE EXPE NSES DEBITED IN THE P& L ACCOUNT DID NOT PERTAIN TO ITS BUSINESS ACTIVITY BUT WITH ANY OTHER ACTIVITY SAY FOR EARNING INCOME FROM CAPITAL GAINS. UNFORTUNATELY, NO SUCH EXERCISE HAS BEEN DON E BY THE AO BEFORE INVOKING THE PROVISIONS OF SECTION 14A. I T WAS ALL THE MORE NECESSARY IN THE LIGHT OF THE FACT THAT EXPENS ES INCURRED SACHIN R. TENDULKAR 28 ON PMS BROKERAGE FEE AND OTHER INCIDENTAL EXPENSES FOR MAKING INVESTMENT INTO SHARES HAVE NOT BEEN DEBITED IN THE P & L ACCOUNT BY THE ASSESSEE. THESE FACTS HAVE ALSO NOT BEEN DISPUTED BY THE LD. DR BEFORE US. 32. UNDER THESE CIRCUMSTANCES, WE FIND THAT THE REASON ING GIVEN BY THE LD. CIT(A) FOR DELETING THE DISALLOWAN CE MADE BY THE AO IS IN ACCORDANCE WITH LAW AND FACTS OF THIS CASE. NO INTERFERENCE IS CALLED FOR BY US, THEREFORE HIS ORD ER IS UPHELD AND GROUND NO.2 IS DISMISSED. NOW WE SHALL TAKE UP APPEAL FOR A.Y. 2011-12 IN ITA NO. 1411/MUM/2015 33 . IT IS NOTED THAT ISSUES INVOLVED IN THIS YEAR ARE IDENTICAL TO THE ISSUES INVOLVED IN A.Y. 2010-11. LD. CIT(A) HAS FOLLOWED HIS OWN ORDER FOR A.Y. 2010-11 WHILE ALLOWING RELIE F TO THE ASSESSEE. 34. DURING THE COURSE OF HEARING BEFORE US BOTH THE PA RTIES JOINTLY STATED THAT THESE ISSUES AS WELL AS FACTS I NVOLVING IN THIS YEAR ALSO IDENTICAL TO THE FACTS AND ISSUES INVOLVE D IN A.Y. 2010-11. IT WAS ALSO FAIRLY SUBMITTED THAT THERE IS NO CHANGE IN THE LEGAL POSITION. WE HAVE ALREADY DECIDE THOSE ISSUES IN FAVOUR OF ASSESSEE IN OUR ORDER FOR A.Y. 2010-11 AN D FOLLOWING THE SAME, WE DECIDE ISSUES INVOLVE IN THIS YEAR ALS O IN FAVOUR OF THE ASSESSEE AND UPHOLD THE ORDER OF THE LD. CIT (A) AND DISMISS THE APPEAL OF THE REVENUE. SACHIN R. TENDULKAR 29 35. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2017. SD/- (MAHAVIR SINGH ) SD/- (ASHWANI TANEJA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 25 /01/2017 CTX? P.S/. .. !'#$%&%'# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A)- , MUMBAI 5. #$% &' , &' ) , / DR, ITAT, MUMBAI 6. %*+ , / GUARD FILE. / BY ORDER, # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI