2016 (4) TMI 31 - AT - Income Tax

Capital gain v/s business income - activity of transaction in shares/mutual by engaging PMS - Held that - Activity of transaction in shares/mutual funds by engaging PMS was an investment activity and therefore the resultant gain was assessable under the head capital gains - Decided against revenue Disallowance u/s.14A - Held that - As decided in assessee s own case 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 disallowance u/s.14A r.w. Rule8D can be made. The above factual finding given by the learned CIT(A) could not be controverted by the learned DR. - Decided against revenue

Summary

Issues:
1. Classification of gains/loss from transaction in shares/mutual funds through Portfolio Management Services (PMS) as capital gains or business income.
2. Disallowance of expenses under section 14A of the Income Tax Act related to PMS activity.

Issue 1:
The appeals by the Revenue challenged the CIT(A)'s order classifying gains/loss from transactions in shares/mutual funds via PMS as capital gains. The assessee had entered PMS agreements with various parties and earned short-term and long-term capital gains on share sales. The AO treated the gains/loss as business income, following previous years' stand. However, the CIT(A) ruled in favor of the assessee, considering it an investment activity. The Tribunal's decision in the assessee's case for AY 2008-09 supported this view. Additionally, in a separate case for AY 2009-10, the Tribunal held similarly. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeals due to lack of contrary material against the Tribunal's findings.

Issue 2:
The Revenue challenged the CIT(A)'s deletion of a disallowance of expenses amounting to Rs. 10,95,983 under section 14A of the IT Act. The AO disallowed the expenses under Rule 8D as the assessee had not claimed them in relation to PMS activity. The CIT(A) referred to the Tribunal's decision in the assessee's case for AY 2008-09, where the disallowance was deleted due to no expenditure being claimed for earning exempted income. The Tribunal's observation supported the CIT(A)'s decision. The ITAT upheld the CIT(A)'s order, dismissing the Revenue's appeal. The decision was consistent with the Tribunal's findings in related cases for AY 2009-10. As no contrary material was presented against the Tribunal's decisions, the CIT(A)'s deletion of the disallowance was upheld.

In summary, the ITAT Pune dismissed all three appeals filed by the Revenue, upholding the CIT(A)'s decisions regarding the classification of gains/loss from PMS transactions as capital gains and the deletion of expenses disallowed under section 14A of the IT Act. The judgments were based on previous Tribunal decisions and lack of contrary evidence presented by the Revenue.