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TMI Blog2017 (5) TMI 1666X X X X Extracts X X X X X X X X Extracts X X X X ..... Dy. Commissioner of Income Tax (supra) and ARA Trading & Investments P. Ltd. Vs. Dy. Commissioner of Income Tax (supra) held that the profit arising on investment carried out by the assessee through PMS does not result in gain assessable under the head business income. - Decided in favour of assessee. - ITA No. 310, 361/PUN/2015 /Assessment Year : 2008-09 - - - Dated:- 12-5-2017 - Shri D. Karunakara Rao And Shri Vikas Awasthy, JJ. Assessee by: Shri C.H. Naniwadekar Revenue by: Shri Samrat Rahi ORDER Vikas Awasthy, These cross appeals by the assessee and the Department are directed against the order of Commissioner of Income Tax (Appeals)-5, Pune dated 16-01-2015 for the Assessment Year 2008-09. 2. The brief facts of the case as emanating from records are: The assessee is engaged in investment and trading of shares and mutual funds. The assessee filed its return of income for the assessment year 2008-09 on 29-09-2008 declaring total income of ₹ 1,19,09,750/-. During the course of scrutiny assessment, the Assessing Officer inter alia made additions/disallowances on account of : i. Disallowance u/s. 14A Rs.9, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading. Therefore, the profit earned from sale of shares was rightly assessed as business income by the Assessing Officer. 5. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR has placed reliance in support of his contentions. 6. The ld. AR of the assessee has stated at the Bar that on instruction from the assessee he is not pressing the solitary ground raised in the appeal with respect to disallowance u/s. 14A of the Act. In view of the statement made by the ld. AR of the assessee, the ground raised in the appeal by the assessee is dismissed as not pressed. The appeal of the assessee is dismissed, accordingly. 7. The Department in its appeal has assailed the findings of Commissioner of Income Tax (Appeals) in allowing income on PMS as Capital Gains. The Assessing Officer treated the Short/Long Term Capital Gain returned by the assessee from trading in shares and mutual funds through Portfolio Management Service as Business Income. The contention of the assessee is that the assessee has invested lump sum amount through PMS. The discretion t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansactions was large so as to constitute business activity, we find that the factual matrix has been appropriately analyzed by the 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, which was not much considering that about 2000 companies' shares were actively traded in the stock exchanges. It was also clarified that the frequencies of transactions was not much. Sometimes several transactions may have to be made in the same scrip, which increases the frequency. It was emphasised that the total sales turnover in the investments made through PMS during the year was 19.06 crores involving 62 scrips, whereas, in the share trading business separately shown by the appellant, the sales turnover was 73.21 crores involving 76 scrips. This shows that in the share trading business activity, the turnover was almost 4 times higher even though the number of scrips were only marginally high. It was emphasized that in the trading activity even though t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 some shares just before the dates of the shares becoming ex-dividend on the stock exchanges. However, a perusal of the chart given in the assessment order showed that the information regarding date of declaration of dividend has not been given. For example, in the case of scrip of Amtek Auto, the sale was made on 19.9.2005 whereas the ex-dividend date was 22.12.2005; i.e. the sale was made more than 3 months before the shares became exdividend. It does not necessarily follow that the dividend was already declared in this case and still 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 exdividend date has been mentioned as 29.3.2006. It cannot therefore be said that the appellant had knowingly sold the shares after declaration of the dividend before it became ex-dividend. Again in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out by the PMS provider was of short-term nature and, therefore, it was to be regarded as a business activity. Factually speaking, on this aspect the Commissioner of Income-tax (Appeals) 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 when shares of the same company have been repurchased sometimes after the sale. In this connection, it is explained that such instances were not much and there were reasons for churning of the investments by the Portfolio Manager at different instances during the year. It is relevant to notice that the appellant also pointed out that there were many shares held for a long time, even upto 18 months, by the PMS, and substantial amount of long term capital gain of ₹ 83,09,187/- was also shown. In fact, the AO has treated even this LTCG of ₹ 83,09,187/- as Business income, which cannot be justified. On the other hand, depending on the market conditions, vis-a-vis the analysis of the fundamentals 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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