2011 (4) TMI 1413 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(A) u/s 143 of Income Tax Act for assessment years 2004-05, 2005-06, and 2006-07.

Assessment Year 2004-05:
The AO disallowed expenses on an ad hoc basis without proper verification. ITAT directed to retain 25% of disallowance made by AO and delete the rest. Disallowance of deduction u/s 80IA confirmed by CIT(A) upheld. Trading addition made by AO reduced by ITAT based on net profit rate. Treatment of short term capital gain on sale of shares as business income rejected by ITAT.

Assessment Year 2005-06:
ITAT directed AO to retain 25% of disallowed expenditure made by CIT(A) and delete the rest.

Assessment Year 2006-07:
Similar to AY 2004-05, ITAT directed AO to retain 25% of disallowed expenditure made by CIT(A) and delete the rest. All appeals of the assessee allowed in part.

The ITAT found that the AO's disallowances were made on an ad hoc basis without proper verification of expenses. The ITAT directed the AO to retain only 25% of the disallowances and delete the rest, considering the details provided by the assessee during scrutiny. The ITAT also upheld the disallowance of deduction u/s 80IA but reduced the trading addition based on net profit rate. Additionally, the ITAT rejected the treatment of short term capital gain on sale of shares as business income. The decisions for AY 2005-06 and 2006-07 were similar to that of AY 2004-05, with the ITAT directing the AO to retain 25% of the disallowed expenditure made by the CIT(A) and delete the rest.