2013 (6) TMI 794 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of capital gains as business income.
2. Disallowance of derivative loss as speculation loss.
3. Ad-hoc addition for low household withdrawals.
4. Invocation of provisions u/s 14A.
5. Disallowance of interest expenditure.
6. Charging of notional interest.

Summary:

Issue 1: Treatment of Capital Gains as Business Income
For the assessment year 2005-06, the Assessee declared short term capital gain of Rs. 28,77,661/- and long term capital gain of Rs. 1,88,815/- from the sale of shares. The Assessing Officer (A.O.) treated these gains as business income, which was confirmed by the CIT(A). The Assessee argued that the shares were held as investments and not as stock in trade, citing a consistent history of treating shares as investments since the assessment year 1997-98. The Tribunal noted that the Assessee had separate portfolios for trading and investment, and the shares sold were acquired before 31st March 2004. The Tribunal held that the gains should be treated as capital gains, not business income, and set aside the orders of the lower authorities.

For the assessment year 2006-07, the facts were identical to the previous year, and the Tribunal decided in favor of the Assessee, treating the gains as capital gains.

For the assessment year 2007-08, the Tribunal found that most shares were acquired between 1997 and 2004 and ruled that the long term capital gain should be treated as such, not as business income.

Issue 2: Disallowance of Derivative Loss as Speculation Loss
The Assessee did not press this ground, and it was dismissed as not pressed.

Issue 3: Ad-hoc Addition for Low Household Withdrawals
The Assessee did not press this ground, and it was dismissed as not pressed.

Issue 4: Invocation of Provisions u/s 14A
For the assessment year 2006-07, the Assessee did not press this ground, and it was dismissed as not pressed.

Issue 5: Disallowance of Interest Expenditure
For the assessment year 2006-07, the Assessee did not press this ground, and it was dismissed as not pressed.

Issue 6: Charging of Notional Interest
For the assessment year 2007-08, the Assessee did not press this ground, and it was dismissed as not pressed.

Conclusion:
The appeals were partly allowed, with the Tribunal ruling in favor of the Assessee on the primary issue of treating capital gains as business income. The other grounds were dismissed as not pressed.