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Issues involved: Determination of treatment of long term capital gain as business income, disallowance of interest under Section 14A read with Rule 8D, addition of expenses of personal nature.
Long term capital gain vs. business income: The assessee, engaged in share trading, claimed long term capital gain (LTCG) as exempt income under section 10(38). The Assessing Officer (AO) treated the LTCG as business income, citing lack of distinction between investment and trading. The CIT(A) upheld the AO's decision. However, the ITAT found that the assessee maintained separate investment portfolio and accounts, indicating intention for capital gain. Lack of evidence supporting trading activity led ITAT to treat the income as LTCG exempt under the Act. Disallowance of interest under Section 14A: The AO disallowed interest of Rs. 1,21,726 under Section 14A read with Rule 8D, related to exempt income. The assessee argued no borrowing for investment, having sufficient own funds. ITAT agreed, setting aside the disallowance as unjustified. Addition of expenses of personal nature: The AO made an addition of Rs. 85,000 for personal expenses, reduced from Rs. 1,00,000. CIT(A) allowed motor and telephone expenses, considering low withdrawals. ITAT granted further relief of Rs. 35,000 due to unique circumstances, restricting disallowance to Rs. 50,000. In conclusion, the ITAT partially allowed the assessee's appeal, ruling in favor of treating LTCG as exempt income, setting aside disallowance of interest, and granting relief on personal expenses.
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