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2011 (12) TMI 374 - AT - Income TaxCapital gain - As per consent of assessee telephonically given to adopt the value at Rs.5, 60, 250 the AO assessed the value at Rs.5, 60, 250 and difference of Rs.1, 35, 250 was added - In case of Carton Hotel (P) Ltd. vs. Asstt. CIT (2008 -TMI - 68787 - ITAT LUCKNOW-A) the Lucknow Bench of the Tribunal has taken a view that where such registration does not take place by paying stamp duty that case would be covered under s. 45(3) and not under s. 50C - Held that value recorded by firm in its books would only be full value of consideration for purpose of computing capital gains - Decided in favor of the assessee Regarding business income or capital gain - AO noted that assessee has shown total 263 transactions during the relevant assessment year out of which 209 transactions were shown as short-term and the remaining 54 as long-term - If the assessee is purchasing shares and credited in the investment portfolio then it has to be treated on account of investment of long-term capital/short-term capital as the case may be and if the share transactions are shown in trading portfolio then of course the transaction has to be treated as in the nature of business and adventure - If it is found that sale of shares has been made within 30 days then of course AO may treat this transaction as business transaction.
Issues:
1. Long-term capital gain under section 50C of the IT Act 2. Treatment of gain and loss on purchase and sale of shares as business income 3. Confirmation of ad hoc disallowance of business expenses Issue 1: Long-term capital gain under section 50C of the IT Act The appeal by the assessee was against the order of the learned CIT(A) concerning the assessment year 2004-05. The primary contention was the sustenance of long-term capital gain under section 50C of the IT Act amounting to Rs.5,13,171. The case revolved around the sale of a plot where the declared value was Rs.4.25 lacs, but the Sub-Registrar computed the value at Rs.5,60,250 based on the DLC rate, resulting in a difference of Rs.1,35,250. The AO assessed the value at Rs.5,60,250, leading to a higher capital gain. However, the ITAT, Jodhpur, held in favor of the assessee, citing precedents that when a sale occurs through an agreement without registration, section 50C does not apply. Therefore, the AO was directed to compute the capital gain based on the value as per the sale agreement. Issue 2: Treatment of gain and loss on purchase and sale of shares as business income The second ground of appeal was related to treating the gain and loss on the purchase and sale of shares as business income instead of capital gain. The AO observed that the assessee, a LIC agent, engaged in numerous share transactions, maintaining separate books and dealing with a significant number of companies. After a show-cause notice, the AO concluded that these transactions constituted business income, denying the benefit of capital gain treatment. The ITAT decided to remand the matter to the AO for further examination of factual aspects, emphasizing the distinction between investment and trading portfolios for share transactions. The ITAT also highlighted the significance of the timing of transactions, suggesting that sales within 30 days may be treated as business transactions. Issue 3: Confirmation of ad hoc disallowance of business expenses The final issue pertained to the confirmation of a 20% ad hoc disallowance of various business expenses by the AO, which was upheld by the CIT(A). The ITAT considered the disallowance excessive and reduced it to 10% to meet the ends of justice. The ITAT opined that a 10% disallowance would suffice, thereby partially allowing the appeal for statistical purposes. In conclusion, the ITAT, Jodhpur, addressed multiple issues in the appeal, ruling in favor of the assessee regarding the application of section 50C for long-term capital gain and directing a reevaluation of share transactions for proper classification. Additionally, the ITAT modified the ad hoc disallowance of business expenses to ensure fairness in the assessment.
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