2013 (10) TMI 785 - AT - Income Tax

Allowability of expenses claimed against the short-term capital gains on sale of shares Held that - Since the claim of taxation at special rate was made under the specific provisions of sec. 111 A, the appellant was indeed not entitled for taking the benefit of the normal provisions regarding computation of capital gains Expenses claimed by assessee is not allowed Decided against the assessee.

Issues Involved:
1. Classification of income from interest and car hire charges.
2. Deduction of business expenses.
3. Application of Section 50C regarding capital gains.
4. Allowability of expenses for earning capital gains.

Issue-wise Detailed Analysis:

1. Classification of Income from Interest and Car Hire Charges:
The primary issue was whether the interest received from loans and car hire charges should be classified as "Income from Business" or "Income from Other Sources." The Assessing Officer (AO) treated the interest received from loans of Rs.13,87,536/- as "Income from Other Sources" because the assessee was not engaged in the business of money lending. The AO also considered car hire charges of Rs. 15,000/- as "Income from Other Sources" due to the nature of the transaction being with a family concern, suggesting it was a colorable device to claim expenses. The CIT(A) upheld the AO's decision, noting the lack of evidence for regular money lending activities and the self-serving nature of the lease agreement. The Tribunal agreed with the AO and CIT(A), dismissing the assessee's grounds on this issue.

2. Deduction of Business Expenses:
The assessee claimed several business expenses, including bank charges, interest paid on loans, car insurance, office expenditure, legal expenses, vehicle maintenance, and salaries. The AO disallowed these expenses, as the income was not considered business income. The CIT(A) confirmed the disallowance, particularly noting the lack of business activity and the personal nature of the transactions. The Tribunal upheld this decision but directed the AO to allow legal expenses under Section 57(iii) if the assessee could prove the expenses were incurred for earning the income.

3. Application of Section 50C Regarding Capital Gains:
The AO added Rs. 7,56,000/- to the assessee's income under Section 50C, considering the difference between the government-approved rate and the sale deed value of a property in Chennai. The assessee argued that the flat's poor condition justified the lower sale price and requested a referral to the Valuation Officer. The CIT(A) did not find the reasons compelling enough to warrant a valuation referral. The Tribunal, however, directed the AO to refer the matter to the DVO to ascertain the market value of the property, noting the failure to consider the assessee's objections.

4. Allowability of Expenses for Earning Capital Gains:
The assessee claimed expenses incurred for earning short-term capital gains/loss through portfolio management services. The AO disallowed these expenses, noting that the special rate of tax under Section 111A applies to short-term capital gains, which should not include such expenses. The CIT(A) upheld this decision, stating that the expenses were correctly not allowed as the assessee sought taxation at the special rate under Section 111A. The Tribunal agreed with the CIT(A), dismissing the assessee's grounds on this issue.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, primarily directing the AO to refer the property valuation issue to the DVO and to allow legal expenses under Section 57(iii) if adequately substantiated. The Tribunal upheld the classification of income and disallowance of business expenses and expenses related to capital gains as per the CIT(A) and AO's findings.

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