2012 (12) TMI 841 - AT - Income Tax

Disallowance of motor car expenses Depreciation on motor car Expense in relation to personal usage of car Held that - Since assessee is not maintaining any log book and, therefore, there is no proof that the car has been used only for the purpose of business. The estimate disallowance of such expenses @5% is justified. In favour of revenue Estimate disallowance out of telephone expenses Mobile expense for personal usage Held that - Personal usages of telephone/mobile is quite common and cannot be ruled out and in the absence of full details of call records etc., it is not established that these have been used only for the purpose of business. Therefore, the estimated disallowance is justified. In favour of revenue Estimate disallowance of expenses - Business promotion expenses - Conveyance expenses - Miscellaneous expenses - Office expenses - AO had disallowed 20% of such expenses on estimate which has been reduced by the CIT(A) to 10% - Held that - The case of the assessee is that the nature of many of the expenses under these heads is such that no proper vouchers are possible. We agree that it may not be possible to have proper evidence in respect of conveyance and miscellaneous expenses etc, but since the expenses are not supported by the proper evidence, the estimated disallowance of such expenses is justified. The estimate disallowance of Rs. 50,000/- out of these expenses will meet the ends of justice. Partly allowed in favour of assessee Nature of income - Sale and purchase of shares Investment activity or trading activity - Capital gain or business income Held that - All delivery based shares cannot be treated as an investment activity. Some shares have also been sold after a short duration of holding. Thus most of the transactions are speculative in nature. The share transactions from which the assessee has shown short term capital gain were of the nature of trading activity of the assessee. In favour of assessee

Summary

Issues:
1. Disallowance of motor car expenses including depreciation.
2. Disallowance of telephone expenses.
3. Disallowance of business promotion, conveyance, miscellaneous, and office expenses.
4. Nature of income from sale and purchase of shares.

Issue 1: Disallowance of motor car expenses including depreciation:
The dispute centered around the disallowance of motor car expenses by the Assessing Officer (A.O.) due to lack of a log book. The A.O. disallowed 20% for personal usage, later reduced to 5% by the CIT(A). The Tribunal upheld the CIT(A)'s decision, stating that without a log book, the estimate disallowance was justified as there was no proof of exclusive business use.

Issue 2: Disallowance of telephone expenses:
The A.O. disallowed 20% of telephone expenses for personal use, later reduced to 5% by the CIT(A). The Tribunal upheld the CIT(A)'s decision, noting that without detailed call records, the estimated disallowance was reasonable due to common personal use of telephones.

Issue 3: Disallowance of business promotion, conveyance, miscellaneous, and office expenses:
The A.O. disallowed 20% of these expenses due to lack of proper vouchers, reduced to 10% by the CIT(A). The Tribunal upheld a disallowance of Rs. 50,000, emphasizing that while proper evidence may not be possible for all expenses, the estimated disallowance was justified in the absence of supporting documentation.

Issue 4: Nature of income from sale and purchase of shares:
The A.O. treated Short Term Capital Gain as business income due to high frequency and volume of transactions. The CIT(A) differentiated bonus shares as capital gain and directed the A.O. to treat them as such. The Tribunal, considering the conduct of the assessee, concluded that most transactions were speculative and not investment-based, overturning the CIT(A)'s decision and treating the gain as business income.

In conclusion, the Tribunal partly allowed the appeal, highlighting the importance of evaluating each case's specific facts to determine the true nature of transactions, especially in the context of share trading activities.