2010 (8) TMI 1044 - AT - Income Tax

Tribunal rules on short-term capital gains classification and disallows certain expenses

The Tribunal upheld the classification of short term capital gains based on holding periods as directed by the CIT[A], treating profits from shares held ... - Issues Involved:1. Classification of short term capital gains on sale of shares as business income or capital gains.2. Disallowance of certain expenses on adhoc basis.Issue 1: Classification of Short Term Capital Gains:The appeal was filed against the CIT[A]'s order treating short term capital gains on sale of shares held for less than 30 days as business income and shares held for more than 30 days as short term capital gain. The AO observed systematic share transaction activities by the assessee, including high volume transactions with short holding periods. Despite the assessee's arguments and submissions, the AO treated the income from share transactions as business income. The CIT[A] differentiated between short term profits based on holding periods, holding that profits from shares held for less than 30 days should be business income and those held for more than 30 days should be capital gains. The Tribunal concurred with the CIT[A]'s decision, emphasizing the frequency, volume, and short holding periods of the shares, leading to the classification of profits as business income. The Tribunal directed the AO to consider specific benefits and set-offs if the income is treated as business income, allowing the appeal for statistical purposes.Issue 2: Disallowance of Expenses:The second issue pertained to the disallowance of telephone, salary, and local conveyance expenses on an adhoc basis. The AO disallowed these expenses due to lack of details and considered them personal in nature. The CIT[A] upheld the disallowance, citing the absence of complete bills and vouchers. The Tribunal found no fault with the CIT[A]'s decision as the assessee failed to provide satisfactory evidence to support the expenses. Consequently, the disallowance of expenses on an adhoc basis was upheld, and the appeal was partly allowed for statistical purposes.In conclusion, the Tribunal upheld the classification of short term capital gains based on holding periods as directed by the CIT[A] and dismissed the disallowance of certain expenses due to insufficient supporting evidence.