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of <h1>Tribunal favors appellant on capital gains & depreciation issues</h1> <h3>Hiren M Shah Versus Asst. Commissioner of Income Tax 17 (2), Piramal Chambers, Mumbai</h3> Hiren M Shah Versus Asst. Commissioner of Income Tax 17 (2), Piramal Chambers, Mumbai - TMI Issues:1. Treatment of long-term-capital-gains as business income2. Disallowance of depreciationAnalysis:Issue 1: Treatment of long-term-capital-gains as business incomeThe appellant challenged the CIT(A)'s decision to treat the long-term-capital-gains on the sale of shares as business income instead of capital gains. The appellant argued that the shares were held for an average period of more than 600 days, showing a pattern of long-term investment. The appellant maintained separate balance sheets for the proprietary concern, share trading income, and personal account, categorizing the shares as investments valued at cost. The AO, however, rejected this argument, citing various case laws and a CBDT Instruction. The AO highlighted the significant gains from the sale of shares, particularly from 'Pyramid Saimira,' and raised concerns about the purchase timing and alleged market manipulation. Both the AO and CIT(A) concluded that the gains should be treated as business income. The appellant contended that the shares were purchased through IPO, indicating an investment intention, supported by the average holding period and historical treatment of shares as capital gains. The Tribunal agreed with the appellant, emphasizing the investment nature of the shares, the holding period, and the absence of business activities, ultimately allowing the appeal.Issue 2: Disallowance of depreciationThe AO disallowed depreciation of Rs. 3,85,043, citing the lack of business activity in the appellant's proprietary concern, 'Cherry International.' The CIT(A) upheld this decision. The appellant argued that there was a temporary lull in business, evidenced by subsequent years' sales and profits, justifying the claimed depreciation on assets appearing in the balance sheet. The Tribunal noted the loss from 'Cherry International' and the subsequent increase due to depreciation. Considering the revival of business in later years and the legitimacy of claiming depreciation on assets, the Tribunal allowed the depreciation claimed by the appellant.In conclusion, the Tribunal allowed the appeal, ruling in favor of the appellant on both issues.
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