Capital gains classification upheld, 20% disallowance adjusted, Revenue's appeal dismissed, assessee's cross objection partly allowed.

The Tribunal upheld the CIT(A)'s decision to treat long term and short term capital gain as capital gains, not business income, for the assessment year 2010-11. The Tribunal also adjusted the disallowance under section 14A read with rule 8D(iii) to 20% of total expenses attributable to earning exempt income, dismissing the Revenue's appeal and partly allowing the assessee's cross objection. The judgments were in accordance with past precedents and legal provisions.

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Issues:
1. Treatment of long term and short term capital gain as business income.
2. Disallowance under section 14A read with rule 8D(iii).

Issue 1: Treatment of Capital Gain:
The appeal by the Revenue and the cross objection by the assessee were against the order of the Commissioner of Income Tax (Appeals) regarding the treatment of long term and short term capital gain as business income for assessment year 2010-11. The Revenue contested the direction of the CIT(A) to treat the gains as capital gains, not business income, based on the frequency of transactions and other factors. The CIT(A) ruled in favor of the assessee, considering past acceptance by the Revenue and a precedent involving the husband of the assessee. The Revenue argued that the assessee was engaged in share trading as a business, while the assessee maintained being an investor, citing the use of personal funds and relevant CBDT circulars. The Tribunal found that the assessee had separate investment and trading portfolios, used personal funds, and the case was similar to a previous decision by a co-ordinate bench of the Tribunal. The Tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Disallowance under Section 14A:
The assessee raised multiple issues regarding the disallowance of expenses under section 14A read with rule 8D(iii). The AO and CIT(A) disallowed a specific amount, justifying it by invoking the provisions of section 14A. The assessee argued that no expenses were incurred for earning exempt income, pointing to the minimal expenses claimed in the Profit & Loss account. The Tribunal noted that the disallowance exceeded the actual expenses claimed and referenced a previous decision by a co-ordinate bench directing a 2% disallowance. However, considering the nature of the business and facts of the case, the Tribunal directed a disallowance of 20% of total expenses attributable to earning exempt income. Consequently, the Revenue's appeal was dismissed, and the assessee's cross objection was partly allowed.

In conclusion, the Tribunal upheld the decision of the CIT(A) regarding the treatment of capital gains and adjusted the disallowance under section 14A read with rule 8D(iii) based on the actual expenses incurred by the assessee. The judgments were in line with past precedents and relevant legal provisions.

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