2011 (4) TMI 1442 - AT - Income Tax

Summary

Issues Involved:
1. Treatment of business income as capital gains.
2. Addition u/s 14A of the I.T. Act.
3. Withdrawal of Cross Objection by the assessee.

Summary:

Issue 1: Treatment of Business Income as Capital Gains
The Department appealed against the order of the CIT(A) treating business income of Rs. 33,85,463/- as capital gains. The Assessing Officer argued that the transactions in shares and mutual funds were undertaken with a profit motive and at regular intervals, constituting business activities. The assessee contended that the investments were made from own funds, with the intention of earning dividend income, and had been consistently treated as capital gains in previous years. The CIT(A) relied on various case laws and held that the gains on the sale of shares/mutual funds should be treated as capital gains. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's transactions were not frequent enough to be considered business activities and were consistent with the treatment in previous years.

Issue 2: Addition u/s 14A of the I.T. Act
The assessee filed a Cross Objection against the addition of Rs. 68,511/- made by the Assessing Officer u/s 14A of the I.T. Act, arguing that no specific expenses were incurred for earning tax-free dividend income. The assessee suggested that the disallowance be restricted to 1% of the dividend income of Rs. 3,12,264/-. However, during the hearing, the assessee decided not to press for the Cross Objection and sought to withdraw it, which was accepted by the Tribunal.

Issue 3: Withdrawal of Cross Objection by the Assessee
The assessee's Cross Objection was dismissed as withdrawn since the assessee could not justify the delay of 120 days and chose to withdraw the objection. The Department had no objection to this withdrawal.

Conclusion:
The Tribunal dismissed both the Department's appeal and the assessee's Cross Objection, upholding the CIT(A)'s order that treated the gains from the sale of shares/mutual funds as capital gains and not as business income. The decision emphasized the consistency of the assessee's treatment of these transactions in previous years and the lack of evidence to classify them as business activities.