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Issues involved: The judgment involves two main issues - 1) Confirmation of assessing short-term capital gain as income from business or profession, and 2) Enhancement of disallowance of expenses u/s 14A.
Issue 1 - Short-term capital gain assessment: The assessee, engaged in retail trade, admitted short-term capital gain of Rs. 30,81,610. The assessee treated investments as capital assets, following consistency in previous years. The Assessing Officer (A.O.) treated the sale of mutual fund units as business income due to short holding periods. The CIT(A) upheld this decision, stating the assessee entered into transactions for trading purposes. However, the Tribunal found that the assessee treated shares and units as investments, not stock in trade, as per the balance sheet and Memorandum and Articles of Association. Relying on a High Court decision, the Tribunal held the profit from the sale of mutual funds should be taxed under capital gains, not business income. Issue 2 - Disallowance of expenses u/s 14A: The assessee claimed dividend income of Rs. 1,39,442, with the A.O. disallowing a portion of expenses for earning exempt income. The CIT(A) applied Rule 8D of IT Rules to enhance the disallowance. However, the Tribunal referred to a Bombay High Court decision stating Rule 8D is not retrospective and should apply from Assessment Year 2008-09. Thus, the Tribunal set aside the matter to the A.O. to determine the disallowance of expenditure related to exempt income in line with the High Court decision. In conclusion, the appeal by the assessee was partly allowed for statistical purposes, with the Tribunal providing directions to the A.O. based on legal precedents and interpretations of relevant provisions.
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