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Issues Involved:
1. Classification of income from sale of shares and mutual funds. 2. Disallowance of commission paid to the whole-time director. 3. Disallowance of business loss on sale of investments. 4. Disallowance of estimated expenses. Summary: Issue 1: Classification of Income from Sale of Shares and Mutual Funds The assessee argued that the income from the sale of shares and mutual funds should be treated as business income due to frequent transactions and short holding periods. The Assessing Officer (AO) and CIT(A) classified this income as short-term capital gains, noting that the investments were shown as long-term investments in the balance sheet. The Tribunal upheld the AO's view, emphasizing that the assessee's classification of shares as investments and the lack of evidence for regular trading activities indicated an investment activity rather than a business activity. The Tribunal referenced Circular No.4 of 2007 and various Supreme Court judgments to support this conclusion. Issue 2: Disallowance of Commission Paid to Whole-Time Director The AO disallowed the commission paid to the director, arguing that the company's net profit was below Rs. 20 lakhs when excluding short-term capital gains. The Tribunal disagreed, stating that the total income, including capital gains, should be considered for commission payment. The commission was deemed an allowable expenditure u/s 37(1) of the IT Act, as it was incurred wholly and exclusively for business purposes. The Tribunal directed the AO to recompute the income and allow the commission expenditure from the business income. Issue 3: Disallowance of Business Loss on Sale of Investments The AO disallowed the business loss claimed on the sale of investments, treating it as a capital loss. The Tribunal upheld this view, noting that the assessee's classification of shares as investments and the lack of evidence for regular trading activities indicated that the loss was a capital loss, not a business loss. Issue 4: Disallowance of Estimated Expenses The AO disallowed Rs. 1,81,430/- as 1/10th of the expenses classified under personal expenses, arguing that no expenses other than the cost of the asset sold were allowable. The Tribunal found this disallowance unjustified, especially since the income was classified as capital gains and not business income. The Tribunal allowed this ground of appeal. Conclusion: The appeal was partly allowed, with the Tribunal upholding the classification of income as capital gains and allowing the commission paid to the director and the disallowed estimated expenses. The Tribunal directed the AO to recompute the income accordingly.
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