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Issues Involved:
1. Classification of gain on sale of shares as capital gains or business income. 2. Disallowance of expenses u/s 40(a)(ia) due to late payment of TDS. Summary: Issue 1: Classification of Gain on Sale of Shares The common grievance of the Revenue for the assessment years 2006-07 and 2007-08 relates to treating the gain on sale of shares as capital gains instead of business income as held by the Assessing Officer. The Assessing Officer observed that the assessee was engaged in trading business as well as investment in shares, and treated the short-term capital gain of Rs. 21,04,055/- as business income. However, the CIT(A) held that the capital gain earned on sale of shares were short-term capital gains and not business income. The CIT(A) noted that the assessee held the shares as investment and not as stock in trade, and the surplus should be assessed as capital gains only. The CIT(A) followed this finding for the assessment year 2007-08 as well. Issue 2: Disallowance of Expenses u/s 40(a)(ia)For the assessment year 2007-08, the Assessing Officer made disallowance by invoking the provisions u/s 40(a)(ia) in respect of the payment made for transportation charges. The assessee incurred transportation charges, labor & sub-contractor charges, and hire charges, and deducted TDS on some payments in March, depositing the entire tax deducted on 31/10/2007. The Assessing Officer disallowed amounts paid till February 2007 on which TDS was not deducted and paid in the financial year itself. The CIT(A) deleted the disallowance, noting that the amendment by Finance Act, 2010, which allowed TDS deducted to be paid before the due date of filing the return, was curative and retrospective in nature. The CIT(A) allowed the appellant's claim in full, stating that the amendment was designed to eliminate unintended consequences causing undue hardship to taxpayers. Appeal by Revenue:The Revenue appealed against the orders of CIT(A). The ld. CIT DR argued that the amendment by Finance Act, 2010, was not retrospective and should apply from 01.04.2010. The CIT DR relied on the decision of Hon'ble Supreme Court in the case of Gym Granites and Raghubir Singh, emphasizing that the retrospective application of an amendment should be gathered from the language of the provision itself. The CIT DR also cited the I.T.A.T. Special Bench decision in Bharti Shipping Yard Limited, which held that the amendment by Finance Act, 2010, was not retrospective. Decision:The Tribunal considered the rival submissions and various decisions, including the decision of Hon'ble Kolkata High Court in the case of Virgin Creations, which held that the amendment by Finance Act, 2010, was retrospective from 01.04.2005. The Tribunal upheld the CIT(A)'s decision, noting that the payment to the Government treasury was made before the last date of filing the return, and thus the disallowance u/s 40(a)(ia) could not be made. Regarding the treatment of capital gain as business income, the Tribunal found that the assessee was making investments in shares out of own funds and received substantial dividend income, confirming the CIT(A)'s action of treating the income from sale of shares as capital gains. In the result, both the appeals of the Revenue were dismissed. This order has been pronounced in the open court on 31st August, 2012.
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