ITAT classifies short term capital gain as business income for A.Y. 2007-08, directs revaluation of profit from share transactions.

The ITAT upheld the classification of short term capital gain as business income for A.Y. 2007-08, emphasizing the intention to derive regular income from transactions. The ITAT directed the AO to recompute the profit from share transactions as business income, allowing direct expenses and valuing stock at cost or market price. The issue of disallowance under section 14A was restored back to the AO for reasonable determination without applying Rule 8D. The appeal was partially allowed for statistical purposes, ensuring compliance with legal provisions and a fair assessment process.

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Issues:
1. Classification of short term capital gain as business income.
2. Application of principles for computing business income.
3. Disallowance under section 14A of the Act.

Issue 1: Classification of short term capital gain as business income:
The appeal was against the order of the Ld. CIT(A) confirming the AO's treatment of short term capital gain as business income for A.Y. 2007-08. The AO relied on CBDT Circular No. 4 of 2007 to distinguish shares held as investment from stock-in-trade. The assessee contended that the shares were held as investments, supported by the balance sheet. The AO rejected this, citing short holding periods. The Ld. CIT(A) upheld the AO's decision, emphasizing the intention to derive regular income from transactions. The ITAT analyzed the Memorandum of Association, noting the absence of income related to the main object of the company. The ITAT dismissed the appeal, considering the company's history of income solely from share transactions.

Issue 2: Application of principles for computing business income:
The ITAT directed the AO to recompute the profit from share transactions as business income, allowing direct expenses and valuing stock at cost or market price. The AO was instructed to provide a reasonable opportunity for the assessee to be heard before making the decision.

Issue 3: Disallowance under section 14A of the Act:
The ITAT restored the issue of disallowance under section 14A back to the AO, along with the computation of business income. The AO was directed to make a reasonable disallowance without applying Rule 8D, considering the treatment of capital gains as business income and providing a fair hearing to the assessee.

In conclusion, the ITAT partially allowed the appeal for statistical purposes, emphasizing the correct classification of short term capital gain as business income and the reevaluation of related principles for computing business income and disallowance under section 14A. The judgment aimed at ensuring a fair assessment process and compliance with relevant legal provisions.

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