2018 (12) TMI 1325 - AT - Income Tax

Sale of investment in shares - business income OR capital gains - Held that - In the entire framework of the Income Tax Act, there is no direct and specific embargo for conversion of stock-in-trade of shares to investment and vice versa. That over the years, Hon ble Courts have held once such conversation has taken place, assessee should maintain that pattern. There should not be any further change in the pattern and thereby, statement of the accounts should also be maintained. In effect, there should not be any action of the assessee by which any loss arises to the Revenue. In the instant case, it is not disputed that conversion has taken place from stock-in-trade to investment and also that the Hon ble Apex Court in the case of Sir Kikabhai Premchand (1953 (10) TMI 5 - SUPREME COURT) wherein it has been held that such conversion is not something not known to the commercial world and there is no legal bar on the same. Therefore, in view of the matter, we set aside the order of CIT(Appeals) on this issue. Claim u/s 80IA - Held that - Velayudhaswamy Spinning Mills (P.) ltd. Vs. ACIT (2010 (3) TMI 860 - MADRAS HIGH COURT) and on the basis of said decision CBDT had issued Circular No.1 of 2016, dated 15.02.2016 clarifying term initial assessment year in section 80IA(5), order of Tribunal holding that assessee was entitled to deduction under section 80IA without setting off losses/unabsorbed depreciation pertaining to windmill, which were set off in earlier year against other business income was deserved to be upheld. The CBDT vide Circular No.1/2016, dated 1502.2016 has also clarified situation of claim of deduction under section 801A(4) of the Act by any concern by adopting initial assessment year as the first year of claim, irrespective of the fact that the windmill was installed and started functioning in any of the earlier years. Following the same parity of reasoning, we hold that the assessee is entitled to claim deduction u/s.80IA(4) of the Act. The ground of appeal No.4 raised by the assessee is thus, allowed. Penalty u/s.271(1)(c) - claim of deduction under section 80IA - Held that - Interpretation along with guidance taken from the decision of Hon ble Apex Court in the case of Liberty India Vs. CIT (2009 (8) TMI 63 - SUPREME COURT) wherein, it has been categorically held that the eligible profits are to be computed as if such eligible business is the only source of income of the assessee. Further, CIT(A) analyzed that the AO has apparently proceeded to treat assessee s making a claim of deduction u/s 80IA as furnishing of inaccurate particulars of come. The expression inaccurate particulars of income cannot be extended to the issues, which are capable of different interpretations under law and therefore, the case of the assessee cannot be said to be a case of furnishing of inaccurate particulars of income - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of income from the sale of shares as business income or capital gains.
2. Disallowance of the claim under section 80IA.
3. Deletion of penalty under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Classification of Income from Sale of Shares:
The primary issue was whether the income from the sale of shares amounting to ?5,28,64,636/- should be treated as 'business income' or 'capital gains'. The assessee argued that the shares were initially held as stock-in-trade and later converted into capital assets, thus the income should be treated as capital gains. The Assessing Officer (AO) disagreed, treating the income as business income, citing the intention behind the purchase of shares and the absence of specific provisions in the Income Tax Act for such conversion. The CIT(A) upheld the AO's decision without detailed adjudication. However, the Tribunal found that there is no direct prohibition in the Income Tax Act against converting stock-in-trade into investments. It relied on various judicial precedents, including the Supreme Court's decision in Sir Kikabhai Premchand vs. CIT, which allowed such conversions. Consequently, the Tribunal ruled in favor of the assessee, treating the income as capital gains.

2. Disallowance of Claim under Section 80IA:
The second issue was the disallowance of the assessee's claim for ?44,95,264/- under section 80IA. The assessee contended that this issue was already settled in its favor in a previous case (ITA No.937/PUN/2008 for A.Y. 2005-06). The Tribunal agreed, referencing its earlier decision where it was held that the assessee was entitled to the deduction under section 80IA without setting off losses/unabsorbed depreciation from earlier years against the current year's profits from the windmill business. The Tribunal reiterated that the assessee is entitled to claim deduction under section 80IA, thus allowing the appeal on this ground.

3. Deletion of Penalty under Section 271(1)(c):
The Revenue's appeal focused on the deletion of penalties imposed under section 271(1)(c) for two counts: profits from the sale of shares and withdrawal of the deduction under section 80IA. The CIT(A) had deleted these penalties, observing that the issue involved a legal interpretation and the assessee had a bona fide belief in its claims. The Tribunal upheld the CIT(A)'s decision, noting that the expression 'inaccurate particulars of income' does not extend to issues capable of different interpretations under law. The Tribunal found no merit in the AO's decision to treat the assessee's claim as furnishing inaccurate particulars of income, thus dismissing the Revenue's appeal.

Conclusion:
In conclusion, the Tribunal allowed the assessee's appeal, treating the income from the sale of shares as capital gains and allowing the deduction under section 80IA. It dismissed the Revenue's appeal, upholding the deletion of penalties under section 271(1)(c). The judgment emphasized the absence of specific prohibitions in the Income Tax Act against converting stock-in-trade into investments and recognized the bona fide nature of the assessee's claims.