2011 (9) TMI 1035 - AT - Income Tax

Treatment given to the profit from shares - taxable under the head Capital gains OR Business income - Held that - The principle of consistency requires that the view taken in one year should be followed in subsequent years unless the facts or the legal position justify departure therefrom. Recently the Hon ble Bombay High Court in CIT Vs. Darius Pandole 2010 (6) TMI 405 - Bombay High Court has held that income from sale of shares treated as business income in earlier year by way of assessment u/s 143(3) cannot be taken as capital gain in subsequent year. The essence of the judgement is that the principle of consistency should be followed and the parties should not be allowed to register departure from the existing position time and again. Since in the earlier years the Department has accepted income from shares as falling under the head Capital gains in our considered opinion and respectfully following the above judgements that the learned CIT(A) was justified in upholding the assessee s stand.

Summary

Issues:
Treatment of profit from shares as taxable under 'Capital gains' instead of 'Business income'.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai concerned the treatment of profit from shares as taxable under the head 'Capital gains' instead of 'Business income'. The Commissioner of Income-tax (Appeals) had passed an order in relation to the assessment year 2006-2007, which was challenged by the Revenue. The Assessing Officer had initially assessed the profit from shares as business income due to the volume and frequency of transactions. However, the CIT(A) overturned this assessment, leading to the Revenue's appeal.

During the proceedings, it was noted that the assessee had been considered an investor in shares and securities in previous assessments. The Assessing Officer's decision to treat the profit from shares as business income for the current assessment year was compared to the treatment in the assessment year 2004-2005. In that year, the Assessing Officer had accepted the profit from sale of shares as capital gains, not business income. The principle of consistency was highlighted, emphasizing that the Revenue had consistently accepted shares as investments in previous years. Citing relevant judgments, including one by the Hon'ble Bombay High Court, it was concluded that the CIT(A) was justified in upholding the assessee's position.

Ultimately, the Appellate Tribunal dismissed the appeal, affirming the CIT(A)'s decision. The judgment emphasized the importance of consistency in tax treatment over different assessment years. The order was pronounced on September 30, 2011, by the Tribunal.