2016 (6) TMI 1298 - AT - Income Tax

Loss on sale of shares - Assessee had debited loss on sale of investments which being long term capital gains should not be allowed as business loss - Held that - AO himself had assessed the income or loss on account of sale under the head profit & gains from business instead of income of capital gains shown by assessee which has been followed by assessee consistently. AO has not given any reason except stating that the assessee had shown the said shares as long term investments in the balance sheet. CIT(A) observed that assessee has been showing said shares as investments in the balance sheet and since the department had altered the nature of income from capital gains to business income assessee accepted the said decision of the department and has been offering the income under the head business though the said shares have been continued to be shown as investments in the balance sheet. Facts have not been different to the earlier A.Ys. 1992-93 & 1993-94 wherein Assessing Officer himself treated the sale of shares as business income/loss. AO cannot keep changing the head of income without bringing new material on record. Therefore loss on sale of shares was rightly directed to be treated as business loss. Disallowance of bad debts - Held that - Since the provision was debited in P&L account last year the same was not debited once again in the P&L account this year. Instead the assessee claimed deduction only in the computation of income for A.Y. 2005-06. Assessee explained necessary entries were passed in the books of account with reference to write off of bad debts. The entries passed by assessee have been verified and found to be correct. So following the decision of Hon ble Supreme Court in the case of TRF Ltd. vs CIT 2010 (2) TMI 211 - SUPREME COURT the addition made on account of bad debts written off was rightly deleted by CIT(A). - Revenue appeal dismissed.

Summary

Issues:
1. Jurisdiction under section 147 of the Income Tax Act.
2. Treatment of loss on sale of investment as business loss.
3. Addition made on account of bad debts written off.

Jurisdiction under section 147 of the Income Tax Act:
The Appellate Tribunal upheld the decision of the Commissioner of Income-Tax (Appeals) in favor of the assessee. The Tribunal noted that the Assessing Officer had reopened the assessment under section 147 based on the debiting of an amount for loss on sale of investments. The Tribunal agreed with the CIT(A) that the Assessing Officer wrongly assumed jurisdiction under section 147 as there was no new tangible information available, and the proceedings seemed to be initiated on a mere change of opinion. The Tribunal cited legal precedents to support the view that the Assessing Officer cannot review his earlier decision without new material, emphasizing that reason to believe cannot result from a change of opinion.

Treatment of loss on sale of investment as business loss:
The Tribunal examined the issue of treating the loss on the sale of investments as a business loss instead of a capital loss. It was observed that the Assessing Officer had reopened the assessment based on this ground. The Tribunal noted that the assessee consistently treated the sale of shares as business income or loss in previous assessments without objection from the Assessing Officer. The Tribunal agreed with the CIT(A) that the loss on the sale of shares should be treated as a business loss, citing the continuity in the treatment of such transactions by the assessee and the department in previous years.

Addition made on account of bad debts written off:
Regarding the addition made on account of bad debts written off, the Tribunal upheld the decision of the CIT(A) to delete the addition. The CIT(A) found that the assessee had debited a provision for doubtful interest receivable in the previous year but added it back in the computation of income. In the year under consideration, the assessee wrote off the interest receivable and claimed it as a deduction. The Tribunal concurred with the CIT(A) that the addition on account of bad debts written off was rightly deleted, as the entries in the books of account were verified and found to be correct, following a relevant Supreme Court decision.

In conclusion, the appeal filed by the Revenue was dismissed by the Appellate Tribunal, affirming the decisions of the Commissioner of Income-Tax (Appeals) in favor of the assessee. The judgment was pronounced on June 24, 2016.