2017 (3) TMI 1899 - AT - Income Tax

Allowing the loss in shares as business loss instead of capital loss - assessee had shown the shares as stock in trade and the AO u/s. 143(3) of the Act for AY 2008-09 has accepted it as stock in trade and, therefore, the assessee has shown the scrips in question as opening stock in trade as on 01.04.2008 - HELD THAT - Since there is no change in facts from the earlier assessment year and when in the earlier year AO is permitting the treatment given by the assessee for the very same shares as stock-in-trade, then in the instant assessment year without change in the facts or law, the AO ought not to have treated the shares as investment and not as stock-in-trade. The CBDT Circular No. 6 of 2016 on 29.02.2016 has noted the dispute which consistently arose in respect to treatment of trading of shares as business or investment in shares. From a perusal of para 3(a) of the said circular, we note that the CBDT has given clear direction that where the assessee has treated the listed shares and securities as stock-in-trade, irrespective of the period of holding, the income arising from transaction of such shares/securities would be treated as its business income. The only condition expressed by the CBDT Circular is that once the assessee has taken a stand in an assessment year that he is trading in shares as business, or as investment, then he should not change, which means that the assessee should be consistent. We note that the assessee in AY 2008-09 has treated the said five scrips purchased as stock in trade which was accepted by the AO and the same was the opening stock for the instant assessment year i.e. as on 01.04.2008, therefore, as per the Circular of the CBDT, since the assessee has taken a stand that the shares are stock in trade then irrespective of the time of holding, the income arising from the transaction of such shares needs to be treated as business income. Therefore, the Ld. CIT(A) has rightly treated the same as business income and we do not find any infirmity in the order of the ld. CIT(A) and, therefore, we dismiss this ground of appeal of the revenue. Interest income as business income in place of income from other sources as held by the AO - HELD THAT - From the assessment order, we do not find any discussion by the AO on treating the interest income as income from other sources. During the appellate proceedings, it was brought to the knowledge of the CIT(A) that the assessee is also in the business of granting of loans and advances, therefore, the interest income has to be treated as income from business and not from the other sources. All throughout the earlier years the interest income of the assessee was consistently being accepted by the AO as business income and that only in this year there was a somersault done on this issue and that too without confronting the assessee in case the AO had any reservation on this issue. CIT(A) also took note of the fact that there is not even a single word or reason in the assessment order to depart from the consistent view followed by the department and to change the view to treat the interest income as income from other sources there should be some change in facts or law, which is admittedly absent in this case. When the fact remains that the assessee is into the business of granting loans and advances, certainly the interest income of the assessee would be business income and the Ld. DR was unable to controvert the said fact before us. Therefore, we do not find any infirmity in the order of Ld. CIT(A) and we dismiss this ground of appeal of the revenue.

Summary

Issues involved:
1. Treatment of loss in shares as business loss instead of capital loss.
2. Treatment of interest income as business income instead of income from other sources.

Analysis:
Issue 1: The first issue raised in this judgment pertains to the treatment of loss in shares as business loss instead of capital loss. The appellant, the revenue, contested the order of the Ld. CIT(A) which allowed the loss in shares amounting to Rs.17,67,845/- as business loss. The AO initially considered the sale of shares as yielding capital gain, but the assessee claimed it as business transaction citing various reasons including market fluctuations and conscious decision-making by the company's research team. The Ld. CIT(A) observed that the shares were held as investments and not for trading, leading to the allowance of the appeal. The ITAT Kolkata, after considering the submissions and previous assessment records, upheld the Ld. CIT(A)'s decision based on consistency in treatment of shares as stock-in-trade, as per CBDT Circular No. 6 of 2016. The ITAT dismissed the revenue's appeal, concluding that the shares should be treated as business income.

Issue 2: The second issue in the judgment concerns the treatment of interest income as business income instead of income from other sources. The AO had categorized the interest income of Rs.4,72,281/- as income from other sources, contrary to the assessee's claim of it being business income due to the nature of the business involving loans and advances. The Ld. CIT(A) upheld the assessee's contention, highlighting the consistent treatment of interest income as business income in previous years. The ITAT Kolkata, after reviewing the records and arguments, found no valid reason for the AO's deviation from the established practice of treating interest income as business income. The ITAT upheld the Ld. CIT(A)'s decision, emphasizing that in the absence of any change in facts or law, the interest income should indeed be considered as business income. Consequently, the ITAT dismissed the revenue's appeal on this ground as well.

In conclusion, the ITAT Kolkata upheld the Ld. CIT(A)'s decisions on both issues, emphasizing the importance of consistency in treatment and adherence to established practices. The judgment serves as a reminder of the significance of factual and legal consistency in determining the nature of income for tax purposes.