2023 (7) TMI 1271 - AT - Income Tax

Correct head of income - Nature/characterization of income - gain on sale of shares - importance of the rule of consistency - analysis of period of holding - short term capital gains u/s.111A or business income - HELD THAT - As in the immediately preceding assessment year and also in subsequent assessment year on similar high value transaction the AO has accepted the profits as short term capital gains. As pertinent to mention to the observations of the Hon ble High Court of Delhi in the case of Prem Kumar Chopra 2023 (5) TMI 1228 - DELHI HIGH COURT wherein the Hon ble High court has highlighted the importance of the rule of consistency that consistency does not mean putting iron fetters on the subsequent decision making; it only means expecting that a deviation from the previous decision in similar set of circumstances is explained by way of cogent and rational reasons.The appeal filed by the revenue is dismissed.

Summary

Issues Involved:
The issues involved in the judgment are whether the income from the sale of shares should be classified as Short Term Capital Gain or business income, and whether the Rule of consistency should be applied in determining the nature of the income.

Issue 1: Classification of Income:
The Assessing Officer (AO) initially classified the income from the purchase and sale of shares as business income instead of Short Term Capital Gain (STCG) based on the period of holding of the shares and the frequency of transactions. The AO relied on the CBDT circular No.4/2007 to treat the STCG as profit and gains of business. However, the CIT(A) overturned this decision, noting that the assessee had consistently treated the income from trading of shares as STCG in previous and subsequent assessment years. The CIT(A) emphasized the importance of uniformity in treatment and consistency when the facts and circumstances are identical, ultimately allowing the appeal and classifying the income as STCG.

Issue 2: Application of Rule of Consistency:
The Hon'ble High Court of Delhi highlighted the significance of the Rule of consistency in ensuring predictability and fairness in decisions. The Court emphasized that decision-making authorities should adhere to consistency in both content and procedure, and any deviation from previous decisions must be supported by cogent reasoning. In the present case, the Appellate Tribunal found that the AO had inconsistently treated similar transactions in different assessment years, leading to a lack of procedural and content consistency. The Tribunal set aside the impugned notice and order under Section 148 of the Income Tax Act, emphasizing the importance of providing rational reasons for any deviation from previous decisions.

In summary, the judgment addressed the classification of income from the sale of shares as Short Term Capital Gain or business income, emphasizing the importance of consistency in decision-making and highlighting the need for uniform treatment when the facts and circumstances are identical. The Appellate Tribunal upheld the decision of the CIT(A) to classify the income as Short Term Capital Gain based on the assessee's consistent practice and past assessment history, ultimately dismissing the appeal filed by the revenue.