2014 (7) TMI 428 - AT - Income Tax

Claim of STCG and LTCG - Profit arriving from purchase & sale of shares instead of business income treated by the AO Held that - The decision in Assistant Commissioner of Income-tax 25(3) Versus Chetan K. Mehta 2011 (3) TMI 874 - ITAT MUMBAI followed - The conduct of the assessee in showing income from delivery based transactions as STCG and non-delivery based transaction as business income only shows that but for actual delivery even income from those transactions would have been considered as speculative income and business income Relying upon CIT v. Gopal Purohit 2010 -TMI - 35188 - HIGH COURT OF BOMBAY - assessee has followed a consistent practice in regard to the nature of the activities, the manner of keeping records and the presentation of shares as investment at the end of the year - the conclusion of the CIT(A) that the income from sale of shares declared by the assessee as STCG has to be accepted is correct - the income shown by the assessee from the sale of shares is to be taxed under the head short term capital gain and long term capital gain Decided against Revenue. Deduction under house property Held that - The assessee has made initial claim of deduction of interest of ₹ 15 lakhs on the borrowings which were utilised for acquiring residential premises as deductible business expenditure u/s 36(1)(iii) - the assessee filed revised statement of computation of income whereby the claim of ₹ 15 lakhs was given up and was disallowed by the assessee himself and instead interest claimed of ₹ 1.50 lakhs was made under section 24(b) which was the legally correct claim while computing the income from house property - Even if such a claim has been rejected by the AO on the ground that the same should have been made by way of revised return of income, however, the same does not put any fetters on the powers of the appellate authorities to entertain such a legal claim if all the facts necessary for the adjudication are available on records Relying upon Goetze (India) Limited Versus Commissioner of Income-Tax 2006 (3) TMI 75 - SUPREME Court - no new claim of interest has been made except for the fact that the right amount of interest has been claimed under the head interest and the amount of claim made in the earlier return of income - such a claim cannot be entertained as it is a trite law that it is the duty of the AO to allow deductions as per the statute under the right provisions of the Act thus, the order of the CIT(A) is upheld Decided against Revenue.

Summary

Issues Involved:
1. Classification of income from share transactions as either "business income" or "capital gains."
2. Deduction of interest under the head "house property."

Detailed Analysis:

Issue 1: Classification of Income from Share Transactions

The Revenue challenged the decision of the Commissioner (Appeals) to classify the income from share transactions as "Short Term Capital Gain" (STCG) and "Long Term Capital Gain" (LTCG) instead of "business income." The Assessing Officer (AO) had initially treated the income as business income due to the large volume of transactions, short holding periods, and the use of borrowed funds for share transactions. The AO also noted that the assessee maintained an office infrastructure for share trading and had claimed significant expenses related to these transactions.

The assessee argued that similar transactions in previous assessment years (2006-07 and 2007-08) had been classified as capital gains and accepted by the Tribunal. The Commissioner (Appeals) upheld this classification, citing the principle of consistency and referencing several judicial decisions, including CIT v/s Gopal Purohit, which emphasized uniformity in treatment when facts and circumstances are identical.

The Tribunal reaffirmed this position, noting that the assessee had consistently treated these transactions as investments in previous years. The Tribunal also highlighted that the volume and frequency of transactions, though substantial, did not alter the nature of the transactions as investments. The Tribunal cited multiple judicial principles, including those from CIT v/s Associated Industrial Development Co. Ltd. and CIT v/s Holck Larsen, to support the view that the nature of transactions should be determined based on the collective effect of all relevant materials.

The Tribunal concluded that the income from share transactions should be classified as STCG and LTCG, consistent with the treatment in earlier years. The appeal by the Revenue on this ground was dismissed.

Issue 2: Deduction of Interest under the Head "House Property"

The second issue involved the deduction of Rs. 1.50 lakhs under the head "income from house property." The assessee had initially claimed the entire interest of Rs. 15 lakhs paid on borrowed funds for acquiring residential premises as a business expenditure. During the assessment, the assessee revised the claim, disallowing the Rs. 15 lakhs as business expenditure and instead claiming Rs. 1.50 lakhs under section 24(b) of the Income Tax Act.

The AO disallowed this revised claim, stating that any new claim should be made through a revised return of income, referencing the Supreme Court decision in Goetze India Ltd. The Commissioner (Appeals), however, allowed the revised claim, noting that similar claims had been accepted in previous years and that all necessary details for adjudication were available on record.

The Tribunal upheld the Commissioner (Appeals)' decision, emphasizing that appellate authorities have the power to entertain such legal claims if all facts are available on record. The Tribunal referenced decisions from the Delhi High Court and Punjab & Haryana High Court, which clarified that appellate authorities could entertain such claims even if not made through a revised return.

The Tribunal concluded that the correct legal claim of Rs. 1.50 lakhs under section 24(b) should be allowed, and the appeal by the Revenue on this ground was dismissed.

Conclusion:

The Tribunal dismissed the Revenue's appeal on both grounds, upholding the classification of income from share transactions as "capital gains" and allowing the deduction of Rs. 1.50 lakhs under the head "house property." The judgment emphasized the principles of consistency and the powers of appellate authorities to rectify claims based on available records.