2018 (7) TMI 479 - HC - Income Tax

Allowable business expenses u/s 37 - expenditure claimed against professional income disallowed - following the rule of consistency - Held that - The principle accepted by the Revenue for 10 earlier years and 4 subsequent years to the Assessment Years 2007 -08 and 2008 -09 was that the entire expenditure is to be allowed against business income and no expenditure is to be allocated to capital gains. Once this principle was accepted and consistently applied and followed, the Revenue was bound by it. Unless of course it wanted to change the practice without any change in law or change in facts therein, the basis for the change in practice should have been mentioned either in the assessment order or atleast pointed out to the Tribunal when it passed the impugned order. None of this has happened. In fact, all have proceeded on the basis that there is no change in the principle which has been consistently applied for the earlier assessment years and also for the subsequent assessment years. Therefore, the view of the Tribunal in allowing the respondent s appeal on the principle of consistency cannot in the present facts be faulted with, as it is in accord with the Apex Court decision in Bharat Sanchar Nigam Ltd. (2006 (3) TMI 1 - SUPREME COURT). No substantial question of law

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 for Assessment Year 2008-09; Disallowance made under Section 37(1); Justification for deletion of disallowance; Application of rule of consistency; Allocation of expenses between professional income and capital gains; Appeal process to Commissioner of Income Tax (Appeals) and Tribunal; Principles of consistency; Application of Radhasoami Satsang case; Applicability of decisions in different assessment years; Precedential value of earlier pronouncements; Change in practice without change in law or facts; Adherence to consistent principles by Revenue.

Analysis:

The judgment delivered by the High Court of Bombay pertains to an appeal challenging an order under Section 260A of the Income Tax Act, 1961 for the Assessment Year 2008-09. The primary issue raised was the disallowance made under Section 37(1) and the justification for its deletion by the Tribunal. The Revenue questioned whether the Tribunal was correct in deleting the disallowance without fully appreciating the facts and legal aspects of the case. Additionally, the application of the rule of consistency and the reliance on the Radhasoami Satsang case without delving into the merits of the case were also contested.

The respondent, engaged in equity research and investment services, had shown professional income and capital gains in their return. The dispute arose when the Assessing Officer disallowed a specific expenditure claimed against professional income, leading to an appeal to the Commissioner of Income Tax (Appeals) and subsequently to the Tribunal. The Tribunal, based on the principle of consistency, allowed the appeal without delving into the specifics of expense allocation between professional income and capital gains. It noted that historically, expenses were set off against professional income without allocation for several assessment years, except for the years in question.

The Revenue argued against the Tribunal's decision, citing the limited applicability of the Radhasoami Satsang case and the need for separate consideration of expenses and income for each year. However, the Tribunal's order highlighted the Revenue's consistent practice of not allocating expenses to capital gains in previous and subsequent years, leading to the acceptance of the appeal based on the principle of consistency.

The High Court, referencing the Bharat Sanchar Nigam Ltd. case, emphasized the importance of adhering to consistent principles unless there is a material change in facts or law. It noted that the Revenue's deviation from accepted practices without justification was not sustainable. The Court upheld the Tribunal's decision, stating that the appeal did not raise any substantial question of law and dismissed the appeal without costs.