A Division Bench of the Calcutta High Court has recently held that the Income Tax Department cannot take a view contrary to that of subsequent years in the absence of any new material that warrants the same.
The assessee had treated the income from sale of shares to be taxable under the head capital gains for the preceding years. However, for the AY 2005-06, the Assessing Officer held the same to be taxed under the head profits and gains from business, taking note of the frequency of the share transactions.
The tribunal considered the absence of separate identifiable funds utilized by the assessee for making investments in tax free bonds and shares but found that the assessee bank is having indivisible business and considering their nature of business, the investment made in tax free bonds and shares were held to be in the nature of stock-in-trade.
The tribunal then noticed that the assessee bank is having surplus funds and reserves from which investments can be made and accordingly accepted the assessee’s case that investments were not made out of the interest or cost bearing funds alone. Consequently, the disallowance under Section 14A was held to be not warranted in the absence of clear identity of funds.
“The observations of the CIT(A) to get over the consistent view of the department is by making an observation which at best can be treated to be a statement of law, namely if there are fresh materials a departure from a consistent view is permissible. However, to apply such legal principle, facts have to be brought on record, and in the absence of facts or fresh materials the conclusion of the CIT(A) has to be termed as perverse” the counsel for the revenue contended.
It was observed that, “Interestingly, the gains from the remaining long-term shares of the sixth company sold during the previous year relevant to the assessment year 2006-2007 was treated as business income by the assessing officer which order was reversed by the CIT(A) and affirmed by the tribunal by order dated 11.02.2011. The assessing officer once again for the assessment years 2007-2008 and 2008-2009 sought to treat the same as business income which was reversed by the CIT(A) and the tribunal dismissed the revenue’s appeal by the orders dated 11.05.2011 and 18.08.2011 and those orders have attained finality.”
The Bench observed that, “In the absence of any doubt raised by the department with regard to the purchase of shares treated as investment for the preceding years and the subsequent years, a departure cannot be made by the department for the year under consideration.”
It was thus held that, “nothing prevents the assessee from referring to the circulars and the theory of prospectivity or retrospectivity loses its significance” and that, the Income Tax Department cannot take a view contrary to that of subsequent years in the absence of any new material that warrants the same.
It was also added by the Bench of Division Bench of Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya that “that the circulars can be referred to by the assessee and they being at least partially beneficial to the assessee has to be held to be retrospectively applicable in so far as the instructions/clarifications which enure in favour of the assessee’s.
The assessee was thereby allowed to pay tax on the income from sale and transfer of shares held as stock in trade as capital gains and not profits from business as the assessee had treated the income arising from transfer thereof as capital gains consistently and the same was accepted by the department.
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