Section 37 (1) – Business expenditure – Rule of consistency – Expenditure claimed and allowed against professional income in earlier years and subsequent years – Allocation of expenditure between capital gains and professional business income in year in question – Not proper

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51.  Principal CIT vs. Quest Investment Advisors
Pvt. Ltd.; 409 ITR 545 (Bom) Date of order: 28^th
June, 2018 A. Y. 2008-10

Section
37 (1) – Business expenditure – Rule of consistency – Expenditure claimed and
allowed against professional income in earlier years and subsequent years –
Allocation of expenditure between capital gains and professional business
income in year in question – Not proper

For
the A. Y. 2008-09, the assesse filed return of income declaring professional
income of Rs. 1.31 crore and short term capital gains of Rs. 6 crore. As was
the practice for the earlier years and accepted by the Department, all the
expenses were set off against the professional business income. However, for
the relevant year, the Assessing Officer allocated the expenditure between
earnings of capital gains and professional income and disallowed an expenditure
of Rs. 88.05 lakh claimed by the assesse against professional income. The
Tribunal found that the authorities had consistently over the years for 10
years prior to the A. Ys. 2007-08 and 2008-09 and for the four subsequent
years, accepted the principle that all the expenses which had been incurred
were attributable entirely to earning professional income without allocation of
any amount to capital gains, and applying the principle of consistency the
Tribunal allowed the appeal filed by the assessee.

On
appeal by the Revenue, the Bombay High Court upheld the decision of the
Tribunal and held as under:

“i)        For the earlier 10 years and 4
subsequent years the entire expenditure had been allowed against the business
income and no expenditure was allocated to capital gains. Once the principle
was accepted and consistently applied and followed, the Department was bound by
it. The basis for the change in practice should have been mentioned by the
Department, if it had wanted to change the practice without any change in law
or facts therein, either in its order or pointed out when the Tribunal passed
the order.

ii)         Therefore, the Tribunal’s allowing the
assessee’s appeal on the principle of consistency could not be faulted as it
was in accord with the Supreme Court decision.”