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.”