In Civil Appeal No. 2565 Of 2022- SC- Merely recording inventory in the books of accounts is insufficient to classify a transaction as stock in trade, rules Supreme Court; quashes Bombay HC, ITAT orders and remits matter for fresh consideration
Justice M.R. Shah & Justice B.V. Nagarathna [04-05-2023]

Read Order: Commissioner of Income Tax 8 Mumbai v. Glowshine Builders & Developers Pvt. Ltd

Chahat Varma

New Delhi, May 6, 2023: A division bench of the Supreme Court has quashed the judgment and order passed by the Bombay High Court and the Income Tax Appellate Tribunal (ITAT) and has remitted the matter back to the ITAT for a fresh consideration of the appeal, taking into account the court's observations and to take an appropriate decision on whether the transaction in question was the sale of capital assets or sale of stock in trade.

The bench observed that “the ITAT neither dealt with the findings given by the AO nor verified/examined the total sales made by the assessee during the relevant time and during the previous years. Merely on the basis of recording of the inventory in the books of accounts, the transaction in question would not become stock in trade. As per the settled position of law in order to examine whether a particular transaction is sale of capital assets or business expense, multiple factors like frequency of trade and volume of trade, nature of transaction over the years etc., are required to be examined. From the order passed by the ITAT, it appears that the ITAT has without examining any of the relevant factors confirmed that the transaction was transfer of stock in trade.”

The bench also observed that the ITAT failed to consider that once an amount is received and recorded in the books of accounts, it should be treated as income in the hands of the recipient, unless it is shown to be refunded or returned.

The bench concluded that the ITAT did not properly consider the relevant factors while determining whether the transaction in question should be treated as stock in trade or sale of capital assets or business transaction.