2013 (4) TMI 189 - HC - Income Tax

Set off of speculative losses u/s 73 - reassessment - Speculative business loss in share trading activities are adjusted towards profits of business of the company - Held that - In 2012 (6) TMI 38 - ALLAHABAD HIGH COURT it was held that the petitioner is covered under Explanation to Section-73 of the Act and is entitled to set off the losses from sale and purchase of the share in the profits of the business of the company from loans and advances. As the controversy involved in this writ petition has already been decided by this Court between the parties 2012 (6) TMI 38 - ALLAHABAD HIGH COURT for another assessment year and it has been held that the petitioner is entitled to set off the losses from sale and purchase of the share in the profits of the business of the company from loans and advances as such there is no justification for reassessment proceedings started by the Assessing Officer for the Assessment Year 1999-2000 on this very ground - The writ petition succeeds and is allowed - The notices U/s 148 of the Act and U/s 142 (1) of the Act initiating proceedings for re-assessment are quashed - The parties shall bear their own costs.

Summary

Issues:
Quashing of notice under Section 148 of the Income Tax Act, 1961 for re-assessment for the Assessment Year 1999-2000.

Analysis:
The writ petition was filed to challenge the notice dated 02.08.2004 issued by the Assistant Commissioner of Income-tax-IV, Kanpur, under Section 148 of the Income Tax Act, 1961, and the consequential notice dated 24.06.2005 under Section 142 (1) of the Act for re-assessment for the Assessment Year 1999-2000. The petitioner, a Public Limited Company, filed its Income-tax return for the said year, showing net profit and adjusting a loss in share trading activities against the interest income. The Assessing Officer contended that the loss from share trading was not eligible for adjustment against the profits from the main business of earning interest, leading to escaped assessment. The petitioner argued that the Explanation to Section 73 of the Act did not apply to them, rendering the notices null and void.

In response, the respondents claimed that the petitioner was an investment company primarily earning income from interest on advances and loans, and losses from speculative share trading could not be set off against the main business profits under Section 73 of the Act. Referring to previous tribunal orders, the department had filed appeals which were pending. However, it was revealed during arguments that previous judgments had favored the petitioner's right to set off losses from share trading against business profits, based on the Explanation to Section 73 of the Act.

Given the precedent set by previous judgments, the Court concluded that the petitioner was entitled to set off losses from share trading against business profits, as per the Explanation to Section 73 of the Act. Consequently, the reassessment proceedings initiated by the Assessing Officer for the Assessment Year 1999-2000 were deemed unjustified, leading to the quashing of the notices dated 02.08.2004 and 24.06.2005. The Court ruled in favor of the petitioner, directing each party to bear their own costs.