TMI Blog2003 (2) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... idising or financing the sale and maintenance of any goods, articles or commodities of all or any kind and description upon any terms or immovable and movable property including land, buildings and also to provide advice, counsel and services. B. To finance industrial and trading enterprises and for that purpose lend and advance monies to entrepreneurs, promoters and industrial or trading concerns on such terms and conditions and with or without securities as may be thought appropriate." In the light of the above object, it is claimed by the assessee-company that it is an investment company. 3. The appellant-company filed a revised return declaring a loss of Rs. 29,71,990 and also claimed some carry forward losses and unabsorbed depreciation of earlier years, which have to be carried forward to subsequent years. The audited annual report for the year ended 31st March, 1997, relevant for the assessment year 1997-98, to the extent relevant for our purposes, reads as under- "..... Profit Loss Account for the year ended 31-3-1997 ------------------------------------------------------------------------ Particulars SCH Year ended 31-3-1997 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ---------------- (56,76,453 Less: Deprecation as per IT Rules (93,105) ---------------- (51,69,538) ---------------- Income from capital gains Short term capital gains on sale of vehicle 8,120 Income from other sources Dividends 21,89,445 ---------------- Loss to be carried forward and 29,71,993 set off againt future year's profits . . . ." ---------------- 4. At this stage, it may be mentioned that the sales figure of Rs. 2,98,17,270 reflected in the profit and loss, account, extracted above, consists of the following two items- Sale of waste yarn 1,75,75,135 Sale of shares 1,22,42,135 ------------- Total 2,98,17,270 -------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he normal business of the assessee and not speculation business. According to him, only the business of purchase and sale of shares constituted speculation business, and as such, it is only the result of this activity of the assessee that was held to be not eligible for set off against other income. Before coming to this conclusion, the learned CIT(A) issued a show-cause notice dated 8-3-2002, proposing enhancement of income, and the said show-cause notice reads as under- "Please refer to the appeal filed against the scrutiny asst. order dated 23-3-2000 in the case of M/s. Melvillie Finvest Ltd. On going through the asst. order, the details filed before me and the assessment folder, I come to the conclusion that your total income has been computed wrongly at Rs. 54,49,940. According to me, the total income should be computed as under: Income from Business Rs. Rs. Commission 25,29,699 Interest 24,904 Misc. Income 6,00,000 31,54,603 --------------- Income from purchase and sale of waste: Sale 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y body appears on 18-3-2002 and advance of the arguments, it will be presumed that you have no objection and the enhancement will be made accordingly." Before the CIT(A), it was argued on behalf of the assessee that the assessee-company held shares as investments, and such investments were shown in the Balance Sheet as on 31st March, 1997, i.e. on the last day of the accounting year 1996-97 at Rs. 1,33,48,429, and so, the assessee is an investment company, to which Explanation to section 73 is not applicable. The CIT(A) rejected the said contention, and relying upon the decision of the Calcutta High Court in Eastern Aviation Industries Ltd. v. CIT [1994] 208 ITR 1023, he held that the assessee's business of purchase and sale of shares is hit by Explanation to section 73, as its gross total income did not consist mainly of the specified categories of income, which are the following - (a) income from house property, (b) interest on securities; and (c) Capital gains. He computed the total income of the assessee at Rs. 1,61,25,189 with the following observations- "11. During the course of final hearing, the A.R. also submitted that the entire finance charges of Rs. 26,86,203 did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,10,16,824 ------------- Income from other Sources: Dividend Income [as per section 56(2)(i)] also read 129 ITR 260 (Bombay) 125 ITR 227 (Guj.) 21,89,445 Loss from speculation in terms of Explanation to section 73(4) Sale of shares 1,22,42,135 Less: Decrease in stock 1,40,47,723 To purchase of shares 1,25,28,799 Finance charges 17,90,802 ------------- 2,83,67,324 -------------- Loss from Speculation 1,61,25,189 -------------- Gross total Income 1,32,14,389 Less: Deduction under section 80L allowed by the Assessing Officer 15,000 -------------- Total Income 1,31,99,389 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,40,47,723, as this does not arise from the purchase and sale of shares, but it is only a notional figure being the decrease in the value of shares, and has nothing to do with either the purchase or sale of shares. It is contended that the assessee has been offering to tax any increase in the market value of the shares in earlier years, and as such neither the increase nor the decrease in the value of the shares should be taken into consideration for arriving at the speculation loss of the year. 11. The last limb of the argument advanced by the learned counsel for the assessee is that the CIT(A) erred in not considering the purchase and sale of yarn as speculation activity. It is explained that the yarn was purchased at Surat and Bombay and it was also sold at the same place, and if the share transactions are considered as speculation activity, the transactions relating to yarn should also be considered as speculation activity. 12. The learned Departmental Representative, on the other hand, pleaded that there has been an amendment in Explanation to section 73 brought out by the Finance Act, 1987, with effect from 1-4-1987, and the expression "other than a company as defined in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the view that the Revenue deserves to succeed substantially. Section 73, to the extent relevant for our purpose reads as under- "73. (1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) .......... (3) .......... (4) .......... Explanation--Where any part of the business of a company other than a company, whose gross total income consists mainly of income which is chargeable under the heads "interest on securities., "Income from house property" "capital gains" and "Income from other sources" or a company the principal business of which is the business of banking or the granting of loans and advances, consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares." It is evident that the above Explanation is attracted, when the following conditions are satisfied cumulatively- (a) The appellant is a company (b) Its gross total income does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e entire loss to the business profit. Therefore, while making the adjustment under section 143(1)(a), the Assessing Officer was duty bound to examine this aspect as to whether loss arising from the share transactions was correctly adjusted against business profit or not. Since the assessee had adjusted the entire loss, the Assessing Officer was justified in treating the entire loss as speculation loss. There could not be any controversy as made out by the assessee that the loss on share transactions had to be determined by excluding the value of closing stock of the shares. It was only made out by the assessee to wriggle out the rigours of Explanation to section 73." The above observations were made in the context of adjustments made under section 143(1)(a) they apply with greater force in the context of regular assessment proceedings, like the present one, 16. The fact that substantial funds of the assessee are held as investments, and are reflected at Rs. 1,33,48,429, in the Balance Sheet as on 31-3-1997, is not material for considering the application of the Explanation to section 73 of the Act. In the light of clear language of section 73, what has to be seen is only the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime before the Tribunal, and so cannot be entertained by us. A plea that requires investigation into fresh facts cannot be entertained for the first time by the Tribunal. The assessee did not take this plea evening response to the show cause notice issued by the CIT(A), let alone before the Assessing Officer The CIT(A) specifically mentioned in the show cause notice that he proposed to treat only the loss from the share transactions as speculation loss. Even at that stage, the assessee did not take the plea that purchase and sale of yarn also constituted the speculative activities of the assessee, and such a plea is taken for the first time before us. In the circumstances, we cannot entertain this plea urged for the first time before us. 18. In the circumstances, we have to uphold the order of the CIT(A). Before we close the matter, we may however mention that the assessee did claim certain carried forward losses and unabsorbed depreciation of, earlier years in the revised return filed by it. If the share transactions are held as speculation activity and the loss therefrom is not set off against other income, the assessee may become eligible for set off of other determined carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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