TMI Blog2012 (11) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... facts do not support the plea of the assessee. - held as speculation loss - Decided against the assessee. Claim of bad debts in respect of certain sales made to foreign companies - held that:- Debt arising in the course of business activity is to be considered as bad debt if it is written off in the books of account as per the provisions of section 36(2)(iii) of the Act. In the present case the assessee submitted that it had obtained permission from RBI. The assessee is directed to adduce necessary evidence as the assessee has failed on earlier occasion to furnish necessary evidence. - matter remanded back. - ITA Nos. 1384-1386 & 1289/Hyd/2012 - - - Dated:- 31-10-2012 - SHRI CHANDRA POOJARI, AND SMT. ASHA VIJAYARAGHAVAN, JJ. Assessee by: Sri S. Raghunathan Revenue by: Sri K. Gnana Prakash ORDER PER CHANDRA POOJARI, AM: ITA Nos. 1384 to 1386/Hyd/2011 are by the assessee directed against different orders of the CIT(A)-II, Hyderabad and ITA No. 1289/Hyd/2011 is by the Revenue directed against the order of the CIT(A)-II, Hyderabad dated 26.4.2011 for assessment years 1997-98 to 1999-2000. 2. The common ground in all the three appeals of the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it was not concerned with the second exception, the tests for the same have not been laid down and, therefore, our task in this appeal becomes quite onerous. Needless to say, if it was the first exception which was to be considered, the case is undoubtedly caught within the mischief of the Explanation to section 73. However, as mentioned earlier, it is the second exception on which the assessee has tried to rest its case and accordingly, we proceed to adjudicate on the same. 22. If one goes by the language in the Explanation to S. 73, the expression used is ".... or a company the principal business of which is .....". The question we pose to ourselves is whether the provision contemplates that there can be only one principal business or there can be more than one principal business as well. To our mind, perhaps that may not be the case, because, there can be situations wherein business 'A' may constitute 45% of the turnover and business 'B' may constitute 47% of the turnover and balance 8% may be some other business or other income in year one. IN year two, it may just be the opposite, i.e., business 'B' may constitute 45% and business 'a' may constitute 47% of the turnover. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estment and finance as one of its main objects. During the month of June, 1995, merger of Standard Equity Fund Ltd., which is an investment and finance company, took place with the assessee company. Being so in this assessment year under consideration the assessee s principal business includes investment and financing. He further drew our attention to the earlier order of the Tribunal cited supra wherein it was mentioned that there can be more than one principal business. According to him one has to consider overall view of the company i.e., composition of gross receipts, deployment of funds in each segment of business, etc. He submitted that deployment of funds as follows: Figures in Rs. Crores 31.3.1995 31.3.1996 31.3.1997 31.3.1998 Total Fixed assets 45 67 87 109 308 Capital WIP 5 8 13 7 33 Investment +leasing 106 (102+4) 83 (80+3) 77 51 317 5. He contended that the above chart shows the funds deployment was made in investment and financing activities as one of the main object and further Standard Equity Fund L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the loss was relating to the own trading. Absolutely, there is no material brought on record by the Assessing Officer to show that the assessee is a company controlled by a business house and the share transactions have been effected with a view to manipulate and reduce its taxable income. In other words, there is no evidence to show that the requirement of para 19.2 of the circular No. 204 dated 24th July, 1976 issued by the CBDT are satisfied. Being so, the order of the Tribunal relied on by the assessee company is having no consequence to the facts of the present case. In the present case, as observed by the CIT(A), the assessee is engaged in the manufacture, selling, dealing and export and import of all types of chemicals and drugs. The primary fact shows that the assessee is a company controlled by a business house and after considering these facts elaborately the lower authorities invoked the ratio laid down by the Supreme Court in the case of McDowell Co. Ltd. Vs. ITO (154 ITR 148). Further the circular cited supra gives the scope and effect to the explanation to section 73 of the Act. From the circular it is clear that the object of these provisions is to curb the devic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 9. The transaction of purchase and sale of shares would be held as speculative business only if the company was hit by the explanation to section 73 of the Act. The implication of the explanation is that if a company incurs a speculation loss in a manner deemed in the explanation such loss shall not be set off except against profit and gains, if any, of another speculation business. 10. But, the explanation has provided two exceptions. The first exception is available in the case of a company whose gross total income consists mainly of income which is chargeable under the head interest on securities , income from house property , capital gain and income from other sources . The second exception is in the case of a company whose principal business is business of banking or granting loans and advances. 11. The first category of exception is identif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiple principal businesses is devoid of merit. The evidence brought on record by the Department as recorded in the orders of the lower authorities totally goes against the assessee and the lower authorities passed the consequential orders giving effect in conformity with the Tribunal order cited supra. Accordingly, we dismiss all the three appeals of the assessee in ITA Nos. 1384 to 1386/Hyd/2011. 13. Now we will take up the Revenue appeal in ITA No. 1289/ Hyd/2011. The grievance of the Revenue in this appeal is with regard to allowing the claim of the assessee with reference to bad debts. In this assessment year under consideration, the assessee claimed bad debts written off at Rs. 15,95,43,000 and advances written off at Rs. 89,69,003. The CIT(A) allowed the claim of the assessee placing reliance on the order of the Tribunal in assessee s own case for A.Y. 2000-01 in ITA No. 621/ Hyd/2000 dated 24.8.2007. He also placed reliance on the order of the Tribunal Special Bench in the case of Oman International Bank SAOG. Against this the Revenue is in appeal before us. 14. The learned DR submitted that the debts not came into existence in the case of banking or money lending busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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