TMI Blog2014 (4) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... hen the assessments for the years had become final, it is not open to the AO to disturb those findings in a subsequent assessment proceedings and hence the same was binding on the AO - there is no definition of the word "principal business", which is of relevance, particularly to a company carrying on the business of banking or granting loans and advances - in the absence of a definite definition of what a "principal business" is, one has to go only by the memorandum of articles of association of a company - its principal business is finance and granting loans and advances - The memorandum of the Company clearly points out the nature of business as an investment and finance company – Decided against Revenue. - Tax Case (Appeal) Nos. 288 to 290 of 2007 - - - Dated:- 1-4-2014 - Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mrs. Hema Muralikrishnan For the Respondent : Mr. C. V. Rajan JUDGMENT (Judgment of the Court was delivered by Chitra Venkataraman,J.) The Revenue is on appeal as against the common order dated 28.7.2006 made in I.T.A.Nos.333, 669 and 1149/Mds/2002 for the assessment years 1997-98 and 1998-99. The questions of law that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in shares, stocks, securities, finance, etc., The memorandum also authorised the Company to invest in, buy, purchase, acquire, take on lease or be interested in any immovable property, such as, lands of any tenure, develop secondary markets in bills, discount and rediscount genuine trade bills, procure, obtain short term or long term finance or working capital finance, either alone or jointly with others. Thus, the business of the assessee is finance. 4. For the assessment year 1997-98, the assessment was originally completed under Section 143(3) of the Income Tax Act. At the time of finalising the assessment, the assessee was specifically asked to explain about the expenses attributable to investment and stock-in-trade, purchase, sales bills and payment details, the entire financial expenses debited to the profit and loss account as business expenses when investment was made out of borrowed funds, interest charged on loans and advances and the working of the carry forward/brought forward losses. After hearing the assessee and after examining the details furnished, the assessing officer completed the assessment for the assessment year 1997-98 and permitted business loss to be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only as a speculative loss falling under Explanation to Section 73 of the Income Tax Act. 6. On an appeal filed before the Commissioner of Income-tax (Appeals), the First Appellate authority pointed out that during the year under consideration, the advance of loan granted had fallen considerably from the one in the earlier year, i.e, from Rs.2,29,09,545/- to Rs.32,73,940/- and so too the investments from Rs.21,81,047,043/- to Rs.10,40,42,400/- and the interest received from finance business had also fallen drastically. On a comparison made on the business activity, the first Appellate Authority held that the principal business of the assessee was not granting loans and advances but only share dealings. Accordingly, he came to the conclusion that the amended Explanation would cover the case of the assessee that the loss suffered was in the nature of speculative business loss, which could be set off only against his profit on speculation business. Thus the appeal was rejected by the first Appellate Authority. While so holding, so as far as the reduction of interest on speculation business was concerned, the first Appellate Authority pointed out that the accounts did not revea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the reopening of assessment for the assessment years 1996-97 and 1997-98 were held to be bad in law. 10. Even though learned Standing Counsel appearing for the Revenue strenuously contended that the claim itself could not be sustained by reason of Explanation to Section 73, yet, on going through the proceedings relating to the assessment years 1996-97 and 1997-98, we have no hesitation in confirming the order of the Tribunal on the aspect of re-opening of the assessment by following the decision of the Supreme Court in the case of CIT Vs. Kelvinator of India Limited, reported in (2010) 320 ITR 561. A reading of the reasons given for reopening of assessment shows that it was nothing but a review of the orders passed under Section 143(3) relating to the assessment years 1996-97 and 1997-98. Consequently, even though the assessment was reopened within the limitation period of four years, there being no fresh material to disturb the reasoning arrived at for the above said assessment years, we have no hesitation in rejecting the Revenue's plea. Hence the appeals filed in respect of the assessment years 1996-97 and 1997-98 are dismissed. Consequently, on the merits of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee apart from the business in shares, it was difficult to bring the case of the assessee within the mischief of Explanation to Section 73 of the Income Tax Act. The Tribunal further pointed out that while finalising the assessment for the assessment year 1998-99, the business loss of the earlier years from 1993-94 to 1997-98 carried forward was denied of set off by taking a different view that the loss carried forward were speculative loss. Thus, by taking this view, the Assessing Officer seemed to disturb the assessments of the earlier years, which could not be legally done by the Assessing Officer. The Tribunal pointed out that when the order had reached finality, it was not open to the Assessing Officer to disturb those orders in the assessment year 1998-99 . Thus, the Tribunal rejected the Revenue's appeal for the assessment year 1998-99 and allowed assessee's appeals. Hence the present appeals by the Revenue. 12. Learned Standing counsel appearing for the Revenue placed heavy reliance on the Explanation to Section 73 and submitted that going by the decision of the Calcutta High Court reported in Paharpur Cooling Towers Ltd., Vs. CIT, ((2011) 338 ITR 295), the los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant to income from profits and gains of business or profession contains the definition of speculative transaction. A reading of Explanation to Section 73, in contra distinction to the definition of speculative transaction in Section 43(3), shows that where any part of the income of the Company, other than the excluded categories, consists in the purchase and sale of shares of other companies than for the purpose of Section 73, the company would 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. While creating such a fiction, the Explanation excludes certain companies, viz., 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. 16. Thus, a company, whose principal business is that of banking or financing, is excluded from the provisions of Section 73. Thus, the question herein is, whether a particular company dealing in shares could be br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments was negative as on 31.3.1998 as was in the earlier year too. The Assessing Officer compared the income received from investment and financing activity and ultimately held that the assessee's business was mainly in share dealing and it was a speculative business. 19. Learned Standing Counsel appearing for the Revenue pointed out that the assessee's business had a shift into Project Consultancy Services and secondly it could not be called as a investment company and that the income from Project Consultancy Services had been reported at Rs.633 lakhs during the year under consideration. Thus, based on this, learned Standing counsel argued that the assessee Company had ceased to be an investment Company. We do not subscribe to this line of submission. As pointed out by the Tribunal the stamping of a Company as an investment Company or a company engaged in speculation business cannot be drawn just by the financial results contained in the balance sheet in a particular year. The profit on the sale of loans may go high as compared to the earlier years or may even fall. Unless there are materials enough at the hands of the Revenue to substantiate the contention that the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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