TMI Blog2017 (4) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax, the action of AO in bringing the said amount to tax in A.Y.2008-09 cannot be sustained. Moreover, there was no material on record to show that the assessee’s liability to re-pay M/s. Swagatam Lefin Pvt. Ltd was remitted by the other party or the liability ceased to exist. Therefore the condition for invoking the provision of Section 41(1) of the Act was not satisfied. The CIT(A) was therefore fully justified in deleting the addition made by AO. Consequently ground raised by the revenue is dismissed. - ITA No. 1315/Kol/2014 - - - Dated:- 5-4-2017 - Shri N. V. Vasudevan, JM And Shri M. Balaganesh, AM For the Appellant : Shri G. Mallikarjuna, CIT(DR) For the Respondent : Shri N.K.Poddar, Sr.Advocate Shri Gautam M.Bavishi,FCA ORDER Per N. V. Vasudevan, JM This is an appeal by the Revenue against the order dated 18.03.2014 of CIT(A)-XII, Kolkata relating to A.Y.2008-09. 2. Ground Nos. 1 to 3 raised by the revenue read as follows :- 1.That is the facts and in law of the case the LD. CIT(A) erred in allowing share trading loss as business loss instead of speculation loss amounting to ₹ 64725338/-. 2. That is the facts and in law of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the loss from share trading had to be regarded as a normal business loss and not as a speculation loss. 5. The AO however rejected the aforesaid claim of assessee for the following reasons:- ...As per claim of the assessee, its principal business is granting taking of loans advances, and therefore, second exception is applicable. The decision about the second exception can be taken only after considering details of income earned and fund deployment by the assessee. It is seen from the above details that the assessee has interest income of (-) ₹ 99,33,533/-, while it has income from trading of shares of (-) ₹ 6,31,80,918/-. It is by now well- settled that the words income or profits and gains should be understood as including losses also so that in one sense profits and gains represent positive income whereas losses represent negative income . In other words, loss is negative profit . Both positive and negative profits are of revenue character. Both must enter into computation, wherever it becomes material, in the same mode of the taxable income of the assessee. Reliance is placed on decision taken by the Hon'ble jurisdictional High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubstantially higher than in share business (Rs. 55.57 crores). It was argued that in the circumstances, there can be no doubt that the principal business of the assessee was granting of loans and advances following the ratio laid down by the jurisdictional High Court in the case of CIT vs. Kanoria Investment (P) Ltd. 232 ITR 7(Cal) wherein it was held that the principal business is determined on the basis of fund deployed in a particular business and not on the basis of income earned from the particular business. It was pointed out that in the context of Explanation to section 73, Hon'ble Kolkata bench of the Tribunal in the case of Off-Shore India Ltd. vs. ITO 15 ITD 549 has also recognized the principal that the Principal Business is determined on the basis of fund deployment in the following words -. In our opinion, the objects in the memorandum are not conclusive of the nature of business carried on . by the assessee-company. As has been observed by the supreme court in the case of CIT v. Dharmodayam Co. [1977] 109 ITR 527, it is notorious that the memorandum and articles of association of companies usually cover a variety of activities but the activity which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, break-up of the income earned during the relevant and past years and the nature of activities of the assessee will all help in determining the principal business of the assessee . It was submitted that the assessee conforms to all the factors specified by the special bench judgement for determining that a company carries on the principal business of granting of loans and advances. The assessee is authorised by its MOA to carry on the business of money lending. The assessee has been granted licence by the RBI to carry on the business of financing and that the funds deployed by the assessee in the business of money lending is more than the funds deployed in the business of share trading in the instant year as well as the preceding s (in majority of the years) and gave the following details:- Assessment Year 2008-2009 2007-2008 2006-2007 2005-2006 (a) Money Lending 124.46 74.14 22.33 12.38 (b) Closing stock 55.56 15.34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce activity in the majority of preceding years as well as the present year is more than that invested in share trading business. In the remand report, the A.O. was also satisfied with the explanation given by the appellant that the appellant's principal business is that of granting of loans of advances. In my opinion. the appellant's case falls under the second exception clause of Explanation to sec. 73 since the appellant s principal business is the business of granting of loans and advances. Therefore, the appellant's case falls outside the ambit of the explanation . Hence. these grounds of appeal of the appellant are allowed. 10. Aggrieved by the order of CIT(A) the revenue has raised ground nos. 1 to 3 before the Tribunal. 11. The ld. DR placed reliance on the order of AO. He submitted Non-Banking financial companies are registered with RBI and could get such registration only if the business consists of giving of loans and advances, acquisition of shares, stock etc issued by the Government or local authority or other marketable securities of a like nature, leasing, hire purchase etc. The financing activity should be the principal business of NBFC. It is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the activities. Therefore, profit alone was not made the distinguishing factor. Since the business activity is also a distinct factor, we are inclined to think that the principal business of the company/assessee is granting loans and advances as would appear from the volume indicated in the chart above for a number of years. Therefore, the view taken by the learned Tribunal appears to be the correct view of the matter. (emphasis supplied) It was submitted that in the ratio laid down by the Hon ble Calcutta High Court is squarely applicable to the assessee s case and therefore the order of CIT(A) in treating the loss in question as normal business loss has to be upheld. 12. We have given a very careful consideration to the rival submissions. The admitted factual position in the present case is that the Assessee has been given a certificate by the RBI that it was NBFC ( copy of the certificate is at Page-31 of the paper book). The requirements of the rules of RBI can therefore be taken as satisfied in the case of the Assessee. The only aspect to be seen is as to whether for coming to a conclusion that the principal business of an Assessee is giving of loans and advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not find any merits in the relevant grounds raised by the Revenue and accordingly dismiss the same. 13. Ground No.4 raised by the revenue reads as follows :- 4. That is the facts and in law of the case the LD. CIT(A) erred in deleting the bogus sundry creditors amounting to ₹ 25,00,000/- added by the A.O. 14. In the course of assessment proceedings the AO noticed that the assessee had received ₹ 25,00,000/- from M/s. Swagatam Lefin Pvt. Ltd in the financial year 2002-03 as advanced for sale of shares. The transaction did not take ultimate take place. There were dispute with the parties and negotiation took place with the aforesaid customer. The AO was of the view that the aforesaid advance which continued to be shown as a liability by the assessee was no longer in existence and the assessee had derived a benefit by the aforesaid party not making a claim for the return of the aforesaid amount. The AO was therefore of the view that under the provision of section 41(1) of the Income Tax Act, 1961 (act) the aforesaid sum should be brought to tax as income of the assessee. Accordingly the AO added a sum of ₹ 25,00,000/- to the total income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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