TaxTMI 
TaxTMI 
2012 (11) TMI 815
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....ed the issue back to the file of the Assessing Officer vide order dated 24th August, 2007 by holding as follows: "21. We have duly considered the rival contentions and the material on record. At the outset. It would be pertinent to refer to the decision of the Special Bench in the case of Concord Commercials (P) Ltd. (supra). At paragraph 24, the Bench observed as follows: "The two kinds of exceptions provided in Explanation to section 73 are based on two independent tests laid down in the Explanation Itself. The test to be applied on the first category of company is the character of its gross total income. The test laid down in the case of the second category of company is the nature of the principal business carried on by it. In the first category, where the test is that of the character of gross total income the other test relating to the nature of principal business carried on by it does not apply. Likewise in the second category of company where the test is the nature of the principal business carried on by it the test of the gross total income does not apply. The two exceptions provided in Explanation to Section 73 are governed by two different tests laid down In the said e....
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.... be the criterion if the assessee's case falls within the second exception. Is it then that one takes an overall view of the company, say, the composition of gross receipts. The deployment of funds in each segment of business, the steps taken by the company to step up any other business, as in the case before us and so on. One also needs to consider as to why a company cannot have more than one principle business. Many other questions may crop up while considering the above questions. All such questions need to be addressed to and which have not been considered by the revenue as they have gone by the income criterion only and which criterion, as per the decision of the Special Bench. Cannot be applied when one is considering the matter under second exception in the Explanation to section 73 of the Act. Since we do not have the views of the revenue on this aspect of the matter, we deem it proper to restore the issue back to the file of the Assessing Officer with the direction to consider it afresh keeping in view the decision of the Special Bench and also the questions posed by us above. The Assessing Officer shall give due opportunity of being heard to the assessee in this regar....
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....ignificance as contemporaneous ex-potio in the relevant context and the interpretation of the explanation to section 73. It should take into consideration the objective beyond its introduction as was highlighted by the said circular. For this proposition it was relied upon the judgement of Supreme Court in the case of K.P. Verghese vs. ITO (131 ITR 597). He submitted that According to the Tribunal, though deeming provision was to be construed strictly, the construction of the section could not exclude consideration such as the objective for which it was introduced. Since there was no material to show that the assessee as a company, controlled by a business house, and that the share transactions had been effected with a view to manipulate and reduce taxable income, the Tribunal held that loss should be treated as normal business loss and be allowed to set off against other business profit of the assessee. While repeating the above arguments for the A.Y. 1998-99, he submitted that the lower authorities have not properly considered the Special Bench decision in the case of Concord Commercial Pvt. Ltd. (95 ITD 117) in true spirit. Finally the learned AR relied on the submissions made b....
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....sources" incurs loss on the purchase and sale of shares. According to the explanation to section 73 such loss would be deemed to be a speculative loss of the company which could not be deducted from any other business of the assessee. Hence the said decision is not applicable to the facts of the present case. 8. A speculation transaction and the loss arising out of the speculative transaction have to be considered in the light of provisions of section 73 along with the explanation to that section. This provision treats the speculative transaction carried on by the assessee as distinct and separate business if the nature of such transaction is such that, it constitutes a business. This is provided under explanation 2 to section 28 of the Act. Likewise, the definition of the term "speculative transaction" is provided in section 43(5) of the Act in a substantive manner. The ambit and scope of speculative transaction and speculative loss need to be confined with the limit provided by the law contained in the above mentioned provisions. But, further to take care of any device that may be attempted by business houses controlling group of companies for the purpose of reducing the tax inc....
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....y. If the company is carrying on as its principal business, the business of banking or granting of loans and advances, explanation to section 73 does not apply. The company is excluded from the ambit of explanation on the basis of nature of principal business carried on by it. The two kinds of exceptions provided in explanation to section 73 are based on two independent tests laid down in the explanation itself. Therefore, we have to see the applicability of the exceptions provided in the explanation. As seen from the facts of the present case, though the assessee made a plea that the it is carrying on multiple business as principal business, but the facts do not support the plea of the assessee. In our opinion, in the present case the assessee's principal business is to manufacture, sell, deal, export and import of all types of chemicals and drugs and not advancing of loans. For clarity we will reproduce the data for A.Y. 1997-98 year ending on 31.3.1997: Income 1996-97 1998-99 Sales 24,99,359 33,16,200 Other income 23,874 35,663 Total 25,23,233 33,51,863 12. In the A.Ys. 1997-98 and 1998-99 there is no income from sale of investment but only loss. Same is the positi....
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.... debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year;" 17. A 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 vide letter dated 30th March, 1999. The letter reads as follows: "RESERVE BANK OF INDIA SECRETARIAT ROAD, SAIFABAD, HYDERABAD - 500 004 Exp/6076/05.02 98-99 March 30, 1999 The Branch Manager State Bank of India Industrial Finance Branch Somajiguda Hyderabad 500082 Dear Sir, Reduction in invoice value - Dr. Reddy's Laboratories Ltd., Hyderabad Please refer to your letter 98/82 dated 31st December, 1999 on the above subject.....