TaxTMI 
TaxTMI 
2014 (4) TMI 481
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....ding in shares resulted in a loss? and iii. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the losses of the earlier years allowed to be carried forward, can be set off against the income of this year, when the losses arose in speculation business? 2. The questions of law arises for consideration in T.C.(A) No.290 of 2007 in respect of the assessment year 1997-98 are as follows: "i. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessment proceedings were based on a change of opinion, when the provisions of Section 73 and the explanation thereto were not at all considered in the original assessment? and ii. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee company is not hit by the explanation to Section 73 of the Income Tax Act?" 3. Except for the question on reopening of the assessment for the assessment year 1997-98, the questions that arise for consideration in T.C.(A) Nos.288 and 289 of 2007 are common in all the appeals. As is evident from the reading of the main object clause in the Memorandum....
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....urities which resulted in a loss of a sum of Rs.93,20,336/- and that the loss incurred by the Company from purchase and sale of shares was to be treated as speculative loss and could be set off only against speculative income. After hearing the assessee, the re-opened assessment was completed by passing an order of re-assessment that the loss suffered was to be treated as speculative loss, to be adjusted only as against speculative income. Aggrieved by this, the assessee went on appeal before the Commissioner of Income-tax (Appeals). Apart from the merits canvassed, the assessee questioned the reopening of the assessment as without any basis. The first Appellate Authority, however, dismissed the assessee's appeal. Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal. 5. We may point out that the re-opening was made by the Assessing Officer in respect of the assessment year 1996-97 too, where the loss suffered by the assessee was stated to be of a tune of Rs.49,98,164/-. The re-assessment made for the assessment year 1996-97 was also a subject matter of appeal before the Commissioner of Income Tax (Appeals), who dismissed the appeal relating....
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....ars 1996-97 and 1997-98 apart from the merits of the assessment made based on Explanation to Section 73 of the Income Tax Act and for the assessment year 1998-99 on the assessment made based on Explanation to Section 73 of the Income Tax Act. Apart from this, there was also an appeal by the Revenue for the assessment year 1998-99 against the order of the Commissioner of Income Tax (Appeals) holding that the assessee was entitled to bring forward and set off of business loss of Rs.4,73,67,618/- determined in the earlier year, which were held by the Assessing Officer as speculative loss. The Commissioner of Income Tax (Appeals) held that the Assessing Officer could not revise the order of the predecessor holding the loss as business loss. 8. Thus, the appeals of the assessee for the assessment years 1996-97, 1997-98 and 1998-99 and the Revenue's appeal for the assessment year 1998-99 were considered under a common order of the Tribunal. 9. As far as re-opening of the assessment for the assessment year 1996-97 was concerned, the Tribunal held that the claim of the assessee as regards the loss suffered on the sales of shares and securities was considered by the Assessing Offi....
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....port the assessee's case that it was engaged in finance business. The Tribunal reasoned that merely because the loss is more than the income earned from the business of loans and advances, the Assessing Officer would not be justified in looking at these results alone for the purpose of invoking Explanation to Section 73 of the Income Tax Act. The Tribunal held that Explanation to Section 73 is in the nature of deeming provision and has to be strictly construed. It felt that the onus is on the Department to show that the assessee falls within the mischief of the provisions Section 73. Going by the objects clause and the facts, the principal business of the assessee was granting loans and advances and the provision of Section 73 was not attracted to the facts of the case. It pointed out that there is no definition of "principal business". Thus, what constituted "principal business" was to be seen from the facts and circumstances of each case. As far as the assessee company was concerned, the facts could be deduced from the memorandum of articles of association to find out what the principal business of the assessee could be. It felt that if in a particular year, the assessee had ....
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....see remained as finance company alone, the mere increase in the income from Project Consultancy Services in a particular year will not make the company otherwise, as the company engaged in speculative business. He pointed out that the memorandum of objects and articles of the assessee remained the same as they were and from a particular year's financial results, the Revenue could not justify as inference is to be drawn against the assessee that it was doing speculative business. There was no material before the Revenue to stamp the activity of the assessee in dealing shares as speculative business. In this connection he also placed reliance on the decision of the Calcutta High Court in the case of PCBL Industrial Limited Vs. CIT and another, reported in (2011) 337 ITR 536. 14. As per Section 73, any loss computed in respect of speculation business carried on by an assessee shall not be set off except as against the profits and gains of another speculative business. The Explanation to Section 73 defines what speculative business is. Explanation appended to Section 73, on which heavy reliance was placed by the Revenue needs to be seen herein to decide the issue on hand. It rea....
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.... time, when the question arose on the set off of a carried forward of the loss in the assessment for the assessment year 1998-99, with the assessment for the assessment years from 1993-94 to 1997-98 still intact, the Assessing Officer sought to give a different treatment to the claim as speculative loss. As rightly observed by the Tribunal, when the assessments for these years had become final, it is not open to the Assessing Officer to disturb those findings in a subsequent assessment proceedings and hence the same was binding on the Assessing Officer. Quite apart, even on merits, we agree with the Tribunal on the other reasoning given. 18. As rightly pointed by the Tribunal, 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. The assessee herein is engaged in the business of financing or granting of loans and advances. This is clear from the memorandum, which is extracted in the order of the Tribunal. Thus, 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 ....