ITO,WARD-4(3),KOLKATA, KOLKATA vs. ADVANI PRIVATE LTD., KOLKATA

The assessee is a company and is in the business of trading of chemicals and bulk drugs, plastic insulated crates, televisions etc. The Assessing Officer in his order passed u/s 143(3) of the Act, on 27/12/2015, noted that the assessee was also engaged in the purchase and sale of shares which had resulted in a loss of Rs.105.92 Lakhs/-. After considering the submissions of the assessee, he came to a conclusion that the loss is covered by Explanation to Section 73 of the Act and hence has to be treated separately. He rejected the contentions of the assessee that it fell within the exceptions carved out in Explanation to Section 73 of the Act. On appeal, the ld. First Appellate Authority allowed the appeal of the assessee on the ground that the main objective of the assessee company is that of granting of loan and advances and this is an undisputed fact by the Assessing Officer and hence the assessee falls under the exceptions specified in Explanation to Section to 73 of the Act. He allowed the appeal of the assessee.

The ld. D/R, Shri Arup Chatterjee, submitted that the ld. CIT(A) has granted relief to the assessee by examining the memorandum of association (MOU) and Articles of Association, of the company and not the actual business. He pointed out that the Assessing Officer found that a major portion of the gross total income of the assessee mainly consists of income not relating to grant of loan and advance. He relied on the order of the Assessing Officer and pointed out that at page 3 of his order, he brought out that, out of the total funds available with the assessee of Rs.1888 Lakhs/-, only an amount of Rs.172 Lakhs/- was deployed for giving way of loans and advances, and that this would constitute 9.5 per cent of the total funds. He also pointed out that similarly for the Assessment Years 2011-12 and 2012-13, the company had deployed only 8.23% and 9.12%, as loans and advances. He argued that on these facts and figures it cannot be considered that the company has principle business in granting of loans and advances. He argued that only if 50% of the funds are deployed for granting of loans and advances then it can be held that the principle business of the assessee is grant of business advances. He submitted that the order of the ld. CIT(A) be reversed and the appeal of the revenue be allowed.

The ld. Counsel for the assessee, while relying on the order of the ld. CIT(A), submitted that even otherwise, the assessee falls within the exceptions provided in Explanation to Section 73 of the Act. He submitted that the assessee’s gross total income is Rs.4,15,100/-, and that it solely consists of income assessable under the head “income from house property” and that under those circumstances, the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Middleton Investments and Trading company, of 1999, judgment dt. 15/01/2014, is squarely applicable.

After hearing rival contentions, perusing the papers on record, orders of the authorities below as well as the case-law cited, we hold as follows:-

The assessee in this case has filed its return of income showing total income of Rs.4,15,100/-. This was not disturbed by the Assessing Officer, except for treating the loss on purchase and sale of shares as speculation loss and clubbing the same with business income. The income assessable under the head “income from business” is Assessment Year: 2012-13 Advani Private Ltd Nil, due to the fact that the assessee had carry forward loss brought forward from the Assessment Year 2009-10 onwards. During the year, the assessee set off carry forward business loss and unabsorbed depreciation of Rs.9,21,510/-. The gross total income declared by the assesse is Rs.4,15,100/- and it consists entirely of the income form house property. The rent received is Rs.5,93,000/- and after granting deduction of 30% of an amount of Rs.1,77,900/-, the balance assessable under this head was Rs.4,15,100/-. The Jurisdictional High Court in the case of Middleton Investments (supra), held as follows:- “The ambit of sub-section (1) of section 73 is only to prohibit the setting off of a loss which has resulted from a speculation business, save and except against the profits and gains of another speculation business. In order to determine whether the exception that is carved out by the Explanation applies, the Legislature has first mandated a computation of the gross total income of the company. The words "consists mainly" are indicative of the fact that the Legislature had in its contemplation that the gross total income consists predominantly of income from the four heads that are referred to therein. Obviously, in computing the gross total income the normal provisions of the Act must be applied and it is only thereafter, that it has to be determined as to whether the gross total income so computed consists mainly of income which is chargeable under the heads referred to in the Explanation. Consequently, in the present case, the gross total income of the assessee was required to be computed, inter alia, by computing the income under the head of profits and gains of business or profession as well. bOth the income from service charges in the amount of Rs.2.25 crores and the loss in share trading of Rs.2.23 crores, would have to be taken into account in computing the income under that head, both being sources under the same head. The assessee had a dividend income of Rs.4.7 lakhs (income from other sources). The Tribunal was justified, in coming to the conclusion that the assessee fell within the purview of the exception carved out in the Explanation to section 73 and that consequently the assessee would not be deemed to be carrying on a speculation business for the purpose of section 73(1)." The judgment cited by Mr. Saraf is directly on the point sought to be agitated by the revenue. There is nothing to show that the view taken by the Bombay High Court is erroneous. We are, as such, of the opinion that the appeal must fail and is hereby dismissed.”

Applying the propositions of law laid down in this case to the facts of this case, we have to hold that the assessee falls within the exception provided in explanation to Section 73 of the Act, as the income assessable under the head “income from business or profession” would be Rs.8,30,422/-, i.e. Rs.1,14,20,745/- (-) Rs.1,05,92,323/-. From this the assessee is entitled to set off of unabsorbed depreciation of Rs.3,19,290/-, which reduced the profit on account of income from business to Rs.5,11,032/-. Further, the assessee has unabsorbed business loss which was carry forward and which has to be set-off against business income of Rs.

In the result, appeal of the revenue is dismissed.