- (1.)THIS is an appeal filed by the Commissioner of Income-tax, under Section 260a of the Income-tax Act, 1961 against an order dated November 15, 2002, passed by the Income-tax Appellate Tribunal, Indore Bench, Indore, in I. T. A. No. 32/ind/2001,. The appeal was admitted for final hearing on the following substantial question of law: Whether, the Income-tax Appellate Tribunal was justified in holding that the Explanation to Section 73 of the Income-tax Act is not applicable to the case of the appellant ?
(2.)THE respondent (assessee) is a limited company registered under the provisions of the Companies Act. It is engaged in the business of trading in metal and shares. The assessee for the assessment year 1997-98, inter alia, claimed that they suffered a loss of Rs. 34,52,514 in their share business (i. e. , sale and purchase of various shares ). It is this loss incurred by the assessee which was claimed as set off against the profit earned by them from their other activities, i. e. , other business. The Assessing Officer was of the view that the assessee is not entitled to claim the set off of the loss suffered by them in share business by virtue of the Explanation appended to Section 73 of the Act. The Assessing Officer was of the view that since the loss incurred by the assessee was in speculative business, i. e. , sale and purchase of shares, and hence, it can be set off only against the profit earned by the assessee from similar kind of speculative business but not against the profit earned by them from non-speculative business. The assessee was, therefore, asked to show cause, as to why the claim of loss amounting to Rs. 34,52,514 sustained by the assessee be not disallowed by the Assessing Officer by taking recourse to the provisions of Section 73 read with its Explanation. The contention of the assessee to this show cause was that neither Section 73, nor its Explanation applies to them. It was their case that their case falls in the excepted category of companies defined in the Explanation and hence, they come out of the rigour of Section 73 and its Explanation. It was contended that the business of the company is also that of "granting of loans and advances" as is clear from the objects of memorandum and articles of association of the company as also the interest earned by the assessee from the loan advanced during the year in question. It was, therefore, contended that the company is also engaged in the business of "granting loan and advance" as defined in the Explanation appended to Section 73 and hence, falls in the excluded categories of company for the purpose of inapplicability of Section 73. It was thus contended that the assessee is entitled to claim the set off of the loss amounting to Rs. 34,52,519 incurred by them in share business as against the profit earned by them from other trading business activities as detailed in the returns in the assessment year in question de hors Section 73, i. e. , without attracting the provisions of Section 73 ibid.
(3.)THE Assessing Officer by order dated March 31, 2000, did not accept the contention of the assessee. While thus rejecting this contention he proceeded to invoke the provisions of Section 73 read with its Explanation by disallowing the deduction claimed of the loss amount. This is what the Assessing Officer held in his order dated March 31, 2000, while rejecting this contention of the assessee:
Though the assessee-company had stated that physical delivery of the shares purchased was taken, the assessee-company has not furnished any evidence in respect of from whom the shares were purchased and to whom they were sold and has not furnished proof in respect of delivery of the shares. It is also difficult to believe that how the assessee was able to get physical delivery of shares in such a short time. But, even if such shares loss was occasioned on shares for which physical delivery was taken. Under the provisions of Section 73 the assessee cannot claim set off of the shares as against profit from other activities. The assessee's contention, that because of large volume of share trading the same constituted its main activity and hence share trading loss cannot be disallowed by invoking the provisions of Section 73. This contention has absolutely no merit as the major income during the year was received from metal trading as the very fact that despite adjustment of actual loss on shares the assessee has shown positive income clearly establishes that the main activity is that of metal trading activities hence the provisions of Section 73 gets clearly attracted and the assessee shall be allowed set-off of such loss of Rs. 34,52,514 against other income. The same shall however be allowed to be carried forward as speculation loss to be adjusted against future speculation profit as and when they arrive in accordance with the provisions of law.