PRAKASH KRISHNA AND RAM SURAT RAM (MAURYA), J. - (1.) HEARD Sri Vidya Bhushan Upadhya, counsel for the petitioner and Sri R.K. Upadhyay, Senior Standing Counsel, for the Revenue.
(2.) THE aforementioned writ petition has been filed for quashing the notice dated 02.08.2004 issued by Assistant Commissioner of Income -tax -IV, Kanpur (respondent -1) under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act) and the consequential notice dated 24.06.2005 under Section 142 (1) of the Act, initiating proceedings for re -assessment for the Assessment Year 1999 -2000 against the petitioner. Narain Properties Ltd. (the petitioner) is a Public Limited Company, registered under the Companies Act, 1956. The petitioner was carrying on business of earning interest on the advances and loans. It also carried on business of purchase and sale of shares from the income derived from the interest. The petitioner filed its Income -tax return for the Assessment Year 1999 -2000 on 29.12.1999, showing net profit of Rs.7,02,268/ -. In this return, the petitioner had adjusted a loss of Rs. 1,30,350/ - in share trading activities, in the profits earned from the interest on the advances and loans. Assessing Officer (respondent -1) issued notice 02.08.2004 under Section 148 of the Act for re -assessment, on the ground that income of the petitioner has been escaped assessment for the Assessment Year 1999 -2000. The petitioner, by letter dated 21.08.2004, requested that the original return of the petitioner be treated as a return in compliance of the notice dated 02.08.2004. Thereafter, the petitioner, through letter dated 23.08.2004, requested for supply of the reasons recorded for initiating the proceedings for reassessment. However notice dated 24.06.2005 has been issued without supplying the reasons. Subsequently reasons were supplied through letter dated 06.07.2005. The reasons in substance are that the business of the petitioner was to earn income from interest on advances and loans. Share trading activities of the petitioner was 'speculative business' as such loss of Rs. 1,30,350/ - in share trading activities are not liable to be adjusted towards profits of business of the company. The petitioner in his return has illegally adjusted this amount. Accordingly income to the tune of Rs. 1,30,350/ - was escaped assessment. The petitioner has challenged the notices on the ground that Explanation to Section 73 of the Act is not applicable to the petitioner and no assessment was made under Section 143 (1) of the Act as such Section 147 will not apply and notices are null and void.
(3.) IN the Counter Affidavit filed on behalf of the respondents, it has been stated that the petitioner was an investment company. Main business of the petitioner was to earn income from interest on advances and loans. Losses on purchase and sale of the share, which was 'speculative business' of the petitioner are not liable to be adjusted towards the profits of the main business of the company under Section 73 of the Act. In reply to the order of Income - tax Appellate Tribunal deciding same issue between the parties for the Assessment Year 1996 -97 and 1998 -99, it has been stated that the department has filed Income -tax Appeal Nos. 282, 284 of 2000 which are pending.;