PRAKASH KRISHNA AND RAM SURAT RAM (MAURYA), J. - (1.) HEARD Sri Rakesh Ranjan Agrawal, counsel for the petitioner and Sri R.K. Upadhyay, Senior Standing Counsel, for the Revenue.
(2.) THE aforementioned writ petitions have been filed for quashing the notices issued by Assessing Officer (respondent -1) under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act) and under Section 142 (1) of the Act, initiating proceedings for re -assessment against the petitioner. Writ - Tax No. 1552 of 2005 is related to the Assessment Year 1999 -2000, Writ -Tax No. 1553 of 2005 is related to the Assessment Year 2000 -2001 and Writ -Tax No. 1559 of 2005 is related to the Assessment Year 1998 -1999. In these writ petitions common questions of law and fact are involved between the same parties as such the writ petitions are consolidated and heard together and are being decided by a common judgment. In this judgment fact relating to the Writ -Tax No. 1552 of 2005 are being noticed. M/S Saurabh Industrial Financing 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 it's Income -tax return for the Assessment Year 1999 -2000 on 22.10.1999, showing net income of Rs.4,08,823/ -. In this return, the petitioner had adjusted a loss of Rs. 3,00,000/ - in share trading activities, in the profits earned from the interest on the advances and loans. Assessing Officer (respondent -1) accepted the return under Section 143 (1) of the Act on 28.06.2000. Later on respondent -1 issued notice dated 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 29.07.2005 has been issued without supplying the reasons. Subsequently reasons were supplied through letter dated 30.08.2005. 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. 3,00,000/ - 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. 3,00,000/ - 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 there was no reason for exercise of powers Section 147 of the Act as such notices for reassessment are null and void.
(3.) WE have considered the respective arguments of the counsel for the parties and perused the record. Only controversy arises in these writ petition is as to whether the petitioner is entitled to set off the losses of the business in share trading activities under Section 73 of the Act. In order to appreciate the controversy Section 73 (as it existed prior to it's amendment by Act No. 18 of 2005 w.e.f 01.04.2006) is quoted below: 73. Losses in speculation business. - -(1) Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business. (2) Where for any assessment year any loss computed in respect of a speculation business has not been wholly so set off under sub -section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and - - (i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and (ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on. (3) In respect of allowance on account of depreciation or capital expenditure on scientific research, the provisions of sub - section (2) of Section 72 shall apply in relation to speculation business as they apply in relation to any other business. (4) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed. Explanation. - -Where any part of the business of a company other than a company whose gross total income consists mainly of income which is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources", or a company the principal business of which is the business of banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. 5. Section 73 provides for set off the loss of speculation business against the profits and gains of another speculation business of the assessee. By virtue of the Explanation to Section 73, a company, whose principal business is the business of banking or the granting of loans and advances consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. It is admitted between the parties that principal business of the petitioner is earning interest on the advances and loans. It also carries on business of purchase and sale of shares from the income derived from the interest. Under the Explanation to Section 73, the business of purchase and sale of shares by the petitioner is speculation business. A Division Bench of this Court in Income -tax Appeal Nos. 282, 284 of 2000 Commissioner of Income -tax Vs. M/S Narain Properties Ltd. decided on 30.05.2012, has held that the petitioner is covered under Explanation to Section -73 of the Act and is entitled to set off the losses from sale and purchase of the share against the profits of the business of the company from loans and advances. We respectfully agree with the same. 6. In view of the aforesaid discussion, the writ petitions succeed and are allowed. The impugned notices dated 02.08.2004 under Section 148 of the Act and dated 29.07.2005 under Section 142 (1) of the Act, initiating proceedings for re - assessment for the Assessment Years 1998 -99, 1999 -2000 and 2000 -01 by respondent -1 are quashed. The parties shall bear their own costs.;