ITO, WD-12(3), KOLKATA, Kolkata V. Amrabathi Investra Pvt. Ltd., Kolkata

ITA 1315/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1940 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 09-06-2014
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: N K PODDA R; GAUT
• Keywords: Speculation loss

Judgement Text

1 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] ITA NO.1315/KOL/2014 ASSESSMENT YEAR : 2008-09 I.T.O., WARD-12(3), -VERSUS- AMRABATHI INVE STRA PVT. LTD. KOLKATA KOLKATA (PAN:AACCA 1312 Q) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI G.MALLIKARJUNA, CIT(DR) FOR THE RESPONDENT: SHRI N.K.PODDAR, SR.ADVOCATE & SHRI GAUTAM M.BAVISHI,FCA DATE OF HEARING : 22.03.2017. DATE OF PRONOUNCEMENT : 05.04.2017. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 18.03.2014 OF CIT(A)-XII, KOLKATA RELATING TO A.Y.2008-09. 2. GROUND NOS. 1 TO 3 RAISED BY THE REVENUE READ A S FOLLOWS :- 1.THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN ALLOWING SHARE TRADING LOSS AS BUSINESS LOSS INSTEAD OF SPECULATIO N LOSS AMOUNTING TO RS.64725338/-. 2. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE A.O. AS PER EXPLANATION TO SEC -73. 3. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN TREATING THE INTEREST INCOME AS MAIN INCOME OF THE ASSESSEE EVEN THOUGH IT IS NEGATIVE. 3. THE ASSESSEE IS A NON BANKING FINANCE COMPANY (NBFC) REGISTERED WITH THE RESERVE BANK OF INDIA (RBI). IT IS THE CLAIM OF THE ASSESSEE THAT ITS PRINCIPAL BUSINESS IS GRANTING OF LOANS AND ADVANCES. THE ASSESSEE IS ALSO ENGAGED IN THE BUSINESS OF TRADING IN SHARES, COMMODITIES AND OTHER SECURITIES . FOR A.Y.2008-09 THE ASSESSEE FILED RETURN OF INCOME DECLARING LOSS OF RS.4,48,14 ,300/-. THIS LOSS WAS ARRIVED AT BY 2 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 THE ASSESSEE AFTER CONSIDERING A LOSS OF RS.6,47,25 ,338/- FROM SHARE TRADING. ACCORDING TO THE AO THE ASSESSEE WAS A COMPANY AND IN VIEW OF THE PROVISION OF EXPLANATION TO SECTION 73 OF THE INCOME TAX ACT, 1961 (ACT) WHICH PROVIDES THAT WHERE ANY PART OF THE BUSINESS OF ANY COMPANY CONSISTS IN THE PURCHAS E AND SALE OF SHARES OF OTHER COMPANIES SUCH COMPANY SHALL FOR THE PURPOSE OF SEC TION 73 BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH TH E BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES, THE LOSS FROM SHARE TRADIN G I.E., PURCHASE AND SALE OF SHARES OUGHT TO BE CONSIDERED AS SPECULATION LOSS AND TH E SAME OUGHT NOT TO BE SET OFF AGAINST OTHER INCOME OF THE ASSESSEE AS PROVIDED U/ S.73(1) OF THE ACT. SEC.73(1) OF THE ACT PROVIDES THAT ANY LOSS, COMPUTED IN RESPECT OF A SPECULATION BUSINESS CARRIED ON BY THE ASSESSEE, SHALL NOT BE SET OFF EXCEPT AGAINST P ROFITS AND GAINS, IF ANY, OF ANOTHER SPECULATION BUSINESS. ACCORDING TO THE AO THEREFOR E THE LOSS FROM SHARE TRADING HAD TO BE CONSIDERED AS SPECULATION LOSS AND OUGHT NOT TO HAVE BEEN SET OFF AGAINST THE OTHER INCOME. 4. THE PLEA OF THE ASSESSEE BEFORE AO WAS THAT EXP LANATION TO SECTION 73 OF THE ACT CARVES OUT CERTAIN COMPANIES OUT OF PURVIEW OF SECT ION 73 NAMELY (I) COMPANIES WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIESINCOME FROM HOUSE PRO PERTY, CAPITAL GAINS, INCOME FROM OTHER SOURCES , (II) A COMPANY THE PRINCIPAL B USINESS OF WHICH IS THE BUSINESS OF BANKING OR GRANTING LOANS AND ADVANCES. THE ASSESS EE CLAIMED THAT IT WAS AN NBFC AND THE PRINCIPAL BUSINESS OF IT WAS GRANTING LOANS AND ADVANCES AND THEREFORE THE LOSS FROM SHARE TRADING HAD TO BE REGARDED AS A NORMAL B USINESS LOSS AND NOT AS A SPECULATION LOSS. 5. THE AO HOWEVER REJECTED THE AFORESAID CLAIM OF ASSESSEE FOR THE FOLLOWING REASONS:- ...AS PER CLAIM OF THE ASSESSEE, ITS PRINCIPAL BUS INESS IS GRANTING & TAKING OF LOANS & ADVANCES, AND THEREFORE, SECOND EXCEPTION I S APPLICABLE. THE DECISION ABOUT THE SECOND EXCEPTION CAN BE TAKEN ONLY AFTER CONSIDERING DETAILS OF INCOME EARNED AND FUND DEPLOYMENT BY THE ASSESSEE. IT IS S EEN FROM THE ABOVE DETAILS THAT 3 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 THE ASSESSEE HAS INTEREST INCOME OF (-) RS. 99,33,5 33/-, WHILE IT HAS INCOME FROM TRADING OF SHARES OF (-) RS. 6,31,80,918/-. IT IS B Y NOW WELL- SETTLED THAT THE WORDS 'INCOME' OR 'PROFITS AND GAINS' SHOULD BE UNDERSTOO D AS INCLUDING LOSSES ALSO SO THAT IN ONE SENSE 'PROFITS AND GAINS' REPRESENT 'PO SITIVE INCOME' WHEREAS 'LOSSES' REPRESENT 'NEGATIVE INCOME'. IN OTHER WORDS, 'LOSS' IS 'NEGATIVE PROFIT'. BOTH POSITIVE AND NEGATIVE PROFITS ARE OF REVENUE CHARAC TER. BOTH MUST ENTER INTO COMPUTATION, WHEREVER IT BECOMES MATERIAL, IN THE S AME MODE OF THE TAXABLE INCOME OF THE ASSESSEE. RELIANCE IS PLACED ON DECIS ION TAKEN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF EASTERN AV IATION & INDUSTRIES (208 ITR 1023). IT IS ALSO FOUND FROM THE BALANCE SHEET AS O N 31.03.2008 THAT THE ASSESSEE HAS TAKEN LOAN OF RS. 86,23,31,867/-, OUT OF WHICH IT HAS ADVANCED LOANS OF RS. 64,58,36,547/- AND THEREFORE, THE LOAN FUNDS HAVE N OT BEEN UTILIZED FULLY FOR ADVANCEMENT OF INTEREST BEARING LOANS. THE LOANS GI VEN IS ALSO ONLY 34.20% OF TOTAL OF BALANCE SHEET I.E. RS. 188,86,24,138/-. ON THE OTHER HAND, INVENTORIES ARE RS. 55,56,52,816/- AND INVESTMENTS ARE RS. 97,82,18 3/- AS ON 31.03.2008. THE VOLUME OF TRANSACTIONS IN SHARE TRADING I.E. SALES IS ALSO VERY HIGH I.E. RS. 179,59,32,368/-. IN VIEW OF THE ABOVE FINDINGS, THE ASSESSEE'S CLAIM THAT SECOND EXCEPTION IS APPLICABLE IN ITS CASE, IS NOT ACCEPTE D. IN VIEW OF THE ABOVE, A SUM OF RS. 6,47,25,33 8/- IS TREATED AS SPECULATION LOSS AND IS NOT ALLOWED TO SET OFF WITH BUSINESS PROFIT. HOWEVER, THE ASSESSEE IS ALLOWED TO CARRY FORWARD THE SPECULATION LOSS OF RS . 6,47,25,338/- TO SET OFF WITH SPECULATION PROFIT IN SUBSEQUENT YEARS. 6. BEFORE CIT(A) THE ASSESSEE SUBMITTED THAT IT W AS A COMPANY WHOSE PRINCIPAL BUSINESS WAS GRANTING LOANS AND ADVANCES AND THEREF ORE OUTSIDE THE PURVIEW OF EXPLANATION TO SECTION 73 OF THE ACT. THE ASSESSEE GAVE THE DETAILS OF DEPLOYMENT OF FUNDS AS ON 31.3.2008 BALANCE SHEET, WHICH WERE AS FOLLOWS:- AMOUNT IN RS.CRORES (I) INVENTORIES (SHARES) 55.57 (II) SUNDRY DEBTORS .05 (III) CASH IN HAND AND AT BANK 8.79 (IV) LOANS & ADVANCES 124.46 (V) INVESTMENTS 0.98 IT WAS SUBMITTED THAT THE AFORESAID DETAILS WOULD S HOW THAT THE ASSESSEE WAS CARRYING ON TWO TYPES OF BUSINESS I.E., SHARE TRADING BUSINE SS AND THE BUSINESS OF GRANTING OF LOANS AND ADVANCES ALTHOUGH IT HAS KEPT PART OF ITS FUNDS IN THE FORM OF CASH / BANK BALANCE AND ALSO IN THE FORM OF INVESTMENT. THE ASS ESSEE POINTED OUT THAT BETWEEN THE 4 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 TWO TYPES OF BUSINESS CARRIED- ON BY THE ASSESSEE, DEPLOYMENT OF ITS FUNDS IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES (RS. 124 .46 CRORES) WAS SUBSTANTIALLY HIGHER THAN IN SHARE BUSINESS (RS. 55.57 CRORES). I T WAS ARGUED THAT IN THE CIRCUMSTANCES, THERE CAN BE NO DOUBT THAT THE PRINC IPAL BUSINESS OF THE ASSESSEE WAS GRANTING OF LOANS AND ADVANCES FOLLOWING THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KANORIA INVESTMEN T (P) LTD. 232 ITR 7(CAL) WHEREIN IT WAS HELD THAT THE PRINCIPAL BUSINESS IS DETERMINED ON THE BASIS OF FUND DEPLOYED IN A PARTICULAR BUSINESS AND NOT ON THE BA SIS OF INCOME EARNED FROM THE PARTICULAR BUSINESS. IT WAS POINTED OUT THAT IN TH E CONTEXT OF EXPLANATION TO SECTION 73, HON'BLE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE O F OFF-SHORE INDIA LTD. VS. ITO 15 ITD 549 HAS ALSO RECOGNIZED THE PRINCIPAL THAT THE 'PRINCIPAL BUSINESS' IS DETERMINED ON THE BASIS OF FUND DEPLOYMENT IN THE FOLLOWING WO RDS -. 'IN OUR OPINION, THE OBJECTS IN THE MEMORANDUM ARE NOT CONCLUSIVE OF THE NATURE OF BUSINESS CARRIED ON . BY THE ASSESSEE-COMPANY. A S HAS BEEN OBSERVED BY THE SUPREME COURT IN THE CASE OF CIT V. DHARMODAYAM CO. [1977] 109 ITR 527, IT IS NOTORIOUS THAT THE MEMORANDUM AND ARTICLES OF ASSOC IATION OF COMPANIES USUALLY COVER A VARIETY OF ACTIVITIES BUT THE ACTIVITY WHIC H THE COMPANY ACTUALLY ENGAGES ALONE DETERMINES THE NATURE OF ITS BUSINESS. WE DO FIND THAT THE MAXIMUM AMOUNT INVESTED IN THE SHARE BUSINESS WAS RS. 40.65 LAKHS AS ON 31-8-1978 WHICH IS MUCH MORE THON THE MAXIMUM AMOUNT OF RS. 26.75 LAKH S INVESTED IN THE MONEY LENDING BUSINESS AS ON 28-2-1978. SIMILARLY, AS ON THE LAST DATE OF THE PREVIOUS YEAR UNDER CONSIDERATION, THE AMOUNT INVESTED IN TH E SHARE' BUSINESS WAS MORE THAN THREE TIMES THE AMOUNT INVESTED IN THE MONEY-L ENDING BUSINESS. HENCE, IT IS EVIDENT THAT THE ASSESSEE WAS NOT ENGAGED PRINCIPAL IY IN THE BUSINESS OF GRANTING LOANS. THUS, WE COME TO THE CONCLUSION THAT THE ASS ESSEE WAS NOT SAVED BY EITHER OF THE TWO EXCEPTIONS ENACTED IN THE EXPLANATION TO SECTION 73 AND, THEREFORE THE REVENUE AUTHORITIES WERE QUITE JUSTIFIED IN TREATI NG THE LOSS FROM THE SHARE DEALING BUSINESS AS SPECULATION LOSS AND IN REFUSING TO SET OFF THE SAME AGAINST THE INCOME EARNED FROM MONEY LENDING BUSINESS.' 7. ATTENTION OF THE CIT(A) WAS DRAWN TO THE MEMORA NDUM OF ASSOCIATION OF THE ASSESSEE AND IT WAS POINTED OUT THAT THE ASSESSEE W AS AUTHORISED BY THE MAIN OBJECTS CLAUSE, (CLAUSE-2) TO CARRY ON THE BUSINESS OF MONE Y LENDING. IT WAS POINTED OUT THAT THE ASSESSEE HAS BEEN GRANTED NBFC CERTIFICATE ON 2 6.07.2001 THE RBI TO CARRY ON THE BUSINESS OF -BANKING FINANCE COMPANY. ATTENTION WAS DRAWN TO THE DECISION IN THE CASE OF ITO VS. M/S VAISHNO TRADELINK (P) LTD., ITA NO. 1666 (KOL) 2005, ORDER 5 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 DATED 14.07.2006 WHEREIN THE HON 'BLE KOLKATA BENCH OF ITAT HELD THAT WHERE MORE FUNDS WERE DEPLOYED IN GRANTING LOANS AND ADVANCES THAN IN SHARES AND THE SAID BUSINESS IS AUTHORISED BY THE MEMORANDUM OF ASSOCIA TION OF THE COMPANY, THE PRINCIPAL BUSINESS OF THE COMPANY IS GRANTING OF LO ANS AND ADVANCES AND THE PROVISIONS OF EXPLANATION TO SECTION 73 WILL NOT AP PLY IN SUCH CASES. RELIANCE WAS ALSO PLACED ON THE DECISION OF THE SPECIAL BENCH (KOLKAT A) OF ITAT IN THE CASE OF DCLT VS. VENKATESHWAR INVESTMENT & FINANCE (P) LTD. 93 ITD 177 (CAL.) (SB) WHERE IT WAS HELD AS UNDER- 'WHAT CONSTITUTES THE ''PRINCIPAL BUSINESS' HAS NOT BEEN DEFINED ANYWHERE IN THE ACT. WHAT CONSTITUTES THE PRINCIPAL BUSINESS WILL D EPEND ON THE FACTS AND CIRCUMSTANCES OF EACH CASE. THE MEMORANDUM AND THE ARTICLES OF ASSOCIATION OF THE COMPANY, PAST HISTORY OF THE ASSESSEE, CURRENT AND PAST YEAR'S DEPLOYMENT OF THE CAPITAL OF THE ASSESSEE, BREAK-UP OF THE INCOME EARNED DURING THE RELEVANT AND PAST YEARS AND THE NATURE OF ACTIVITIES OF THE ASSE SSEE WILL ALL HELP IN DETERMINING THE PRINCIPAL BUSINESS OF THE ASSESSEE'. IT WAS SUBMITTED THAT THE ASSESSEE CONFORMS TO ALL THE FACTORS SPECIFIED BY THE SPECIAL BENCH JUDGEMENT FOR DETERMINING THAT A COMPANY CARR IES ON THE PRINCIPAL BUSINESS OF GRANTING OF LOANS AND ADVANCES. THE ASSESSEE IS AUT HORISED BY ITS MOA TO CARRY ON THE BUSINESS OF MONEY LENDING. THE ASSESSEE HAS BEEN G RANTED LICENCE BY THE RBI TO CARRY ON THE BUSINESS OF FINANCING AND THAT THE FUNDS DEP LOYED BY THE ASSESSEE IN THE BUSINESS OF MONEY LENDING IS MORE THAN THE FUNDS DE PLOYED IN THE BUSINESS OF SHARE TRADING IN THE INSTANT YEAR AS WELL AS THE PRECEDIN G S (IN MAJORITY OF THE YEARS) AND GAVE THE FOLLOWING DETAILS:- ASSESSMENT YEAR 2008-2009 2007-2008 2006-2007 2005- 2006 (A)MONEY LENDING 124.46 74.14 22.33 12.38 (B)CLOSING STOCK 55.56 15.34 21.00 33.43 COPIES OF THE RELEVANT AUDITED FINAL ACCOUNTS OF TH E ASSESSEE COMPANY FOR THE A Y.S: 2007-08, 2006-07 AND 2005-06 WERE ALSO FILED BEFO RE CIT(A). 6 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 8. WITH REGARD TO THE ACTION OF THE AO IN RELYING ON THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT'S IN THE CASE OF M/S EASTERN AV IATION & INDUSTRIES 208 ITR 1023, IT WAS ARGUED THAT THE SAID DECISION WAS NOT APPLI CABLE TO THE FACTS OF THE ASSESSEES CASE. THE ASSESSEE HAD SOUGHT EXCEPTION FROM THE P ROVISIONS OF EXPLANATION TO SEC.73 ONLY ON THE BASIS OF 'INCOME CRITERION' AND NOT ON THE BASIS OF 'PRINCIPAL BUSINESS' CRITERION. WITHOUT PREJUDICE TO THE ABOV E SUBMISSIONS, IT WAS SUBMITTED THAT THE ACTION OF THE AO IN CONSIDERING THE LOSS INCURR ED IN SHARE TRADING BUSINESS OF RS. 6,31,80,9181- AS FALLING WITHIN THE AMBIT OF EXPLAN ATION TO SEC.73 OF THE ACT, WITHOUT ADJUSTING THE PROFIT EARNED ON DERIVATIVE TRANSACTI ONS AMOUNTING TO RS. 3,04,18,813/- WAS WRONG AND AGAINST THE PROVISIONS OF LAW. 9. THE CIT(A) AFTER CONSIDERING ALL THE ABOVE SU BMISSIONS UPHELD THE PLEA OF THE ASSESSEE AND HE HELD AS FOLLOWS :- 5.1.5. DECISION : I HAVE USED THE ASSESSMENT ORDER , WRITTEN SUBMISSIONS OF THE APPELLANT AS WELL AS THE REMAND REPORT. I FIND THA T IN THE INSTANT CASE, THE PRINCIPAL BUSINESS OF THE APPELLANT IS GRANTING OF LOANS AND ADVANCES SINCE THE FUND DEPLOYED IN LOANS AND ADVANCES IS MORE THAN TH E STOCK OF SHARES. FURTHER, IT IS OBSERVED THAT IN THE RELEVANT YEAR, THE APPELLAN T EARNED INTEREST INCOME OF RS.7,45,43.913/- AND INCURRED A LOSS OF RS.6,31.80. 918/- IN SHARE TRADING BUSINESS. THE CASE OF EASTERN AVIATION & INDUSTRIES (SUPRA) RELIED UPON BY THE A.O IN THE ASSESSMENT ORDER IS NOT APPLICABLE TO TH E INSTANT CASE AS THE SECOND EXCEPTION TO EXPLANATION TO SEC.73 RELATING TO PRIN CIPAL BUSINESS CRITERION WAS NOT AN ISSUE BEFORE THE HON'BLE HIGH COURT. I AM OF THE VIEW THAT THE APPELLANT'S CASE IS FULLY COVERED BY THE DECISION OF THE HON' BLE IT AT, KOLKATA BENCH IN THE CASE OF M/S VAISHNO TRADELINK (SUPRA) AND THE SPECIAL B ENCH JUDGEMENT IN THE CASE VENKATESHWAR INVESTMENT & FINANCE (P) LTD. (SUPRA) . I FIND THAT THE APPELLANT COMPANY IS AUTHORIZED BY ITS MOA TO CARRY ON THE B USINESS OF MONEY LENDING. IT HAS ALSO BEEN GRANTED LICENSE BY THE RBI TO CARRY O N NBFC ACTIVITIES. THE FUNDS DEPLOYED IN THE FINANCE ACTIVITY IN THE MAJORITY OF PRECEDING YEARS AS WELL AS THE PRESENT YEAR IS MORE THAN THAT INVESTED IN SHARE TR ADING BUSINESS. IN THE REMAND REPORT, THE A.O. WAS ALSO SATISFIED WITH THE EXPLAN ATION GIVEN BY THE APPELLANT THAT THE APPELLANT'S PRINCIPAL BUSINESS IS THAT OF GRANTING OF LOANS OF ADVANCES. IN MY OPINION. THE APPELLANT'S CASE FALLS UNDER THE SE COND EXCEPTION CLAUSE OF EXPLANATION TO SEC. 73 SINCE THE APPELLANTS PRINC IPAL BUSINESS IS THE BUSINESS OF GRANTING OF LOANS AND ADVANCES. THEREFORE, THE APPE LLANT'S CASE FALLS OUTSIDE THE AMBIT OF THE 'EXPLANATION'. HENCE. THESE GROUNDS OF APPEAL OF THE APPELLANT ARE ALLOWED. 7 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 10. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS RAISED GROUND NOS. 1 TO 3 BEFORE THE TRIBUNAL. 11. THE LD. DR PLACED RELIANCE ON THE ORDER OF AO . HE SUBMITTED NON-BANKING FINANCIAL COMPANIES ARE REGISTERED WITH RBI AND COU LD GET SUCH REGISTRATION ONLY IF THE BUSINESS CONSISTS OF GIVING OF LOANS AND ADVANCES, ACQUISITION OF SHARES, STOCK ETC ISSUED BY THE GOVERNMENT OR LOCAL AUTHORITY OR OTHE R MARKETABLE SECURITIES OF A LIKE NATURE, LEASING, HIRE PURCHASE ETC. THE FINANCING A CTIVITY SHOULD BE THE PRINCIPAL BUSINESS OF NBFC. IT IS ONLY WHEN THE COMPANYS FI NANCIAL ASSETS CONSTITUTE MORE THAN 50% OF THE TOTAL ASSETS AND INCOME FROM FINANC IAL ASSETS CONSTITUTE MORE THAN 50% OF THE GROSS INCOME, IT CAN BE SAID THAT FINANC IAL ACTIVITY WAS THE PRINCIPAL BUSINESS OF A NBFC. ACCORDING TO HIM THE CIT(A) HAD NOT EXAMINED THE ISSUE FROM THE AFORESAID REQUIREMENTS AND THEREFORE THE ISSUE SHOULD BE REMANDED TO THE AO FOR FRESH CONSIDERATION. THE LD. COUNSEL FOR THE ASSESS EE, ON THE OTHER HAND SUBMITTED THAT IN THE LIGHT OF CLEAR FINDING OF CIT(A) THAT THE FI NANCIAL ACTIVITIES IN TERMS OF FUNDS DEPLOYED CONTINUOUS TO BE MORE THAN THE VALUE OF S HARES HELD AS THE LAST DATE OF A.Y.S 2005-06 TO 2008-09 AND HENCE THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS GIVING LOANS AND ADVANCES WAS CORRECT AND NO FAULT CAN BE FOUND WITH THE ORDER OF CIT(A) IN THIS REGARD. OUR ATTENTION WAS DRAWN TO THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS SAVI COMMERCIAL P. LTD., 373 ITR 24 3 (CAL) WHEREIN THE HONBLE CALCUTTA HIGH COURT ON IDENTICAL FACTS CAME TO THE CONCLUSION THAT IF GRANTING OF LOANS AND ADVANCES WAS ON A LARGER SCALE THAN THE BUSINES S OF BUYING AND SELLING SHARES THEN THAT WOULD BE A CRITERIA TO DECIDE THE PRINCIPAL BU SINESS OF THE COMPANY AS BEING ONE OF GRANTING LOANS AND ADVANCES. THE HONBLE COURT H ELD THAT INCOME ALONE CANNOT BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF DECIDIN G THE PRINCIPAL BUSINESS OF A COMPANY. OUR ATTENTION WAS DRAWN TO THE FACTS OF TH E AFORESAID CASE WHICH ARE NARRATED IN PARA 3 OF THE AFORESAID JUDGMENT AND IT WAS SUBMITTED THAT THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THE CASE DECIDED B Y THE HONBLE CALCUTTA HIGH COURT. OUR ATTENTION WAS DRAWN TO PARA-8 OF THE AFORESAID DECISION WHICH READS AS FOLLOWS :- 8 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 8. MR. NIZAMUDDIN WAS UNABLE TO MAKE ANY SUITABLE REPLY TO THE AFORESAID SUBMISSION OF MR. PODDAR. SPEAKING FOR OURSELVES WE ARE INCLINED TO ACCEPT THE SUBMISSION ADVANCED BY MR. PODDAR. BECAUSE BOTH INC OME AND BUSINESS ACTIVITY, ACCORDING TO THE LEGISLATIVE MANDATE, ARE DISTINGUI SHING FACTORS. THEREFORE, INCOME ALONE CANNOT BE TAKEN INTO ACCOUNT IN DECIDI NG WHETHER THE ASSESSEE IS ENTITLED TO MAKE A DEPARTURE FROM THE MANDATE APPEA RING IN SUB-SECTION (1). IN THE CASE BEFORE US THE ACTIVITY OF GRANTING LOANS A ND ADVANCES IS ON A LARGER SCALE THAN THE BUSINESS OF BUYING AND SELLING SHARES. BOT H PROFIT AND LOSS ARE MATTERS OF CHANCE IN BOTH THE ACTIVITIES. THEREFORE, PROFIT AL ONE WAS NOT MADE THE DISTINGUISHING FACTOR. SINCE THE BUSINESS ACTIVITY IS ALSO A DISTINCT FACT OR, WE ARE INCLINED TO THINK THAT THE PRINCIPAL BUSINESS OF TH E COMPANY/ASSESSEE IS GRANTING LOANS AND ADVANCES AS WOULD APPEAR FROM TH E VOLUME INDICATED IN THE CHART ABOVE FOR A NUMBER OF YEARS. THEREFORE, THE VIEW TAKEN BY THE LEARNED TRIBUNAL APPEARS TO BE THE CORRECT VIEW OF THE MATT ER. ' (EMPHASIS SUPPLIED) IT WAS SUBMITTED THAT IN THE RATIO LAID DOWN BY THE HONBLE CALCUTTA HIGH COURT IS SQUARELY APPLICABLE TO THE ASSESSEES CASE AND THER EFORE THE ORDER OF CIT(A) IN TREATING THE LOSS IN QUESTION AS NORMAL BUSINESS LOSS HAS TO BE UPHELD. 12. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS. THE ADMITTED FACTUAL POSITION IN THE PRESENT CASE IS THAT THE AS SESSEE HAS BEEN GIVEN A CERTIFICATE BY THE RBI THAT IT WAS NBFC ( COPY OF THE CERTIFICATE IS AT PAGE-31 OF THE PAPER BOOK). THE REQUIREMENTS OF THE RULES OF RBI CAN THEREFORE BE TAKEN AS SATISFIED IN THE CASE OF THE ASSESSEE. THE ONLY ASPECT TO BE SEEN IS AS TO WHETHER FOR COMING TO A CONCLUSION THAT THE PRINCIPAL BUSINESS OF AN ASSESSEE IS GIVIN G OF LOANS AND ADVANCES, WHETHER THE FUNDS DEPLOYED WOULD BE THE RELEVANT CRITERIA. TH E DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF SAVI COMMERCIAL (SUPRA) C LEARLY LAYS DOWN THE PROPOSITION THAT VOLUME OF LOANS AND ADVANCES WOULD BE DECISIVE TO COME TO A CONCLUSION THAT THE PRINCIPAL BUSINESS OF A COMPANY WAS GRANTING LOANS AND ADVANCES. IT IS UNDISPUTED THAT THE FUNDS DEPLOYED IN THE BUSINESS OF GRANTING LOANS AND ADVANCES BY THE ASSESSEE WAS MORE OVER A NUMBER OF AYS AS PER THE DETAILS GI VEN BELOW: ASSESSMENT YEAR 2008-2009 2007-2008 2006-2007 2005- 2006 (A)MONEY 124.46 74.14 22.33 12.38 9 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 LENDING (B)CLOSING STOCK 55.56 15.34 21.00 33.43 IN THE GIVEN FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE CONCLUSION OF THE CIT(A) THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS GIVING OF LOANS AND ADVANCES AND THEREFORE THE ASSESSEE WAS OUTSIDE THE MISCHIEF OF EXPLANATION TO SEC.73 OF THE ACT, IS JUST AND PROPER AND CALLS FOR NO INTERFEREN CE. THE RELIANCE PLACED BY THE AO ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EASTERN AVIATION (SUPRA) WAS RIGHTLY HELD TO BE NOT APPLICABLE TO TH E FACTS OF THE PRESENT CASE BY THE CIT(A). AS WE HAVE ALREADY SEEN THERE ARE TWO EXC EPTIONS TO APPLICABILITY OF EXPLANATION TO SEC.73 VIZ., (I) COMPANIES WHOSE GRO SS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEAD INTEREST ON SECURITIES INCOME FROM HOUSE PROPERTY, CAPITAL GAINS, INCOME FROM OTHE R SOURCES; (II) A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE BUSINESS OF BANK ING OR GRANTING LOANS AND ADVANCES. THE FIRST EXCEPTION IS BASED ON 'INCOME CRITERION' AND THE SECOND EXCEPTION IS BASED ON 'PRINCIPAL BUSINESS' CRITERION. THE SECOND EXC EPTION TO EXPLANATION TO SEC.73 RELATING TO PRINCIPAL BUSINESS CRITERION WAS NOT AN ISSUE BEFORE THE HON'BLE HIGH COURT AND IT WAS ONLY THE INCOME CRITERION THAT WAS IN DI SPUTE BEFORE THE HONBLE HIGH COURT. WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE SUBMISSION OF THE LEARNED DR THAT THE CASE SHOULD BE RE EXAMINED BY THE AO IN TH E LIGHT OF THE RBI GUIDELINES WITH REGARD TO NBFC. WE DO NOT FIND ANY MERITS IN THE R ELEVANT GROUNDS RAISED BY THE REVENUE AND ACCORDINGLY DISMISS THE SAME. 13. GROUND NO.4 RAISED BY THE REVENUE READS AS FOL LOWS :- 4. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE BOGUS SUNDRY CREDITORS AMOUNTING TO RS.25,00,000/- ADDED BY THE A.O. 14. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD RECEIVED RS.25,00,000/- FROM M/S. SWAGATAM LEFIN PV T. LTD IN THE FINANCIAL YEAR 2002-03 AS ADVANCED FOR SALE OF SHARES. THE TRANSAC TION DID NOT TAKE ULTIMATE TAKE 10 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 PLACE. THERE WERE DISPUTE WITH THE PARTIES AND NEGO TIATION TOOK PLACE WITH THE AFORESAID CUSTOMER. THE AO WAS OF THE VIEW THAT THE AFORESAID ADVANCE WHICH CONTINUED TO BE SHOWN AS A LIABILITY BY THE ASSESSE E WAS NO LONGER IN EXISTENCE AND THE ASSESSEE HAD DERIVED A BENEFIT BY THE AFORESAID PAR TY NOT MAKING A CLAIM FOR THE RETURN OF THE AFORESAID AMOUNT. THE AO WAS THEREFORE OF TH E VIEW THAT UNDER THE PROVISION OF SECTION 41(1) OF THE INCOME TAX ACT, 1961 (ACT) THE AFORESAID SUM SHOULD BE BROUGHT TO TAX AS INCOME OF THE ASSESSEE. ACCORDINGLY THE A O ADDED A SUM OF RS.25,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE. 15. BEFORE CIT(A) THE ASSESSEE POINTED OUT THAT IN THE FINANCIAL YEAR 2012-13 RELEVANT TO A.Y.2013-14 THIS LIABILITY WAS WRITTEN BACK IN T HE BOOKS AND SHOWN AS INCOME BY THE ASSESSEE AND IT WAS ALSO OFFERED TO TAX BY THE ASSESSEE AND BROUGHT TO TAX BY THE REVENUE. THE ASSESSEE PLEADED THAT THE SAME INCOME CANNOT BE TAXED TWICE. IN THE REMAND REPORT FILED BEFORE CIT(A), THE AO ACCEPTED THE FACTUAL POSITION AS STATED BY THE ASSESSEE BEFORE CIT(A). IN THE GIVEN CIRCUMSTAN CES THE CIT(A) WAS OF THE VIEW THAT THE ADDITIONS MADE IN THE PRESENT A.Y.2008-09 CANNOT BE SUSTAINED AS THE SAME INCOME HAS BEEN TAXED WITH A.Y.2013-14. THE CIT(A) ALSO CAME TO THE CONCLUSION THAT THERE WAS NO MATERIAL TO SHOW THAT THE ASSESS EE RECEIVED THE BENEFIT OF LIABILITY BY WAY OF REMISSION OR CESSATION AS CONTEMPLATED U/S 4 1(1) OF THE ACT. THEREFORE THE ADDITION MADE BY AO WAS DELETED BY CIT(A). 16. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS PREFERRED GROUND NO.4 BEFORE THE TRIBUNAL. 17. BEFORE US THE LD. DR RELIED ON THE ORDER OF AO . WE ARE OF THE VIEW THAT IN THE LIGHT OF THE FINDINGS OF CIT(A) THAT THE INCOME IN QUESTION HAS BEEN WRITTEN BACK IN A.Y.2013-14 AND OFFERED TO TAX, THE ACTION OF AO IN BRINGING THE SAID AMOUNT TO TAX IN A.Y.2008-09 CANNOT BE SUSTAINED. MOREOVER, THERE WA S NO MATERIAL ON RECORD TO SHOW THAT THE ASSESSEES LIABILITY TO RE-PAY M/S. SWAGAT AM LEFIN PVT. LTD WAS REMITTED BY THE OTHER PARTY OR THE LIABILITY CEASED TO EXIST. T HEREFORE THE CONDITION FOR INVOKING THE 11 ITA NO.1315/KOL/2014 AMRABATHI INVESTRA PVT. LTD. A .Y.2008-09 PROVISION OF SECTION 41(1) OF THE ACT WAS NOT SATIS FIED. THE CIT(A) WAS THEREFORE FULLY JUSTIFIED IN DELETING THE ADDITION MADE BY AO . CONSEQUENTLY GROUND NO.4 RAISED BY THE REVENUE IS DISMISSED. 18. IN THE RESULT THE APPEAL BY THE REVENUE IS DIS MISSED. O RDER PRONOUNCED IN THE OPEN COURT ON 05.04.2017. SD/- SD/- [M.BALAGANESH] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 05.04.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.AMRABATHI INVESTRA PVT. LTD., 50/6A, HARISH MUKHE RJEE ROAD, KOLKATA-25. 2.I.T.O., WARD-12(3), KOLKATA.. 3. CIT(A)-XII, KOLKATA. 4. CIT-IV, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, ASST. REGISTRAR, ITAT, KOLKATA BENCHES