DCIT, CC-XIII, Kolkata, Kolkata V. M/s. Varun Mercantile & Credit Pvt. Ltd., Kolkata

ITA 1375/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48237 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-05-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 02-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K MISHRA
• Keywords: Business income; Additional evidence; Speculation loss; Reassessment proceedings
• Section: 143(3)

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE . . . . . . . . , , , , ! ! ! ! /AND ' #!' , $% ) [BEFORE HONBLE SHRI G. D. AGRAWAL, V.P. & HONBLE SHRI MAHAVIR SINGH, JM] !& !& !& !& / I.T.A NO. 1375KOL/2010 #'( )* #'( )* #'( )* #'( )*/ // / ASSESSMENT YEAR: 2002-03 DEPUTY COMMISSIONER OF INCOME-TAX, VS M/S. VARUN MERCANTILE & CREDIT PVT. LTD. CENTRAL CIRCLE-XIII, KOLKATA ( ,- /APPELLANT ) (./,-/ RESPONDENT ) FOR THE APPELLANT: SHRI P. K. MISHRA FOR THE RESPONDENT: SHRI RAVI TULSIYAN $01 / ORDER PER MAHAVIR SINGH, JM ( ' ' ' ' #!' #!' #!' #!' , , , , $% $% $% $% ) THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A), CENTRAL-II, KOLKATA IN APPEAL NO.244/CC-XIII/CIT(A)-C-II/KOL/08-09 VIDE DATED 31.03.2010. ASSESSMENT WAS FRAMED BY DCIT, CC-XIII, KOLKATA U/S.143(3) R.W .S.153C OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASS ESSMENT YEAR 2002-03 VIDE HIS ORDER DATED 31.12.2008. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING DISALLOWANCE MADE BY AO OF LOSS BY INVOKING THE PRO VISIONS OF EXPLANATION TO SEC. 73 OF THE ACT BY TREATING THE LOSS FROM SHARE TRADING BUSINES S AS SPECULATIVE LOSS. THE REVENUES CONTENTION IS ALSO THAT CIT(A) ACCEPTED ADDITIONAL EVIDENCES. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING THREE GROUNDS: 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE A.O. TO NOT DEEM THE LOSS OF RS.22,33 ,610/- IN SHARE TRADING BUSINESS AS SPECULATIVE LOSS BY HOLDING THAT THE PROVISIONS OF EXPLANATION TO SECTION 73 ARE NOT APPLICABLE IN CASE OF THE ASSESSEE. 2. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS GRANTING OF LOANS AND ADVANCES ON THE BASIS OF ADDITIONAL EVIDENCES IN THE FORM OF BREAKUP OF INCOME, CAPITAL EMPLOYED AND TURNOVER IN THE BUSINESS OF SHARE TRADING AND IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES, WITHOUT ALLOWING AN OPPORTUNIT Y TO THE A.O. TO EXAMINE THE CORRECTNESS OF THESE BIFURCATIONS. 2 ITA 1375/K/2010 M/S.VARUN MERCANTILE & CREDIT PVT. LTD. A.Y.02-03 3. THAT THE DEPARTMENT CRAVES LEAVE TO ADD, MODIFY OR ALTER ANY OF THE GROUND(S) OF APPEAL AND/OR ADDUCE ADDITIONAL EVIDENCE AT THE TIM E OF HEARING OF THE CASE. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE THAT THE ASSESSEE IS A NON-BANKING FINANCE CO. AND IS ENGAGED IN THE BUSINESS OF LOANS AND ADVANCES. A S EARCH U/S. 132 OF THE ACT WAS CARRIED OUT ON THE RESIDENTIAL AND BUSINESS PREMISES OF SABOO GROU P ON 16.5.2006 AND DOCUMENTS BELONGING TO ASSESSEE WERE FOUND DURING THE COURSE OF SEARCH. A CCORDINGLY, THE ASSESSEE IN RESPONSE TO NOTICE U/S. 153C OF THE ACT FILED RETURN OF INCOME BY DECLARING UNDISCLOSED INCOME AT NIL. ORIGINAL ASSESSMENT WAS FRAMED U/S. 143(3) OF THE A CT VIDE ORDER DATED 20.1.2004 BY ACCEPTING LOSS OF RS.L4780/- BUT ON PURCHASE AND SALE OF SHAR ES OF OTHER COMPANIES LOSS AMOUNTING TO RS.22,33,610/- WAS DISALLOWED NOT TO BE SET OFF BY HOLDING THE SAME AS SPECULATION LOSS UNDER EXPLANATION 73 OF THE ACT. THE MATTER WENT UP TO T RIBUNAL AND TRIBUNAL VIDE ORDER DATED 12.1.2005 RESTORED THE ISSUE BACK TO THE FILE OF TH E A.O. WITH A DIRECTION TO A.O. TO CONSIDER THE ABOVE CONTENTION OF THE ASSESSEE AND TO DETERMINE W HETHER ASSESSEES PRINCIPAL BUSINESS IS THAT OF GRANTING OF LOANS AND ADVANCES SO AS TO ESTABLIS H WHETHER PROVISION RELATING TO LOSS IN SPECULATION BUSINESS U/S. 73 COULD BE CONSIDERED IN THE HANDS OF THE ASSESSEE. THE A.O. THEREFORE CONSIDERED THIS MATTER IN THE LIGHT OF DI RECTION OF TRIBUNAL AND AFTER CONSIDERING THE ASSESSEES EXPLANATION AND EVIDENCES PRODUCED, PASS ED AN ORDER DATED 25.2.2005 GIVING EFFECT TO THE SAID ORDER OF TRIBUNAL WHEREIN DEDUCTION OF RS. 22,34,758/- WAS ALLOWED FROM THE BUSINESS INCOME ASSESSED U/S. 143(3) DATED 20.1.2004 AND TOT AL INCOME WAS COMPUTED AT (-) RS.89,746/- [RS.21,45,012 RS.22,34,758]. 4. DURING THE COURSE OF REASSESSMENT PROCEEDINGS U/ S. 153C OF THE ACT, THE SAME LOSS WAS FURTHER DISALLOWED BY TREATING THE SAME AS SPECULAT ION LOSS BY INVOKING EXPLANATION TO SEC. 73 OF THE ACT AT RS.22,33,610/-, INSPITE OF THE FACT T HAT THE ADMITTED POSITION OF THE ASSESSEE IS THAT ITS PRINCIPAL BUSINESS IS THAT OF GRANTING LOANS AN D ADVANCES AND ASSESSING OFFICER HIMSELF HAS ALLOWED IN THE FIRST ROUND IN VIEW OF THE DIRECTION S OF THE TRIBUNAL. THE CIT(A) DELETED THE DISALLOWANCE BY GIVING FOLLOWING FINDING IN PARA 4 OF ITS APPELLATE ORDER: 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SU BMISSIONS OF APPELLANT. THE CONSIDERATION OF SHARE TRADING LOSS OF RS.22,33,610 /- AS SPECULATION LOSS UNDER EXPLANATION TO SEC. 73 OF THE ACT WAS EARLIER DECIDED U/S. 143( 3) OF THE I. T. ACT BY THE ASSESSING OFFICER IN REGULAR ASSESSMENT DATED 143(3) OF THE I. T. ACT BY THE ASSESSING OFFICER IN REGULAR ASSESSMENT DATED 143(3) OF THE I. T. ACT. IN THIS ORDER THE INCOMES OF APPELLANT WERE DETERMINED UNDER VARIOUS HEADS AS UNDER: TRADING IN SHARE RS. (-) 22,33,610 TRADING IN SOYA BEAN OIL RS. (-) 5,99,380 BILL DISCOUNTING RS. 21,64,.623 DIVIDEND RS. 54,826 3 ITA 1375/K/2010 M/S.VARUN MERCANTILE & CREDIT PVT. LTD. A.Y.02-03 INTEREST RS. 54,205 THE APPLICABILITY OF EXPLANATION TO SECTION 73 WAS DECIDED ON THE GROUND THAT APPELLANT DID NOT HAVE THE GROSS TOTAL INCOME WHICH CONSISTED MAI NLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME F ROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. APPELLANT DID NOT SUCCEED BEFORE THE CIT(A) BECAUSE APPELLANT COMPANY WAS NOT AN INVESTMENT ORIENTED CO MPANY. HOWEVER, APPELLANT RAISED THE GROUND BEFORE HBLE ITAT THAT APPELLANT WAS A FINAN CE COMPANY WHOSE MAIN BUSINESS WAS GRANTING OF LOANS AND ADVANCES. HBLE ITAT SET ASID E THE APPELLATE ORDER OF CIT(A) TO THE FILE OF ASSESSING OFFICER ON THE ISSUE WHETHER THE PRINCIPAL BUSINESS OF APPELLANT IS THAT OF GRANTING OF LOANS AND ADVANCES FOR THE PURPOSE OF E XPLANATION TO SECTION 73 OF THE I.T. ACT.. IN THE MEAN TIME A SEARCH U/S 132 WAS CONDUC TED IN SABOO GROUP AND DOCUMENTS PERTAINING TO APPELLANT WERE SEIZED. ON THE BASIS O F THESE DOCUMENTS, ASSESSMENT U/S.153C/143(3) WAS MADE BY THE ASSESSING OFFICER A ND THE ISSUE OF DETERMINATION OF PRINCIPAL BUSINESS OF APPELLANT, AS DIRECTED BY HB LE ITAT, WAS DECIDED IN THIS ASSESSMENT ORDER BECAUSE THE EARLIER SET ASIDE ASSESSMENT HAD ABATED DUE TO 153C PROCEEDINGS. THE ISSUE OF PRINCIPAL BUSINESS OF APPELLANT DID NOT CO ME UP BEFORE CIT(A) IN THE FIRST ROUND OF APPEAL AS THIS ISSUE WAS NOT RAISED BY THE APPELLAN T AT THAT TIME AND THEREFORE THE EARLIER ORDER OF CIT(A) IS NOT RELEVANT IN THE PRESENT APPE LLATE PROCEEDINGS. APPELLANT HAS RELIED ON THE DECISIONS OF STATE BANK OF MYSORE V. COMMISS IONER OF INCOME-TAX [175 ITR 607] ,(KARNATAKA) AND GUJARAT GAS FINANCIAL SERVICES LTD . [307 ITR(AT) 370] (SPECIAL BENCH OF ITAT -AHEM.) TO STATE THAT DISCOUNTING OF BILLS IS A FORM OF LOAN OR ADVANCE AND BILL DISCOUNTING CHARGES ARE SIMILAR TO INTEREST INCOME. IN FACT ASSESSING OFFICER HAS NOT OBJECTED TO THE TREATMENT OF BILL DISCOUNTING INCOM E SIMILAR TO INTEREST INCOME EARNED ON LOAN OR ADVANCES IN THE ASSESSMENT ORDER. THE MAIN CONTENTION OF ASSESSING OFFICER IS THAT THE SUM TOTAL OF BILL DISCOUNTING INCOME AND INTERE ST INCOME, IE, RS 21,64,623 + KS. 54,205 = RS 22,18,828/- IS LESS THAN THE SHARE TRADING LOS S OF RS. 22,33,610 AND THEREFORE THE MAIN BUSINESS OF APPELLANT CANNOT BE GRANT OF LOAN OR AD VANCE. AS FAR AS CRITERIA OF DETERMINATION OF INVESTMENT ORIENTED COMPANIES IS C ONCERNED, THE METHOD OF COMPARING THE INCOME UNDER VARIOUS HEADS OF INCOME IS GIVEN IN TH E EXPLANATION TO SECTION 73 ITSELF. HOWEVER NO SIMILAR CRITERIA IS GIVEN IN EXPLANATION TO SECTION 73 FOR FINANCE COMPANIES WHOSE PRINCIPAL BUSINESS IS OF GRANTING OF LOANS AN D ADVANCES. HBLE SPECIAL BENCH OF ITAT (KOL) IN THE CASE OF DCIT VS. VENKAESWAR INVES TMENT AND FINANCE P. LTD. [277 ITR(AT) 20W] HAVE HELD THAT TO DECIDE WHETHER THE P RINCIPAL BUSINESS OF THE ASSESSEE WAS THAT OF GRANTING OF LOANS AND ADVANCES, WOULD DEPEN D ON THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY, PAST HISTORY OF THE COM PANY, CURRENT DEPLOYMENT OF THE CAPITAL OF THE COMPANY, BREAK-UP OF THE INCOME EARNED DURIN G THE RELEVANT YEAR WOULD ALL HELP IN DETERMINING THE PRINCIPAL BUSINESS OF THE COMPANY. A COMPARISON OF VARIOUS FACTORS IN RESPECT OF BUSINESS OF SHARE TRADING AND BUSINESS O F GRANT OF LOAN AND ADVANCE FOR ASSESSMENT YEAR 2002-03, I.E. THE ASSESSMENT YEAR U NDER APPEAL IS MADE AS UNDER: CRITERIA BUSINESS OF SHARE TRADING BUSINESS OF GRANTING OF LOAN AND ADVANCE REMARK INCOME 22,33,610 22,18,828 ALMOST EQUAL AND IT CANNOT BE A CORRECT CRITERIA TO DECIDE THE PRINCIPAL BUSINESS CAPITAL EMPLOYED 18,70,465 1,31,00983 GRANTING OF LOANS A ND ADVANCES IS CLEARLY THE MAIN BUSINESS TURNOVER 6,20,190 (AFTER EXCLUDING THE SALE OF RS 75.8 LAKH OF SOYA OIL FROM TOTAL SALE OF 82 LAKH) 22,18,828 THE VALUE OF BILLS DISCOUNTED, IF INCLUDED IN TURNOVER, WOULD RESULT IN MUCH HIGHER TURNOVER IN RESPECT OF BUSINESS OF 4 ITA 1375/K/2010 M/S.VARUN MERCANTILE & CREDIT PVT. LTD. A.Y.02-03 GRANTING OF LOAN AND ADVANCE. STILL, GRANTING OF LOANS AND ADVANCES IS CLEARLY THE MAIN BUSINESS. FROM THE COMPARISON MADE ABOVE, I HAVE NO DOUBT THA T THE PRINCIPAL BUSINESS OF APPELLANT IS GRANTING OF LOAN AND ADVANCE AND RECOGNITION OF APPELLANT AS NON BANKING FINANCIAL COMPANY BY RBI ALSO ADDS TO THIS FACT. I THEREFORE HOLD THAT PROVISIONS OF EXPLANATION TO SECTION 73 ARE NOT APPLICABLE IN CASE OF APPELLANT AS THE PRINCIPAL BUSINESS OF APPELLANT IS GRANTING OF LOAN AND ADVANCE AND DIRECT THE ASSESSI NG OFFICER TO NOT DEEM THE LOSS OF RS 22,33,610/- IN SHARE TRADING BUSINESS AS SPECULATIV E LOSS. ASSESSING OFFICER IS DIRECTED TO REDUCE THE TOTAL INCOME ACCORDINGLY. AGGRIEVED, THE REVENUE IS NOW IN APPEAL BEFORE US. 5. WE FIND FROM THE FACTS OF THE CASE AND CASE RECO RDS THAT DURING THE COURSE OF SEARCH NOTHING NEW MATERIAL WAS FOUND WHICH INDICATES THAT THE PRINCIPAL BUSINESS OF ASSESSEE IS NOT OF THAT OF BANKING AND GRANTING OF LOANS AND ADVANCES. THE AO STATED THAT THE MAJOR PORTION OF THE CAPITAL EMPLOYED BY THE ASSESSEE IS IN BILL DISCOUN TING AND ACCORDING TO HIM BILL DISCOUNTING IS PART OF THE ASSESSEES BUSINESS AND INCOME FROM WHI CH IS LESS THAN THE MAIN BUSINESS OF SHARE TRADING FROM WHERE THE ASSESSEE HAS INCURRED LOSS O F RS.22,33,610/- AS AGAINST THE INCOME FROM BILL DISCOUNTING AT RS.21,64,623/-. ACCORDINGLY, T HE AO HELD THAT THE MAIN BUSINESS OF THE ASSESSEE CANNOT BE CALLED THAT OF GRANTING OF LOANS AND ADVANCES INSPITE OF THE FACT THAT IS HOLDING THE CERTIFICATE OF NBFC, WHICH IS NOT A SUF FICIENT REASON TO CALL IT A FINANCIAL COMPANY FOR THE PURPOSES OF EXPLANATION TO SECTION 73 OF TH E ACT. WE FIND THAT, IT IS AN ADMITTED POSITION THAT THE ASSESSEES BUSINESS OF BILL DISCOUNTING IS IN THE NATURE OF ADVANCING OF MONEY AGAINST BILL OF EXCHANGE AND ON MATURITY OF BILLS, ADVANCES ARE REPAID BY THE ACCEPTORS OF THE BILLS THEREFORE, IT IS AN ARRANGEMENT TO EXTEND CREDIT AN D ADVANCE MONEY, HENCE, DISCOUNTING CHARGES ARE MERELY IN THE NATURE OF INTEREST ON THE AMOUNT ADVANCED. WE FIND THAT THIS ISSUE HAS BEEN DECIDED BY SPECIAL BENCH OF THIS TRIBUNAL, AHMEDABA D BENCH IN THE CASE OF GUJARAT FINANCIAL SERVICES LTD. VS. ACIT (AND VICE VERSA) (2008) 307 ITR (AT) 370 (AHMEDABAD-SB), WHEREIN THE ISSUE OF DISCOUNTING OF BILL OF EXCHANGE AND PR OMISSORY NOTES IS DISCUSSED QUA SECTION 2 (7) OF INTEREST TAX ACT, 1974 WHEREIN IT IS DISCUSSED ( AT PAGE 402) AS UNDER: THE DEFINITION OF INTEREST, AS IS EVIDENT FROM TH E ABOVE SECTION 2(7) OF THE INTEREST-TAX ACT, 1974, IS AN EXHAUSTIVE DEFINITION AS IT IS DEF INED BY USING THE WORD MEANS. THEREFORE EVEN THOUGH INTEREST IS THE TAXABLE EVENT AND BASIS FOR LEVY OF INTEREST-TAX, IT CAN BE ASSESSED ONLY IF IT WERE AN INTEREST ON LO ANS AND ADVANCES AS STATED IN THE DEFINITION AND NOT OTHERWISE. WHETHER A RECEIPT IS INTEREST OR NOT HAS TO BE JUDGED ON THE FACTS AND CIRCUMSTANCES OF EACH CASE AND IF IN SUB STANCE THE RECEIPT IS INTEREST ON LOAN OR ADVANCE, IT HAS TO HAVE THAT CHARACTER IRRESPECT IVE OF THE NAME OR A FORM GIVEN TO IT OTHERWISE IN THE DOCUMENTS EVIDENCING THE TRANSACTI ON. WE HAVE ALREADY TAKEN NOTE OF THE FACT WHILE DISCUSSING THE CHARGEABILITY OF THE ASSESSEE TO TAX THAT, IT BEING A FINANCIAL COMPANY UNDER SECTION 2(5B), THE LEASE GRANTED BY THE ASSESSEE IS A FINANCIAL LEASE IN 5 ITA 1375/K/2010 M/S.VARUN MERCANTILE & CREDIT PVT. LTD. A.Y.02-03 CONTRADICTION TO AN OPERATION LEASE. A FINANCIAL L EASE IS A TRANSACTION OF PROVIDING FINANCE WHERE LEASE RENT INCLUDES A RECOUPMENT OF CAPITAL/FINANCE PROVIDED BY THE ASSESSEE AS WELL AS INTEREST/FINANCE CHARGES FOR PR OVIDING THE FINANCES. THE RECOVERY OF FINANCE CHARGES WOULD BE INTEREST ON LOANS AND ADVA NCES WITHIN THE MEANING OF SECTION 2(7) OF THE ACT IN SUBSTANCE OF THE MATTER THOUGH GIVEN A NAME OF LEASE RENT. WE THEREFORE VACATE THE ORDER OF THE COM- MISSIONER OF INCOME-TAX (APPEALS) IN HOLDING THAT LEASING IS OUTSIDE THE PURVIEW OF CHARGEABILITY OF INTEREST-TAX AS THE DEFINITION OF INTEREST BEING NOT INCLUSIVE BUT RESTRICTIVE IN SECTION 2 O F THE INTEREST-TAX ACT AND IN DIRECTING THE ASSESSING OFFICER TO EXCLUDE FROM THE TOTAL AMOUNT OF CHARGE- ABLE INTEREST. AND FINALLY, SPECIAL BENCH HELD AS UNDER: THOUGH THE ASSESSEE HAD STATED IN INCOME-TAX PROCE EDINGS THAT IT WAS A CASE OF FINANCIAL LEASE AND IN THAT CASE AS WE HAVE HELD AB OVE IT WOULD BE A CASE OF A LOAN TRANSACTION AND INTEREST PORTION OF THE RECEIPTS IN LEASE RENTALS WOULD BE CHARGEABLE TO TAX. THE NECESSARY MATERIAL HAS NOT BEEN ON RECORD TO DECIDE AS TO HOW MUCH OF INTEREST IS INCLUDED IN THE INSTALMENT. THE MATTER THUS REQ UIRES EXAMINATION IN THE LIGHT OF THE ABOVE DECISIONS OF THE SUPREME COURT AND THE PUNJA B AND HARYANA HIGH COURT. WE THEREFORE SET ASIDE THE MATTER TO WORK OUT THE INT EREST PORTION AND BRING IT TO TAX. SIMILARLY, HONBLE KARNATAKA HIGH COURT IN THE CASE OF STATE BANK OF MYSORE V. COMMISSIONER OF INCOME-TAX (1989) 175 ITR 607 (KAR), WHEREIN HEL D THAT DISCOUNTING OF BILLS BY A BANK IS A FORM OF LOAN OR ADVANCE AND HENCE COMPENSATION PAID ON DELAYED PAYMENT OF MONEY DUE THEREON IS INTEREST ON LOANS AND ADVANCES. IN THE4 PRESENT CASE ALSO THE DISCOUNT CHARGES I.E. BILL DISCOUNTING IS IN THE NATURE OF ADVANCING MONEY AGA INST BILLS AND ON MATURITY OF BILLS THE ADVANCE IS REPAID AND THIS DISCOUNTING CHARGES ARE HELD IN THE NATURE OF INTEREST, THE ASSESSEES MAIN BUSINESS WILL BE AFTER CLUBBING THE INCOME FRO M BILL DISCOUNTING, THE PRINCIPAL BUSINESS IS TO BE DETERMINED. EVEN OTHERWISE, WE ARE OF THE VI EW THAT THE CIT(A) HAS DISCUSSED THE FACTS BY MAKING A COMPARISON IN THE FACTORS IN RESPECT OF BU SINESS OF SHARE TRADING AND BUSINESS OF GRANTING OF LOANS AND ADVANCES IN THE ABOVE REPRODU CED PARA OF THE CIT(A)S ORDER. WE FURTHER FIND THAT TO DETERMINE THE PRINCIPAL BUSINESS, MERE COMPARISON OF THE QUANTUM OF INCOME IN SHARE DEALING AND BILL DISCOUNTING AND INTEREST IS NOT CORRECT. SHARE TRADING LOSS OF RS. 22,33,608/- INCLUDED LOSS ON ACCOUNT OF VALUATION O F CLOSING STOCK OF RS. 5,69,929/-, WHICH MEANS THAT ACTUAL OR REAL SHARE TRADING LOSS BORNE BY THE ASSESSEE WAS ACTUALLY EQUAL TO RS.16,94,983/- ONLY AND DECISION RELIED ON BY THE A SSESSEE OF SPECIAL BENCH OF THE ITAT (KOL) IN THE CASE OF DEPUTY COMMISSIONER OF INCOME-TAX VS . VENKATESWAR INVESTMENT AND FINANCE P. LTD. (2005) 277 ITR(AT) 20 (KOL), WHEREIN IT IS HEL D THAT TO DECIDE WHETHER THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS THAT OF GRANTING OF LO ANS AND ADVANCES, THE DECISIVE FACTOR IS THE NATURE OF THE ACTIVITIES OF THE ASSESSEE AND NOT TH E ACTUAL INCOME FROM SUCH ACTIVITIES DURING A PARTICULAR YEAR. WHAT, CONSTITUTES PRINCIPAL BUSIN ESS WOULD DEPEND ON THE MEMORANDUM, AND ARTICLES OF ASSOCIATION OF THE COMPANY, PAST HISTOR Y OF THE COMPANY, CURRENT DEPLOYMENT OF THE 6 ITA 1375/K/2010 M/S.VARUN MERCANTILE & CREDIT PVT. LTD. A.Y.02-03 CAPITAL OF THE COMPANY, BREAK-UP OF THE INCOME EARN ED DURING THE RELEVANT YEAR WOULD ALL HELP IN DETERMINING THE PRINCIPAL BUSINESS OF THE COMPANY. WE FIND THAT THE CAPITAL EMPLOYED BY THE ASSESSEE IN BILL DISCOUNTING AND LOANS & ADVANCES A MOUNTED TO 65.07% OF THE TOTAL CAPITAL INVESTMENT AND CAPITAL EMPLOYED IN SHARE TRADING IS ONLY RS. 20 LAKH TO RS 24 LAKH IN FINANCIAL YEAR 1998-99 TO 2001-02 IN SHARE TRADING BUSINESS W HEREAS IN BILL DISCOUNTING BUSINESS IT HAS INCREASED FROM RS 64 LAKH TO RS. 131 LAKH BETWEEN 1 998-99 TO 2001-02. WE FURTHER FIND FROM THE MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE A SSESSEE, ONE OF ITS OBJECTS WAS GRANTING LOANS AND ADVANCING MONEY AND THE COMPANY IS ALSO R EGISTERED WITH RBI, AND HOLDS A CERTIFICATE ISSUED BY RBI IN TERMS OF RBI ACT, 1934. HENCE, WE HOLD THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE IS THAT OF GRANTING OF LOANS AND ADVANCES AND THE LOSS RESULTING ON ACCOUNT OF SHARE TRANSACTIONS CANNOT BE TREATED AS DEEMED LOSS WITHI N THE MEANING OF THE EXPLANATION TO SECTION 73. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) DELE TING THE DISALLOWANCE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 7. ORDER PRONOUNCED IN OPEN COURT ON 30.6.2011. SD/- SD/- . . . . . . . . , , , , ' ' ' ' #!' #!' #!' #!' , $% (G. D. AGRAWAL) (MAHAVIR SINGH) VICE PRESIDENT JUDICIAL MEMBER ( 2 2 2 2) )) ) DATED 30TH JUNE, 2011 PRONOUNCED BY SD/- (S. V. MEHROTRA) SD/(M. SINGH) AM/30.6.11 JM/30.6.11 34 #'5 #6 JD.(SR.P.S.) $01 7 .##8 08)9- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT DCIT, C.C. XIII, KOLKATA. 2 ./,- / RESPONDENT, M/S. VARUN MERCANTILE & CREDIT PVT. L TD.,40, STRAND ROAD, 4 TH FLOOR, KOLKATA-700 001. 3 . #1' ( )/ THE CIT(A), KOLKATA 4. #1' / CIT, KOLKATA 5 . ?#@ .#' / DR, KOLKATA BENCHES, KOLKATA /8 .#/ TRUE COPY, $01'A/ BY ORDER, ' ! /ASSTT. REGISTRAR .