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TMI Blog2008 (12) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... below. We have deliberated upon the various decisions cited at Bar. 4. It was noticed by the Assessing Officer that assessee had debited to P L A/c of the year under consideration the sum of Rs. 1,61,28,946 being the loss on sale of investment. After considering the facts and circumstances of the case, the Assessing Officer treated the said loss to be of capital in nature as against business loss, claimed by the assessee. The Assessing Officer, therefore, disallowed the set-off of the aforesaid loss against other income of the year under consideration. The Assessing Officer also mentioned that the loss on investment would be long-term capital loss, it will be carried forward to be set-off against long-term capital gain only. 5. Being aggrieved, the assessee preferred an appeal before the CIT(A). 6. After considering the facts of the case as well the submission of the assessee and the Assessing Officer's order, the CIT(A) had taken a view that the Assessing Officer was justified in treating the loss from shares in question as a capital loss. 7. However, without prejudice to the above i.e. without prejudice to his finding that the loss on sale of shares is to be tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sale which can be treated as systematic and organized activity of business of purchase and sale of shares. From the balance sheet it is noticed that the appellant company has been showing investment separately in Schedule 3 as investment and inventory of shares in Schedule 4 as inventories separately. Thus, the appellant was holding some shares as stock-in-trade and other shares as investment. It may be pertinent to point out here that these shares were reflected as investment in balance sheet and not as inventory. It was further noticed from the perusal of balance sheet as on 31-3-2002 that the appellant had made a provision for diminution in market value of investment of Rs. 1,61,26,775 under the head investment in Schedule 4 of the balance sheet, but in the computation of income, such loss was not claimed. Rather the provision was debited below the line, i.e., after computing then net profit/loss as per P L A/c. Had the appellant was holding these shares as stock-in-trade, the diminution in the value of shares would have been claimed as a business loss, because the stock-in-trade is valued at cost or market price whichever is lower and in a case if market price on the last d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,61,28,946 was not business loss." 10. The ld. Counsel for the assessee has not been able to rebut the findings of facts noted by the CIT(A) in his order that the assessee has been showing the investment in the shares of M/s. Rathi Alloys Steel Ltd., as investment. It is well settled that the assessee may hold certain shares as stock-in-trade and at the same time may hold certain other shares as investment. Insofar as the shares of M/s. Rathi Alloys Steel Ltd. is concerned, the CIT(A) has rightly appreciated the facts of the case and came to the conclusion that the assessee hold these shares as an investment and not as stock-in-trade or as a trading asset. The decision of the SMC Bench of Tribunal in the assessee's case for the assessment year 1990-91 does not advance the assessee's case any further inasmuch the issue involved therein was about the determination of loss and not with regard to the issue whether shares of M/s. Rathi Alloys Steel Ltd. held by the assessee on investment account or on trading account. However, in the light of the facts of the case, the said decision is not applicable to the issue in hand. Therefore, the CIT(A)'s order holding the loss on sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed loss on sale of investment at Rs. 1,61,28,946 whereas the interest received has been shown as Rs. 3,01,448 dividend at Rs. 4,674 only. It may be noted that the Calcutta High Court in the case of Eastern Aviation Industries Ltd. v. CIT [1994] 208 ITR 1023 (Cal.) observed in connection to Explanation to section 73, that the words "Income" or "Profits and gains" should be understood as including losses also, so that in one sense "profits and gains" represent "positive income". In other words, "loss" is negative profit. Both positive and negative profits must enter into computation, wherever it becomes material, in the taxable income of the assessee. In this case loss of sale of share investment was clearly more than other items of income. Thus, the appellant does not fall in category (1) mentioned above. 5.3 The category (2) is in respect of nature of business as to whether the principal business of the company was granting loans and advances, or not. In this regard, it may be noted that the nature of principal business of the assessee can be judged from the application of its funds. In this case, the appellant himself has admitted that its one of the principal bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 73 of the Act, the assessee has not been able to point out any adequate proper or sufficient evidence or material to show and establish that the assessee's case falls within the excluded category of companies i.e. ( i )the gross total income of the assessee company mainly consists of income which is chargeable under the heads "Interest on securities" "Income from house property", "Capital gains" and "Income from other sources" or ( ii )the principal business of the assessee's company is the business of banking or the granting of loans and advances. The CIT(A) has considered this issue and hold that the assessee's case is not covered by these two exceptions. Having regard to the reasons given by the CIT(A) and in the light of the facts and circumstances of the case, we are in full agreement with the CIT(A) that the assessee's case does not falls in any of the above two categories. 14. Now, the question arises whether Explanation to section 73 is applicable to the companies of which the entire business activity consist of purchase and sale of shares of other companies or whether it would be applicable if only a part of business activity of assessee company consists of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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