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TMI Blog2015 (1) TMI 1281X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal of Revenue is against the order of CIT(A) deleting the addition made by the AO disallowing loss in trading of shares by invoking Explanation to section 73 of the Act. For this, the Revenue has raised the following three grounds. "1. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in interpreting the 'Explanation' to section 73 of the IT Act. 2. That on the facts and in circumstances of the case, the Ld. CIT(A) has erred in holding that the principal business of the assessee is granting loans and advances. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing loss in trading of shares as normal business loss, observing that the provisions of Section 73 is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans & Advances as on 31/03/2005 : Rs.NIL (---------) (ii) Loans & Advances as on 31/3/2006 : Rs. 41,92,946/- (4.30% of funds) (iii) Loans & Advances as on 31/3/2007:Rs.1,02,74,528/-(17.54% of funds C. Application of Funds on investment in shares (held as investment as well as stock-in-trade) along with ratio to total capital for the three years are as under: (i) Investment in shares as on 31/3/2005 : Rs. 14,59,29,985/- (125.53% of fund) (ii) Investment in shares as on 31/3/2006: Rs. 7,91,47,888/-(81.18% of fund) (iii)Investment in shares as on 31/3/2006: Rs. 4,18,88,876/-(71.49% of fund) Accordingly, according to AO, the assessee's fund deployment in purchase of shares is worked out to 125.53% of the total capital where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a show cause why the loss from the sale of trading shares not be treated as a speculation loss by applying the provision of Explanation to Sec. 73 of the IT Act, 1961. The assessee in his reply stated that the assessee company is falling under the exempted category for application of explanation to sec. 73 of the IT Act, 1961 since the principle business of the company is giving loans and advances. As on 31-03-2007 the company has given loans and advances of Rs. 1,02,74,528/- compared to a stock in trade of shares for Rs. 6,17,576/-. The AO did not agree with the assessee and disallowed set off loss on sale of shares against interest income. I have gone through the findings of the AO and written submission filed by the AR during the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable in the case of the assessee. I further find that under the explanation to section 73 of the IT Act, 1961 exemption has been given to company having principle business as banking or business as granting of loans and advances. As the assessee is a nonbanking finance company mainly engaged in the business of granting of loans and advances which is evident from the amount involved for loans and advances in comparison to amounts involved for share transaction. I find the Kolkata Bench ITAT has decided the similar grounds in the case of ACIT 1(1) Vs. G.P. Trading Pvt. Ltd. ITA No. 223(Cal)/91 in which the Ld. Tribunal has held that funds deployment criteria should be considered for determining the principle business of a company. I, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derlines that such exclusion is limited for the purpose of those provisions or sections To borrow the Madras High Court's expression, "derivatives are assets, whose values are derived from values of underlying assets"; in the present case, by all accounts the derivatives are based on stocks and shares, which fall squarely within the explanation to Section 73(4). Therefore, it is idle to contend that derivatives do not fall within that provision, when the underlying asset itself does not qualify for the benefit, as they (derivatives - once removed from it and entirely dependent on stocks and shares, for determination of their value)." In view of the alternative plea of the assessee, we are in agreement with the argument of Ld. counsel for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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