B.R. MITTAL, J.M.: ORDER assessee has filed this appeal for asst. yr. 1 995-96 against order of CIT(A), dt. 1 th Jan., 2005. 2. relevant facts giving rise to this appeal are that assessee is public limited company. In assessment year under consideration, assessee filed return declaring net income of Rs. 9,45, 1 0. In P&L a/c, assessee had shown income from interest at Rs. 22,92,844 and also shown loss on account of sale of shares of Rs. 1 ,93,465. said loss on share was set off against income from interest and shown resultant income of Rs. 9,45, 1in return. said return was processed on same income on 23rd Feb., 1 996. 3 . Subsequently, proceedings under s. 1 47 of Act was initiated by issuing notice under s. 1 48 of Act stating that assessee is holding company of M/s Somani Iron & Steel Co. Ltd. holding companies of M/s Somani Iron & Steel Co. Ltd. controlled by directors and their family members were claiming bogus share loss by means of transfer of shares held by one company to another company. share loss shown by assessee company is not normal business loss rather assessee had tried to reduce its taxable income by colourable device. Hence, AO initiated proceedings under s. 1 48 of Act. Since assessee did not file return of income in terms of notice issued under s. 1 48 of Act, AO has stated at p. 2 of assessment that assessee was not in mood to co-operate with Department in matter of finalization of reassessment proceedings, as assessee did not furnish any details in respect of share transactions nor produced books of account so that issue relating to loss on sale of shares claimed in return could be examined. AO has stated loss claimed by assessee on sale of shares is in nature of capital loss. Therefore, AO held that said loss could not be set off against business income or income from other sources i.e. interest, etc. Being aggrieved, assessee filed appeal before first appellate authority. 4 . learned CIT(A) confirmed action of AO to initiate proceedings under s. 1 48 of Act. Further, learned CIT(A) has held that said loss on shares is not genuine, as assessee could not establish genuineness of share transactions. learned CIT(A) has also held that even otherwise, case of assessee is covered under s. 73 of Act and therefore, losses incurred, if any, on sale of these shares is to be disregarded for set off. Hence assessee is in further appeal before Tribunal. 5 . In ground Nos. 1 to 3 of appeal, assessee has disputed validity of initiation of reassessment proceedings and also validity of assessment order on ground of violation of principle of natural justice. However, during course of hearing, learned Authorized Representative of assessee submitted that ground Nos. 1 to 3 of appeal are not pressed for. Hence, ground Nos. 1 to 3 of appeal are rejected as not pressed for. 6. In ground No. 4 of appeal, assessee has disputed order of learned CIT(A) in confirming disallowance of loss of Rs. 1 ,93,465. Before we take up said ground for our consideration on merits, it is relevant to state transactions in shares which have resulted in this loss and same are as follows : Value of Share trading shares Share purchased during Qty. year : 1 . Sewa Mercantile Ltd. 1 ,000 4,02, 1 2. Ocean Impex Ltd. 1 6,500 8,45,832 1 26,500 2,47,932 Share sale during year : 1 . Sewa Mercantile Ltd. 1 ,000 48,950 1 ,05,5 1 2. Ocean Impex Ltd. 1 6,500 2. Ocean Impex Ltd. 1 6,500 7 1 Profit/loss (-) 1 ,93,465 26,500 ,54,467 7 . assessee claimed that these share transactions were entered into through broker, M/s N.K. Gupta & Associates, stock share and finance brokers. He is member of Sikkim Stock Exchange. learned Authorized Representative of assessee submitted that assessee had taken delivery of shares and referred to pp. 36 to 39 of paper book. He further submitted that assessee also sold those shares and gave delivery and in support of it, referred to pp. 4 1 to 43 of paper book. learned Authorized Representative of assessee further referred to pp. 52 to 55 of paper book and submitted that said shares were transferred in favour of assessee as confirmed by respective companies vide their letters placed at pp. 52 to 55 of paper book. learned Authorized Representative of assessee further submitted that above brokers note as well as confirmatory letters from respective companies prima facie establish that assessee had taken delivery of shares, got those shares transferred in its name and subsequently sold same. He submitted that assessee suffered loss in said transaction of purchase and sale of shares of Rs. 1 ,93,465. learned Authorized Representative of assessee further referred to pp. 3 and 4 of paper book, which is copy of balance sheet and copy of P&L a/c, and submitted that principle business of assessee is to give loan, and advances, as assessee had given loans and advances to extent of 79.35 per cent of its capital and earned also interest of Rs. 20,84,022. He submitted that provisions of Explanation to s. 73 of Act are not applicable to case of assessee. learned Authorized Representative of assessee submitted that assessee also tried to trace out broker, but assessee could not find broker and therefore AO had taken adverse inference against assessee. learned Authorized Representative of assessee submitted that said broker, M/s N.K. Gupta & Associates was member of Sikkim Stock Exchange which is recognized stock exchange. He submitted that AO has wrongly held that Sikkim Stock Exchange is not recognized stock exchange and in support of his submission filed copy of annual report for asst. yr. 1 993-94 that said Sikkim Stock Exchange was incorporated under Registration of Companies Act (Sikkim), 1 96 1 . He submitted that said share transaction was genuine share transaction and loss was genuine loss incurred by assessee. Therefore, assessee was justified to set off said share loss against interest income. 8. On other hand, learned Departmental Representative supported orders of authorities below. He submitted that learned CIT(A) has held that said loss claimed by assessee was fake and fictitious. He submitted that share broker could not be produced by assessee, as no such share broker existed. He further submitted that enquiry was also made and it was found that even correct address of share broker was not provided by assessee. learned Departmental Representative further submitted that learned CIT(A) has rejected claim of assessee not only on ground that said loss was speculative loss under Explanation to s. 73 of Act, but also on ground that it was not genuine transaction entered into by assessee. 9. We have considered orders of authorities below and submissions of learned representative of parties. 1 . We observed that AO has held that loss claimed by assessee is capital loss. However, AO has not given any justification to treat said loss claimed by assessee, as capital loss save and except stating that shares were investment of assessee. Further, we observed that learned CIT(A) has rejected claim of assessee on account of two reasons : firstly, that transactions entered into by assessee for purchase and sale of shares was not genuine, and secondly, that loss on share transactions of assessee is speculative loss within meaning of s. 73 of Act. During course of hearing, learned representatives of parties have not made any submissions on aspect as to whether loss claimed by assessee is capital loss or not. learned Authorized Representative of assessee made his submissions that loss is business loss occurred to assessee and on other hand, learned Departmental Representative made his submissions that loss claimed by assessee was not genuine loss and even otherwise said loss could not be allowed against interest income as per Explanation to s. 73 of Act. 11 . In regard to existence of broker, we observed that assessee has placed at pp. 36 to 43 of paper book, details of broker, M/s N.K. Gupta & Associates. said details contain address and it is also stated that he is member of Sikkim Stock Exchange Association Limited. On perusal of annual report for 1 993-94, which is in printed format and copy of which is placed in paper book filed by assessee along with letter dt. 8th Nov., 2005, we observed that said Sikkim Stock Exchange was incorporated under Companies Act (Sikkim), 1 96 1 . Department has not brought any material on record to controvert said material on record that there was no such Sikkim Stock Exchange in existence. In regard to existence of broker, M/s N.K. Gupta & Associates, we find substance in submission of learned Authorized Representative of assessee that after gap of about 1years when assessee was asked to produce said brokers, assessee could not be made responsible if said broker is not available at address as is mentioned in bills filed by assessee at pp. 36 to 43 of paper book. In this regard, we are fortified with our views when assessee has filed copies of letters from companies name,. M/s Sewa Mercantile Ltd. dt. 23rd Dec., 2004 and 4th Jan., 2005 and also from M/s Ocean Impex Ltd. dt. 28th Dec., 2004 and 4th Jan., 2005, copies of which are placed at pp. 52 to 55 of paper book vide which these companies have confirmed transfer of shares in favour of assessee company and on perusal of those letters, it is observed that distinctive numbers mentioned by these companies in their letters are distinctive numbers which are mentioned in bills of brokers, copies of which are placed at pp. 36 to 39 of paper book vide which assessee had stated to have taken delivery of shares in question from broker. above documents prima facie establish that assessee had taken delivery of shares and subsequently got them transferred in its favour. Department has not disputed purchase and sale price of shares and in that case, loss shown by assessee on above share transactions of Rs. 1 ,93,465 could not be doubted. On basis of above facts on records, we are of considered view that there was genuine purchase and sale of shares transactions entered into by assessee in respect of companies, M/s Sewa Mercantile Ltd. and M/s Ocean Impex Ltd. Hence, conclusion reached by learned CIT(A) that there was no genuine transaction of purchase and sale of shares is contrary to facts on record and accordingly we do not agree with finding of learned CIT(A) in this regard. Therefore, we hold that assessee had incurred loss on purchase and sale of shares in assessment year under consideration of Rs. 1 ,93,465. 1 2. Now coming to question as to whether said loss on purchase and sale of shares in hit by Explanation to s. 73 of Act i.e., whether it is speculative loss. Explanation to s. 73 prohibits setting off of shares in loss suffered by company. However, there are two exceptions to said prohibition. They are (a) if company whose gross total income consists mainly of income that is chargeable under head "Interest on house property", "Capital gains" and "Income from other sources", or (b) company, principal business of which is business of banking or granting of loans and advances. In such case, prohibition to set off loss suffered by assessee company in its share transactions is not prohibited if assessee company falls in category of any of two exceptions as mentioned hereinabove. In case before us, we observed that main business of assessee is of granting loans and advances i.e. assessee has given loans and advances to extent of 79.39 per cent of its capital. Therefore, we are of considered view that exception laid down in Explanation to s. 73 of Act that if principal business of company is of granting loans and advances, such company is not hit and/or falls within Explanation to s. 73 of Act. Hence we hold that loss suffered by assessee in share transactions of Rs. 1 ,93,465 is not speculative loss in share transactions which is prohibited by Explanation to s. 73 of Act. Therefore, assessee is justified in law in setting off said share loss against interest income shown by assessee in assessment year under consideration. We, accordingly, reverse orders of authorities below by allowing ground No. 4 of appeal taken by assessee in setting off loss of Rs. 1 ,93,465 incurred in share transactions against interest income shown by assessee in assessment year under consideration. 1 3. Ground No. 5 of appeal relates to ground No. 3 of appeal taken 1 3. Ground No. 5 of appeal relates to ground No. 3 of appeal taken by assessee. Since assessee has not pressed for ground No. 3 of appeal, ground No. 5 of appeal is rejected. 1 4. In result, appeal filed by assessee is allowed in part. *** NARAIN PROPERTIES LTD. v. ASSISTANT COMMISSIONER OF INCOME TAX