2003 (2) TMI 429 - AT - Income Tax

Summary

Issues Involved:
1. Whether the trading loss claimed by the assessee was a speculative transaction under section 43(5) of the Income Tax Act.
2. Whether the assessee took actual delivery of the goods.
3. Whether the loss from a solitary speculative transaction can be set off against non-speculative business profits.

Issue-Wise Detailed Analysis:

1. Whether the trading loss claimed by the assessee was a speculative transaction under section 43(5) of the Income Tax Act:

The Assessing Officer (AO) noted that the assessee claimed a trading loss of Rs. 1,39,012 from the trading of moong, which was purchased from M/s. Bharat Vyapar Sadan and sold to four different parties. The AO questioned the validity of the transaction, suspecting it to be speculative as per section 43(5) of the Income Tax Act, which defines speculative transactions as those where contracts are settled otherwise than by actual delivery. The AO concluded that the transaction was collusive and aimed at reducing tax liability, as the goods were booked in the name of Bharat Vyapar Sadan and not the assessee. The AO relied on the Supreme Court decision in Davenport & Co. (P.) Ltd. v. CIT [1975] 100 ITR 715 and did not allow the claimed loss.

2. Whether the assessee took actual delivery of the goods:

The assessee contended that actual delivery was taken through a clearing and forwarding agent at Bombay Port, who then transported the goods to the railway station. The assessee provided purchase bills, railway receipts, and evidence of transportation to support this claim. However, the AO and CIT(A) found that the railway receipts indicated the goods were booked by Bharat Vyapar Sadan, suggesting no actual delivery was taken by the assessee. The CIT(A) relied on the Madras High Court decision in R. Chinnaswami Chettiar v. CIT [1974] 96 ITR 353, which emphasized that real delivery is required under section 43(5).

3. Whether the loss from a solitary speculative transaction can be set off against non-speculative business profits:

The assessee argued that even if the transaction was deemed speculative, the loss should still be allowed against non-speculative business profits, citing Explanation 1 to section 28 and section 43(5) of the Act. The assessee referred to the Bombay High Court decision in CIT v. Kamani Tubes Ltd. [1994] 207 ITR 298, which distinguished between "speculation transaction" and "speculation business," indicating that an isolated speculative transaction does not constitute a speculative business. The assessee further argued that there was no evidence of engaging in speculative business regularly.

Judgment:

The Tribunal considered the rival submissions and reviewed the evidence. It noted that the assessee paid for the goods via cheque and provided substantial evidence of taking actual delivery through a clearing agent, who incurred transportation expenses. The Tribunal found that the AO and CIT(A) wrongly inferred ownership based on the railway receipts. The Tribunal concluded that the assessee had taken actual delivery, thus the transaction was not speculative.

Even if deemed speculative, the Tribunal held that the loss from a solitary transaction could not be disallowed against non-speculative business profits, aligning with the Bombay High Court's interpretation in Kamani Tubes Ltd. and other ITAT decisions.

Conclusion:

The appeal was allowed, with the Tribunal ruling that the assessee had taken actual delivery of the goods, and even if the transaction was speculative, the loss could be set off against non-speculative business profits due to the absence of a series of speculative transactions.