2005 (1) TMI 588 - AT - Income Tax

Disallowed Set off the Speculative business loss against other business income - loss incurred - delivery of shares - HELD THAT - The delivery contemplated by section 43(5) need not be actual but even constructive or implied as was held by the Hon ble Supreme Court in the case of Duni Chand Rataria 1954 (12) TMI 19 - SUPREME COURT . The Assessing Officer may have to accept the case of constructive or implied delivery as the actual delivery within the meaning of the aforesaid provisions. The assessee has produced copies of Stock Exchange Procedures and Regulations of Settlement of Transactions. All these were not produced at the time of hearing before the Assessing Officer. The Assessing Officer may have to examine the issue in the light of these procedures and should also keep in mind advancement of procedures in relation to trading in shares. We, therefore, in the interest of justice, set aside the entire issue back to the file of the Assessing Officer with a direction to decide the same in accordance with law after going through the settlement procedures in the Stock Exchange as well as the consider the copies of detailed Contract Notes produced by the assessee, which according to the assessee, evidences the fact of constructive delivery. The detailed Contract Notes issued by M/s. Sunil Agencies in respect of all the transactions of the assessee may have to be looked into by the Assessing Officer. The Assessing Officer shall therefore re-decide the issue in accordance with law and keeping in view the principle laid down by the Apex Court in the case of Duni Chand Rataria (supra). Needless to say the assessee shall be given a fair and reasonable opportunity of being heard in the matter. In the result, the appeal is to be treated as allowed for statistics.

Summary

Issues involved:
The disallowance of Rs. 18,48,516 treated as speculative loss u/s 43(5) of the Income-tax Act, 1961 for the assessment year 2001-02.

Summary:

Issue 1: Disallowance of Speculative Loss
The assessee challenged the disallowance of Rs. 18,48,516 treated as speculative loss by the Assessing Officer. The assessee, engaged in both electrical goods business and trading in shares, incurred a net loss of Rs. 14,42,412 due to losses in shares. The Assessing Officer concluded that there was no actual delivery of shares in the share transactions, categorizing them as speculative under section 43(5) of the Act. The assessee contended that all transactions were regular business transactions settled periodically through delivery of shares, citing relevant case laws and emphasizing the presence of physical shares in transactions. The Tribunal found that the delivery under section 43(5) could be constructive or implied, not necessarily actual, and directed the Assessing Officer to re-examine the issue considering Stock Exchange settlement procedures and detailed Contract Notes provided by the assessee.

Decision:
The Tribunal set aside the issue back to the Assessing Officer for a fresh decision in accordance with law, directing a review based on Stock Exchange settlement procedures and detailed Contract Notes to determine if there was constructive delivery of shares. The Assessing Officer was instructed to provide a fair opportunity for the assessee to present their case. The appeal was treated as allowed for statistical purposes.