2012 (10) TMI 64 - HC - Income Tax

Speculation loss - whether the speculation loss declared from the sale of shares can be set off against the profit available ? - Held that - Considering the AO s submission that the fact remains that there was no delivery of the shares and on both occasions i.e. at the time of purchase as well as at the time of sale, it was only the sister concern M/s A. Nitin Capital Services which was involved in the transaction, but how M/s A. Nitin Capital Services books and other particulars were made available, especially, having regard to the fact that its representative sought repeated adjournments and since he did not furnish the necessary particulars after receiving summons under Section 131. Having regard to these circumstances, the fact that M/s A. Nitin Capital Services assessments were completed, could not have been decisive as far as the assessee s claims in the present case are concerned That dividends in the shares concerned had not been enjoyed by the assessee even for the period it claimed to have held the shares - there was no evidence of any delivery being effected or any consideration actually having passed between the parties. The assessee relied almost entirely on book entries made in that regard - thus as that amount was not brought to tax and the assessee s claim of loss was not allowed to be set of against its business profits - in favour of revenue.

Issues Involved:
1. Whether the loss declared by the assessee from the sale of shares of M/s J.P. Industries and Himachal Futuristic Company Ltd. could be treated as speculation loss.
2. The genuineness of the transactions involving the sale and purchase of shares.
3. The relevance of the relationship between the assessee and M/s A. Nitin Capital Services.
4. The applicability of Section 43(5) and Section 73 of the Income Tax Act to the transactions in question.

Issue-wise Detailed Analysis:

1. Speculation Loss Treatment:
The primary issue was whether the loss declared by the assessee from the sale of shares of M/s J.P. Industries and Himachal Futuristic Company Ltd. could be treated as speculation loss. The Tribunal initially found that the transactions were genuine and that the loss could be set off against the profit available. However, the Revenue contended that the transactions were sham and aimed at maneuvering a loss through book entries. The AO and CIT (A) treated the transactions as speculative, citing the lack of evidence for actual delivery of shares and the nature of the transactions.

2. Genuineness of Transactions:
The AO scrutinized the transactions and found several discrepancies, such as the lack of serial numbers on bills and no evidence of actual delivery of shares. The assessee's argument that the transactions were genuine due to the market prices being close to the sale prices was rejected by the AO and CIT (A). The Tribunal, however, was influenced by the acceptance of similar transactions in the hands of M/s A. Nitin Capital Services, leading it to rule in favor of the assessee. The High Court, however, found that the Tribunal's reasoning was too broad and that the lack of evidence and the nature of the transactions indicated they were not genuine.

3. Relationship Between Assessee and M/s A. Nitin Capital Services:
The Revenue argued that the close family connection between the assessee and M/s A. Nitin Capital Services suggested that the transactions were not normal business transactions but were aimed at creating losses to reduce profit. The Tribunal's reliance on the acceptance of M/s A. Nitin Capital Services' claims was found to be insufficient by the High Court, which noted that the assessment details of M/s A. Nitin Capital Services were not clear and that the representative had not cooperated fully.

4. Applicability of Section 43(5) and Section 73:
The AO treated the loss from the sale of shares of Himachal Futuristic Company Ltd. as speculative under Section 43(5) and Section 73 of the Income Tax Act, as the transactions were settled by difference. The Tribunal allowed the appeal, but the High Court found that the facts and circumstances indicated that the transactions were speculative and not genuine, thus supporting the AO's and CIT (A)'s findings.

Conclusion:
The High Court restored the AO's order, as modified by the CIT (A), and answered the substantial question of law in favor of the Revenue. The appeal was allowed to the extent that the transactions were found to be speculative and not genuine, thus disallowing the loss claimed by the assessee.

← Previous Next →