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Issues Involved: Treatment of share transaction loss as normal business loss vs. speculative loss; Deletion of loss on purchase and sale of raw jute.
Issue 1: Treatment of Share Transaction Loss as Normal Business Loss vs. Speculative Loss The first ground of appeal concerns the CIT(Appeals)'s direction to treat the loss of Rs. 69,280 from share transactions as a normal business loss, contrary to the Assessing Officer's (AO) treatment of the same as a speculative loss. The AO classified the loss as speculative because the shares were sold before taking delivery, suggesting that the transactions were speculative in nature. The AO provided a detailed tabulation of the share transactions to support this conclusion. However, the CIT(Appeals) directed the AO to treat the loss as a normal business loss, emphasizing that the AO did not question the genuineness of the share transactions. The CIT(Appeals) observed that the shares were actually delivered through Indian Overseas Bank, which placed the transactions outside the purview of Section 43(5) of the Income-tax Act, 1961. The department appealed against this direction, arguing that the loss was speculative as the shares were sold before receipt. The departmental representative relied on the AO's order and the tabulated chart of transactions. The assessee's representative countered by providing full details of contracts, delivery dates, and payment particulars, asserting that the shares were sold through brokers and delivered via Indian Overseas Bank. The representative explained that entering into sale contracts before receiving delivery is a normal practice in the business, and the transactions were genuine, as evidenced by bank advices and statements. Upon reviewing the submissions and evidence, the tribunal upheld the CIT(Appeals)'s direction to treat the loss as a normal business loss. The tribunal noted that the practice of selling shares before physical possession is common in the business, and the delivery was effected after receipt of the shares. Therefore, the CIT(Appeals) was justified in treating the loss as a normal business loss. Issue 2: Deletion of Loss on Purchase and Sale of Raw Jute The second issue involves the deletion of Rs. 17,56,071 on account of loss from the purchase and sale of raw jute. The AO disallowed the loss based on several reasons, including discrepancies in the quantitative analysis of raw jute, the location of the jute in the godown of Dalhousie Jute Co. Ltd., and the absence of day-to-day stock records and receipted challans. The CIT(Appeals) deleted the addition, leading the department to appeal. The departmental representative supported the AO's findings, while the assessee's representative argued that all purchases were from regular dealers, and the sales were to Dalhousie Jute Co. Ltd. The representative provided detailed records of purchases and sales and explained that the raw jute was stored in the godown of Dalhousie Jute Co. Ltd. by the sellers, who confirmed their transactions with the assessee. The representative addressed the AO's concerns about discrepancies in quality and quantity, explaining that the assessee re-graded the jute based on physical inspection, leading to differences in classification but not in quantity. The representative also clarified the payment discrepancies, stating that the payment from Dalhousie Jute Co. Ltd. was received by cheque on 31-3-1984, but recorded by the company on 2-4-1984 due to banking hours. The tribunal considered the submissions and evidence, concluding that the loss was genuine. The tribunal noted that the transactions were corroborated by contract notes, bills, and vouchers, and confirmed by both the sellers and the buyer. The tribunal found the explanations regarding quality discrepancies and payment dates convincing and upheld the CIT(Appeals)'s deletion of the addition. Conclusion The tribunal dismissed the departmental appeal, upholding the CIT(Appeals)'s directions to treat the share transaction loss as a normal business loss and to allow the loss on the purchase and sale of raw jute.
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