2013 (7) TMI 363 - HC - Income Tax

Set off of short term capital loss - Transaction in shares - Tribunal denied set off of short term capital loss being bogus - Held that - Assessee made no payment for the purchase of the shares - There was no actual delivery taken by the assessee at any point of time in respect of the shares on which the assessee has claimed the alleged short term capital loss - When neither any payment was made nor any delivery was taken, then the transaction can not be held genuine specially when there was no DEMET Accounting System during the assessment year under consideration - Decided against assessee.

Summary

Issues:
1. Interpretation of the term "actual delivery" under Section 43(5) of the Income Tax Act.
2. Allowance of short term capital loss against long term capital gain.
3. Genuineness of the transaction and applicability of speculative transaction rules.

Interpretation of "Actual Delivery":
The case involved appeals by the assessee and the Revenue against a Tribunal's decision on the assessment year 1997-98 under Section 260-A of the Income Tax Act. The primary issue was the interpretation of "actual delivery" under Section 43(5) of the Act. The assessee, a dealer in Bajaj Vehicles, claimed long term capital gains and tried to set off short term capital loss, which was disallowed by the Assessing Officer (A.O.) on grounds of being bogus. The Tribunal upheld the A.O.'s decision. The assessee contended that the transaction with a share broker was genuine, supported by documents, and not speculative as per relevant case laws.

Allowance of Short Term Capital Loss:
The assessee argued that the short term capital loss was genuine, supported by documents from the share broker, and should be allowed as claimed. The counsel highlighted the identity of the broker, registration details, and the receipt of the demand draft. The counsel cited precedents to support the genuineness of the transaction and the applicability of the provisions of Section 43(5) in determining speculative transactions.

Genuineness of Transaction and Speculative Transaction Rules:
The Revenue contended that the alleged capital loss was not genuine as the broker did not insist on payment, indicating a lack of actual transaction. The Revenue relied on the broker's behavior and the absence of profits in transactions during the relevant period. The Tribunal upheld the A.O.'s decision based on these grounds and relevant case laws. The Court found that no actual delivery was taken by the assessee for the claimed shares, indicating a speculative transaction. The judgment emphasized the definition of speculative transactions under Section 43(5) and the absence of actual delivery or payment in the disputed transactions.

In conclusion, the Court dismissed both appeals, upholding the Tribunal's decision. The judgment clarified the interpretation of "actual delivery," the genuineness of the transaction, and the application of speculative transaction rules under Section 43(5) of the Income Tax Act. The decision favored the Revenue, emphasizing the lack of actual delivery or payment in the disputed transactions.