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TMI Blog2006 (5) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... not affected without disputing the genuineness of the transactions in number of scripts for purchase & sales. 3. That whether on facts and circumstances of the case, the ld. CIT(A) was justified by treating the business loss of Rs. 94,228 arising from the business of shares being as speculative loss by holding that the deliveries were not affected without disputing the genuineness of the transactions in number of scripts for purchase & sales. 4. That whether on facts and circumstances of the case, the ld. CIT(A) was justified by confirming that the difference in Badla charges paid at Rs. 1,23,390 was speculation loss. 5. That whether on facts and circumstances of the case, the ld. CIT(A) was justified by upholding the action of ld. Assessing Officer by confirming the disallowance of interest of Rs. 1,89,180 by treating that the moneys were not borrowed in the course of business. 6. That whether on facts and circumstances of the case, the ld. CIT(A) was justified by upholding the disallowance of a payment of Rs. 28,756 made on account of penalty on non-payment of dues to the stock exchange as per the rules are not connected with the business transactions carried out." 3. The re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd short deliveries also, the Assessing Officer treated the transactions of the assessee as speculation loss. 4. In appeal before the ld. CIT(A), there was no change in facts and no other material was brought by the assessee so as to exclude himself from the purview of section 43(5). Consequently, the ld. CIT(A) confirmed the action of Assessing Officer. 5. The assessee preferred an appeal before us. We have heard the parties and perused them carefully. 6. As regards ground No. 1, the ld. AR started his arguments strenuously by pointing out that assessee is registered stock broker and member of Bombay Stock Exchange of India and engaged in the brokering business. Besides this, the assessee is also engaged in the business of jobbing and trading of shares. In this connection, the ld. AR referred to section 28(i) and stated that the assessee is deriving income from both businesses and falls under the definition of section 28(i). In support of his claim that since assessee has to guard the loss he entered into transaction of purchase and sale of shares, therefore, clause (c) of proviso to section 43(5) was applicable to this case, meaning thereby, the ld. AR's argument was that thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's argument was that in those cases, no doubt, hedging transactions have been accepted as a business transactions, but in the present case, the transaction has not been proved to be of hedging in nature, therefore, these case laws relied on by the ld. AR does not come to help the case of the assessee. 8. We have considered the rival submissions and have gone through the orders of authorities below and material placed on record. The question before us for decision is whether the loss suffered by the assessee of Rs. 7,60,765 in respect of transactions of purchase and sales of shares has to be regarded as speculative transactions or to be granted relief by virtue of clause (c) of proviso to section 43(5)? For better understanding, we reproduce clause (c) of proviso to section 43(5) : "(c) a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction;" 9. If we interpret clause (c) which the assessee claims to be in his favour, we find that, no doubt, if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulative transactions unless he proves that the transactions has been entered to guard the loss of the shares. In this case, the assessee has not been able to make out his case. The ld. AR's argument that at present there is amendment in section 43(5) in which sale-purchase transaction F & O has been kept out of the purview of speculative transaction. This argument of the ld. AR also does not help, as in the relevant assessment year we are concerned with the clause (c) of proviso to section 43(5) only as stood then. The ld. AR's argument relying on the judgment of Allahabad High Court that onus is on the department also do not favour, as in that case assessee was not given an opportunity to explain his case, but that is not so in the present case. In the present case, the assessee was given opportunity to explain his case especially in the light of clause (c) of proviso to section 43(5). Therefore, we come to the conclusion that the transaction in respect of assessee has suffered a loss of Rs. 7,60,765 cannot be held to be business loss and the Assessing Officer was justified in holding this loss as speculation loss. Therefore, this ground of appeal of assessee is dismissed. 10. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veries of shares received from the clients. The ld. Departmental Representative's argument that if this loss has been settled by the assessee on account of non-delivery of shares, then loss has to be on account of client and not on assessee's own account and this loss has also been incurred by the assessee in the course of speculation activity. The ld. AR's argument was that in view of the assessee's massive business and large number of clients, sometimes short delivery of shares are received and loss is suffered by the assessee. Therefore, this loss should be treated as business loss. As we have discussed the nature of business of the assessee in detail, we accept the argument of the ld. Departmental Representative that this loss is on account of client for not effecting the delivery. Therefore, this loss has rightly been held to be speculation loss by the Assessing Officer. Therefore, this ground of appeal of the assessee is also dismissed. 14. As regards ground No. 4, loss on account of badla charges suffered by the assessee, the ld. AR's argument was that badla charges is nothing but interest which the assessee has to pay to the Stock Exchange in the course of settlement of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aled against the earlier year's disallowance of interest. It was also not disputed that assessee's capital was not sufficient to purchase the flat. Therefore, we are of the view that Assessing Officer was justified in disallowing the interest. Therefore, this ground of appeal of the assessee is dismissed. 19. As regard ground No. 6 Assessing Officer made an addition of Rs. 28,756 paid by the assessee to the Stock Exchange on account of auction charges and stamp duty. While making the addition, the Assessing Officer has done so by observing that there was an infringement of rules of the Stock Exchange and expenses incurred by the assessee being penal in nature cannot be allowed. 20. The ld. Departmental Representative relied on the order of authorities below and the ld. AR's argument was that these expenditure on account of auction charges has been incurred by assessee in the ordinary course of business of brokerage. 21. We find that explanation of assessee is acceptable in the sense that in the brokering business, massive transactions are done, brokers often resort to violation and penalties are imposed but these payments certainly do not fall in the rigorous provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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