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TMI Blog2006 (2) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... finance charges in the profit and loss account, the details of which indicated that these charges represented the loss arising out of three sets of sale purchase transactions of bonds, which are as under :-- (A) Transaction set No. 1 (1) Sale of 6,00,000 bonds Rs. 6,34,24,020 @ Rs. 10,57,067 on 21-10-1989 (2) Purchase 6,00,000 Rs. 6,42,15,840 bonds @ Rs. 10,70,264 on 20-11-1989 Loss : Rs. 7,91,020 (B) Transaction set No. 2 (1) Sale of 6,00,000 bonds Rs. 6,25,17,840 @ Rs. 10,41,964 on 20-11-1989. (2) Purchase of 6,00,000 Rs. 6,28,53,120 bonds @ Rs. 10,47,522 on 2-12-1989 Loss : Rs. 3,35,280 (C) Transaction set No. 3 (1) Sale of 6,00,000 Rs. 6,08,90,460 @ Rs. 10,14,841 on 2-12-1989. (2) Purchase of 6,00,000 Rs. 6,29,38,800 bonds @ Rs. 10,48,980 on 26-3-1990 Loss : Rs. 20,48,340 1.2 The assessee-company was asked by the Assessing Officer to show-cause why the aforesaid finance charges should not be treated as speculation loss. It was contended on behalf on the assessee that the said amount had been paid to one M/s. Devesh Chaturvedi Share and Stock Brokers by way of the finance charges for raising funds to enable the assessee to pay for its purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion only on 17-11-1989, as is evidence by letter No. 6185 dated 17-11-1989 of Citi Bank. Therefore, these bonds could not be said to have been delivered to M/s. Devesh Chaturvedi on the date of sale. 2.The learned Authorised Representative of the assessee on behalf of the assessee had admitted before the Assessing Officer during the course of oral hearing on 9-3-1993 that there was no delivery given or taken of the bonds in the relevant transactions. 3.The interest of Rs. 27 lakhs on the bonds was received by the assessee-company. Hence, the delivery was at best in the nature of security and not in the discharge of the assessee-company's liability to deliver the bonds in purchase of sale contract. The entire scheme was a sale transaction backed by a by adequate security but ultimately settled otherwise than by actual delivery or transfer of the bonds and, therefore, a speculative transaction within the meaning of section 43(5). 4.The relevant transactions were rather a case of hedging contract for purchase and, therefore, were outside the purview of Clause (b) of the proviso to section 43(5)." 2. In appeal, the learned Authorised Representative of the assessee on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er institutions, involve lot of procedures and formalities, whereas borrowing funds from a broker in the above mode was simpler and faster. 2.1 The CIT(A) rejected the contention of the assessee and ultimately held that speculation loss which actually arose from these four transactions was Rs. 36,60,660 (Rs.16,98,000 plus Rs. 9,62,660) and not Rs. 31,75,440 as held the Assessing Officer. This sum of Rs. 31,75,440 claimed as finance charges paid by the assessee would consist of two items - (i) speculation loss of Rs. 36,60,660 and (ii) business profit from sale of bonds on 21-10-1989 and their repurchase on 26-3-1990 of (Rs. 4,85,220 Rs. 6,34,24,020 minus Rs. 6,29,38,800). As such, the CIT(A) directed the Assessing Officer to recompute speculation loss at Rs. 36,60,660, as explained above. The business profit of Rs. 4,85,220 needs be further included in the assessed income, as such the CIT(A) directed the Assessing Officer to reduce the assessed loss from non-speculation business by Rs. 4,85,220 and the Assessing Officer was directed to modify the computation of total income of the assessee accordingly. 3. Before us, the learned Authorised Representative of the assessee reiterated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this sale transaction, was effected by Shangrila Investment Corporation Pvt. Ltd. on 17-11-1989. The necessary evidence on this aspects claimed to be filed before the CIT(A). Based on these facts, the CIT(A) had accepted the delivery against the aforesaid sale has been effected. What the CIT(A) has not accepted the delivery for the intermediary purchase and sale with M/s. Devesh Chaturvedi. In this respect, it was argued that right from the first sale to last purchases bonds (which were delivered on 17-11-1989 as aforesaid) had remained with M/s. Devesh Chatrurvedi only. Accordingly, all the transactions in the series of purchase and sale are backed by delivery being so transaction cannot be treated as speculative transaction. The claim for deduction against securities can be sustained only when the assessee is in a position to show that any reasonable expenditure has been incurred in realising the interest on securities, where the assessee purchases securities at a price terminated with reference to their actual value as well as interest accrued thereon till the date of purchase, the entire price paid for them would be in the nature of capital outlay and no part of it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicable to the facts of the assessee's case. In fact, the assessee has paid the amount in question to one M/s. Devesh Chaturvedi, share and stock brokers by way of finance charges for raising funds to enable the assessee to pay for its purchase and sale of shares of quoted Companies from Bombay Stock Exchange as a dealer in shares. The bonds of 6,00,000 of Rural Electrification Corporation were purchased from Citi Bank through one broker - M/s. Satish C. Mehta on 16-10-1989. A letter, in this regard, was filed before the authorities below. There is no justification on the part of Revenue negate the stand of the assessee that the payment for the same bond was made on the same day itself and delivery of the same were taken on same day. The document issued by the CITI Bank has been rejected without observing the principles of natural justice. Neither the assessee nor the Citi Bank was provided due opportunity of hearing before rejecting the assessee's stand in this regard. Thereafter, the assessee had purchased shares of quoted Companies as a dealer in share from M/s. Devesh Chaturvedi, Share Stock Broker of Bombay Stock Exchange. In order to make payment for the said purchase, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat M/s. Citi Bank when it sold relevant 6 lakhs bonds to the assessee-company indicated in the bill that the total sale consideration of Rs. 6,33,32,054 consisted of face value of the bonds of Rs. 6,13,20,000 and interest from 2-6-1989 to the date of purchase of Rs. 20,12,054, whereas when the assessee had sold the said bonds to M/s. Bimal Gandhi, the sale consideration was unambiguously stated to be Rs. 6,32,04,000 including interest. In view of the above, the Assessing Officer had adopted the cost of acquisition of the bonds at Rs. 6,13,20,000 not including broken period interest shown separately in the bill, but had adopted the sale price of the bonds at Rs. 6,32,04,000 as unambiguously represented as the sale price. The Assessing Officer, accordingly, had computed capital gains of Rs. 18,84,000 instead of loss of Rs. 1,28,074 as claimed by assessee-company. In this regard, the learned Authorised Representative on behalf of the assessee had relied on the decision of Hon'ble Supreme Court in the case of Vijaya Bank Ltd. v. Addl. CIT [1991] 187 ITR 541, wherein it was held that, in the instant case, the assessee had purchased securities. It was contended that the price paid for t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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