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TMI Blog2007 (9) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... red off by paying the difference which clearly establishes that the transactions were in the nature of speculative transactions within the meaning of section 43(5) and, therefore, the Assessing Officer rightly treated the loss arising out of the above transaction amounting to Rs. 43,75,630 as speculation loss. (2)On the facts and circumstances of the case and in law, learned CIT(A) erred in holding the loss of Rs. 43,75,630 as a short-term capital loss which is allowed to be set off against short-term capital gains on sale of flat without appreciating that no physical/actual delivery of shares was either taken by the assessee or by his share brokers and the transactions were squared off by paying the difference whereas the Rajasthan High Court has in the case of CIT v. Ganesh Das Ram Swaroop Kakani [1990] 181 ITR 93 , held that the contract settled without giving actual delivery of the goods is a speculative transaction and the loss arising out of it is a speculation loss within the meaning of section 43(5), and therefore, the Assessing Officer rightly treated the loss arising out the above transactions amounting to Rs. 43,75,630 as a speculation loss. 3. Briefly stated, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the said transactions have resulted in short-term capital loss and not speculative loss. Copies of statements recorded by the Assessing Officer during the course of assessment proceedings on which the Assessing Officer has relied were also filed before learned CIT(A) during appellate proceedings. Learned CIT(A) has decided the issue in favour of the assessee on the basis that section 73(1) prohibits the set-off of losses from speculation business against any other profit except profits from speculation business. The term speculation business is defined in Explanation (2) to section 28; and Assessing Officer has not brought on record any further evidence to show that these speculative transactions entered into by the assessee were of a nature to constitute speculative business. It is held by learned CIT(A) that in the absence of any such evidence, he held that the conclusion drawn by the Assessing Officer that the said losses represent speculative loss and could not allowed to be set-off against short-term capital gain on sale of flat in accordance with provisions of section 73(1) is held to be erroneous. He directed the Assessing Officer that the amount of Rs. 43,75,630 is he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills is appearing on page No. 27 of the paper book; as per which, statement period is from 20-10-1997 to 27-10-1997. It is submitted that similarly all the shares were sold much after the date of purchase and no share was sold in the same settlement period. It is submitted that section 43(5) of the Income-tax Act can be invoked, if the assessee is engaged in the business of purchase and sale of shares. It is submitted that in the present case, nothing is brought on record by the Assessing Officer that the assessee is engaged in the business of dealing in shares and it can be seen that the assessee is earning income from salary, house property and capital gains and other sources only; and hence, section 43(5) is not applicable in the present case. Regarding the judgment of Hon ble Jurisdictional High Court rendered in the case of Madanlal Nemani (P.) Ltd. ( supra ), it is submitted that in that case, the facts are different; and hence, this judgment is not applicable in the present case. It is submitted that in that case, the assessee was engaged in the business and business of the assessee was go act as a selling agent to the textile mill. It is also noted by Hon ble High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the extent of Rs. 63.31 lakhs. Nothing is brought on record by the Assessing Officer that the assessee was engaged in the business of dealing in shares either in this year or in any earlier years. Under these facts, we are in agreement with learned AR of the assessee that the judgment of Hon ble Bombay High Court rendered in the case of Madanlal Nemani (P.) Ltd. ( supra ) relied upon by learned DR of the revenue is not applicable in the present case because facts are different. In that case, admittedly, the assessee was engaged in the business and transactions were completed without actual delivery. In the absence of any finding and also in absence of any material on record to show that the assessee was engaged in the business of dealing in shares, this judgment is not applicable in the present case, judgment of Hon ble Bombay High Court rendered in the case of Tata Services Ltd. ( supra ) supports the case of the assessee. In that case, it was held that capital asset means a property of any kind held by the assessee, whether or not connected with his business or profession. This was so held on the basis of definition of capital asset , in section 2( 14 ) of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchase and sales which were never furnished before the Assessing Officer as is apparent from the assessment order." 9. Briefly stated, the facts are that it is noted by the Assessing Officer that the assessee has put through purchase and sale of shares of Lakme Industries Ltd. through M/s. N.H. Securities Ltd., a broker. The assessee claimed to have purchased the shares on 12-2-1998 for a consideration of Rs. 14,14,000 through M/s. N.H. Securities Pvt. Ltd. and sold the same on 26-2-1998 through the same broker for a consideration of Rs. 7,68,873. It is also noted by the Assessing Officer that out of purchase consideration of Rs. 14.14 lakhs, the assessee has paid Rs. 4.25 lakhs on 4-3-1998 and Rs. 7 lakhs on 5-3-1998 totalling Rs. 11.25 lakhs to M/s. N.S. Securities Pvt. Ltd. towards purchase of Lakme Industries Ltd. shares as against total purchase consideration of Rs. 14.14 lakhs leaving balance of Rs. 2.89 lakhs. It is also noted by the Assessing Officer that M/s. N.S. Securities Pvt. Ltd. made full payment of Rs. 7,68,873.28 on 17-3-1998 to the assessee without deducting of Rs. 2.89 lakhs, which was due to him from the assessee. This sum of Rs. 2.89 lakhs was paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee after receipt of sale proceeds. The third reason given by the Assessing Officer that M/s. N.S. Securities Pvt. Ltd. could not produce Saudabahi before him. We are of the considered opinion that none of these reasons can be the basis for treating this transaction as sham transaction. Learned CIT(A) has decided this issue after examining all facts in proper prospective as per para Nos. 4.3 and 4.4 of his order, which reads as under : "4.3 It can be seen that these two facts can in themselves certainly not negate the transaction wherein all other facts have been found to be in favour of appellant. The Assessing Officer has himself recorded and agreed with the fact that on date of sale of these shares by appellant, the same were in its possession and the same have been sold by appellant on 26-2-1998. The shares in question are quoted shares and the purchase price as well as sale price is also verified and found correct on date of purchase and sale. What is relevant is whether on dates of settlement, the broker M/s. N.S. Securities (P.) Ltd. had these shares or not. It is not relevant whether they were physically in its stock or not on is date of purchase. 4.4 Since, the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith certificate No. and transfer Nos. were actually transferred to Smt. Renu R. Gupta in contravention of the provisions of rule 46A of the I.T. Rules by way of entertaining additional evidence in the form of details of investment in shares of Renu R. Gupta as on 31-3-1998 as well as letter dated 16-3-1998 from Registrar Transfer Agents, M/s. Lloyds Capital Services Ltd., as evidence to show that the said shares along with certificate Nos. and transfer Nos. were actually transferred to Smt. Renu R. Gupta which were never furnished before the Assessing Officer as is apparent from assessment order." 14. Briefly stated, the facts are that the assessee claimed to have sold 55,000 shares of M/s. Lloyd Steel Industries Ltd. on 4-3-1998 to his wife Smt. Renuka Gupta for a total sale consideration of Rs. 1.76 lakhs. On this basis, he claimed long-term capital loss of Rs. 53,98,531. It is observed by the Assessing Officer that these shares of M/s. Lloyd Steel Industries Ltd. were never transferred in the name of Smt. Renuka Gupta. The Assessing Officer has drawn this conclusion on the basis of the statement given by M/s. Lloyds Capital Services Ltd. under section 131; wherein it is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned AR of the assessee supported the order of learned CIT(A). Our attention was drawn to page Nos. 93 to 95 of the paper book, which contain debit note issued by the assessee to Smt. Renuka Gupta for sale of 55,000 equity shares of M/s. Lloyd Steel Industries Ltd. on 4-3-1998 @ of Rs. 3.20 per share. Our attention was drawn to page No. 95 of the paper book, which contains the paper cutting of Newspaper of "Business Standard" of 5-3-1998, which contains price of shares quoted in Bombay Stock Exchange on 4-3-1998. It is submitted that price of shares of M/s. Lloyd Steel Industries Ltd. was moving within the range of Rs. 3.10 per share to Rs. 3.40 per share under closing stock price on that date was Rs. 3.20 per share; and hence, price at which, shares are sold by the assessee to his wife is as per the market quotation on that day. Our attention was drawn to page No. 100 of the paper book, which contain details of investment in shares as on 31-3-1998 of Smt. Renuka Gupta and it is submitted that as per these details, Smt. Renuka Gupta is holding 89,000 shares of M/s. Lloyds Steel Industries Limited. Our attention was drawn to page No. 101 of the paper book, which contains details o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee to his wife as per market quotation on the date of sale and under these facts, we are of the considered opinion that no interference is called for in the order of learned CIT(A) on this issue. Regarding the objection of the revenue that learned CIT(A) has admitted additional evidence regarding transfer of impugned shares in the name of Smt. Renuka Gupta being letter dated 16-3-1998 of M/s. Lloyds Capital Services Ltd., we find that on the basis of the reply of M/s. Lloyds Capital Services Ltd. being letter dated 6-12-2000, the Assessing Officer has decide the issue against the assessee by interfering that impugned shares were not transferred in the name of Smt. Renuka Gupta without giving an opportunity to the assessee to show that these shares were transferred or not; under these facts, learned CIT(A) was justified in accepting this letter dated 16-3-1998 issued by the M/s. Lloyds Capital Services Ltd. evidencing that the impugned shares were duly transferred to Smt. Renuka Gupta on 16-3-1998. In this regard, we find that clause Nos. ( c ) and ( d ) of rule 46A(1) are relevant, which read as under : "( c )where the appellant was prevented by sufficient cause from prod ..... X X X X Extracts X X X X X X X X Extracts X X X X
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