9911796707
TMI Blog2012 (4) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutiny to verify assessee's claim of deduction of loss Rs. 9,82,980/- on account of delivery not taken by clients. During the assessment proceedings the AO noticed that the company has purchased shares of Global Tele system Ltd., on behalf of Sh Chetanbhai S. Shah and Vinodbhai H. Shah. The company had purchased 4525 shares amounting to Rs. 20,24,574/- on behalf of Mr. Vinod H. Shah and 200 shares amounting to Rs. 79,787/- on behalf of Mr. Chetan Shah. The company has raised bills dated 28-2-01 to these two persons. However, these persons refused to take delivery of the shares stating that they had not placed any order for purchase. Due to decreasing trend in the share prices in the market, to minimize the losses the company has sold the shares and booked the losses. The company has sold 2800 shares on7-3-01, 1725 shares on 15-3-01 and 200 shares on 7-3-01." Along with its reply assessee has submitted copy of bills issued to the two parties, copy of bills of the broker and copy of statement of demat accounts as on 19-3-01 and 21-3-01. 4. From the copy of bill dated 7-3-01 of M/s. Ajmera & Shah Associates, the broker submitted by the assessee it has been noticed by the AO that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to Q. No.8 of his statement where he has stated that he will make another phone call to inform whether he wants to purchase the same. It has been further stated that he has not made any phone call subsequently. Under these circumstances there cannot be any confusion about purchase of shares. Confusion has been created only by the assessee for its own gains. By doing so assessee has tried to claim the loss as business loss to be set off against its taxable income. Even otherwise it is difficult to understand how could the assessee made purchase of shares worth more than Rs. 20 lac in the name of a person who has done only small transactions in the last 3 years without considering even once about the payment. It has been stated by Sh Vinod H. Shah that his transactions for the whole year in shares is approximately Rs. 80,000/- in F.Y. 99-00, Rs. 60,000/- in F.Y. 00-01 and nil in F.Y. 01-02. 8. Regarding the dates assessee's contention that there was some confusion about date of purchase of shares whether it is 23-2-01 to 28-2-01 the AO stated that there is no confusion about date of purchase of shares which is 23-2-01. However, the enquiry about rates of the shares in question wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st that the sale of 1500 shares on 15-3-01 was not found reflected in the statement as claimed by the assessee company and second, in the reply dated 8-9-03 Shri Vinod H. Shah has stated that he made enquiries on28-2-01 whereas impugned shares were purchased by assessee-company on behalf of Shri Vinod H. Shah on 23-2-01. Therefore, I am dealing with these 2 observations of the AO first, before discussing the other aspects relating to the issue. As per the observation of the AO the details which have been submitted by M/s. Ajmera & Shah Associates it was found that there was no sale of 1725 shares on 15-3-01 as claimed by the assessee-company. In this respect, the assessee-company has relied upon its submission vide letter dated 25-12-03, which has been referred by the AO in the assessment order, wherein it has been clarified that on 7-3-2001, 4525 shares and 2800 shares of Global Tele System were sold through Ajmera & Shah Associates and remaining 1725 shares were sold directly by the assessee-company through Ahmedabad Stock Exchange and therefore, the said sale of 1725 shares being directly sold by the assessee-company, it was clarified that the same will not appear in the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dge of English language. Therefore, having clarified this aspect in the statement of Shri Vinod H. Shah, I think their remains no ambiguity so far as date of purchase of the shares is concerned, more particularly when in his statement recorded by the AO, while answering to Ques.No.8 he has clearly admitted that on 23-2-01 he made enquiry with the assessee-company for purchase of Global Tele System shares and having furnished evidence of purchases by the assessee-company on 23-2-01 and having raised the bills by the assessee-company for purchases on 23-2-01 of 4525 shares of Global Tele System, I am of the view that their remains no dispute about the dates on which the impugned shares have been purchased by the assessee-company. 3.4 Coming to the other aspect of the issue, from the assessment order it is clear that during the course of assessment proceedings. A.O. has also conducted enquiries from M/s. Ajmera & Shah Associates through whom the impugned shares has been purchased and sold partly. On the basis of enquiry, the A.O. was satisfied about the genuineness of the purchase of shares by the assessee-company and the sales of the shares also, except 1725 shares which has been so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaken in the normal course of business and since there were some mis-understanding between the employee of the company and the client as to whether there was a confirmed order or not and as submitted in detail in the statement of Shri Vinod H. Shah it is absolutely clear that on the very same day when the shares were purchased, the assessee-company has informed Shri Vinod H. Shah about the purchase of shares on his behalf, which indicates that the transactions have been undertaken in the normal course of business and since the client has refused to take delivery of the shares, the resultant loss incurred by the assessee-company for the sale of the said shares, is required to be allowed as deduction from the business income. The same is based on evidences, 3rd party statement and from the entire assessment order it is very clear that the statement of Shri Vinod H. Shah which has been recorded by the A.O. could not lead to any conclusion indicating any doubt about the said transaction. Therefore, in view of the above discussion and the facts of the case, the loss of Rs. 9,76,592/- is allowed as deduction. Reliance is placed on the judgment of CIT v. Nainital Bank Ltd. [1965] 55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions are pertaining to the assessee in whose case the same are intended to be applied. (b) Secondly, the delivery of the shares on behalf of the two clients namely Shri Vinod H. Shah and Shri Chetan Shah having been taken before selling that shares, which fact is also established from the Demat A/c. furnished to the A.O. the transactions in question are even otherwise not covered by the definition of "Speculative transactions" as per Section 45 (3) of the Act and accordingly the loss arising therefrom cannot be treated as speculation loss even if presuming [without admitting] that the same were entered into by the assessee-company on its own behalf and not on behalf of their clients. Coming to the applicability of the Explanation to Section 73 of the Act, it is submitted that the same has been wrongly applied by the AO without properly considering the provisions of the said section. The following further facts and contentions require to be taken due cognizance of: (a) At the outset, it is submitted that the AO while treating the loss in share transaction on behalf of the clients of the assessee-company as speculative in nature has further failed to appreciate the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occupation or profession with the object of making income or profit. The same requirement of continuous exercise of an activity is implicit in the words 'carried on by him'. In the present case, there was no material or evidence on record that the assessee-company was carrying on speculation business of dealing in shares/debentures of other companies on its own behalf. That as mentioned hereinabove, the shares in question being in the nature of investment, the deeming provisions of Explanation to Section 73 of the Act were not applicable on the facts and circumstances of the instant case either way i.e. if the transactions are treated as on behalf of clients or on behalf of the assessee-company itself. Accordingly, the loss of Rs. 9,82,980/- is not required to be treated as speculative loss under the garb of deeming provisions of section 73 of the Act. In support of the above pro[position of law, reliance is placed on the decision of Hon'ble ITAT, Ahmedabad Bench in case of Kruti Marketing Ltd. v. ACIT [2001] 118 Taxman 194 (Ahd.)(Mag.) (d) It may be pertinent to note here that as stated hereinabove, the transaction in shares in case of the assessee also cannot be held to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [2010] 320 ITR 178 (Delhi). 13. We have heard the Ld. Representatives of the parties, records perused and gone through the decisions cited. The issue to be examined in the case under consideration whether under the facts and circumstances the AO is correct in treating loss as speculation loss in terms of Explanation to Section 73 of the Act. The admitted facts of the case are that the assessee purchased shares which were booked for clients and client's denial for the transactions. The assessee company is broker of shares. Normally any loss or expenditures incurred during the course of business is allowable. The loss or expenditure may be on account of denial of clients for the transactions or failed to pay the amount of transaction. In the case, under consideration the AO emphasis that the assessee purchased shares which covers by the Explanation to Section 73 of the Act. Explanation to S. 73 provides that where an y part of the business of a company (other than certain specified companies as mentioned in the Explanation) consists in the purchase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le of shares has been done either in the preceding year or in the proceeding year. Thus, the conduct of assessee shows that its intention had never been to deal in the sale and purchase of shares at its own and it was only an eventuality or forced circumstances under which the assessee had to adopt these purchases and these transactions entered into by assessee under compulsion cannot constitute business of the assessee, more so part thereof. By documentary evidence produced by the assessee before AO it was established that the purchase of shares was made by assessee only on behalf of its clients. Thus, the crucial time and the stage in the present case clearly depicts that these were purchased by assessee on behalf of its clients and intention of assessee behind the purchase of shares was not to indulge in the business activities of [purchase and sale of shares to make profit out of it at its own. Thus, testing the facts of the present case on all these parameters it can be concluded that the loss arisen out of purchase and sale of shares by the assessee is not a result of business activity carried on by the assessee in that regard. The explanation to S. 73 is attracted only when ..... X X X X Extracts X X X X X X X X Extracts X X X X
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