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TMI Blog2012 (4) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet of the company - The said loss being duly supported by documentary evidences and being genuine delivery based loss, the same cannot be treated as speculative loss. - IT APPEAL NO. 1842 (AHD) OF 2004 - - - Dated:- 9-2-2012 - D.K. TYAGI, A.L. GEHLOT, JJ. J.P. Jangid for the Appellant. M.K. Patel for the Respondent. ORDER A.L. Gehlot, Accountant Member This appeal is filed by the Revenue against the order of Ld. CIT (A)-XI, Ahmedabad's order dated 31-3-2004 for the Assessment Year 2001-02. The grounds raised by the Revenue in its appeal are as under:- 1. The Ld. CIT (A)-XI, Ahmedabad has erred in law and on facts in deleting the disallowance of loss of Rs. 9,76,592/- claimed on account of transaction in the name of Shri Vinod H. Shah. 2. The Ld. CIT (A)-XI, Ahmedabad has further erred in law and on facts in not appreciating the fact that the loss suffered by the assessee-company is speculation loss as per Explanation to section 73 of the I. T. Act, 1961. 2-3. The brief facts of the case are that the assessee-company is a sub-broker engaged in the business of share dealing on behalf of clients and financial investments. The case was se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r purchase of shares. The assessee submitted before the AO that since the dispute could not be resolved as to it is whose mistake, they have negotiated with Sh. Vinod H. Shah to accept the transactions but in vain and therefore, eventually the said shares has to be sold by the company because the market was declining and otherwise the loss would have been of bigger amount. Regarding some confusion about the date of purchase whether it is 23-2-01 or 28-2-01 the same has also been clarified by Sh. Vinod H. Shah in his answer to question No.17 that the correct date of purchases of shares is 23-2-01 and not 28-2-01 and he has also explained the reasons for such confusion. 7. After examining both the persons and reply of the assessee the AO noticed that out rightly it can be stated that assessee's request for cross examination of the two clients was to distort the facts stated by these two persons in their written submissions wherein both have clearly refused for placing any order for purchase of shares and also that they have made enquiry about rate of shares on 28-2-01. However, even in his statement, Mr. Vinod H. Shah has stated not to have placed Any order for purchase of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order for purchase and even enquiry about rate of shares was made only on 28-2-01. 9. From the aforesaid discussion the AO noticed that it is abundantly clear that contention of the assessee's purchase of shares in question in the name of Sh Vinod Shah and Sh Chetan Shah is totally incorrect. Therefore, claim of resulting loss on sale of these shares as loss on account of delivery not taken by clients is not allowable. The same is therefore, disallowed. 10. The AO further noticed that from the facts of the case it is also clear that the assessee has purchased shares in question on its own and suffered loss. Since assessee's business income during the year consists of brokerage, the loss incurred in purchase and sales of these shares is treated as speculation loss in terms of provisions contained in explanation to section 73. 11. The CIT (A) decided the matter as under:- "3.2. I have considered the facts of the case and submissions of the AR of the appellant carefully. I have also gone through the decisions relied upon by the A.R. and the observations of the assessing officer in the assessment order. I find that the loss on account of impugned transactions has been di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about the rate of shares only on 28-2-01,the impugned loss on such share transaction has been disallowed by the AO. In this respect, the assessee-company has drawn my attention to the statement of Shri Vinod H. Shah recorded u/s. 131 by the AO on 23-12-03 wherein while answering to Question No.8 he has clearly admitted that on 23-2-01 he had enquired with the assessee-company about 5000 shares of Global Tele System and he has further confirmed in his statement that he wanted to buy 5000 shares in syndicate and for that purpose he did enquire the rate on phone and he has further confirmed in his statement that he talked with Shri Rajubhai, employee of the assessee-company about 5000 shares of Global Tele System to be purchased with certain limit and in continuity he has stated in his statement that he will call back and confirm the rate. The assessee-company has also drawn my attention to answer No.17 of the said statement wherein the said Shri Vinod H. Shah was required to clarify about the difference in date of 23-2-01 and 28-2-01 wherein he has stated that the date of transaction is 23-2-01 but in his reply the date mentioned as 28-2-01 was not in his knowledge and he has further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said Shri Rajubhai had made a phone call to Shri Vinod H. Shah informing that 4525 shares have been purchased for him and in response to which he stated in his statement that on phone itself he denied about the said transaction. Shri Vinod H. Shah in his statement has further stated that thereafter he had discussion with the Director of the assessee-company and conveyed that the impugned shares have wrongly been purchased in his name and therefore, he shall not be responsible for the said shares. It has further been confirmed by him that the bills which have received were returned back to the assessee-company. Therefore, the assessee-company has claimed that since the dispute could not be resolved and prices of the said shares were falling, in order to curtail loss, the shares were sold in the market and evidences thereof were also furnished before the A.O. as a result the assessee-company had incurred a loss of Rs. 9,76,592/- on account of said transactions of 4525 shares of Global Tele System pertaining to Shri Vinod H. Shah. 3.5 In view of the facts as discussed hereinabove and especially the statement of Shri Vinod H. Shah it is absolutely clear that the impugned transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. It is seen that while disallowing the assessee's loss of Rs. 9,82,980/-, the Assessing Officer has observed that the [purchase of shares inquestion was of the assessee's own and suffered loss. According to the A.O. since the assessee's business income during the year consisted of brokerage, the loss incurred in purchase and sale of the above shares should be as speculation loss. Therefore, in terms of provisions of Explanation to section 73 of the Act, the A.O. has treated the same as speculation loss. 4.1 During the course of appellate proceedings, the AR of the assessee filed written submissions wherein it was submitted that in so far as the treatment of loss of Rs.9,82,980- claimed by the assessee-company on account of delivery not taken by clients as speculation loss by the AO is concerned, it may be noted that the said observation is factually incorrect and based entirely on surmises and conjectures in view of the following facts :- "( a ) That the said transaction of purchases and sale of shares resulting in loss do not pertain to the assessee but pertains to the clients. Thus, the provisions of Explanation to Section 73 of the Act to the assessee's case dopes not ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constant fall in the market price of the said shares of Global Telesystem Ltd., in order to avoid complete corrosion of the investment of the company, the same were sold at a loss during the year in question itself. The said loss being duly supported by documentary evidences and being genuine delivery based loss, the same cannot be treated as speculative loss. ( c ) That apart, it is contended that the Explanation inserted below section 73 by the Taxation Laws (Amendment) Act, 1975 tears the business of purchase and sale of shares by companies, which are not investment companies, banking companies or financial companies, as speculation business. The sweep of speculation business was, extended by insertion of the aforesaid Explanation. A perusal of section 73, read with aforesaid Explanation, clearly indicates that in order to bring a transaction within the net of section 73, there should necessarily be a 'business' of speculative transactions and it must be 'carried on' by the assessee. The word 'business' as defined in section 2 (13) includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. These words are of wide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable for set off against the business income as claimed by the assessee. 4.2 I have considered the facts and the submissions of the AR of the assessee carefully. I have also gone through the decisions relied upon by the AR and the observations of the AO in the assessment order. After disallowing the said loss AO has held on page-8 of the assessment order that from the facts of the case it is clear that the assessee has purchased shares in question of his own and suffered loss and therefore, the said loss is treated as speculative loss in terms of provisions contained in Explanation to Section 73. I have already held while dealing with first ground of appeal that the impugned purchases of shares by the assessee-company was for and on behalf of clients of the assessee-company and therefore, since the said purchases and sales of shares were not of the assessee, the said ground of appeal become infructuous." 12. The DR relied upon the order of AO whereas the Ld. AR relied upon the order of CIT (A) and submitted that on identical set of facts the ITAT in the case of Kruti Marketing Ltd. v. Asstt. CIT [2001] 118 Taxman 194 (Ahd.)(Mag.), Parkar Securities Ltd v. Dy. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with assessee's purchase bills giving details of non-acceptance of transactions by the parties. All these bills comprised part of accounting books maintained by the assessee giving all required details regarding the transactions on which the assessee had to bear these losses. Thus, by placing all these materials on record of AO it can be said that assessee had discharged its primary onus to substantiate its explanation regarding incurring of losses out of these transactions. The AO has not brought any material on record to suggest that the assertions and documents produced by assessee were not substantiating the explanation furnished in this regard. There is also no material on record to disprove the facts stated by the assessee. In this view of the situation, the AO could not act unreasonably to reject that explanation. Thus, the contention of assessee that the purpose behind the purchase was to earn brokerage income therefrom and sale of those shares was consequential act as purchase of these shares was disowned by respective clients, appears to be a bona fide contention. The conduct of assessee also indicates that by the end of the year, there was no item of such purchase of s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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