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TMI Blog2016 (11) TMI 1069X X X X Extracts X X X X X X X X Extracts X X X X ..... , the decline therein (on account of the valuation of closing stock) would again stand to be assessed under the same head/category. However, as we shall presently see, i.e., while discussing the Revenue’s appeal, the categorization of the same as speculative is without basis. Addition by way of such adjustment shall again be carried out by allowing the assessee proper opportunity of hearing, meeting its case, if any. Income from share trading - speculative business - Held that:- Share trading, as apparent from the assessee’s final accounts, i.e., income (operating) statement and balance-sheet (as at the year-end) respectively, constitutes a principal business of the assessee-company. Accordingly, and even as observed by the ld. CIT(A), we find no basis for holding the income/loss from the said activity as speculative by the AO, nor was any pointed out to us during hearing. We, therefore, have no hesitation in confirming the impugned order on this score. As regards the reallocation of the administrative expenditure, we find that both the assessee as well as the AO to have allocated the same under different activities without any basis. However, the said allocation is its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first category, the assessee explained them to be shares which came to be transferred to the company s dematerialised (D-Mat) account from that of its Directors and their family members, and were sold from the assessee s said account. However, as a corresponding purchase was not recorded in the assessee s accounts (either in quantity or value), the same came to be reflected as negative stock. The acquisition by the assessee, which was sans any consideration, recorded or otherwise, being not explained, the same was considered unexplained as to its nature and source. Accordingly, value/s thereof, as on the date/s of acquisition, i.e., on which the same came to be included in the assessee s D-mat account, aggregating to ₹ 24,28,500/-, was brought to tax. Detail of these scrips are as under: (pg. 2 of the assessment order/Table A) Sr. No. Company Name Qty. (Nos.) Amount (Rs.) 1 Bongaingaon Refinery 3910 210835 2 Sudharshan Chem 3332 573544 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts, so that the stock-in-trade as at the year-end stands reduced by that amount, is ₹ 36,78,956/-. Accordingly, only the net accretion to the negative stock during the year, or the net reduction in the credit (net) to the P L A/c on this account, i.e., ₹ 2,27,392/- (3678956 3451564), could only be brought to tax. Reference was made to the list of such negative shares as at the beginning and the end of the year (PB pg. 58). The assessee s accounts are duly audited, and which should therefore be accepted, following the rule of consistency, placing reliance on CIT vs. J.K. Charitable Trust [2009] 308 ITR 161 (SC) and Union of India vs. Satish Panalal Shah [2001] 249 ITR 221 (SC). The ld DR. on the other hand, relied on the orders by the Revenue authorities. 5. We have heard the parties, and perused the material on record. The facts as emanating from the material on record give rise to a number of questions and, accordingly, issues, which would require being suitably addressed, so as to arrive at the sums, if any, that would stand to be assessed as income, including the question as to the correct head of income. 5.1 Our first observation in the matter is that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3438 103 354114 7) Sudershan chem. 981 92 90252 8) Tata Inv. Corp. 775 231 179025 9) Tata Tea 1135 584 662840 10) Thirumal Chem. 932 47 43804 11) Torrent Power 3618 75 271350 12) VST Inds. 174 238 41412 13) Ravalgon 2 4250 8500 14) VST Tiller 72 130 9360 Total 3678956 Negative stock as on 31.3.2008 (1.4.2009) Sr. No. Scrip Qty. (No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the corresponding credit entry in the books of account that the incidence of negative stock arises, itself implying non-explanation as to the nature and source of the credit. The corresponding addition shall be u/s. 68 or, equivalently, as unexplained acquisition of/ investment in shares, liable for addition u/s.69A. Reference in this context may be made to the decision in the case of CIT v. Jauharimal Goel [2005] 147 Taxman 448 (All). 5.2 The second adjustment warranted is on account of the increase in the quantity of negative stock during the year. For example, a stock, at ( ) 500 units at the beginning of the year, increases to ( ) 100 at the year-end. Clearly, there is a net addition of 400 [( ) 100 ( ) 500], in accounts, during the year and, presumably, only at a cost. Surely, further adjustment would be required and merely excluding the negative value qua these (100) shares shall not suffice. This would also obtain in case of a positive stock as at the year-end, at (say) (+) 100, in which case the increase would be at 600 units. The exercise is therefore not to be limited to stock with negative quantity/value at the year-end . Now, going by our earlier exa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as under, with reference to a particular scrip (say): Scenario Opg. Stk. Clg. Stk. Peak (-) Difference Remarks 1. (-) 100 (-) 500 - (-) 400 Addition 1 2. (-) 500 (-) 100 - (+) 400 Addition 2 3. (-) 500 (-) 100 (-) 600 (+) 600 Addition 3 In scenario 3, the addition would be for the value of 600 shares, as against for 400 shares in scenario 2. The reason is simple: the assessee having no opening stock (in the relevant scrip), has sold, and had therefore acquired, 100 shares during the year up to the peak date. This corresponds to Addition 1, which gets effected when the closing stock is valued at nil. Another 500 shares, however, stand acquired since, and being undisposed as at the year-end, would stand to find reflection in the closingstock. Addition in respect thereof, i.e., by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, to that extent shall not find reflection in the closing stock; and the profit/loss on sale gets subsumed in the P L Account. And, apart from accounting for the peak shortfall (during the year) and concomitant adjustment, Addition 2 and Addition 3 are of the same species. Needless to add, the exercise for both these additions is to be carried out for all the shares, and not limited to those shares reporting negative quantity as at the beginning and/or at the end of the year, which may well be positive, even as shortfall (negative stock) subsists during a part of the year. Credit in the form of closing stock in every such case (i.e., with reference and toward decline from the peak shortfall during the year, as at the yearend), shall obtain. Also, if the business income is, as contended, assessed as speculative income, the decline therein (on account of the valuation of closing stock) would again stand to be assessed under the same head/category. However, as we shall presently see, i.e., while discussing the Revenue s appeal, the categorization of the same as speculative is without basis. Addition by way of such adjustment shall again be carried out by allowing the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial accounts. We have, accordingly, directed for such a reconciliation, so as to bring out all such discrepancies, discussing some, i.e., rather than confirming only that which subsist as at the year-end, also explaining the extent and manner of the ensuing additions for the current year. In other words, we have, while examining the assessee s plea of negative opening stock, and which therefore should also be given effect to, accepting it on the basis of the settled law, also observed other aspects in relation thereto, to find that these have a direct impact on the income for the year and, therefore, shall require adjudication by the assessing authority. This may, however, not be construed as placing any limitation on A.O. s examination; the purport being the proper assessment - in framing which he shall have regard to our observations in the matter, in the facts of the case, observing the principles of natural justice. We may here also clarify that irrespective of whether the assessee passes the corresponding journal entries in its accounts, the quantity of all shares subject to adjustments shall, for assessments for the subsequent years, be carried forward at quantities determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase and sale of shares of other companies, such company shall, for the purposes of this section, be deemed to be carrying on a speculation business to the extent to which the business consists of the purchase and sale of such shares. Accordingly, and even as observed by the ld. CIT(A), we find no basis for holding the income/loss from the said activity as speculative by the AO, nor was any pointed out to us during hearing. We, therefore, have no hesitation in confirming the impugned order on this score. As regards the reallocation of the administrative expenditure, we find that both the assessee as well as the AO to have allocated the same under different activities without any basis. However, the said allocation is itself rendered of no consequence as the entire business income is to be regarded as nonspeculative. We decide accordingly, and the Revenue fail on both these grounds. We may though add that the AO has held that the income on account of unexplained investment would not be set off against speculative loss. Deemed income stands to be brought to tax under Chapter-VI of the Act, i.e., aggregation of income, and not under any particular head of income specified u/s. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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