Shri Varshil S. Gandhi, AMRELI V. The Assistant Commissioner of Income Tax, Central Circle-1, RAJKOT-GUJARAT

ITA 332/RJT/2012

• Counselvise Citation: 33224914 RSA 2012
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 26-02-2013
• Assessment Year: 2000-2001
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AVINASH KUMAR
• Assessee Lawyers: J C RANPURA
• Keywords: Business income; Speculation loss

Judgement Text

A N : H : IN THE INCOME TAX APPELLATE TRIBUNAL: RAJKOT BENCH: RAJKOT K .. [ R E K .. KE E BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 332 /R J T /2012 / ASSESSMENT YEAR 200 0 - 01 VARSHIL S GANDHI V. AC IT PROP.VARSHIL TRADING CO. CIRCLE 2 NAGNATH COMPLEX, AMRELI JUNAGADH PAN: A ARPG - 3648 - K DATE OF HEARING: 26 .0 2 .2013 DATE OF PRONOUNCEMENT: 12 .0 4 . 2013 FOR THE ASSESSEE: J C RANPURA, FCA FOR THE REVENUE : A VINASH KUMAR, DR / ORDER .. KE /D K SRIVASTAVA: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) ON 22.03.2012, ON THE FOLLOWING GROUNDS: - 1.0 THE GROUNDS OF APPE AL MENTIONED HEREUNDER ARE WITHOUT PREJUDICE TO O NE ANOTHER. 2.0 THE LD. COMMISSIONER OF INCOME TAX (APPEAL) - IV, RAJKOT [CIT (A)] ERRED ON FACT AS ALSO IN LAW IN TREATING THE INVESTMENT MADE IN PANTAFOUR SOFTWARE AS SPECULATIVE IN NATURE AND THEREBY WORKING OUT ALLEGED SPECULATIVE LOSS AT RS.2,25,364/ - AS AGAINST SHORT TERM CAPITAL LOSS. THE TRANSACTIONS MAY KINDLY BE TREATED AS REGULAR INVESTMENT AND NOT SPECULATIVE IN NATURE. 2.1 THE LD. CIT (A) ERRED ON FACT AS ALSO IN LAW IN REDUCING THE RETURNED SHORT TERM CAPITAL LOSS OCCURRED FROM INVESTMENT IN PENTAFOUR SOFTWARE OFRS.5,51,486/ - TO RS.2,30,501/ - . RETURNED SHORT TERM CAPITAL LOSS MAY KINDLY BE ACCEPTED AS SUCH. 3.0 THE LD. CIT (A) ERRED ON FACTS AS ALSO IN LAW IN ARBITRARILY ALTERING VALUATION OF SHARE S LYING AT THE END OF RELEVANT PREVIOUS YEAR. 2 ITA 332 /201 2 4.0 YOUR HONORS APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, OR WITHDRAW ANY OR MORE GROUNDS OF APPEAL ON OR BEFORE THE HEARING OF APPEAL. 2. THE ASSESSEE IS AN INDIVIDUAL. HE IS ENGAGED IN THE BUSINESS OF PURCHA SE AND SALE OF TIL AND GROUNDNUT . HE IS ALSO A TRADER IN SHARES. HE FILED HIS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER APPEAL ON 30.10.2000 RETURNING TOTAL INCOME AT RS.37,11,640/ - . WHILE RETURNING THE AFORESAID TOTAL INCOME, THE ASSESSEE REPORTED SH ORT TERM CAPITAL GAIN AMOUNTING TO RS.36,91,975/ - AND LONG TERM CAPITAL GAIN AMOUNTING TO RS.38,827/ - . PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT A SUM OF RS.24,100/ - SHOWN BY THE ASSESSEE AS INCOME FROM SHARE BUSINESS WAS TREATED AS SPECULATIVE LOSS AND T HEREFORE NOT ALLOWA BLE FOR SET OFF U/S 73(1). ON APPEAL, THE LD. CIT (A) ENHANCED THE AMOUNT OF SPECULATIVE LOSS TO RS. 2,25,364/ - FOR THE REASONS GIVEN IN HIS APPELLATE ORDER. 3 . PERUSAL OF THE ASSESSMENT ORDER PASSED BY THE AO AND THE APPELLATE ORDER PAS SED BY THE CIT(A) SHOWS THAT THE ASSESSEE HAD PURCHASED 500 SHARES OF PANTAFOUR SOFTWARE EACH ON 17.02.2000, 22.02.2000, 23.02.2000 AND 29.02.2000. THE LD. CIT (A) NOTICED THAT THE DISTINCTIVE NUMBERS OF THE AFORESAID PHYSICAL SHARES WERE NOT AVAILABLE SO AS TO PROVE THEIR DELIVERY. FOR THE DETAILED REASONS GIVEN IN HIS APPELLATE ORDER, HE TREATED THE LOSS ARISING ON THE AFORESAID SHARES AS A SPECULATIVE LOSS. 4 . AGGRIEVED BY THE ORDER PASSED BY THE CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIB UNAL. IN SUPPORT OF APPEAL, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE HAS FILED WRITTEN SUBMISSIONS WHICH READ AS UNDER: - 1.0 GROUND OF A PPEAL NO.1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN TREATING THE INVESTMENT MADE IN PANTAFOUR SOFTW ARE AS SPECULATIVE IN NATURE AND THEREBY WORKING OUT ALLEGED SPECULATIVE LOSS AT RS.2,25,364/ - AS AGAINST SHORT TERM CAPITAL LOSS. A. THE APPELLANT IS BASICALLY ENGAGED IN THE BUSINESS OF TRADING IN OIL SEEDS AND MAINLY IN SESAME AND GROUND SEEDS. B. THE APPEL LANT HAD ALSO MADE INVESTMENT IN SHARES FROM WHICH HE GAINED PROFIT ON SALE AND WAS SHOWN AS SHORT TERM AND LONG TERM CAPITAL GAIN. 3 ITA 332 /201 2 THE AO ALLEGED THAT THE SAME WERE ACTIVITIES IN THE NATURE OF TRADE AND HELD THE SAME AS BUSINESS INCOME. C. AGGRIEVED BY THE AOS ACTION, THE APPELLANT FILED APPEAL, WHICH WAS DISMISSED AS THE APPELLANT COULD NOT ATTEND THE APPELLATE PROCEEDINGS. ON FURTHER APPEAL, THE HON. HTAT RAJKOT BENCH, SET ASIDE THE ORDER OF THE LD. CIT(A) BACK TO HIM. D. THE LD. CIT (A), VIDE ORDER UND ER CONSIDERATION, THOUGH HELD THAT THE APPELLANT HAD IN FACT MADE INVESTMENTS IN SHARES AND THUS RIGHTLY SHOWN THE SAME AS CAPITAL GAIN, HOWEVER ALSO HELD THAT, THE TRANSACTIONS ENTERED INTO THE LAST WEEK OF FEBRUARY AND FIRST WEEK OF MARCH 2000 IN SHARES OF PENTAFOUR SOFTWARE AS SPECULATIVE IN NATURE . HE THEREFORE DIRECTED TO TREAT THE SAME AS SPECULATIVE LOSS INSTEAD OF SHORT TERM CAPITAL LOSS. E. THE DECISION OF THE LD. CIT (A) THAT, THE TRANSACTIONS BETWEEN LAST WEEK OF FEBRUARY AND FIRST WEEK OF MARC H 2000 IS SPECULATIVE IN NATURE AS NO PHYSICAL DELIVERY IS TAKEN IS TOTALLY ARBITRARY. F. THE LD. CIT (A) THOUGH TREATED THE APPELLANT AS INVESTOR AND THE SHARES WERE PURCHASED FROM 17.4.1999 AND ONWARDS AND THERE WERE SYSTEMATICAL INVESTMENT BY TAKING PHYSI CAL DELIVERY. THE LD. CIT (A) FAILED TO APPRECIATE THAT, THE SCRIPTS SOLD IN THE LAST WEEK OF FEBRUARY AND FIRST WEEK OF MARCH 2000, WERE THOSE WHOSE DELIVERY WAS TAKEN. G. THE LD. CIT (A) ARBITRARILY CHOSE TO CHOSE AND PICK THE ITEMS UNDER SALE AS THOSE PURCHASED IN THE IMMEDIATE PAST THOUGH THIS FACT WAS APPRAISED TO HIM WITH SUPPORTING DOCUMENTS VIDE LETTER DATED 17.3.2012 [ PAPER BOOK PAGE 16 TO 29]. H. WITHOUT PREJUDICE TO THE ABOVE, THOUGH THE TRANSACTION IS NOT AT ALL IN THE NATURE OF SPECULATIVE, EVEN IF IT IS HELD THAT THE SAME IS SPECULATIVE IN NATURE, HOWEVER, AS PER SECTION 43(5), SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHICH A CONTRACT FOR THE PURCHASE AND SALE OF ANY COMMODITY, INCLUDING STOCKS AND SHARES, IS PERIODICALLY OR ULTIMATELY S ETTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMMODITY OR SCRIPTS. THE EXCEPTION LIES IN SECTION 43(5)(B), WHEREIN, A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN 4 ITA 332 /201 2 TO GUARD AGAINST LOSS OF HIS HOLD INGS OF STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS, SHALL NOT BE DEEMED TO BE A SPECULATIVE TRANSACTION. I. IN THE CASE OF THE APPELLANT, THE LAST WEEK OF FEBRUARY AND FIRST WEEK OF 2000 SAW HUGE FLUCTUATIONS IN PRICE. THE PRICE OF THIS STOCK WAS RS.2350/ - AS ON 23.2.2000. IT WENT DOWN TO RS.1780/ - AS ON 3.3.2000. THUS, WITHIN A GAP OF 10 DAYS, THE PRICE FELL BY 1/4 TH OR 25%. THE APPELLANT HAD ENTERED INTO CONTRACT, ONLY TO GUARD THE INVESTMENTS MADE EARLIER, AGAINST PRICE FLUCTUATIONS. HOWEVER, WHEN THE AP PELLANT REALIZED THAT THE PRICES ARE GOING TO FALL FURTHER, THE SAME WERE DISPOSED OFF. J. THEREFORE, THE TRANSACTIONS DURING LAST WEEK OF FEBRUARY AND FIRST WEEK OF MARCH 2000, CANNOT BE TERMED AS SPECULATIVE IN NATURE. IN FACT, THE RISK IN THE STOCK WAS S O HIGH THAT, AS ON DATE, THE STOCK IS NOT AT ALL BEING TRADED. HAD THE APPELLANT NOT HURRIED UP IN SELLING THE STOCK, THE ENTIRE CAPITAL COULD HAVE BEEN WIPED OUT. K. IT IS THEREFORE PRAYED THAT THE SPECIFIC TRANSACTION BETWEEN LAST WEEK OF FEBRUARY AND FIR ST WEEK OF MARCH 2000, IS NOT SPECULATIVE IN NATURE, AS HELD BY THE LD. CIT (A), IN VIEW OF PROVISIONS OF SECTION 43 (5)(B). 2.0 GROUND OF APPEAL NO.2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN REDUCING THE RETURNED SHORT TERM CAPITAL LOSS OCCURR ED FROM INVESTMENT IN PENTAFOUR SOFTWARE OF RS.5,51,486/ - TO RS.2,30,501/ - . A. SINCE THE RESULT OF THIS GROUND IS CONSEQUENTIAL TO THE FIRST GROUND, IT IS PRAYED THAT THE SAME MAY ALSO BE ALLOWED. 5 . IN REPLY, THE LD. DEPARTMENTAL REPRESENTATIVE SUPPORT ED THE ORDER PASSED BY THE CIT (A). 6 . WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THEIR SUBMISSIONS. IT IS SUBMITTED BY THE ASSESSEE THAT THE IMPUGNED LOSS CANNOT BE TREATED AS SPECULATIVE LOSS IN VIEW OF THE PROVISIONS CONTAINED IN CLAUSE (B) OF THE P ROVISO TO SUB - SECTION (5) OF SECTION 43 ACCORDING TO WHICH A CONTRACT IN RESPECT OF STOCKS AND SHARES ENTERED INTO BY A DEALER OR INVESTOR THEREIN TO GUARD AGAINST LOSS IN HIS HOLDINGS OF 5 ITA 332 /201 2 STOCKS AND SHARES THROUGH PRICE FLUCTUATIONS, MAY NOT BE TREATED AS SPECULATIVE TRANSACTION. IT WAS SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO CONTRACT FOR TRADING IN SHARES TO GUARD HIMSELF AGAINST LOSS IN HIS HOLDINGS OF SHARES AND STOCKS THROUGH PRICE FLUCTUATIONS AND THEREFORE SUCH CONTRACT SHOULD NOT BE TREATED AS SPECULATIVE TRANSACTION U/S.43(5). THE AFORESAID SUBMISSION MADE BY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE COULD NOT BE REBUTTED BY THE DEPARTMENTAL REPRESENTATIVE. IN THIS VIEW OF THE MATTER, THE SUBMISSION MADE BY THE LD. AUTHORIZED REPRESENT ATIVE FOR THE ASSESSEE IS ACCEPTED. RESULTANTLY, THE LOSS SHOWN BY HIM IS HELD TO BE A NON - SPECULATIVE LOSS. GROUND NO.1 IS ALLOWED. SINCE GROUND NO.1 HAS BEEN ALLOWED, GROUND NO.2 BEING CONSEQUENTIAL IS DISMISSED. APPEAL FILED BY THE ASSESSEE IS ALLOWED. H 12.04. 201 3 H ORDER PRONOUNCED ON 12.04. 2013 SD/ - SD/ - ( A.. / T. K. SHARMA) ( .. KR / D. K. SRIVASTAVA) H R / JUDICIAL MEMBER 2013 / ACCOUNTANT MEMBER /RAJKOT : 12.04 . 201 3 NVA/ - RJO 2O / COPY OF ORDER FORWARDED TO: - 1. /APPELLANT - SHRI VARSHIL S. GANDHI, PROP. VARSHIL TRADING CO., AMRELI 2 . /RESPONDENT - THE ASSISTANT COMMISSIONER OF INCOME - TAX ,CIR - 2, JUNAGADH 3. N S / CON CERNED CIT (A) - III, RAJKOT 4. S - / CIT(A) - I V, RAJKOT 5. N, A N, / DR, ITAT, RAJKOT 6. / GUARD FILE / BY ORDER SENIOR PRIVATE SECRETARY, ITAT, RAJKOT