M/S. NARAIN PROPERTIES LIMITED,KANPUR V. ACIT-VI, KANPUR

ITA 354/LKW/2010

AI Insights

The case involves M/s Narain Properties Limited, which appealed against the order of the Commissioner of Income Tax (Appeals) II, Kanpur, disallowing the set-off of a loss from share transactions against its interest income for the assessment year 2016-17. The original assessment by the Assessing Officer had classified these transactions as speculative, leading to a higher taxable income. The CIT(A) upheld this view, noting the lack of evidence for actual delivery of shares and the unusual timing of payments to the broker. The Tribunal, after reviewing the submissions and evidence presented, concurred with the CIT(A)'s findings and dismissed the appeal, affirming that the losses were speculative and not eligible for set-off against other income.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 827665 (ITAT-LUCKNOW)
• Duration Of Justice: 15 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 1997-1998
• Appeal Filed On: 20-05-2010
• Other Referred Cases: Mc. Dowell and Company Ltd. 154 ITR 148, Aman Portfolio Pvt. Ltd Vs. DCIT 92 ITD 324-Del
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AMIT KUMAR
• Assessee Lawyers: B. P. YADAV
• Keywords: Speculation loss; Business income; Commercial expediency; Share purchase agreement; Speculative transactions; Bogus
• Section: 143(3); 54; 43(5)

Judgement Text

" 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW ‘A’ BENCH LUCKNOW BEFORE SHRI KUL BHARAT, VICE PRESIDENT AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT MEMBER I.T.A. No.354/LKW/2010 Assessment year:1997-98 M/s Narain Properties Limited, City Centre, 4th Floor, 63/2, The Mall, Kanpur PAN: AABCN 7755M Vs. ACIT-VI, Kanpur 15/295-a, Vaibhav Bhawan, Civil Lines, Kanpur (Appellant) (Respondent) O R D E R PER: ANADEE NATH MISSHRA, A.M. This appeal vide I.T.A. No.354/Lkw/2010 has been filed by the assessee for Assessment Year 2016-17 against impugned appellate order dated 15/03/2010 (Appeal No. CIT(A)-II/195/ACIT-6/2009-10 of Commissioner of Income Tax (Appeals) II, Kanpur [“CIT(A)” for short]. 2. In this case, assessment order dated 27.03.2002 was passed by the AO under Section 143(3) of the Act whereby the assessee’s total income was assessed at Rs.21,22,810/- as against returned income of Appellant by Shri B.P. Yadav, Advocate Respondent by Shri Amit Kumar, Addl. CIT, D.R. Printed from counselvise.com 2 Rs.9,61,710. The relevant portion of the aforesaid assessment order is reproduced as under: “This group of following companies which create losses in one case or the other: 1. Century Polytex Ltd. 2. Classic Commercial Ltd. 3. Saurabh Industrial Finance Ltd. 4. Tirupati Mercantile Ltd. 5. Kadambani Mercantile Ltd. 6. Quick Electronics Ltd. 7. Sandhya Mercantile Ltd. 8. Narain Properties Ltd. 9. Synthetic Marble and Resin Ltd. 10. Vind nyawasani Glassware Ltd. It is appreciated that some of the best brains are behind creation of losses by internal sale and purchase of shares in one case or the other which is beyond reasoning from the view point of commercial expediency. Hon'ble Supreme Court in the landmark decision in the case of Mc. Dowell and Company Ltd. 154 ITR 148 applicable in such cases on colourable devices to defraud revenue. Further it is seen that this is a case of investment company where either gain or loss in sale of shares has to be assessed either as capital gain which is to be computed in view of provision of section 45 to 54 of 1.T. Act or capital loss which is not admissible at all. The assesse has not furnished any material which proves delivery of shares at the time of purchase and sales. Therefore, in absence of am satisfactory reply and adequate details, the losses of shares is considered a speculation loss and is not to be set off against other income being interest and commission in view of provisions of section 43(5) and 73 of I.T. Act. Accordingly speculation loss is disallowed. After discussion the income is computed as under:- Interest income as shown Rs. 21,22,810” Printed from counselvise.com 3 3. The assessee’s appeal against the assessment order was dismissed by the learned CIT(A) vide impugned appellate order dated 15.03.2010. The assessee has filed this appeal in Income Tax Appellate Tribunal (in short the ‘ITAT. Vide impugned appellate order dated 15.03.2010, the learned CIT(A) held that the appellant assessee had failed to prove that the delivery of shares were taken/given and further, that the whole transaction was fictitious. The relevant part of the aforesaid order dated 15.03.2010 of learned CIT(A) is reproduced as under: “ Decision: 4.1 The assessee has not been able to adduce any evidence with respect to the delivery of the impugned share certificates or having sent them for registering with the company, or having sent them again to the broker for sale. There is no evidence whatsoever that the assessee ever got the delivery of such shares. Instead of the appellant leading/adducing evidence, the onus was being unfairly cast by the appellant on the appellate authority to confirm the fact of registration from the company (whose shares were purchased and sold). Since no direct evidence with regard to delivery of shares has been adduced, one has to examine the circumstantial evidence in this regard. 4.2. As per the contract notes, these shares have been allegedly purchased through \"M/s Bubna Stock Broking\" in May,96 and on 03.06.96, whereas the accounting of the same has been done by the appellant company in its book only on 25.10.06. Similarly, as per the contract notes, these share were sold through Bubna on 16.12.94, but the accounting entry of the same was passed only on 31.03.97. The assessee has not given any reasons for such anomaly in accounting. 4.3 The total purchase consideration for these shares is Rs.21,24,009/-. On perusal of the a/c of M/s Bubna Stock Printed from counselvise.com 4 Broking Services Ltd. (the broker) in the books of the appellant company, it is seen that even though the purchases of shares had been made as far back as in May/June, 96, no payment had been made by the appellant to the broker till 26.02.97, when a cheque No.568287 dated 25.02.97 was drawn by the appellant to buy 02 Demand Drafts for total amount of Rs.11,60,000/-. There is no proof on record that these 02 drafts were indeed drawn in favour of M/s Bubna Stock Broking. The doubt comes to mind since two Demand Drafts have been made on the same date with one cheque. It does not stand to reason as to why two DDs should be made if the payments were going to the same person, i.e. Bubna. The appellant has failed to give a copy of a/c confirmed by M/s Bubna Stock Trading. Be as it may, it further fails me as to how come no payments were made by the appellant to the broker for a period of almost eight nine months of an amount which was in excess of Rs.21 lakhs. It is common knowledge that brokers demand the payments immediately since they have to make Jonward payments to the persons who had sold the shares through them. In this case, there is payment of only Rs.11,60,000/- that too in February, 2007 i.e. after a gap of almost 09 months, and further this amount has no correlation whatsoever with the amount due. The next payment of Rs.5,10,000+ Rs.4,54,0009 Rs.9,54,009 has been made to the broker only on 12.03.2007. The entire \"purchase\" consideration for the purchase of those shares vide 03 payments i.e. Rs.11,60,000+ Rs.3,81,600 + Rs.6,38,544 were made by the appellant much after the shares had already been sold vide contract memo date 16.12.96 for Rs.10,20,144/-. Under these circumstances the only conclusion that can be drawn from all this is that the entire arrangement was only a ruse, entirely divorced from reality and was undertaken to book Fictitious loss. Accordingly, I am of the considered view that not only the appellant has failed to prove that the delivery of shares were taken/given but the whole transaction is fictitious, the assessee is not allowed the benefit of this loss which is patently bogus and therefore, appeal is dismissed on this ground.” 4. The present appeal has been filed by the assessee against the aforesaid impugned appellate order dated 15.03.2010 of learned CIT(A). Printed from counselvise.com 5 In the course of appellate proceedings, in Income Tax Appellate Tribunal, two paper books were filed from the assessee’s side containing the following particulars: S.No. Particulars 1 Photocopy of order of Hon'ble ITAT, Lucknow passed in Appeal No. ITA 254/LUC/2003 dated 16.04.04 2 Photocopy of share purchase A/c F.Y. 96-97 3. Photocopy of share sales A/c F.Y. 96-97 4. Statement showing opening stock, purchase, sales and closing stock of shares for the year ended on 31.03.97 5. Contract Note No. 71 dated 22.05.96 and Bill No. 17 dated 31.05.96 evidencing the purchase of shares 6. Contract Note No.71 dated 03.06.96 and Bill No. 22 dated 07.06.96 evidencing the purchase of shares 7. Stock Broker Contract NO. 71 dated 16.12.96. 8. Appellant's sales bill dated 10.01.97 raised upon M/s Bubna Stock Broking Services Limited, Kolkata 9. Statement of A/c in respect of Current A/c with UCO Bank evidencing the receipt of Rs. 10,20,144/- 10. Copy of A/c M/s Bubna Stock Broking Services Limited for the F.Y. 96-97 and 97-98 11. Balance Sheet & Profit & Loss A/c for the F.Y. 1996-97 relevant to A.Υ. 1997 12. Photocopy of the Appellate order passed by Hon'ble Tribunal in Appellant's own case for the A.Y. 1995-96, 96- 97 and 98-99 by Lucknow and Allahabad Benches. 13. Written submissions dated 30.11.09 filed before Ld. Commissioner of Income Tax (Appeals)-II, Kanpur 14. Notice dated 17.02.10 issued by Ld. Commissioner of Income Tax (Appeals)-II, Kanpur 15. Reply Letter dated 24.02.10 filed before Ld. Commissioner of Income Tax (Appeals)-II, Kanpur Printed from counselvise.com 6 Paper Index-II 16 Brief Facts of the case 17. Computation of Income for A.Y. 1995-1996 18. Computation of income for A.Y. 1996-1997 19. Comparative chart showing interest income, loss on sale of shares etc 20. Comparative Chart showing addition, returned income etc 21. ITAT Order dated 22.08.2006 in assessee's own case in A.Y. 1995-1996 22. Hon'ble High Court Order dated 30.05.2012 in assessee own case in A.Y. 1996-97 & 1998-99 23. Hon'ble High Court Order dated 27.01.2015 in assessee own case in A.Y. 1995-1996 4.1 Moreover, a brief synopsis was also filed from the assessee’s side, the relevant portion of which is reproduced as under: “1. Appellant in the present case is a Public Limited Company by status which has been engaged in carrying business of banking by granting Loans and Advances. Though the main business is of making loans and advances but is has also been engaged in the business of purchases and sales of shares. 2. During the year under consideration, total receipts earned as interest on account of loans and advances has been at Rs.21,22,810/-whereas total loss on account of purchases and sales of shares has been at Rs.11,03,865/- Case of the appellant was reopened u/s 148 of the Act and in response to notice issued u/s 148 of the Act, appellant filed its return of income declaring income at Rs.9,61,710/-after adjusting the loss of Rs. 11,03,865/.-and other business related expenses from the interest income. 3. While framing the assessment order, the Ld. A.O. assessed the appellant at Rs.21,22,810/-without adjusting the loss of Rs.11,03,865/-vide order dated 27.03.2002 by observing Printed from counselvise.com 7 that the purchases and sales of shares made by the appellant are speculative in nature. 4. Being aggrieved by the assessment order passed against it, appellant filed appeal before the Ld. CIT(A) who disposed of the appeal ex-parte vide order dated 20.02.2003 and the matter travelled to the Hon'ble Bench for the adjudication as to whether the trading of shares made by the appellant is in the nature of normal business or speculative. The Hon'ble Bench vide its order dated 16.04.2004 set a side the order of the CIT(A) for passing a speaking order with a direction to look into the actual delivery of shares. 5. The Ld. CIT(A) vide his order dated 15.03.2010 again did not allow the setting off the loss by holding that the appellant could not establish the actual delivery of shares. 6. To demonstrate that the trading of shares is a normal business and not a speculative business, our submissions are as under (i) In the present case physical delivery of shares was given and the same were sent for transfer as it is evident from the details of sale and purchases as under-” A Details of purchases Date Script Name Distinctive Nos Number of shares Rate Amount 31.05.1996 Metropoli Overseas Ltd. 1466201 to 1511200 45,000 17.03 7,66,350 07.06.1996 Metropoli Overseas Ltd. 1511201 to 1526700 15,500 18.03 2,79,465 07.06.1996 Metropoli Overseas Ltd. 1572701 to 1632500 59,800 18.03 10,78,194 Total --------- --------- 1,20,300 21,24,009 ----------- ----------- B Details of purchases Date Script Name Distinctive Nos Number of shares Rate Amount 16.12.1996 Metropoli Printed from counselvise.com 8 Overseas Ltd. 1466201 to 1511200 45,000 08.48 7,66,350 16.12.1996 Metropoli Overseas Ltd. 1511201 to 1526700 15,500 08.48 2,79,465 16.12.1996 Metropoli Overseas Ltd. 1572701 to 1632500 59,800 08.48 10,78,194 Total --------- --------- 1,20,300 10,20,144 ----------- ----------- Loss [A-B] 11,03,865 Pl refer page 8 to 14 of Paper Book Ld. CIT(A) did neither doubted the contract note of the Share Broker nor the sale and purchases of shares. (ii) Question of speculative transactions arises in the cases where there is are intra-day transaction and in that case only the differential amount net of sales and purchases is taken into consideration. But in the present case, shares were sold after holding the same for a period of approx. six months. Sale consideration was received in bank account and the purchase amount was paid from the bank account. Pl refer page 18 & 17 of P.B. [ Copy of Buana Account and Bank Account] Ld. CIT(A) did neither doubted the sale proceeds received from the share Broker nor the payment made to Share Broker. (iii) The Ld. CIT(A) has given wrong facts regarding the payments made to the Share Broker M/s Bubna Stock Broking. PI compare CIT(A) findings with the Share Broker Account at page 18 of P.B. Printed from counselvise.com 9 (iv) Appellant onus was to furnish all the relevant details available with it and it was not responsible for any response not received from the office of M/s Bubna Share Broking after a period of 12 years. (v) The Hon'ble Bench vide its order dated 16.04.2004 hold that the earlier order of the Tribunal dated 30.06.2000 in assessee's own case in A.Y. 1996-1997 and 1998-1999 is not relevant because it was disposed of in light of the exclusionary clause to section 73 of the Act. While making this observation the Hon'ble Bench grossly failed to appreciate that (a) In A.Y. 1996-1997 and 1998-1999 and even in A.Y. 1995- 1996, facts were identical and in all these years, settting off the loss was disallowed by treating it speculative business. [PI refer Annexure-A attached] (b) In all these years assessee had furnished all those documents which stood furnished in the year under consideration. (c) In all these years no confirmation was received from the Share Brokers. (d) In all these years the main source of income was the interest income and the principal business was of providing loans and advances to earn interest. (v) Against the Hon'ble ITAT Order passed in A.Y. 1996-1997 & 1998-1999 and again in A.Y. 1995-1996, Revenue had filed appeal before the Hon'ble High Court and the Ho'ble High Court vide its order dated 30.05.32012 and 27.01.2015 confirmed the findings of the Hon'ble Bench and after the Hon'ble High Court Order, the Observation of the Hon'ble Bench in its order dated 16.04.2004 is overruled. [PI refer page 79 to 93 of the P.B.] Printed from counselvise.com 10 (vi) It is however, submitted respectfully that Section 73 of the Act does not apply to the facts present case as Section 73 was introduced by the legislature with the intention to deal with those Companies which have incurred losses from the shares trading business and intends to set-off the said losses against their normal business income. In order to curb such set-off, the said losses could be treated as speculative business losses by the deeming fiction of section 73 of the Act. In the present case, there is no material to indicate that assessee being a company controlled by business house and that the share transactions have been effected with to manipulate and reduce taxable income. [PI refer Aman Portfolio Pvt. Ltd Vs. DCIT 92 ITD 324-Del] Attached as Annexure-B. In view of the above facts and in light of the findings given by the Hon'ble High Court in assessee own case, loss of Rs.11,03,865/-is a business loss which deserves to be adjusted against the interest income.” 5. At the time of hearing, learned Authorized Representative for the assessee placed reliance on the aforesaid brief synopsis (referred to in foregoing paragraph 4.1 of this order) and on the contents of the aforesaid paper books (referred to in foregoing paragraph 4 of this order). The learned AR for the assessee also placed reliance on order of SMC Bench of Income Tax Appellate Tribunal Delhi in the case of ‘Aman Portfolio Pvt. Ltd. Vs. DCIT’ in ITA No. 2636/Del/2001 dated 27.09.2004. In particular, he drew our attention to contract notes of the broker M/s Printed from counselvise.com 11 Bubna Stock Broking in which distinctive number of shares were mentioned. The learned DR placed reliance on the assessment order and on the impugned appellate order dated 30.04.2002 of the learned CIT(A). The learned DR further submitted that the aforesaid orders of Hon’ble High Court were on the issue of applicability of Section 73 of the Act whereas the present appeal is about the applicability of Section 43(5) of I.T. Act. Therefore, he submitted, the orders of Hon’ble High Court had no reliance, or application for the present case, as issue involved is entirely different. 6. We have heard both sides and we have also perused the materials on record. The Central issue before us is whether the transactions of purchase and sale of shares as claimed by the assessee were genuine and secondly whether delivery of stocks was taken/given by the assessee at the time of purchase/sales transaction respectively. As far as the delivery of shares is concerned, we are of the view that the assessee’s reliance on the aforesaid contract notes is not credible. This is for the reason that although the contract notes are computer generated on printed stationary of the broker Bubana Stock Broker; the distinctive numbers have been written in hand writing without any authentication of the person issuing the contract note. In the absence of any authentication of the issuing person; this crucial information cannot be Printed from counselvise.com 12 treated as credible this is specially so, as there was no mention and distinctive numbers in the earlier orders passed by ITAT, learned CIT(A) and Assessing Officer. Secondly, as far as genuineness of transaction is concerned, we find that the transfer of funds by the assessee against purchase of shares was after substantial passage of time after the purchase transactions, which is uncommon in this line of business. The brokers do insist on advance/prompt payments against shares/securities purchased by a person. In view of the foregoing, we are of the view that the learned CIT(A) has passed just and reasonable order having regard to applicable law and relevant facts and circumstances of the case. The assessee has failed to make a good case to persuade us to intervene with the impugned appellate order dated 15.03.2010 of the Learned CIT(A). Therefore, the findings of the learned CIT(A) are confirmed. 6.1. No other issue/ground was argued/pressed by the learned AR of the assessee at the time of hearing and therefore, do not require adjudication. 7. In view of the foregoing, the impugned appellate order of the learned CIT(A) is sustained and the appeal of the assessee is dismissed. All grounds of appeal are treated as disposed of in accordance with the Printed from counselvise.com 13 aforesaid appeal is dismissed. In the result, the appeal of the assessee stands dismissed. (Order pronounced in the open court on 05/01/2026) Sd/. Sd/. (KUL BHARAT) (ANADEE NATH MISSHRA) Vice President Accountant Member Dated: 05/01/2026P Aks/- Printed from counselvise.com 14 Copy of the order forwarded to : 1. The Appellant 2. The Respondent. 3. Concerned CIT 4. D.R., I.T.A.T., Printed from counselvise.com "