COMMISSIONER OF INCOME TAX Vs. VACHANBAND INVESTMENT LTD

JUDGEMENT

(1.) THE Revenue which is in Appeal before the Court, is aggrieved by the order of the ITAT dated 13.03.2009 in ITA-2280/Del/2005. It urges the following substantial question of law for determination by this Court;

(2.) THE facts briefly are that the assessee filed its returns declaring income at Rs.1,04,206/- on 30.10.2001 for AY 2001-02. It was engaged in business of sale and purchase of shares and government securities. The AO noticed that the assessee had earned profit of Rs.1,48,22,000/- on sale 1,50,000 shares of ALPS industries out of its opening stock. This profit was sought to be set off mainly against the loss of shares on sale of J.P. Industries and Himachal Futuristic Company Ltd. The assessee had purchased the shares of J.P. Industries on 12.2.2001 (@ Rs.88.35 per share); they were sold on 23.3.2001 @ Rs.33.95/- per share. Similarly, shares of Himachal Futuristic Company Ltd. were purchased on 8.1.2001 @ Rs.1397 per share and sold on 28.2.2001 @ Rs.756.50 per share. The shares were purchased through M/s A. Nitin Capital Services and again sold through that concern. The AO after considering the materials on record and the circumstances which included opportunities granted to M/s A. Nitin Capital Services Pvt. Ltd. (through summons under Section 131 to furnish various documents and evidence, such as, purchase and sale books for the relevant period, explanation regarding trading cycle of shares purchased and sold, the complete details of the clients from whom shares of J.P. Industries were purchased and sold and copies of delivery note submitted for each cycle during the period February-March, 2001 etc.), on 9.3.2004, proceeded to hold that the assessee's contentions were not acceptable. The AO held that the sale and purchase of shares of J.P. Industries were only in order to manoeuvre a loss through book entries which was a colourable device. He, therefore, treated the loss claimed as a sham transaction and disallowed the loss claimed by the assessee. As regards the loss incurred from purchase and sale of shares of Himachal Futuristic Company Ltd, the AO held as follows: -

(3.) THE Tribunal on an appeal by the assessee held that merely because there was some minor difference between the market price and the negotiated price which was natural having regard to the private nature of the sale, the transaction could not be termed as sham. The Tribunal was considerably influenced by the assessment order made in the case of M/s A. Nitin Capital Services. Apparently, it showed the turnover of Rs.71.98 crores on the sale of shares on its own account and the trading loss was accepted as speculative loss. The Tribunal held that the list of distinctive number of shares transacted by the assessee attached to the purchase and sale bills, tallied with the figures and the consideration specified. These were, in its opinion, available with the AO and were also reflected in the ledger account of M/s A. Nitin Capital Services. It was, therefore, held that once the transactions were accepted as genuine in the hands of M/s A. Nitin Capital Services, they could not be held to be bogus in the hands of the assessee. The Tribunal felt that Explanation to Section 73 also applied since the assessee was dealing in purchase and sale of shares of other companies in addition carrying on business of dealing with government securities. Such business of sale and purchase of shares of other companies, according to the Tribunal, has to be deemed as speculative business and consequently any income or loss generated from such activity had to be treated as only speculation profit or speculation loss. The Tribunal, therefore, allowed the appeal.