2014 (1) TMI 1091 - HC - Income Tax

Tribunal rules losses non-speculative, favors assessee in tax dispute

Commissioner Income Tax Versus Sri Ram Kishan Gupta

Commissioner Income Tax Versus Sri Ram Kishan Gupta - [2014] 361 ITR 387 Issues Involved:1. Treatment of loss of Rs. 8,53,030/- as speculative loss.2. Nature of the assessee's entire business as non-speculative.3. Assessee's engagement in jobbing without being registered as a jobber.4. Evidence of delivery of the scripts and its impact on the speculative nature of the loss.Issue-wise Detailed Analysis:1. Treatment of Loss as Speculative Loss:The primary issue was whether the loss of Rs. 8,53,030/- incurred by the assessee should be treated as speculative loss. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) (CIT(A)) classified the loss as speculative since the transactions were settled without actual delivery of shares, as per Section 43(5) of the Income Tax Act. The Tribunal, however, disagreed, noting that the system provided for settlement on a net basis as per Stock Exchange guidelines and that the assessee paid turnover fees to SEBI, indicating non-speculative transactions. The Tribunal held that the Revenue failed to fully establish that the transactions were settled without actual delivery.2. Nature of the Assessee's Entire Business:The Tribunal concluded that the assessee's entire business was of a non-speculative nature. This conclusion was based on the fact that the assessee had been paying turnover fees on such transactions since 1991-92, and the transactions were settled on a net basis as per Stock Exchange guidelines. The Tribunal also referenced a Division Bench judgment (249 ITR 233) which supported the view that transactions by a share broker are not speculative if they fall under the proviso (c) to Section 43(5).3. Assessee's Engagement in Jobbing:The Tribunal found that the assessee was engaged in jobbing, despite not being registered as a jobber. The Tribunal noted that the assessee had been paying turnover fees for jobbing to SEBI, and the transactions were settled on a net basis. The Tribunal relied on the definition of 'jobbing' provided in legal dictionaries and concluded that the transactions were indeed in the nature of jobbing, thereby qualifying for the exception under proviso (c) to Section 43(5).4. Evidence of Delivery of the Scripts:The Tribunal observed that the allegation of transactions being settled without actual delivery was not fully established by the Revenue. The assessee had consistently claimed that the transactions were settled on a net basis as per Stock Exchange guidelines and were covered under proviso (c) to Section 43(5). The Tribunal found that the details of the transactions were disclosed, and no discrepancies or doubts were raised by the AO regarding the bonafide of the transactions.Conclusion:The Tribunal upheld the assessee's appeal, concluding that the losses incurred were not speculative by virtue of proviso (c) to Section 43(5). The Tribunal's decision was based on the assessee's consistent payment of turnover fees, the nature of transactions as jobbing, and the failure of the Revenue to fully establish that the transactions were speculative. The Tribunal's order was affirmed, and the appeal was dismissed, with all questions answered in favor of the assessee and against the Revenue.