IN THE ITAT MUMBAI BENCH ‘H’
Deputy
Commissioner of Income-tax,
Circle
6(3), Mumbai
v
Rajesh
R. Gupta
R.
K. GUPTA, JUDICIAL MEMBER
AND
A. K. GARODIA, ACCOUNTANT MEMBER
INCOME-TAX
APPEAL NO. 7051(MUM.) OF 2003
[ASSESSMENT
YEAR 1998-99]
SEPTEMBER
25, 2007
I Section 43(5) of the Income-tax Act, 1961 - Speculative transactions - Assessment year 1998-99 - Whether unless it is established that assessee was engaged in business of dealing in shares, which were transferred by him on sale, right of assessee in shares purchased by him was a capital asset although no delivery was taken by him because he could not make payment and loss arisen on sale of such shares was to be assessed as short-term capital loss and such loss was not hit by provisions of section 43(5) - Held, yes
II Section 74
of the Income-tax Act, 1961 - Losses - Under head ‘Capital gains’ - Assessment
year 1998-99 - Assessee purchased some shares from a share broker and sold it
through same broker at a loss - His claim to allow set off of said short-term
capital loss against capital gains was, however, disallowed by Assessing
Officer on ground that same was not genuine - On appeal, Commissioner (Appeals)
finding that shares in question were quoted shares, purchase and sale price of
which were also verified and found to be correct on date of purchase and sale,
allowed assessee’s said claim - Whether under those facts, there was no reason
to interfere in order of Commissioner (Appeals) because Assessing Officer had
not doubted factum of purchase and sale of shares by assessee; purchase and
sale price was also not doubted and nothing was brought on record to show that
those prices were not correct - Held, yes
III Section
74 of the Income-tax Act, 1961 read with rule 46A of the Income-tax Rules, 1962
- Losses - Under head ‘Capital gains’ - Assessment year 1998-99 - Assessee sold
some shares, held by him as an investment, to his wife at a loss but, his claim
to set off said long-term capital loss against short-term capital gains was
disallowed by Assessing Officer on ground that those shares were never
transferred in name of assessee’s wife as per Letter dated 6-12-2000 issued by
Registrar and share transfer agent concerned - On appeal, Commissioner
(Appeals) admitting an additional evidence produced by assessee by way of a
letter dated 16-3-1998 issued by said agent to show that those shares were
actually transferred to assessee’s wife
on 16-3-1996, allowed assessee’s said claim - Whether since sale price at which
shares were said to be sold by assessee to his wife was as per market quotation
on date of sale, no interference was called for in order of Commissioner
(Appeals) on that issue - Held, yes - Whether since Assessing Officer had not
given an opportunity to assessee before drawing adverse inference from letter
dated 6-12-2000 of said agent, admission of additional evidence by Commissioner
(Appeals) was as per exceptions in rule 46A - Held, yes
FACTS I
The assessee incurred certain short-term capital loss in the share transactions. The Assessing Officer finding that none of the transactions involved physical delivery of the scrips, concluded that the loss incurred in those transactions was speculative in nature in view of section 43(5) and, consequently, the same could not be allowed to be set off against short-term capital gain. On appeal, the Commissioner (Appeals), however, holding that the conclusion drawn by the Assessing Officer was erroneous, allowed the assessee’s said appeal.
On revenue’s appeal :
HELD I
The assessee acquired right in the shares purchased by him although no delivery was taken by him because he could not make the payment. Such rights of the assessee in those shares had been transferred by him on sale. There was nothing on record that the assessee was engaged in the business of dealing in shares; and, hence, those shares were not stock-in-trade of the assessee; and therefore, right of the assessee in the shares purchased by him was a capital asset, which was transferred by him on sale and the loss arisen on such transfer i.e. on sale of shares, loss was to be assessed as short term capital loss. Such loss was not hit by the provisions of section 43(5); unless, it is established that the assessee was engaged in the business of dealing in shares; because in that case, shares purchased by the assessee would amount to stock-in-trade of the assessee although not in possession of the assessee because the assessee could not take delivery due to non-payment. In that situation, as per section 2(14), it would not amount to capital asset because stock-in-trade is excluded from definition of ‘capital asset’. In the light of those facts, no interference was called for in the order of the Commissioner (Appeals) on the issue and, hence, the same was to be upheld. [para 7]
The assessee purchased certain shares on 12-2-1998 for Rs. 14,14,000 through a share broker company ‘N’ and subsequently sold the sale through the same broker for Rs. 7,68,873. However, his claim to allow set off of said short term capital loss against capital gains was disallowed by the Assessing Officer on the ground that the said loss incurred by the assessee was not genuine inasmuch as the transaction was a sham transaction. On appeal, the Commissioner (Appeals) allowed the assessee’s claim by directing the Assessing Officer to allow set off of that loss as against capital gain.
On revenue’s appeal:
HELD II
Three reasons were given by the Assessing Officer for treating that transaction as sham transaction, i.e. that ‘N’ had shown that it purchased the said shares only on 13-2-1998 i.e., after the date of purchase by the assessee which was 12-2-1998; that the purchase consideration was paid by the assessee after receipt of sale proceeds; and that ‘N’ could not produce Saudabahi before him. None of those reason could be the basis for treating that transaction as sham transaction. The Commissioner (Appeals) had decided that issue after examining all facts in proper prospective. [para 11]
The Commissioner (Appeals) had decided that issue after considering two objections of the Assessing Officer, i.e., that the shares were purchased by ‘N’ on 13-2-1998 after the date of purchase by the assessee, i.e., on 12-2-1998 and also that part of purchase consideration was paid by the assessee after receipt of sale consideration. The Commissioner (Appeals) had given categorical finding that the shares in question were quoted shares and purchase price as well as sale price was also verified and found correct on date of purchase and sale. Under those facts, there was no reason to interfere in the order of the Commissioner (Appeals) because the Assessing Officer had not doubted factum of purchase and sale of shares by the assessee. Purchase and sale price was also not doubted and nothing was brought on record to show that those prices were not correct. Payment was also made by the assessee towards purchase consideration to the extent of Rs. 11.25 lakhs out of total purchase consideration of Rs. 14.14 lakhs. Balance amount of Rs. 2.89 lakhs was also paid by the assessee to ‘N’ on 19-3-1998. ‘N’ had also made payment of Rs. 7.68 lakhs to the assessee on 17-3-1998. In view of those facts, there was no reason to interfere in the order of the Commissioner (Appeals) on that issue and hence, the same was to be upheld. [Para 12]
FACTS III
The assessee sold 55000 shares of a company to his wife at a loss. His claim of set off of said long-term capital loss against short-term capital gains was disallowed by the Assessing Officer on the ground that those shares were never transferred in the name of assessee’s wife as evident from the letter dated 6-12-2000 issued by the Registrar and share transfer agent concerned. On appeal, the Commissioner (Appeals) while admitting he additional evidence produced by the assessee by way of a letter dated 16-3-1998 issued by the same agent to show that those shares were actually transferred to his wife on 16-3-1998, allowed the assessee’s said claim.
On revenue’s appeal:
Much stress was laid down by the Assessing Officer on the aspect that those impugned shares were not transferred in the name of the assessee’s wife. The same was not correct because as per the letter dated 16-3-1998 issued by the share transfer agent 55,000 shares were transferred in the name of the assessee’s wife on 16-3-1998. There was no dispute regarding the fact that those shares were held by the assessee as investment. The sale price at which, shares were said to be sold by the assessee to his wife was as per market quotation on the date of sale and under those facts, no interference was called for in the order of the Commissioner (Appeals) on the issue. Regarding the objection of the revenue that the Commissioner (Appeals) had admitted additional evidence regarding transfer of impugned shares in the name of the assessee’s wife being letter dated 16-3-1998 of share transfer agent on the basis of the reply of said agent being letter dated 6-12-2000, the Assessing Officer had decided the issue against the assessee by inferring that impugned shares were not transferred in the name of the assessee’s wife without giving an opportunity to the assessee to show that those shares were transferred or not; under those facts, the Commissioner (Appeals) was justified in accepting the letter dated 16-3-1998 issued by the said agent evidencing that the impugned shares were duly transferred to the assessee’s wife on 16-3-1998. In the facts of the instant case since the Assessing Officer had not given an opportunity to the assessee before drawing adverse inference from the said letter dated 6-12-2000 of the said agent, admission of additional evidence by the Commissioner (Appeals) was as per the exception in rule 46A. On that account also there was no infirmity in the order of the Commissioner (Appeals); and, hence, the same was to be upheld. [Para 16]
In the result, the instant appeal of the revenue stood dismissed. [Para17]