D. M. K. S. Maintenance Trust vs Income Tax Officer.
1994 Latest Caselaw 224 Del

ORDER

MANZOOR AHMED BAKSHI, J.M. :

The appeal of the assessed for asst. yr. 1980-81 is directed against the order dt. 30th August, 1989, of CIT(A)-IV, New Delhi. The issue, inter alia, is relating to the loss on sale of silver amounting to Rs. 50,928.

2. Original assessment, in this case, had been completed on 19th March, 1983. The loss on sale of silver bar, loss on sale of shares, loss on sale of car had been disallowed. The CIT(A) had also confirmed the disallowance. The Tribunal in ITA No. 561/Del/84, dt. 9th January, 1986, had remitted the matter back for fresh adjudication.

3. While making the fresh assessment, the Assessing Officer disallowed the loss of Rs. 50,928 on account of sale of silver on the ground that it was not understood as to why the silver bar had been purchased by the assessed at higher price when this was not the business of the assessed. According to the Assessing Officer, the alleged purchase and sale was to the same party and it was nothing but a speculation loss and the same could be allowed only to be set off against speculation income. The Assessing Officer further observed that since, there was no profit on speculation, the loss on sale of silver was not allowable.

4. The assessed appealed to the CIT(A). In para 3 of the order, the CIT(A) has recorded "that in order to find out the truth about actual delivery of silver at the time of purchase and sale, the books of account were called. It is seen from these books that on the two dates, i.e., on 8th March, 1980, and 29th March, 1980, no haulage for bringing and sending back the silver had been debited to the books of account." The learned CIT(A), accordingly, held that there had been no intention to take the delivery of silver and keep it as an investment but that the assessed was interested in the difference and, therefore, the transaction was in the nature of speculation business. The disallowance was, accordingly, confirmed.

5. The learned counsel for the assessed contended that the assessed had made the purchases of silver on 8th March, 1980, on the expectation of making profits. However, since, the prices started to fall, the assessed did not want to take further risk. The silver bar was, accordingly, sold at the prevalent prices, as a result of which a loss was suffered. In this connection, reliance is placed on the ready reckoner which gives the rates as on Diwali S.V. 2036, 31st December, 1979, and 31st March, 1980. With regard to the delivery of the silver bar, the learned counsel invited our attention to the certificate issued by H. Narayanan & Co., Exporters, Bullion merchants and Real Stone Dealers, 820, Nai Sarak, Delhi, placed at page 19 of the paper book certifying the purchase and sale of silver bar and delivery by hand through Shri B. N. Mathur, one of the trustees of the trust. The certificate, according to the learned counsel, clearly establishes that the delivery by hand was given as a normal practice of the Sarafa market and there was nothing abnormal in not incurring any expenditure on haulage at the time of purchase and sale of the silver bar. According to the learned counsel, the assessed did produce evidence in support of the claim that the transaction had been entered between the assessed and M/s. H. Narayanan & Co. in the normal course. The sale of the silver bar was also made in the normal course of business. The payment had been made by payees account cheque and the delivery of the silver bar had also been effected. The transactions were duly supported and affirmed by the other party. The assessed has traded in silver in the subsequent assessment, year also. The finding of the Assessing Officer and that of the CIT(A) that the loss was a speculation loss, according to the learned counsel, is unwarranted.

6. The learned Departmental Representative on the other hand, sought to support the orders of the Revenue authorities.

7. We have given our careful consideration to the rival contentions. The purchase of silver bar is evidenced by the bill issued by M/s. H. Narayanan & Co. The payment has been made by payees account cheque but for a sum of Rs. 2,000 paid as advance. As per the certificate issued by M/s. H. Narayanan & Co., the assessed has taken the delivery of the silver bar.

8. The sale of silver bar is also evidenced by sale vouchers and confirmation from the party. The payment has been received by means of payees account cheque duly credited to the account of the assessed. The delivery of the silver bar is also evidenced by a certificate issued by M/s. H. Narayanan & Co. The claim made by the assessed that it wanted to earn a profit on the purchase and sale of silver gets credence by the fact that the prices of silver had been going up. As per the market quotations reported in ready reckoner placed at page 18 of the paper book, the rates per kg of silver as on Diwali S.V. 2036 were Rs. 2,263. The rate per kg. had gone up to Rs. 3,442 as on 31st December, 1970. The assessed had made the purchases on 8th March, 1980, when the price per kg had gone up to Rs. 4,213. Thus, it is seen that there was an upward trend in the prices of silver. However, after the purchase of silver by the assessed, the prices have gone down. The assessed has sold the silver bar on 29th March, 1980 at Rs. 2,580 per kg. As per the ready reckoner, the price as on 31st March, 1980 was Rs. 2,655 per kg. The mere fact that no haulage was debited to the books of account at the time of purchase and sale of silver does not disprove the claim made by the assessed that there was actual delivery of silver bar at the time of purchase as well as at the time of sale. The assessed having furnished evidence before the Assessing Officer as well as before the CIT(A), the authorities, in our view, were not justified in ignoring the same and taking a view on the basis of suspicion. Once, the assessed produces evidence, in support of the claim, the Assessing Officer has the option either to accept the evidence or to make further enquiries from the assessed and collect material in rebuttal. In this case, whereas the assessed has furnished the evidence to support its claim, there is no material on record to disprove the claim of the assessed. The assessed had furnished a certificate from M/s. H. Narayanan & Co. in support of the claim that the delivery was taken and given by hand as per normal practice of the trade. The Assessing Officer has not made enquiries from M/s. H. Narayanan & Co. nor was any statement recorded of any representative of that firm. The certificate could not be, thus, brushed aside.

9. Considering the facts and circumstances of this case, we are of the view that the authorities were not justified in recording a finding that the loss suffered by the assessed on the sale of silver bar was a speculative loss. There having been actual delivery of silver bar at the time of purchase and at the time of sale, the transaction, in our view, cannot be said to be a speculative transaction. The loss was, therefore, allowable as a trading loss.

10. Second issue involved, in this appeal, is relating to the loss on the sale of shares. The assessed had claimed a loss on sale of shares at Rs. 30,734. The Assessing Officer disallowed the loss by holding that the assessed has never been a dealer in shares and that the same had been transferred in the name of Shri B. N. Mathur, a trustee. The loss was treated as a fake transaction, with a view to reduce the income of the trust. The Assessing Officer further held that the loss was speculative loss and could be allowed against speculation income. Since, there was no speculation income, the Assessing Officer held that the loss could not be allowed.

11. The assessed appealed to the CIT(A) and explained that the purchase and sale of shares was authorised by the trust deed and that there have been number of transactions in the purchase and sale of shares in subsequent years. In this connection, evidence was also furnished before the appellate authority. With regard to registration of the shares in the name of the trustee it was explained that under the Companies Act a trust is not recognised as a registered shareholder and the shares could be registered only in the name of the trustee. It was further contended that the payment on account of purchase and sale of shares have been made through crossed cheques.

12. The learned CIT(A) observed that during the year under appeal there was a purchase and sale of shares of M/s. Escorts only. It has been pointed out by the learned CIT(A) that on 8th October, 1979, the assessed had purchased 800 shares of M/s. Escorts Ltd. whereas on 20th October, 1989, another 200 shares were purchased. These shares had been sold on 23rd November, 1979, at a loss of approximately Rs. 5 per share. According to the learned CIT(A) these very sold shares had been repurchased by the assessed on 12th December, 1979, at a price of Rs. 51.20 per share as against earlier sale price of Rs. 49.44 on 23rd September, 1979. Again these shares have been sold on 4th October, 1980, at Rs. 31.25 per share. It has further been observed that whereas the first three transactions were through the local stock broker M/s. R. K. Chugh & Co., the last transaction of sale at price of Rs. 31.25 was through a Bombay stock broker M/s. Harikishan Dass Laxmi Dass. The assessed had stated that there was some difficulty in the title of these shares and that is why these transactions had to be gone through. The learned CIT(A) observed that the contention raised on behalf of the assessed was false, in view of a certificate from M/s. Escorts Ltd. dt. 18th January, 1980, in which it was stated that with reference to letter dt. 23rd December, 1979, from the trustees, the shares under consideration had been registered and transferred in the name of Shri B. N. Mathur. The learned CIT(A), accordingly, observed that these shares could not be in the custody of the assessed on 23rd December, 1979, because after their sale on 23rd September, 1979, they had been repurchased only on 12th December, 1979. According to the learned CIT(A) the assessed was not able to explain the discrepancy.

13. The learned counsel for the assessed contended that the assessed had purchased the shares and agreed to sell the same to a party. However, the delivery of these shares could not be given because of a defective title. These shares were returned to M/s. Escorts Ltd. for rectifying the defects. Since, in the meantime the party was pressing hard for the delivery of the shares, the assessed had no option but to buy the shares from the market and give the delivery of these shares to the party. On receipt of the original shares, the assessed effected the sale of that lot also in order to avoid further losses.

14. The learned Departmental Representative, on the other hand, contended that these facts are not on record. The assessed is making a new claim before the Tribunal, which is not supported by any material on record.

15. The learned counsel in counter-reply pointed out that the CIT(A) has recorded the contention of the assessed that there was some difficulty in the title of the shares, which necessitated the selling of these shares and again repurchasing the same. According to the learned counsel, if given an opportunity, the claim could be established with the support of the evidence.

16. We, on careful consideration of the rival contentions, are of the view that the matter needs redetermination. The learned CIT(A) has recorded the contention on behalf of the assessed that there was some difficulty in the title of the shares. The assessed's plea that proper explanation had been given before the CIT(A) and that no fault could be found with the assessed for the CIT(A) not having elaborated the claim of the assessed in his order, cannot be brushed aside. Let this issue be decided by the Assessing Officer afresh by examining the claim of the assessed that the shares had been sold and repurchased under compelling circumstances. There is no doubt that the onus is on the assessed to establish that the loss claimed by it is genuine and incurred in the course of business. The matter be decided afresh after giving adequate opportunity of being heard to the assessed.

17. For statistical purposes, the appeal of the assessed is partly allowed.