Dcit,, Varanasi v. M/s Banaras Beeds Ltd.,, Varanasi

ITA 211/ALLD/2011 | 2001-2002
Pronouncement Date: 28-04-2015 | Result: Dismissed

Appeal Details

RSA Number 21120714 RSA 2011
Assessee PAN AAACB2252L
Bench Allahabad
Appeal Number ITA 211/ALLD/2011
Duration Of Justice 3 year(s) 5 month(s) 24 day(s)
Appellant Dcit,, Varanasi
Respondent M/s Banaras Beeds Ltd.,, Varanasi
Appeal Type Income Tax Appeal
Pronouncement Date 28-04-2015
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 28-04-2015
Date Of Final Hearing 21-04-2015
Next Hearing Date 21-04-2015
Assessment Year 2001-2002
Appeal Filed On 03-11-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL ALLAHABAD BENCH: ALLAHABAD BEFORE SHRI D. KARUNAKARA. RAO ACCOUNTANT MEMBER AND SHRI C. N. PRASAD JUDICIAL MEMBER I.T.A .NO.-211/ALLD/2011 ASSESSMENT YEAR : 2001-02. DCIT VS. M/S BANARAS BEEDS LTD. CIRCLE-3 A-1 INDUSTRIAL ESTATE VARANASI. MADUADIH VARANASI PAN: AAACB2252L (APPELLANT) (RESPONDENT) REVENUE BY:- SH. RAJKUMAR LACHHIRAMAKA CIT. DR . ASSESSEE BY: SH. R. P. AGRAWAL ADV. DATE OF HEARING: 21/04/2015 DATE OF PRONOUNCEMENT: ORDER PER C. N. PRASAD: THIS APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) VARANASI DATED 10.08.2011 FOR THE ASSESSMENT YEAR 2001-02. 2. THE FIRST ISSUE IN THIS APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING THE ADDITION OF RS. 2 45 25 000/- MADE U/S 68 OF INCOME TAX ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE AO WHILE CO MPLETING THE ASSESSMENT NOTICED THAT THE ASSESSEE ADVANCED LOAN OF RS.2 43 50 000/- I.T.A .NO.-211/ALLD/2011 2 ON TO M/S COSMOS FINANCIAL SERVICES P. LTD. IN F.Y. 1997-98 AGAINST PLEDGING OF SHARES OF DIFFERENT COMPANIES AS PER LO AN AGREEMENT DATED 15.03.1997. FURTHER ADVANCE OF RS.8 50 000/- WAS AL SO GIVEN IN F.Y. 1998-99 TOTALING TO RS.2 52 00 000/-. SUBSEQUENTLY AN AMOUNT OF RS.6 75 000/- WAS RECEIVED BACK IN THE F.Y. 1999-20 00 LEAVING BALANCE OF RS.2 45 25 000/- UNPAID AS ON 31.03.2000. IT WAS THE SUBMISSION OF THE ASSESSEE THAT AS COSMOS FINANCIAL SERVICES P. L TD. COULD NOT REPAY THE AMOUNT IT HAD ALLOTTED SHARES OF COMPANIES AND WERE REGISTERED IN THE NAME OF ASSESSEE WHICH WERE SUBSEQUENTLY SOLD BY TH E ASSESSEE. IT WAS THE SUBMISSION THAT THE SHARES SOLD WERE OFFERED TO CAPITAL GAIN TAX. HOWEVER THE AO TREATED THE OUTSTANDING AMOUNT OF R S.2 45 25 000/- PAYABLE TO ASSESSEE AS UNEXPLAINED CASH CREDIT U/S 68 OF THE ACT IN THE HANDS OF ASSESSEE OBSERVING THAT COSMOS FINANCIAL S ERVICES P. LTD. WAS INVOLVED IN MONEY LENDING RACKET OF BOGUS CAPITAL G AINS SHARE APPLICATION MONEY AND GIFTS AS PER INVESTIGATION WI NG OF AGRA. ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND THE LD. CIT( A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE ADDITIO N AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. I.T.A .NO.-211/ALLD/2011 3 4. THE LD. DR SUPPORTED THE ORDERS OF THE AO IN MAK ING ADDITION U/S 68 OF THE ACT. 5. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE AD DITION MADE U/S 68 IS TOTALLY UNJUSTIFIED. HE SUBMITS THAT IT IS NOT A CASE OF ASSESSEE TAKING LOAN FROM OTHERS BUT IT IS A CASE OF ASSESSEE LENDI NG MONEY TO M/S COSMOS FINANCIAL SERVICES P. LTD ON INTEREST. COUNS EL SUBMITS THAT THE OUTSTANDING AMOUNT WHICH COULD NOT BE REPAID BY COS MOS FINANCIAL P. LTD. (LATTER NAME CHANGED AS AYUSHI STOCK BROKERS P . LTD.) TO THE ASSESSEE CANNOT BE TREATED AS UNEXPLAINED CASH CRED IT OF THE ASSESSEE. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE INGRE DIENTS OF SECTION 68 ARE NOT ATTRACTED TO THE TRANSACTION ENTERED INTO B ETWEEN THE ASSESSEE AND THE M/S COSMOS FINANCIAL SERVICES P. LTD. THEREFORE THE ADDITION HAS NO LEGS TO STAND. 6. WE HAVE HEARD BOTH THE PARTIES AND THE RIVAL CON TENTIONS WE ARE UNABLE TO UNDERSTAND AS TO HOW THE AO MADE ADDITION U/S 68 AS I.T.A .NO.-211/ALLD/2011 4 UNEXPLAINED CREDIT IN RESPECT OF THE LOAN AMOUNT OU TSTANDING TO BE REPAID TO THE ASSESSEE BY COSMOS FINANCIAL SERVICES (P) LT D. THIS IS NOT A CASE OF ASSESSEE OBTAIN LOAN FROM OTHERS BUT IT IS A CAS E OF LOAN GIVEN BY THE ASSESSEE TO M/S COSMOS FINANCIAL SERVICES P. LTD. F URTHER THE SHARES WHICH WERE PLEDGED BY COSMOS FINANCIAL SERVICES (P) LTD FOR TAKING LOAN WERE INFACT ALLOTTED TO THE ASSESSEE AS THE LO AN COULD NOT BE REPAID BY THEM AND THE ASSESSEE ALSO SOLD THOSE SHARES AND REPORTED CAPITAL GAINS ON SUCH SALE OF SHARES. IN THESE CIRCUMSTANCE S WE HAVE NO HESITATION TO DELETE THE ADDITION AND SUSTAIN THE O RDERS OF THE LD. CIT(A). THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 7. THE NEXT ISSUE IN THE REVENUE APPEAL IS THAT THE LD. CIT(A) IS NOT JUSTIFIED IN TREATING RS.41 45 838/- AS SHORT TERM CAPITAL LOSS INSTEAD OF SPECULATION LOSS. THE AO WHILE COMPLETING THE ASSES SMENT TREATED LOSS ON SALE OF SHARES OF RS.79 31 424/- SPECULATION LO SS HOLDING THAT ASSESSEE IS INTO THE BUSINESS OF MANUFACTURING AND NOT INTO PURCHASES AND SALE OF SHARES AND THEREFORE ANY LOSS ON SALE OF SH ARES HAS TO BE CONSIDERED AS SPECULATION LOSS. I.T.A .NO.-211/ALLD/2011 5 8. ON APPEAL THE LD. CIT(A) TREATED LOSS ON SALE O F SHARES TO THE EXTENT OF RS.41 45 838/- OUT OF RS.79 31 424/- RELA TES TO SHARE TRANSACTIONS WHERE ACTUAL DELIVERY HAD TAKEN PLACE AND THEREFORE THE LOSS ON SALE OF SHARES ARE TO BE ASSESSED AS SHORT TERM CAPITAL LOSS INSTEAD OF SPECULATION LOSS. 9. THE LD. DR SUBMITS THAT THOUGH THE LD. CIT(A) HE LD THAT THERE IS A DELIVERY OF SHARES AND THEREFORE THE SHARE TRANSACT IONS ARE TO BE CONSIDERED AS SHORT TERM CAPITAL LOSS HE SUBMITS THAT THE CONTRACT NOTES FURNISHED BY THE ASSESSEE DOES NOT SHOW THE DISTINC TIVE NUMBERS OF SHARES CERTIFICATES THEREFORE IT CANNOT BE PRESUME D THAT SHARES WERE DELIVERED TO/BY THE ASSESSEE. 10. LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE A SSESSEE COMPANY HAD ACQUIRED CERTAIN SHARES FROM M/S COSMOS FINANCI AL SERVICES P LTD. IN SETTLEMENT OF THE OUTSTANDING LOANS GIVEN BY THE ASSESSEE TO THAT COMPANY. HE SUBMITTED THAT SOME OF THESE SHARES WER E SOLD DURING THE I.T.A .NO.-211/ALLD/2011 6 ASSESSMENT YEAR 2001-02 WHILE SOME OTHER SHARES WER E SOLD IN SUBSEQUENT YEARS. THE DETAILS OF SAID SHARES WERE A LSO FURNISHED TO THE LD. AO AND ARE PART OF THE RECORD OF ASSESSMENT. CO UNSEL SUBMITTED THAT THE ASSESSEE SOLD THE FOLLOWING SHARES DURING THE Y EAR- SL. NO. NAME OF COMPANY COST OF ACQUISITION R. SALE PRICE R S. LOSS INCURRED. 1. COMPUTECH INTERNATIONAL 19 25 606.40 3 34 515.00 15 91 091.00 2. TV 18 16 00 300.93 3 39 764.00 12 60 537.00 3. SOFT PRO SYSTEMS 15 26 934.52 2 32 725.73 12 94 208.79 TOTAL 50 52 841.85 9 07 004.73 41 45 836.79 COUNSEL FOR THE ASSESSEE SUBMITTED THAT AO HAS TREA TED THE ABOVE LOSS OF RS.41 45 838 INCURRED ON SALE OF SHARES DURING THE AY 2001-02 AS SPECULATIVE LOSS ON THE GROUND THAT THE ASSESSEES MAIN BUSINESS IS MANUFACTURE PURCHASE AND SALE OF BEADS THEREFORE A NY LOSS ON SALE OF SHARES SHOULD BE TREATED AS SPECULATION LOSS AND SH OULD BE SET OFF AGAINST SPECULATION INCOME ONLY. HE SUBMITTED THAT IT IS RE LEVANT TO NOTE THAT THE FACT OF SALE OF SHARES THE COST OF ACQUISITION OF SHARES AND THE PRICE AT WHICH THE SHARE WERE SOLD HAVE NOT BEEN DISPUTED B Y THE LD. AO. IN OTHER WORDS THE QUANTUM OF LOSS IS NOT IN DISPUTE. THE DISPUTE IS ONLY WITH RESPECT TO THE NATURE OF LOSS. I.T.A .NO.-211/ALLD/2011 7 11. THE COUNSEL FOR THE ASSESSEE SUBMITTED THAT AO HAS PROCEEDED ON THE ERRONEOUS ASSUMPTION THAT IF THE SALE AND PURCH ASE OF SHARES IS NOT THE BUSINESS OF THE ASSESSEE THEN LOSS ON SUCH SALE WOULD BE SPECULATIVE LOSS. COUNSEL SUBMITS THAT LOSS CAN BE TREATED AS S PECULATIVE LOSS WHEN TRANSACTIONS OF PURCHASES AND SALES OF SHARES ARE S PECULATIVE I.E. WHEN THE SHARES ARE ACQUIRED AND SOLD WITH A VIEW TO MAK E QUICK GAINS AND WITHOUT DELIVERY OF SHARES. HE SUBMITS THAT IN THE PRESENT CASE THE SHARES WERE ACQUIRED UNDER COMPULSION SO AS TO RECO VER THE OUTSTANDING DUES FROM M/S COSMOS FINANCIAL SERVICES P LTD. THE TRANSACTION OF SUCH ACQUISITION OF SHARES DID NOT HAVE ANY SPECULATIVE CHARACTER. THE ASSESSEE COMPANY DID NOT INDULGE IN SALE AND PURCHA SE OF SHARES TO MAKE QUICK GAINS WITHOUT DELIVERY OF SHARES. HE SUBMITS THAT THE DEPARTMENT HAS NEITHER MADE ANY SUCH ALLEGATION NOR ANY EVIDEN CE TO THAT EFFECT HAS EVER BEEN BROUGHT ON RECORD. MERE SALE OF SHARES WI THIN THE SAME YEAR WILL NOT NECESSARILY CONVERT THE TRANSACTION AS SPE CULATIVE. SOME SHARES WERE SOLD WITHIN THE SAME FINANCIAL YEAR SO AS TO R EALIZE THE MONEY BLOCKED IN THE SHARES. THE SHARES WERE BUSINESS ASS ETS ACQUIRED IN I.T.A .NO.-211/ALLD/2011 8 REALIZATION OF OUTSTANDING LOANS WHICH ITSELF WAS BUSINESS ASSET ANY LOSS OR GAIN ON SUCH SALE WAS A BUSINESS LOSS. SINCE IT WAS A BUSINESS TRANSACTION IT WAS SHOWN AS BUSINESS LOSS IN THE P & L A/C AND CLAIMED ACCORDINGLY. 12. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE OR DERS OF LOWER AUTHORITIES AND RIVAL CONTENTIONS OF THE PARTIES S PECULATIVE TRANSACTION IS DEFINED IN SUB SECTION (5) OF SECTION 43 AS UNDE R: SPECULATIVE TRANSACTION MEANS A TRANSACTION IN WHI CH A CONTRACT FOR THE PURCHASE OR SALE OF ANY COMMODITY INCLUDING STOCKS AND SHARES IS PERIODICALLY OR ULTIMATELY SE TTLED OTHERWISE THAN BY THE ACTUAL DELIVERY OR TRANSFER OF THE COMM ODITY OR SCRIPS AS COULD BE SEEN FROM THE ABOVE SUB SECTION (5) IF THE SHARE TRANSACTIONS I.E. PURCHASE AND SALE OF SHARES ARE SETTLED OTHERW ISE THEN BY WAY OF ACTUAL DELIVERY OR TRANSFER SUCH PURCHASE AND SALE OF SHARES SHALL BE TREATED AS SPECULATIVE TRANSACTION. IN THIS CASE IT IS THE CONTENTION OF THE ASSESSEE THAT THE SHARES WERE SETTLED BY WAY OF DELIVERY OR TRANSFER OF SHARES BY THE ASSESSEE AND THE SHARES WERE SOLD. SO ME OF THE SHARES WERE SOLD DURING THIS A.Y. AND SOME OF THE SHARES WERE S OLD IN SUBSEQUENT ASSESSMENT YEARS. CONTRACT NOTES WERE PLACED IN THE PAPER BOOK AT PAGES I.T.A .NO.-211/ALLD/2011 9 14 TO 18 AND THE CONTRACT NOTES CLEARLY SPECIFIES D ELIVERY OF SHARES AS UNDER: PURCHASE BILL FROM BANARAS BEADS LIMITED A-1 INDUSTRIAL ESTATE VARANASI TO MOTLEY SECURITIES PRIVATE LIMITED DEALER ON OTC EXCHANGE 2670 HUDSON LINE G.T.B. NAGAR DELHI-110009 PH. NO 7458939 7119501 SEBI REGN. NO. INB 200921133 NO.: BOTC-PIMAR/30/001 DATE: 30.03.2001 SETTLEMENT NO.: BOOK CLOSING ON: DEAR SIR(S). I/WE AM/ARE HEREWITH DELIVERING YOU THE SHARES STAT ED BELOW FOR WHICH PLEASE MAKE PAYMENT. 13. THUS THE ABOVE CONTRACT NOTES CLEARLY SHOWS THA T ASSESSEE HAS TAKEN DELIVERY OF SHARES FROM M/S COSMOS FINANCIAL SERVIC ES P. LTD. AND THOSE SHARES WERE AGAIN DELIVERED TO MOTLEY SECURITIES PV T. LTD. WHICH IS THE DEALER ON OTC EXCHANGE. IT WAS THE SUBMISSION OF TH E ASSESSEES COUNSEL THAT AT TIME THERE WAS NO DEMAT A/C REGULAT ION AND IT WAS ONLY THE PHYSICAL DELIVERY WAS GOING ON. IN THESE CIRCUM STANCES WE ARE INCLINED TO ACCEPT THE CONTENTIONS OF THE ASSESSEE THAT IT HAD TAKEN DELIVERY OF SHARES AND THOSE SHARES WERE SOLD BY WA Y OF PHYSICAL DELIVERY/TRANSFER. THEREFORE PURCHASE AND SALE OF S HARES ARE OUTSIDE THE SCOPE OF SPECULATIVE TRANSACTION. I.T.A .NO.-211/ALLD/2011 10 14. THUS WE UPHOLD THE ORDER OF THE CIT(A) IN HOLDI NG THAT THE LOSS ON SALE OF SHARES IS TO BE ASSESSED AS SHORT TERM CAP ITAL LOSS INSTEAD OF SPECULATION LOSS. GROUNDS RAISED BY THE REVENUE A RE DISMISSED ON THIS ISSUE. 15. IN RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/04/2015. SD/- SD/- ( D. KARUNAKARA RAO ) (C. N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:28 /04/2015 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR