1985 (7) TMI 132 - AT - Income Tax

Summary

Issues Involved:
1. Whether the loss arising from the purchase and sale of 200 bales of cotton should be treated as speculative loss.
2. Whether the assessee took actual delivery of the goods.
3. Whether there were two separate transactions or a single transaction.
4. Disallowance of Rs. 2000 on account of expenditure on pulleys.

Detailed Analysis:

1. Speculative Loss:
The primary issue revolves around whether the loss of Rs. 64,976 from the purchase and sale of 200 bales of cotton should be categorized as speculative loss. The Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) [CIT(A)] both concluded that the transactions were speculative. The ITO, relying on the Supreme Court's decision in Devan Port & Co. (P) Ltd. vs. CIT, held that "the delivery contemplated in s. 43(5) is the real delivery and not notional delivery." The CIT(A) upheld this view, noting that the assessee "had never taken actual or physical delivery of the goods."

2. Actual Delivery of Goods:
The ITO observed that the accounts did not indicate whether the goods were lifted from the alleged sellers or stocked by the assessee. The ITO concluded that the goods remained where they were and only purchase and sale vouchers were prepared. The CIT(A) further found that M/s. Gopal Krishan Prem Nath, Kotkapura, from whom the assessee purchased the bales, did not possess the 200 bales and had purchased them from another concern. Thus, the CIT(A) concluded that "the assessee did not have the delivery of 200 bales of cotton purchased from M/s. Gopal Krishan Prem Nath, Kotkapura."

3. Single or Separate Transactions:
The assessee argued that the loss arose from a single transaction, which should not be treated as speculative. However, the CIT(A) and the Tribunal found that the purchases were made through two separate bills and the sales were also made to different parties on different dates. The Tribunal concluded, "the purchases have been made by the assessee by two separate bills of 100 bales each and sales had also been made to two different parties on two different dates."

4. Expenditure on Pulleys:
The assessee also contested the disallowance of Rs. 2000 on account of expenditure on pulleys. The Tribunal confirmed the order of the authorities below on this issue without much elaboration, stating, "we confirm the impugned order on the issue raised in ground No. 2 stated above."

Conclusion:
The Tribunal dismissed the appeal, confirming the CIT(A)'s order that treated the loss of Rs. 64,976 as speculative loss and disallowed its set-off against other business income. The Tribunal also upheld the disallowance of Rs. 2000 on account of expenditure on pulleys. The judgment emphasized the necessity of actual delivery for a transaction not to be considered speculative under s. 43(5) of the IT Act, 1961.