TMI Blog2004 (9) TMI 572X X X X Extracts X X X X X X X X Extracts X X X X ..... and on behalf of constituents. The assessee filed the return of income which was taken up for scrutiny. During the course of assessment proceedings, the assessee was asked to furnish the details of transactions settled otherwise than delivery. The assessee on 16th Feb., 1996 filed difference list issued by the Delhi Stock Exchange. These difference lists are not indicative of the transactions settled otherwise than by delivery. The assessee was informed that these difference lists do not constitute the details of settlement otherwise than delivery. The assessee was asked to file details of transactions settled otherwise than delivery. The assessee claimed before the Assessing Officer that the details of transactions settled otherwise than delivery as per different bills which can be co-related statement-wise and scripswise, all the transactions are on behalf of the client. The Assessing Officer on perusal found that the assessee had carried out the transactions otherwise than delivery on his own behalf. The speculation profit/loss resulting from these transactions has been deviated into the profits of business. The Assessing Officer has mentioned certain facts in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that the assessee who is saddled with the burden to prove that the transactions fall under clause ( b ) and clause ( c ) of the proviso to section 43(5) has failed to lead evidence in support of his contention. These transactions are admittedly where no delivery has taken place. These are speculative transactions. Total amount of speculative transactions mentioned earlier is Rs. 19,85,440, which is not to be adjusted against the business income of the assessee. The Assessing Officer also held that it shall however, be carried forward in the subsequent assessment years to be adjusted against the speculative profits, if any, in these succeeding years. The assessee is in appeal on this ground before us, as the CIT(A) also confirmed the addition, which we shall take up separately. 5. On the second issue, the Assessing Officer made the addition of Rs. 10,25,000. As the Assessing Officer did not believe the evidence and explanation of the assessee and held that the assessee has failed to prove the genuineness of the transaction with M/s. V.B. Desai Co. resulting in speculative profit of Rs. 10,25,000. The assessee has shown this as his income. It shall however, be assessed as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit was only to adjust the losses incurred. ( vii )The transaction registered was not impounded in the first lot but only subsequently implying the perhaps that between 1st and second hearing for the impounding this entry was interpolated. ( viii )The ledger account for the next year was not produced on the plea that the same was with C.B.I. whereas the assessee could have obtained it from them. 9. The assessee submitted before the CIT(A) as follows : ( i )M/s. V.B. Desai is based in Bombay and as such the Assessing Officer could not have asked for his production and in any case, the assessee was unable to do so and inform the Assessing Officer accordingly regarding the non-production of the assessment order also. It stated that the assessee was unable to obtain it from M/s. V.B. Desai. It is submitted, however, that no adverse inference can be drawn as M/s. V.B. Desai is assessed to tax and the assessment order would not have thrown any more light than the information contained in the confirmation letter already filed. ( ii )As regards the difference in Permanent Account No., it is stated that Central Circle and Assistant Commissioner were correctly mentioned in both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating the amount of Rs. 10,25,000 as income from undisclosed sources was unjustified and contrary to the facts. It was also explained that the transactions of SCICI do not take place in Delhi but only in Bombay because of high volume of transactions. Therefore, the transactions were done by the assessee in the shares of this company at Bombay. The CIT(A) considering the facts and circumstances of the case and the submissions of the assessee, allowed the appeal of the and addition was deleted. The operative part of the order of the CIT(A) in para 17 is reproduced as under:- "17. After considering the facts and circumstances of the case, I am of the view that the addition made by the Assessing Officer is not justified having been made on the incorrect appreciation of the facts. The grounds on which addition has been made have now been duly clarified by the assessee. I find lot of force in the arguments of the assessee that the profit was made on 6-4-1992 whereas the loss against which this profit was adjusted was made much later in the month of February/March, 1993 and as such the assessee could not have anticipated this loss at the time of making the profit in April, 1992. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted that the assessee has been able to prove its case. The ld. counsel for the assessee has taken us to paper book in which all the evidences have been filed to support the contention. 13. We have considered the rival submissions and the material available on record and the paper book. The assessee has filed in the paper book copy of the account of M/s. V.B. Desai Co., Bank statement when money received, B.S.C., Bombay official quotation list on 6th April, 1992 and 29th April, 1992, confirmatory letter from V.B. Desai, copy of the account of Sreen Co. and copy of the bill of V.B. Desai in the paper book. On going through the evidences available on record, we are of the view that the Assessing Officer has wrongly held that the assessee failed to prove the genuineness of the transaction. The evidences and materials available on record clearly show that the assessee has been able to prove the genuineness of the transaction with M/s. V.B. Desai Co. The assessee has explained the discrepancies mentioned by the Assessing Officer in the assessment order. The discrepancies have been specially considered by the CIT(A) in reference to the observation of the Assessing Officer. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The CIT(A) on such facts observed that it does not appear that the loss was deliberately credited by the assessee only to reduce the profits. However, the facts still remains that some of the transactions resulting into losses were made without the actual delivery of shares. Such transactions have to be treated as speculative in nature even if such transactions were originally contracted for the clients and not for the self. In the absence of bifurcation of the loss resulting from transactions into the loss on account of delivery of shares and the loss without such delivery the CIT(A) was of the view that to consider reasonably the speculative loss to the extent of Rs. 1.50 lakhs and treated the balance loss of Rs. 82,830 to be trading loss. The CIT(A) accordingly allowed the relief to the assessee to the extent of Rs. 82,830. The ld. counsel for the assessee submitted that these are actual transactions and therefore, there was no dispute about the trading and the CIT(A) has already accepted part of the contention. The ld. counsel for the assessee in the alternate submitted that the estimate is on the higher side. On the other hand, the ld. D.R. relied upon the orders of the author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase and sale of shares. It was submitted that the loss has arisen on account of confirmation of certain transactions with the clients by the then employee of the assessee, Mr. Anuj Kapil who was Incharge of taking orders from the clients and ensuring execution of such orders and his failure subsequently to carry out such confirmed transaction on the floor of the house. It was submitted that because of such confirmation by his employee and non-execution of such transaction by him, the assessee had no choice but to immediately square up these transactions on the prevailing market rate to avoid further loss as the market conditions were volatile. It was accordingly submitted that it has resulted in loss of Rs. 16,92,610. The assessee also filed confirmatory letter before the CIT(A) and the affidavit of the assessee, in support of the contention. The Assessing Officer in his remand report again submitted that the transactions were in the nature of speculative transaction. The Assessing Officer also submitted in his report that the statement of Anuj Kapil i.e., employee of the assessee was recorded on oath from it is emerged that he was merely a B.Com. Graduate and had joined M/s. J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f business for a number of years. It is very strange that on the one hand Mr. Kapil is accused of bungling in the booking of orders and then failing to discharge them causing huge loss of about Rs. 17 lakhs and on the other hand to re-employ him in the another proprietary concern of the assessee in almost a related business without any loss to the employee in his salary. Loss of Rs. 16,92,610 is not a small loss and no business man would ignore such a huge loss and keep the employee in service who is alleged to have caused it without taking any action whatsoever against him. Further more, Mr. Kapil has left the services even with the order concern and started his own business in a totally different line of business showing thereby that he was not so expert in his line of business after all. If Mr. Kapil was really responsible for the huge loss caused by him, he would certainly have remembered the names of the parties and the names of the shares which had resulted in such a large loss to the assessee. Surprisingly he could not give details of even a single share of the name of a single client. In view of these facts, I am convinced that the story of the assessee about the business l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly speculative transaction. The ld. D.R. further argued that the assessee has not explained as to why Mr. Kapil was re-employed if he has caused losses to the assessee. 20. We have considered the rival submissions and the material available on record and the findings of the authorities below. In this case, from the very beginning of the assessment proceedings, the Assessing Officer had been asking information with regard to transaction settled otherwise than delivery as per difference bills. The assessee had been seeking adjournments and was not filing the details before the Assessing Officer. The Assessing Officer considering the conduct of the assessee and having regard to the nature of complicity of the accounts of the assessee and in the interest of the revenue directed for special audit of the books of account of the assessee under section 142(2A) of the Income-tax Act. Specific queries were raised by the Assessing Officer during the special audit. The special audit has clearly stated that the assessee has issued difference bills of various parties resulting in speculative losses. It was also observed special audit that these entries were not reflected in the transaction r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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