Allahabad H.C : The transactions by the assessee, member of the U.P. Stock Exchange, on the U.P. Stock Exchange trading floor with the other fellow members termed as ‘U.P. Stock Exchange clearing difference’ resulting in net credit of Rs. 3,47,17,330 were speculative transactions in accordance with the bye laws and rules of the SEBI and particularly the U.P. Stock Exchange Association Ltd.

High Court Of Allahabad

CIT vs. Shri Sharwan Kumar Agarwal

Section 256(2)

Sudhir Narain & Bhagwan Din, JJ.

IT Appln. No. 23 of 1999

21st December, 2000

Counsel Appeared

Sambhu Chopra, for the Applicant : Rakesh Ranjan Agrawal, for the Respondent

JUDGMENT

BY THE COURT :

This is an application filed by the CIT (Central), Kanpur, for a direction to the Tribunal to draw up a statement of the case and refer the questions of law mentioned in para. 3 of the application filed by the applicant.

2. The assessee is a sharebroker and filed his return of income on 13th Dec., 1994. The assessment was completed under s. 143(3) of the IT Act, 1961. During the course of assessment proceedings, the AO had found that the assessee had at times settled that share transactions by corresponding delivery. On an examination of invoice bills, the AO found that the assessee had earned a profit of Rs. 32,80,949 and suffered a loss of Rs. 1,10,14,010, thereby incurring a net loss of Rs. 77,33,061. It was hold that this was speculative transaction within the meaning of sub

s. (5) of s. 43 of the IT Act. Invoking the provisions of s. 73 of the IT Act, the AO held that the speculative loss of Rs. 77,33,061 could not be allowed to be set off against the profit of general business of the assessee. The order was affirmed by the CIT(A)-1, Kanpur. The Tribunal in appeal held that the assessee was entitled to the exception covered by cl. (c) of the proviso to s. 43(5) of the IT Act, which reads as under : “a contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction;”

3. The applicant filed an application for making reference before the Tribunal. The said application has been rejected by the Tribunal. Now the applicant has filed the present application to draw up the reference on the following two questions :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the transactions by the assessee, member of the U.P. Stock Exchange, on the U.P. Stock Exchange trading floor with the other fellow members termed as ‘U.P. Stock Exchange clearing difference’ resulting in net credit of Rs. 3,47,17,330 were speculative transactions in accordance with the bye laws and rules of the SEBI and particularly the U.P. Stock Exchange Association Ltd. ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in allowing set-off of the net credit of Rs. 3,47,17,330 with regard to the transactions by the assessee member on the U.P. Stock Exchange trading floor termed as the U.P. Stock Exchange clearly difference with the against the net debit of Rs. 77,33,061 relating to the transactions by the assessee with the clients admittedly on principal to principal basis outside the trading floors where no delivery of shares was effected and which were accepted to be speculative transactions ?”

We have heard Shri Shambhu Chopra, learned counsel for the applicant, and Sri Rakesh Ranjan Agrawal, learned counsel for the assessee.

Learned counsel for the applicant contended that the transaction was speculative and there was material on record to show that the transaction was speculative.

The Tribunal found that the assessee was entitled to the explanation covered by the proviso, cl. (c) to sub-s. (5) of s. 43 of the IT Act. The onus of proof was on the Department to establish that such exception was not applicable. It has placed reliance upon the decision of the Supreme Court in CIT vs. Ramakrishna Deo (1959) 35 ITR 312 (SC) : TC 31R.142. It further found that no material was collected at the appellate stage to show that the condition was fulfilled. Learned counsel for the applicant has not shown that there was any material to show that the assessee was not entitled to the exception, referred to above. It may also be noted that the applicant has not sought any question to be referred in regard to proviso, cl. (c) to sub-s. (5) of s. 43 of the IT Act.

In view of the above, the application is rejected”.

[Citation : 249 ITR 233]

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