High Court Of Punjab & Haryana
Raj Pesticides vs. CIT
Sections 256(2)
Asst. Year 1986-87
Jawahar Lal Gupta & N.K. Sud, JJ.
ITC No. 43 of 1998
5th February, 2002
Counsel Appeared
A.K. Mittal, for the Petitioner : None, for the Respondent
JUDGMENT
N.K. SUD, J. :
The assessee vide this petition under s. 256(2) of the IT 1962 (for short ‘the Act’) seeks a direction to the Tribunal, Amritsar Bench, Amritsar, (for short ‘the Tribunal’) to draw up a statement of the case and refer the following question of law for the opinion of this Court :
“(a) Whether on the facts and in the circumstances of the case, the learned Tribunal was right in law, that failure on the part of broker to furnish certain information, could be treated as failure on the part of the assessee.
(b) Whether, on the facts and in the circumstances of the case, the learned Tribunal was right in law, that where any transaction of shares, did not figure in the records of any stock exchange or in the company’s office, could not be accepted as a genuine transaction.
(c) Whether, on the facts and in the circumstances of the case, there was any evidence or material to support the findings of the learned Tribunal that the loss suffered on sale of shares Rs. 70,075 was false claim.
(d) Whether the said conclusion was based on conjectures, surmises or suspicion and on a failure to consider relevant evidence in the record judiciously ?”
2. For the asst. yr. 1986-87 the assessee a partnership-firm had filed its return of income on 10th July, 1986, declaring an income of Rs. 55,356. During the course of assessment proceedings, the ITO noticed that a sum of Rs. 70,075 had been debited to the P&L a/c on account of the loss suffered from purchase and sale of shares. It was claimed by the assessee that it had purchased 1,250 shares of Orkay Silk Mills Ltd. for Rs. 2,13,000 @ Rs. 170.56 Ps per share on 25th Oct., 1985. These shares were sold on 11th Nov., 1985, for Rs. 1,43,125. Thus the assessee suffered a loss of Rs. 70,075 in this transaction. It was further claimed that both, the purchase as well as the sale had been effected through the broker M/s Bharat Bhushan & Co., New Delhi, who operates from the Delhi Stock Exchange. Since the assessee had advanced a sum of Rs. 8,000 on 17th Oct., 1985, to the broker, a balance of Rs. 62,075 (Rs. 70,075-8000) was sent to him through a bank draft. The assessee was called upon by the AO to supply the details of the purchase and sale of shares and mode of placing orders for these transactions. The assessee was further required to prove that actual delivery of the shares was taken at the time of purchase. No such details were furnished by the assessee except copies of purchase and sale bills which were unnumbered and prepared on loose sheets. The ITO, therefore, made inquiries from the broker M/s Bharat Bhushan & Co. who also failed to supply the names of the parties from whom the shares were purchased and to whom the shares were sold nor could it furnish the mode of placing the orders by the assessee. It also could not specify whether actual delivery was taken at the time of purchase or not. Not making a headway, the ITO issued a letter to the Stock Exchange, New Delhi calling for further information as to whether the transactions of sale and purchase of the shares had been registered there or not. He also made enquiries from M/s Orkay Silk Mills Ltd. as to whether they had any information about the sale and purchase of shares in the name of the assessee. The transactions had neither been registered in the Stock Exchange nor in the books of the company. The ITO was, therefore, of the opinion that no genuine transaction for sale and purchase of shares had been made and only accommodation bills had been got issued from the broker so as to reduce the income by making a claim of bogus loss of Rs. 70,075.
The ITO further observed that it was not possible to believe that a share broker delivered shares worth Rs. 2,13,000 to a stranger without receiving the consideration especially when the seller and purchase were not even known to each other. He, therefore, disallowed the loss.
The ITO had also observed that even otherwise since no delivery of shares had been proved to have taken place at the time of purchase and no payment had been made in respect thereof, the transaction was speculative in nature as it had been settled on the basis of difference in sale and purchase value of the shares on the relevant dates. Since the bargain had been settled otherwise than by actual delivery of shares, the loss of Rs. 70,075 was in the nature of speculation loss and as such could not be set off against the business income well.
3. Aggrieved by the order of the ITO, the assessee preferred an appeal before the CIT(A), Bathinda, which was dismissed on 13th March, 1991. On further appeal by the assessee, the Tribunal upheld the findings of the CIT(A) by observing as under : “We have considered the rival submissions and perused the orders. During the course of hearing, the Bench raised queries to the learned counsel for the assessee about three points indicated by the learned CIT(A) as well as the AO. The first point was as to why alleged broker M/s Bharat Bhushan & Co. could not give the names of the parties from whom the shares were purchased or to whom these were subsequently sold. The learned counsel replied that it was the fault on the part of that broker for which the assessee should not be punished. This explanation is not accepted as the broker was working as an agent of the assessee and whatever was expected by the assessee was supposed to be done by such agent which has failed and this failure can easily be treated as failure on the part of the assessee and rightly treated so by the learned authorities below. Not only this, the transaction did not figure anywhere in Delhi Stock Exchange as confirmed by the Stock Exchange vide letter No. 2087/Govt. dt. 1st March, 1988, and assessee’s name did not figure even in the company’s office. Lastly, bye-laws regarding delivery and payment has not been observed as noted by the AO. This inference remained unexplained and thus the authorities below were justified in treating the transaction as not genuine particularly keeping in view the fact that assessee, who was earning income below Rs. 50,000 and earned more than Rs. 1 lac in this year and must be looking to reduce the income earned as this was one of the mode to come forward with false claim. On the basis of the above discussion, the appeal has no force. The appeal is, dismissed.
A plain reading of the above shows that the findings recorded by the Tribunal are essentially findings of fact based on an appreciation of the material on record. The conclusion of the Tribunal is not based on any single fact, but on the cummulative effect of all the facts and circumstances taken together. It is true that the assessee had discharged the initial onus by producing letters of the broker in support of the transactions of sale and purchase. It is equally true that the loss could not have been disallowed on account of the failure on the part of the broker to maintain proper books or records. However, the ITO has not based disallowance merely on this ground. He has made further inquiries to controvert the claim of the assessee. One important factor taken into account is that no payment was made by the petitioner either to the broker or the seller against the purchase of shares nor was any amount received by it when the shares were sold. Why would a broker lock up his own money for purchasing shares on behalf of the assessee is indeed not understandable and raises a serious doubt about the genuineness of the transaction. A broker cannot risk buying shares of the value of Rs. 2,13,200 against a paltry advance of Rs. 8,000. Another circumstances against the assessee is that he has not been able to prove that the actual delivery of the shares had been taken or given at the time of the transactions of sale and purchase. These factors, in our considered view, do support the view of the ITO.
In CIT vs. Currency Investment Co. Ltd. (2000) 158 CTR (Cal) 361 : (2000) 241 ITR 494 (Cal) a similar issue had arisen for consideration before the Calcutta High Court. The loss on sale and purchase of shares had been disallowed on the ground that the assessee had failed to produce the broker through whom the purchases and sales of shares had been made. The High Court was of the view that since the identity of the share broker and the person through whom the shares were purchased and sold, were not disputed, the loss could not be disallowed merely because the assessee could not produce the broker. What had weighed with the High Court was that the shares had been purchased by making payment by means of an account payee cheque. Similarly, the sale price had also been received by an account payee cheque. The actual delivery of shares had also been proved. It was under these circumstances that the view of the Tribunal that the assessee had proved the genuineness of the loss was upheld. It was also observed that the question whether assessee suffered a loss on account of share transactions was basically an issue based on findings of fact and the view taken by the Tribunal was a possible view based on reasons and as such could not be said to be perverse. Similar view was taken in a subsequent case by the Calcutta High Court in CIT vs. Carbo Industrial Holdings Ltd. (2000) 161 CTR (Cal) 282 : (2000) 244 ITR 422 (Cal).
In the present case no payment was made at the time of purchase nor was any payment received at the time of sale of shares. The transactions had been settled on the basis of difference in sale and purchase value of the shares on the relevant dates. The only evidence produced by the assessee was copies of purchase and sale bills which were unnumbered and prepared on loose sheets. The particulars of neither the buyer nor the seller are available. Thus, the transactions were not open to verification from any quarter. The view taken by the Tribunal is a possible view and is based on proper reasoning. Thus, in our opinion, no question of law arises out of the order of the Tribunal.
Before parting, we would like to observe that the ITO had justified the disallowance also on the alternative ground that even if the sale and purchase of shares were to be held as genuine, in the absence of any proof of actual delivery, the transaction was speculative in nature and, therefore, the loss suffered in such a transaction, could not be adjusted against business income. This finding does not appear to have been challenged before any of the lower authorities. Even in the reference application, no question against this finding has been raised.
In the result, the petition under s. 256(2) of the Act being devoid of any merit, is dismissed. No costs.
[Citation : 254 ITR 251]