Judgment:
1. This appeal filed by the department is against the order of the CIT (Appeals) dated 30-3-1988, for the assessment year 1984-85.
2. The first ground of appeal is regarding the CIT (Appeals) is direction to treat the loss of Rs. 69,280 on account of share transaction as normal business loss, as against treatment of the same by the Assessing Officer as speculative loss.
3. The ITO treated the loss as speculative on the ground that the shares were sold out before taking delivery of the same. Thus the sale took place before the assessee was in possession of those shares and hence the Assessing Officer concluded that the transaction is nothing but speculative one. In order to prove the above point the Assessing Officer tabulated the share transactions in the assessment order which is as follows:--Sl.
Name of the Name of Purchase Sale Name LossNo. Co. whose Broker Date Date of Date of of (Rs.) shares were of Con- Acquisition Contract brokers purchased & tract Date of sold - No. transfer1 2 3 4 5 6 7 81.
Tata Tea Singhania Bros. 28-11-83 8-2-84 9-2-84 Shyam & Co. 33,6002.
I.T.C. Shyam & Co.
16-12-83 8-2-84 6-2-84 Singhania 21,8403.
Assam Singhania Bros. 25-11-83 22-2-84 9-2-84 Shyam &Co.
39,6004.
Texmaco Ltd. Shyam & Co.
6-1-84 22-2-84 13-2-84 Singhania Bros. 7,840 1600 shares 29-2-84 Total: 6 4. The CIT (Appeals) directed the Assessing Officer to treat the loss as normal business loss on the ground that the Assessing Officer has not doubted the genuineness of share transactions. According to the CIT (Appeals), the only point made out by the Assessing Officer was that the transaction should be treated as speculative in nature, since according to the Assessing Officer shares were sold out before taking deliveries. The CIT (Appeals) has observed that the shares were actually delivered through Indian Overseas Bank. In view of this clear evidence as to actual delivery of shares through Indian Overseas Bank on sale, there can be no doubt that the transactions are outside the purview of Section 43(5) of the Income-tax Act, 1961, and, therefore, the CIT (Appeals) directed the Assessing Officer to treat the loss as normal business loss.
5. The Department has come up in appeal against the above direction of the CIT (Appeals). The learned departmental representative, during the course of hearing of the appeal relied on the order of the Assessing Officer and stated that the loss is of the speculative in nature as the sales of the shares were made before the same were received from purchases. In support of this contention the learned departmental representative look us through the tabulated chart which is in the assessment order and reproduced hereinabove.
6. The learned authorised representative of the assessee, on the other hand, relied on the findings of the CIT (Appeals) and stated that the assessee furnished full details of contracts, dates of delivery of shares and particulars about the payments. The shares were purchased and sold through share brokers and actual delivery of those shares on sale by the assessee firm was effected through Indian Overseas Bank. As regard the ITO's main finding that the shares were sold before the same were received by the assessee-company, it is stated that the assessee entered into sale contracts prior to the date of receiving delivery against the purchase contracts. The actual delivery of those shares were effected only after receiving delivery against the own purchases, and it is stated that this is a normal practice in this line of business and there is nothing unusual about the transactions. It is submitted that the tabular form of the ITO in his assessment order which is reproduced above supports the assessee's contentions. It has also been submitted that the Assessing Officer is not correct in alleging that the loss in those transactions are speculative in nature having regard to the fact that the delivery of the shares were effected through Indian Overseas Bank. The assessee has filed copies of Bank advices and bank statements evidencing delivery through Indian Overseas Bank.
7. We have considered the rival submissions with reference to papers filed before us, and hold that the CIT (Appeals) is justified in directing the Assessing Officer to treat the loss as business loss. The assessee has filed full details of contracts, dates of delivery of shares, and particulars about the payments. The shares were purchases and sold through regular share brokers and delivery of those shares on sale by the assessee were effected through Indian Overseas Bank. The authorised representative of the assessee has also filed the details of distinct number of purchases and sales of shares of different companies made by the assessee-company in which the loss was incurred. As regards the ITO's main reason for treating the losses as speculative that the shares were sold before they were received by the assessee, we may state that this is normal practice in this line of business. The assessee makes purchases of shares for sale. Therefore/when he enters into contract with a party to purchase shares then at the same time he knows that he will receive the shares. Therefore, he tries for best price and enters into contract for sale of those shares, though he might not have got physical possession of the same. But there is nothing wrong in this. The chart mentioned above clearly shows that delivery has been given only after the shares are physically received by the assessee. So, in view of the facts stated above the CIT (Appeals) is justified in directing the Assessing Officer to treat the loss as normal business loss and accordingly we uphold the finding of the CIT (Appeals) on this point.
8. The next and the last ground of appeal is regarding deletion of Rs. 17,56,071 on account of loss of purchase and sale of raw Jute. The main reasons given by the ITO for disallowing the loss are summarised as under:-- (i) There was wide variation in the quantitative analysis of different varieties of raw Jute purchased and sold by different firms, namely, M/s. Rohini Traders and Exporters Ltd., M/s. Senilis Trading Syndicate Ltd., M/s Adarsh Commercial Co. Ltd. and M/s.
Olympic General Trading Ltd. (ii) The Jute so purchased was lying in the godown of Dalhousie Jute Co. Ltd. itself to whom the assessee-firm ultimately sold the Jute.
Some of the sellers who sold raw Jute to the assessee had godowns of their own.
(iii) M/s. Adarsh Commercial Co. Ltd. and M/s. Senilis Trading Syndicate Ltd. did not produce its day-to-day stock book.
(iv) The receipted challans did hot bear the date of receipt which ought to have been endorsed by M/s. Dalhousie Jute Co. Ltd. (v) While Dalhousie Jute Co. Ltd. showed an outstanding liability of Rs. 23,36,803 as on 31-3-1984, the assessee-firm claimed that there was no outstanding sale proceeds in their book of accounts.
(vi) M/s. Basant Investment Corpn. has not debited any expenses for purchase and sale of such huge quantity of raw Jute. The company also did not furnish the rates of purchases and sale of raw Jute when the transaction took place.
9. The CIT (Appeals) deleted the addition on appeal by the assessee.
Now the department has come in appeal against the said deletion. The learned Departmental Representative fully relied on the findings of the ITO in his assessment order and stated that deletion is not justified.
10. The learned authorised representative of the assessee, on the other hand, supported the findings of the CIT (Appeals) and contended that all the purchases of raw Jute are from regular dealers and the dealers purchase the raw Jute from the growers. The sales by the assessee are to the Dalhousie Jute Co. It is stated that the assessee has all the details of purchases and sales which are in pages 40 and 88 of the paper book filed. It is submitted that the assessee-company purchased raw Jute from four different companies. All these four companies were summoned by the Assessing Officer and they complied with those summons and affirmed their transaction with the assessee-company. The raw Jute was ultimately sold by the assessee to Dalhousie Jute Co. Ltd. It is an admitted fact that the raw Jute was lying in the godown rented by seller companies from Dalhousie Jute Co. Ltd. and the raw Jute was directly delivered by said four seller companies to the Dalhousie Jute Co. Ltd. under the advice and instructions of the assessee-firm.
11. As regards quantitative/quality-wise discrepancy between the purchase of raw jute originally made by the four seller-companies (which raw jute was later sold to the assessee-firm) and the ultimate sales by the assessee-firm to M/s. Dalhousie Jute Co. Ltd. It was submitted that actually there was no difference. The total quantity of raw jute purchased by the assessee-firm tallies exactly with the raw jute actually sold to Dalhousie Jute Co. This fact is evident from the ITO's order itself. The difference pointed out by the ITO arises only between the quantity-wise analysis of purchases made by four seller companies and the ultimate purchases made by the assessee-firm from them on the basis of its gradation. It is further stated that on physical verification of the raw jute, the representative of the assessee-firm found that gradation made by the four firms as regards its quality does not tally with the gradation made by the representatives, though the quantity-wise there was no discrepancy. In other words, the assessee-company insisted on making purchases on the basis of the quality actually found on physical inspection of the raw jute. It is further submitted that if the assessee had accepted the quality-wise classification as made by the four seller-companies, it would have been liable to make payment of higher amounts by way of purchase price. The assessee-company, however, insisted on re-gradation and the purchase price was ultimately settled on the basis of such re-gradation.
12. It is also submitted that no adverse inference should be drawn from the mere fact that the jute was lying in the godown of M/s. Dalhousie Jute Co. Ltd. and the same was ultimately sold to Dalhousie Jute Co.
Ltd. It was explained that the sellers had stocked raw jute in the godown of Dalhousie Jute Co. Ltd. by taking it on rent and later, since the assessee-firm also chose to sell the said raw jute to the said Dalhousie Jute Co. Ltd., it instructed the sellers to effect direct delivery to the Dalhousie Jute Co. Ltd. It was also submitted that failure of the sellers to produce day-to-day stock book could not be a ground for drawing adverse inference against the assessee. The absence of date of receipt on the receipted challans endorsed by M/s. Dalhousie Jute Co. Ltd. was explained to be irrelevant inasmuch as there was no doubt as to the actual delivery of raw jute to Dalhousie Jute Co. Ltd. 13. As regards payment, it is submitted that the assessee-firm received the payment from Dalhousie Jute Co. Ltd. by an account payee cheque drawn on 31-3-1984. This cheque was handed over to the assessee-firm after the close of the banking hours on that day. Since the cheque was received on 31-3-1984, the assessee-firm credited the account of Dalhousie Jute Co. Ltd. with the sale consideration on that very day and accordingly, no dues appear as receivable from Dalhousie Jute Co.
Ltd. in the balance sheet of the assessee-firm as on31-3-1984. However, it was explained that Dalhousie Jute Co. Ltd. recorded the payment of this amount only on 2-4-1984, the first of April being holiday and it was their practice to record payments after the close of Banking hours only on the next opening day. It was submitted that this position was explained by the authorised representative of the Dalhousie Jute Co.
Ltd. when he appeared before the ITO in response to summons under Section 131 of the IT Act. In this view of the matter it is submitted that the transactions are all genuine and the CIT (Appeals) is justified in directing to allow the loss on account of purchases and sales of raw jute.
14. We have considered the submissions of both the parties with reference to the papers filed during the course of hearing and are inclined to agree with the learned authorised representative of the assessee that the loss suffered by the assessee is genuine. There is no doubt that the raw jute was actually sold and delivered to M/s.
Dalhousie Jute Co. Ltd. The assessee-company purchased such raw jute from four different sellers who confirmed their transactions with the assessee in response to summons under Section 131 issued by the ITO.All purchase and sale transactions of the assessee-firm are evidenced by contract notes, bills and vouchers. The explanation given by the authorised representative in regard to the quality-wise difference is very clear. There is absolutely no difference between the total quantity of purchases made and that was ultimately sold. It appears that the ITO has not really appreciated the explanation given by the assessee which appeared to us to be quite convincing and acceptable.
Similar is the position as regards explanation of the assessee regarding absence of date of receipt on the receipted challans endorsed by the Dalhousie Jute Co. Ltd. and the discrepancy in dates and outstanding amounts on account of receipts of payments by the assessee-firm from the Dalhousie Jute Co. Ltd. 15. We also hold that the other allegations made by the ITO are fully explained by the assessee-company and apart from mere suspicion, surmises and conjectures, there appears to be no valid ground for treating the loss suffered by the assessee in purchase and sale of raw jute. The transactions of purchases and sales made by the assessee-company cannot be disbelieved merely on suspicion, surmises and conjectures, particularly when the transactions are fully corroborated and confirmed by both the seller and ultimate buyer and these are also evidenced by the books of accounts of the concerned parties. All the transactions have also taken place by account payee cheques through banks. In view of the facts and circumstances stated above, we uphold the order of the CIT (Appeals) in directing the ITO to allow the loss in the business of purchases and sales of raw jute.