Punjab-Haryana High Court
Chaman Lal Madan Lal vs Commissioner Of Income-Tax on 29 April, 1996
Equivalent citations: [1996]221ITR873(P&H)
Author: Ashok Bhan
Bench: Ashok Bhan
JUDGMENT Ashok Bhan, J.
1. The Income-tax Appellate Tribunal, Chandigarh Beach (hereinafter referred to as "the Tribunal") has referred the following questions of law for the opinion of this court at the instance of the assessee :
"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that a sum of Rs. 19,685 constituted loss of a speculative business and could not be set-off against the income from business ?
(ii) Whether, on the facts and in the circumstances of the case, the disallowance of Rs. 19,685 is in accordance with law ?"
2. The relevant facts are as under :
The assessee, a registered firm, deals in hardware. The previous year relevant to the assessment year 1970-71 ended on March 31, 1970. The assessee filed its return of income declaring income at Rs. 71,332. The assessee claimed a loss of Rs. 19,685 on the purchase and sale of 400 bales of Desi cotton through Pyare Lal and Sons, commission agents, Rampura Phul. These 400 bales had been pressed in different factories during the months of December, 1969, January and February, 1970, and were sold by the different factories to Basant Lal Banarsi Dass, Cotton Merchants, Bhatinda. Basant Lal Banarsi Dass first sold these 400 bales on different dates to Pyare Lal and Sons, commission agents. The books of account of Pyare Lal and Sons disclosed that they purchased the aforesaid goods on account of Ram Lubhaya and Company, Ludhiana, and then sold these to Chaman Lal Madan Lal, Moga (the assessee), who then sold them to Shri Vishwa Narain Bajaj, c/o. Basant Lal Banarsi Dass. The Income-tax Officer, Moga, got the books of account of Basant Lal Banarsi Dass and Pyare Lal and Sons examined on commission through the Income-tax Officer, Bhatinda. On the basis of the report received from the Income-tax Officer, Bhatinda, the loss claimed by the assessee was disallowed being bogus and speculative. It was held that Basant Lal Banarsi Dass did not give any delivery to Pyare Lal and Sons and subsequently Pyare Lal and Sons could not give any delivery to the assessee. It was concluded that the transaction was settled otherwise than by actual delivery of cotton bales.
3. An appeal filed by the assessee was accepted by the Appellate Assistant Commissioner. The assessee's contention that the loss in question was a genuine loss and the same was incurred in ready business was accepted. The Revenue being dissatisfied against the order of the appellate authority filed appeal to the Tribunal which was accepted. The Tribunal set aside the order of the Appellate Assistant Commissioner and sustained the order passed by the Income-tax Officer holding the loss to be speculative, therefore, disallowable. However, the Tribunal did not accept the contention of the Revenue as recorded by the Income-tax Officer that the loss was a bogus loss.
4. Counsel appearing for the assessee contended that the Tribunal has misdirected itself while determining whether the loss of Rs. 19,685 was incurred in ready business or was speculative as it overlooked and ignored' the crucial evidence present on record. Reliance was placed on the affidavit filed by Pyare Lal and Sons to the effect :
" That the firm, Chaman Lal Madan Lal, Moga, had purchased and sold cotton bales (ready delivery) through us and we had charged a sum of Rs. 387.84 on account of insurance, interest and mazuri.
That all the transactions through us were of ready delivery."
5. It was argued that the Tribunal failed to appreciate the true import of the affidavit and the charging of Rs. 387.84 on account of insurance, interest and mazdoori. The payment of Rs. 19,685 coupled with the sum of Rs. 387.84 on account of insurance, interest and mazdoori leave no other conclusion possible that the transactions were for ready delivery in goods and by no stretch of imagination these transactions could be described as speculative.
6. There is no force in the contention raised by counsel for the assessee that the property in goods was actually delivered to the assessee or its commission agents. The fact of Pyare Lal and Sons charging Rs. 387.84 for insurance, etc., does not conclusively prove that Pyare Lal and Sons held ready, goods for the assessee.
7. Under Section 43(5) of the Act, loss in speculative business is available against profits of speculative business only and not against any other income. The effect is that if there are profits in speculative business the same are added in the income for the purpose of computing the total income of the assessee and if there are losses in the speculative business then the same are not to be taken into account while computing the total income except to the extent of profits from speculative business. "Speculative transaction" means a transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrips. Actual delivery of the goods is, therefore, a must.
8. The assessee is a dealer in hardware and is claiming a loss of Rs. 19,685 in purchase and sale of 400 bales of Desi cotton. The sequence in which sale and purchase of the cotton bales has been made clearly indicates that the same is speculative in nature. Basant Lal Banarsi Dass first sold these bales on different dates to Pyare Lal and Sons, commission agents. The books of account of Pyare Lal and Sons disclosed that they purchased the aforesaid goods on account of Ram Lubhaya and Co., Ludhiana, and then sold the same to the assessee who in turn sold them to Basant Lal Banarsi Dass, thus completing the circle without effecting any actual delivery of goods. There is nothing on record to show that actual delivery was taken by the assessee. It has been found as a fact by the Tribunal that delivery of 400 bales of cotton was neither given nor taken by the assessee or its commission agents. The difference of Rs. 19,685 as loss paid without actual delivery of cotton bales was speculative in nature and, therefore, disallow-able in nature. No interference is called for.
9. For the reasons stated above, we answer the questions referred to us in the affirmative, in favour of the Revenue and against the assessee. No costs.