The Commissioner of Income Tax and The Income Tax Officer vs M.L. Suhas Prop. Surya Securities

B.V. Nagarathna, J.—The revenue has preferred this appeal by challenging the order dated 3.2.2005 passed in ITA No. 2391/Bang/2004 raising the following substantial questions of law;

Whether the Tribunal was correct in holding that a sum of Rs. 30,46,725/- cannot be treated as commission income derived by the assessee in respect of share transactions transacted by the assessee with third parties amounting to Rs. 507,78,76,311/- on an estimate basis @ 0.06% as was being adopted in the said trade despite the assessee failing to furnish the names and addresses of the various persons with whom such share transactions took place for verification?

Whether the Tribunal was correct in directing deletion of Rs. 30,46,725/- on mere conjectures and surmises without basing its finding on any cogent evidence and consequently recorded a perverse finding when the Assessing Officer had categorically held that 99.99% of the transactions dealt with by the assessee was speculative in nature?

Whether the Tribunal was correct in deleting a sum of Rs. 2,56,330/- the loss claimed by the assessee which had been disallowed by the Assessing Officer and upheld by the Appellate Commissioner on the ground that the same has been arrived on a speculated basis?

Whether the Tribunal was correct in holding that the proviso to Section 43(5) of the act was applicable to facts and circumstances of the case and therefore, trading transaction would not mean speculative transactions and the trading in shares fell within he proviso and could not be treated as speculative in nature?

The facts leading to the filing of this appeal are, that the respondent assessee, who was a broker trading in shares and stocks and registered with Bangalore Stock Exchange, for the assessment year 2001-2002, filed his return of income. Thereafter, he filed a letter on 30.3.2004 wherein he gave figures of income with regard to the total trading of shares done on behalf of his clients and out of which the extent of amount of income through nine brokers and the balance amount with regard to the income through eleven individual members and miscellaneous persons, who are not members of any stock exchange and nor are they sub-brokers. The assessee did not however produce the names and addresses of the persons with whom he had traded with shares amounting to Rs. 50.65 crores. The assessing officer treated the entire receipts from the eleven non-brokers for which the legitimate commission ought to have been accounted as having escaped assessment. Accordingly, the assessing officer added the said amount towards the income and computed the assessment by order dated 31.3.2004. The assessing officer also held that the assessee was engaged in business, which was speculative in nature and therefore, could not set off loss from the business profit. Being aggrieved by the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), who rejected the same by order dated 30.6.2004. Hence, the assessee preferred an appeal before the Income Tax Appellate Tribunal, which allowed the appeal of the assessee. It is against the said order, the revenue has preferred this appeal.

We have heard the learned Counsel for the revenue and the learned Counsel for the respondent/assessee and perused the materials on record.

It is evident that the respondent assessee is a share broken and a member of the Bangalore Stock Exchange and he deals in shares not only on behalf of his clients but also in his own name. It has also come on record that the format of contract approved by SEBI when the shares are purchased on behalf of clients is different from the format of contract when the shares are purchased on his own account. When the assessee purchased the shares on behalf of his clients, he would be entitled to commission/brokerage, which would absent in the case of purchase of shares on his own account. The nature of business of the assessee is a regular trade and being a member of the Bangalore Stock Exchange, he has been carrying on his business over a period of time. The Tribunal has noted that in respect of the transactions on own account-type ''B'', there is no brokerage which arises as the shares were not dealt with a view to earn any brokerage But with regard to the transactions, which are entered into by the assessee on behalf of his clients, market rate and brokerage are indicated separately. Therefore, there is a clear distinction with regard to the trading of shares made by the assessee on behalf of his clients and on his own account. The commission received on share transaction on behalf of the clients and the brokerage received on trading-type ''A'' transactions has been shown by the assessee by his letter dated 10.3.2004. From the said letter, it becomes clear that with regard to type ''A'' transactions done by the assessee or his own account, there is brokerage, which has been received by the assessee. The assessing officer has, however, not kept in mind this distinction and has also without there being any basis, held that the entire trading transaction of the assessee is speculative in nature and that the loss sustained by the assessee cannot be set off from the business profit. On perusai of the assessment order, we find that there is no basis for such a view taken by the assessing officer. In view of the fact that the assessee has furnished the details with regard to the profit or loss earned or sustained respectively from the brokerage business and the profit or loss that has been sustained by him in respect of the trading of shares done by him on his own account over the years and the same has been accepted by the assessing officer, with regard to the particular assessment year in question i.e. 2001-2002, there was no reason for the assessing officer to take a different view of the matter. Hence, we find that the Tribunal was right in setting aside the order of the assessing officer as well as the order of the Commissioner of Income Tax (Appeals) and granting relief to the respondent assessee.

For the aforesaid reasons, the substantial questions of law raised in this appeal have to be answered against the revenue on the facts of the case Accordingly, the appeal is dismissed.