Decided on March 25,1982



S.K. Chander, Accountant Member - (1.) THIS appeal by the revenue and cross-objection by the assessee is directed against the order of the AAC dated 14-7-1981 relating to the assessment year 1976-77.
(2.) The facts relevant for the determination of the issue involved in the appeal and the cross-objection lies in a narrow compass and a look at them would help us in the appreciation of the issue involved. The assessee is a registered firm working under the name and style of Kewal Krishan Sat Pal. During the course of assessment proceedings, the ITO found that the assessee had shown a loss of Rs. 44.386 in sarson account. The ordinary business of the assessee was in utensils. It was explained to the ITO that the assessee-firm had purchased sarson through Bal Krishan Mohinder Pal, Bega Purana, and the said sarson was sold to Devi Dass Gopal Krishan, Moga. In this transaction, the assessee suffered a loss of Rs. 44,386. Since it was a single transaction in which the loss arose, the ITO asked the assessee to show cause why the loss should not be treated as loss in speculation because the main business of the firm was purchase and sale of utensils. After obtaining the explanation of the assessee, the ITO found that the assessee had no godown on rent. He also found that the expenses relating to this transaction had been debited into the accounts of the assessee but no delivery of the sarson had actually been taken. The ITO, on these facts, drew an inference : "that the firm tried to neutralize the gain of utensil business with a loss in sarson sale which cannot be accepted as genuine one as no actual delivery of sarson was obtained and no effort was made to sell it on profitable basis or to store for the next year when it could be sold at the higher rates". With these observations, the sum of Rs. 44,386 was added back to the income declared. The ITO also noted that the assessee-firm was constituted of three partners whose withdrawals were less than Rs. 1,000 per month. Keeping in view the standard of living of the family, he added Rs. 4,000 to the total income of the firm on account of low withdrawals. The assessment was framed on 23-3-1979 on a total income of Rs. 49,424 before the firm's tax. This assessment was challenged in appeal before the AAC.
(3.) THE AAC held that the amount of Rs. 44,386 "disallowed by the ]TO on the ground that it was a speculation loss" could not be termed as speculation loss in view of the judgment of the Chandigarh Bench of the Tribunal in IT Appeal No. 307 of 1979 dated 20-8-1980. He, however, confirmed the addition of Rs. 4,000 which had been made by the ITO on account of low withdrawals of the partners of the firm.;

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