V.K. Gupta, A.M. - (1.) THIS appeal filed by the assessee is directed against the order of Commissioner (Appeals) XV dated 6-12-1999 at Mumbai for the assessment year 1996-97. The proceedings arise out of assessment made under section 143(3) of the Income Tax Act, 1961.
(2.) We have heard both the parties, perused the records and other applicable legal. position. Ground Nos. 1 to 10 deal with the issue of treatment of loss on sale of shares as speculation loss and denial of setting-off of the same against the capital gain earned by the assessee on other assets during the year under consideration.
(3.) BRIEFLY stated, facts of the case are that the assessee is a company engaged in the manufacture of liquor. In the return of income, the assessee showed capital gain on sale of assets at Rs. 2,71,489 which was arrived at after netting off against loss on sale of investment at Rs. 80,95,183. The assessing officer noted that the assessee had incurred loss in multiple share transactions wherein the shares were held for a very brief period. The assessing officer was of the opinion that the assessee was engaged in the sale and purchase of shares and showed the share purchase in the earlier years under the head investment only with the purpose of to avoid the application of Explanation to section 73 of the Act. The assessing officer relying on various decisions, was of the opinion that section 73 would be invoked only when the conditions specified therein are satisfied as there were purchase and sale of shares of companies during the year under consideration were of the nature of regular business. The assessing officer was further of the opinion that the nomenclature adopted for that transactions was not important rather it was sum and substance of the transactions which had to be considered. The assessing officer finally held that Explanation to section 73 was applicable to such transactions on the given set of facts and accordingly loss in trading in shares amounting to Rs. 53,83,538 pertaining to shares purchased and sold during the year under consideration was speculation loss and not available for set of against short-term capital gains on sale of shares. Accordingly, assessing officer computed short-term capital gain is at Rs. 65,93,355. Aggrieved, the assessee preferred an appeal before the learned Commissioner (Appeals), who after carefully considering the Submissions made by the assessee and the findings of the assessing officer based on various judicial precedents, upheld the action of assessing officer and recorded his findings as under : "I have carefully considered the facts of the case and the submissions of the appellant. Under the Explanation to section 73 wherein any part of the business of a company, other than those companies as specified therein consists in the purchase and sale of shares of other companies, such company shall for the purpose of section 73 be deemed to be carrying on a speculation business to the extent to which the business consists of purchase and sale of such shares. Question to be examined is whether the purchase and sale of shares by the appellant company. No hard and fast rule can be laid down for giving such a finding and inference in this regard has to be given from the overall facts and circumstances of the case. Though the appellant has tried to argue that it has always treated that the shares as part of its investment but it is not a conclusive test. Nor the appellant can get any benefit from the fact that in the earlier years profit on sale of shares was assessed as short-term capital gain. From the details of short-term capital gain/loss on the shares and other assets given in the earlier order, it may be seen that right from assessment year 1994-95 it is carrying on purchase and sale of shares. In this year also, the appellant has sold shares in as many as 34 companies. The appellant has sought to justify the sale of shares after holding the same for less than a year by arguing that it wanted to reduce losses as the share prices were going down. This explanation would have carried some weight if the appellant had sold only shares which were held for a long time and whose prices were going down because of general fall in the shares prices. On the other hand, in this year the appellant has sold the same after holding them for a short duration. This is definitely indulging in speculative business. I do not accept the contention of the appellant that no part of its business consists of purchase and sale. It is clear from the facts that no investor in shares will indulge in purchase and sale of shares over a period of five years. The appellant has failed to substantiate that it was acquiring shares only by way of investment. In support of its contention the appellant has inter alia relied upon the order of ITAT, Delhi in the case of M/s. VIP Growth Fund Ltd. v. Assistant Commissioner, 95 Taxman 313. In that case there was only a solitary transaction in regard to sale of shares. On the other hand, as mentioned earlier, the appellant has sold shares in as many as 34 companies in this year. On the facts of the case of the appellant, the observations made by the ITAT in the case of Laxmi Feeds & Exports (P) Ltd. which has been relied upon by the assessing officer are squarely applicable. In this case it was inter alia observed that plurality of transaction and plurality of companies is a pre-condition for attracting the provisions of Explanation to section 75. in the case of the appellant also, there is plurality of transaction and companies and the conduct of the appellant over preceding two years and subsequent two years makes it clear that sale and purchase of shares was part of the business of the appellant company though appellant company has specifically not admitted the same and tried to camouflage it as purchase and sale of investments. Accordingly, Explanation to section 73 is attracted in the case of the appellant. For the detailed reasons given in this order, the action of the assessing officer in holding that loss of Rs. 53,83,538 is speculation loss in view of the provisions of Explanation 73 is upheld." Aggrieved by the decision of the learned Commissioner (Appeals), the assessee is in appeal before us.;