BHASKAR BHATTACHARYA,J. - (1.) THIS appeal under S. 260A of the IT Act, 1961 is at the instance of an assessee and is directed against an order dt. 12th July, 2004, passed by the Tribunal, "B" Bench, Kolkata, in income-tax appeal being ITA No. 1738/Kol/2003 for the asst. yr. 1998-99 and thereby allowing the appeal of the Revenue and setting aside the order passed by the CIT(A). Being dissatisfied, the assessee has come up with the present appeal.
(2.) THE facts giving rise to filing of this appeal may be summed up thus : (a) The assessee is a partnership firm within the meaning of the Indian Partnership Act, 1932 and carries on the business of dealing in shares, securities, debentures and is duly registered as a stockbroker. (b) The assessee-firm has the two partners, namely, Dwarka Prasad Kejriwal and Govardhan Dass Kejriwal, having 50 per cent share each in the said partnership. (c) The aforesaid two partners of the assessee desired to purchase shares by way of investment or to sell their existing investment and in such cases, instead of involving an outside stockbroker, they decided to transact such sale and purchase through their own firm, assessee itself, as a registered stockbroker. In respect of such transactions, the assessee-firm charged its usual brokerage including service charges from its partners. In this type of purchase of shares by the partners, the payment for the same was made by debit of the amount to their capital accounts and in case of sale by the partners of their investments, the sale proceeds received were credited to the partners' capital accounts. (d) During the previous year ended 31st March, 1998, in December, 1997, the assessee-firm purchased for each of its two partners 18,000 shares each in ITC Ltd. and 10,000 shares each in Tata Tea Ltd. The shares in ITC Ltd. were sold on behalf of the partners in December, 1997 itself and those in Tata Tea Ltd. were sold in January, 1998. (e) The payment for the purchase of shares in ITC Ltd. was made on behalf of the partners on 17th Dec., 1997 on which date the credit balance in the capital accounts of each of the partners was in excess of the purchase consideration payable. The payment for the shares in Tata Tea Ltd. was made on behalf of the partners on 31st Dec., 1997 by debit to their respective capital accounts and on that date also the balance standing to the credit of each of the partners was in excess of the purchase consideration. In other words, on the dates of payment of the purchase consideration, each of the partners had sufficient credit balance in their respective capital accounts to cover the payment. (f) Each of the said transactions made on behalf of the partners was evidenced by entries in the assessee's Sauda book, purchase and sale contract notes, contemporaneously issued by the assessee showing therein, inter alia, the purchase or sale rate, as the case may be, and the brokerage inclusive of service-tax bills raised by the assessee-firm or its partners, as the case may be, and debit in respect of the purchase consideration and credit in respect of the sale consideration in the capital accounts of the two partners. (g) Similarly, during the previous year ended 31st March, 1998, the assessee-firm purchased on behalf of each of the partners 15,000 shares each in Castrol India Ltd. and after receiving delivery of the said shares, the partners sent the same to the company for registering the transfer in their respective names and received the duly transferred shares from the company. (h) In the transactions relating to purchase and sale of shares in ITC Ltd. and Tata Tea Ltd., the two partners of the assessee earned short-term capital gains which were duly shown by them in their respective IT returns. The shares in Castrol India Ltd. purchased by the assessee's partners and held by them as at the end of the previous year were duly shown in their respective balance sheet as at 31st March, 1998 filed with their IT return. (i) By the order of the assessment dt. 30th March, 2004, the AO taxed the capital gains earned by the partners of the firm in the transactions relating to the shares in ITC Ltd. and Tata Tea Ltd. as the assessee's profit. Over and above, the shares in Castrol India Ltd. purchased by those two partners were treated as belonging to the partnership firm-assessee and the difference between the market value of the said shares as on 31st March, 1998 and the purchase price was added in the assessee's assessment as alleged undervaluation of the closing stock. (j) Being aggrieved, the assessee-firm preferred an appeal before the CIT(A) and the said appellate authority, by an order dt. 6th March, 2003 deleted the addition made by the AO in respect of the transactions relating to shares in ITC Ltd. and Tata Tea Ltd. but upheld the addition on account of the shares in Castrol India Ltd. (k) Being dissatisfied, the AO preferred an appeal against the said order of the CIT(A) deleting the addition made in respect of transactions relating to the ITC Ltd. and Tata Tea Ltd. before the Tribunal and the assessee-firm also preferred an appeal before the Tribunal against the order of the CIT(A) so far as the addition in respect of the transactions relating to shares in Castrol India Ltd. was sustained. (l) The Tribunal by the order impugned allowed both the appeals preferred by the assessee and the Revenue. While granting relief to the assessee's appeal, the Tribunal was influenced by the fact that the partners of the assessee got the shares in Castrol India Ltd. registered in their respective names. While allowing the appeal of the Revenue in respect of transactions relating to shares in ITC Ltd. and Tata Tea Ltd., the Tribunal held that the funds were not available to the partners of the assessee for entering into the transactions. (m) Being dissatisfied, the assessee has come up with the present appeal while Revenue has accepted the order of the Tribunal relating to deletion in respect of the transaction of the Castrol India Ltd. At the time of admission of this appeal a Division Bench of this Court formulated the following question of law : "Whether the Tribunal was justified in law in holding that the short-term capital gains of Rs. 44,56,360 earned by the appellant's partners in transactions relating to purchase and sale of shares in ITC Ltd. and Tata Tea Ltd. were to be assessed as the appellant's profits and its purported findings that sufficient funds were not available to the partners for entering into the transactions or that the purchases and sales were made by mere book entries and upholding the said addition are arbitrary, unreasonable and perverse ?"
(3.) MR . Khaitan, the learned senior advocate appearing on behalf of the appellant, has strenuously contended before us that the learned Tribunal below committed substantial error in law in setting aside the relief granted to the assessee by the CIT(A) on erroneous ground that sufficient funds were not available to the partners for purchasing the shares or that the purchases and sales could not be lawfully transacted by the partners by mere book entries. By referring to the balance in partners' capital accounts on the dates of debit for their personal share investment, Mr. Khaitan points out that on the dates of purchase of those shares in the two companies, each of the partners had sufficient amount in the capital share of the business. Mr. Khaitan submits that the partners of his client have the right to purchase shares through the assessee-firm although they are the partners of the firm and it would appear that the necessary brokerage fees and service charges have been credited in the account of the assessee-firm for those transactions. Mr. Khaitan, therefore, prays for setting aside the order passed by the Tribunal as regards the readdition of the amount relating to the transaction of shares in ITC and Tata Tea Ltd.;