The present appeal was filed by M/s Narain Properties Limited for the Assessment Year 1997-98 against the appellate order dated 15.03.2010 passed by the Commissioner of Income Tax (Appeals)-II, Kanpur. The appeal arose from an assessment framed under section 143(3) of the Income-tax Act, 1961, wherein the total income of the assessee was assessed at ₹21,22,810 as against the returned income of ₹9,61,710.

During the assessment proceedings, the Assessing Officer disallowed the loss claimed by the assessee on account of purchase and sale of shares by treating the same as speculative in nature. The Assessing Officer observed that the assessee failed to establish actual delivery of shares and held that the transactions were structured to generate artificial losses. Reliance was placed on the principle laid down by the Hon’ble Supreme Court in McDowell & Co. Ltd. to hold that colourable devices aimed at tax avoidance could not be permitted.

Aggrieved, the assessee preferred an appeal before the learned CIT(A). The learned CIT(A), after examining the material on record, upheld the assessment. It was held that the assessee failed to produce any direct evidence demonstrating delivery of share certificates or their transfer for registration. The appellate authority further noted serious anomalies in accounting entries, abnormal delays in payment to the broker, and lack of corroborative evidence confirming the genuineness of transactions. On these facts, the CIT(A) concluded that the transactions were fictitious and that the loss claimed was not allowable.

The assessee thereafter filed the present appeal before the Income Tax Appellate Tribunal and relied upon contract notes, bank statements, broker accounts, and earlier judicial orders in its own case, contending that the transactions constituted normal business activity and not speculative transactions. Reliance was also placed on judicial precedents including Aman Portfolio Pvt. Ltd. vs DCIT.

The Departmental Representative supported the orders of the lower authorities and contended that the issue involved related to the genuineness of transactions and actual delivery of shares under section 43(5), which was distinct from the applicability of section 73 dealt with in earlier years.

After hearing both sides and perusing the records, the Tribunal observed that the contract notes relied upon by the assessee lacked credibility, as the distinctive numbers of shares were handwritten without authentication. The Tribunal further noted that substantial delays in making payments to the broker were inconsistent with normal commercial practices and cast serious doubt on the genuineness of the transactions.

In view of these facts and circumstances, the Tribunal held that the assessee had failed to establish actual delivery of shares and genuineness of transactions. The Tribunal found no infirmity in the findings of the learned CIT(A) and upheld the conclusion that the loss claimed was speculative and not allowable.

Accordingly, the impugned appellate order dated 15.03.2010 was sustained, and the appeal filed by the assessee was dismissed.

 

Source:

 https://itat.gov.in/public/files/upload/1767607486-Y9cE4Y-1-TO.pdf