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APPELLANT RESPONDENT
ORDER
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“Thus the basic principles which emerge from the above case laws
are follows :-
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assessee should be allowed to set off the said loss against business
income. Learned CIT(A) accepted this submission of the assessee and
directed the Assessing Officer to treat the loss in question as business
loss and not speculative loss. Aggrieved by the aforesaid order of
learned CIT(A), the revenue has raised ground No. 1 before the Tribunal.
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It is thus clear that the value and volume of a dealer or investor holding
hedging transactions should be in equal proportion and hedging
transactions can never be in excess. It is further a condition that hedging
transaction should be in respect of very same script held by an assessee
as inventory in the business of stocks and shares. In the present case,
the Assessing Officer has not gone by script-wise tally but has gone by
value of overall inventory. To this extent, the Assessing Officer has been
very reasonable. We therefore hold that Circular was very much relevant
and applicable in the case of the assessee.
9. We are also of the view that under clause (b) of section 43(5), the
assessee in the garb of entering hedging transaction cannot seek to enter
into speculative transaction in any stocks or shares other than by one
held by him as inventory in the business of dealing in stocks and shares.
Value of hedging transactions cannot also be more than such inventory.
If arguments sought to be canvassed by the assessee is accepted, then it
will lead to a situation where all speculative transactions will be claimed
as hedging transactions and very purpose behind the provisions of
section 73 of the Act not permitting set off of speculative loss against
business income will become redundant. There is no doubt truth in the
plea of the assessee that Nifty futures and index futures are the only
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10. Learned counsel for the assessee, however, submitted that the
Board Circular itself says that only excess of the assessee’s position in
forward market over actual stock held in ready market should be
considered as speculative. For e.g. on 17.6.2004, the inventory of stock
held by the assessee was Rs. 36.18 lakhs and purchases in Nifty Futures
was Rs. 1.49 crores. In Nifty Futures purchase if the assessee incurs loss
on the settlement day, the loss proportionate to the value of inventory i.e.
Rs. 36.18 lakhs should not be considered as speculative loss. To that
extent, the loss should be considered as hedging transaction. We have
already observed that the shares held as inventory and the shares in
which hedging transactions are entered into should be the same. The
Assessing Officer has however gone by overall value of inventory without
individual script wise tally. The plea of the assessee that to the extent of
the value of inventory held by the Assessee on a particular day, the loss
in purchase of Nifty Futures should not be considered as speculative
while working out the loss is an acceptable plea. To this extent, plea of
the assessee is accepted and the Assessing Officer is directed to work out
speculation loss by taking excess of the assessee’s position in forward
market over actual stock in ready market and work out the speculative
loss proportionately. Thus, Ground No. 1 of the revenue is partly allowed.
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12. The assessee declared short term capital gains of Rs. 16,02,739/-.
The Assessing Officer was of the view that since, the assessee was dealer
in shares and was having huge volume of share transactions in such
business, it was hard to believe that the assessee held shares as
investment also, the Assessing Officer therefore treated the short term
capital gain declared by the assessee also as income from business.
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14. Before us, learned DR relied on the order of the Assessing Officer.
15. We are of the view that the order of learned CIT(A) does not call for
any interference. Admittedly, the assessee had treated the shares in
question as investment in his books of accounts. In fact, in A.Y. 2004-
05, the assessee had declared short term capital gain on sale of
investments (shares held as investment) the same was accepted by the
Assessing Officer in assessment u/s. 143(3) of the Act. The Hon'ble
Bombay High Court in the case of CIT Vs. Gopal Purohit, ITA No. 1121 of
2009 dated 6.1.2010 has held that ruling of consistency should apply
when the facts are identical. In view of the acceptance of the assessee’s
stand by the revenue in the past and other circumstances considered by
the learned CIT(A), we see no reason why a different treatment should be
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given in the present assessment year. For the reasons given above, we
uphold the order of learned CIT(A) and dismiss Ground No. 2 raised by
the revenue.
Sd/- Sd/-
(B. RAMAKOTAIAH) (N.V. VASUDEVAN)
ACCOUNTANT MEMBER JUDICIAL MEMBER
BY ORDER
True copy
PS
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