Section 43(5)(d) applicable only on derivatives trading (future & options) and not on share trading

Brief of the case:

In the case of ACE India Medical Systems Vs. ACIT Jaipur Bench of ITAT held that from the bare reading of the section 43 (5) (d) it is prima facie clear that Section 43(5)(d) is for trading in derivatives not trading of shares. The assessee claimed that it has traded shares through broker and through electronics mode, which comes U/s 43(5)(d) of the Act and shall not be deemed to be an speculative transaction. ITAT held that this is wrong interpretation of the section. Besides this other additions were also made by AO which were partly allowed by CIT (A). Both revenue as well as assessee moved in appeal before ITAT.

Facts of the case:

• Assessee filed return declaring total income of Rs. 5,66,890/- comprising of income from retail trading of surgical items.
• A survey U/s 133A was conducted at the business premises of the assessee on 12/10/2007. Various books of account and documents were found during the course of survey were inventorised.
• It was observed that in response to notice u/s 142 (1) assessee mostly sought adjournments on various dates and filed details in part.
• When the assessee was not cooperative with AO then he decided to pass order U/s 144.
• And finally the matter was getting time barred the in the light of decision in Motor General Financial Vs. CIT 254 ITR 449 (Del.) AO completed the assessment.
• AO observed that the assessee has claimed trading expenses at Rs. 3,07,858/- and claimed gross loss of Rs. 4,89,312/- against which sufficient details were not produced before AO.
• AO observed that during the course of survey proceedings, the computerized trial balance and stock register prepared and same was provided itself by the partners of the firm, which were duly signed by one of the partner
• Assessing Officer has not found the assessee’s reply convincing but beyond the truth.
• The assessee had declared total sales at Rs. 13,13,70,013/- which includes trading turnover of medical equipment as well as trading turnover of shares.
• AO decided the assessee’s sale at Rs. 13.25 crores against the sale declared in trading account at Rs. 13,13,70,013/- and recasted the trading account and gross profit was calculated at Rs. 9,48,532/- and the same was added in the income of the assessee.
• The assessee purchased and sold shares of Rs. 8,28,80,996/- and Rs. 7,77,80,690/- the opening stock was nil and closing stock was Rs. 2,75,400/-. The assessee had claimed expenses of Rs. 74,521/- related to share business. The assessee had claimed loss of Rs. 48,24,906/- on sale of shares.
• During appellate proceedings before CIT (A) it was observed that the transactions in shares were squared up without actual delivery and as per the details filed by assessee itself the loss of squared up transactions (without delivery) comes to Rs. 11,41,070/-.
• Assessee was asked by show cause u/s 251 (2) that why Rs. 11,41,070/- should not be treated as speculation loss and disallowed U/s 73.
• During assessment proceedings AO observed that the assessee had shown sundry creditors at Rs. 18,12,459/- in the audit report and was asked to furnish the confirmation, complete name, addresses, PAN, copy of ledger to support its claim but the same were not submitted before him even books of account were also not produced before the Assessing Officer. Therefore, he made addition of Rs. 18,12,459/-.
• AO further observed that during the course of survey proceedings, both the partners of the assessee firm had admitted that they voluntarily surrendered additional income of Rs. 41,93,700/- for taxation but while filing the income tax return, the net income had been declared at Rs. 21,94,196/- and claimed various expenses at Rs. 15,12,001/-.
• Since the assessee had not produced books of account nor any bill or voucher in support of his claim towards expenditure. The genuineness of same could not be established. Hence, AO made addition of Rs. 15,12,001/-.
• AO further observed that the assessee had claimed salary payment of Rs. 6,89,526/- against which only name of the employees were produce. No account details were produced.
• Most of the employees denied the amount of salary as mentioned by assessee during the survey proceedings.
• AO further observed that the assessee had made addition in fixed assets at Rs. 14,83,182/- which he added to the income of assessee.

Contention of the assessee: