Loss arising on sale of shares wherein sales take place prior to purchase of shares without any stock being available must be treated as “Speculation loss” and not as “Contrived loss”:

AO disallowed loss on sale of shares considering it to be “Contrived loss” since he was of the view that transactions in purchase and sale of shares were merely paper transactions and the assessee had just booked the loss. Further, such transactions were off market transactions and not routed through the stock exchange. The Hon’ble ITAT observed that the transactions of sales were entered before the corresponding purchase transactions and without any stock being available with the assessee. Such transactions were evidenced by purchase and sales bills. The same were not reflected in demat account since sales transactions were effected prior to that of purchases. The shares were sold first with the intention to purchase the same when its prices fell down but since the prices of shares increased, the assessee had to purchase the shares so as to minimize the shares. The Hon’ble ITAT was of the view that the activity of first selling and then purchasing shares was a permissible and normal business activity in share transactions. Hence, it was held that loss arising thereon cannot be considered as contrived loss. However, since there were no consequential deliveries of shares, the said loss was to be treated as “Speculation loss”.