This appeal is filed by assessee and is arising out of order of CIT(A)-V, Mumbai, dt. 30th Oct., 1996. assessee has raised following grounds of appeal: "1. That whether on facts and circumstances of case, learned CIT(A) was justified by confirming business loss of Rs. 7,60,765 arising out o f speculative transactions by holding that transactions were not in ordinary course of his business and that there was nothing in law to deny benefit of cl. (c) of proviso to s. 43(5)? That whether on facts and circumstances of case, learned CIT(A) w s justified by treating business loss of Rs. 1,93,114 arising from business of shares being as speculative loss by holding that deliveries were not effected without disputing genuineness of transactions in number of scripts for purchase and sales? That whether on facts and circumstances of case, learned CIT(A) w s justified by treating business loss of Rs. 94,228 arising from business of shares being as speculative loss by holding that deliveries were not effected without disputing genuineness of transactions in number of scripts for purchase and sales? That whether on facts and circumstances of case, learned CIT(A) w s justified by confirming that difference in Badla charges paid at Rs. 1,23,390 was speculation loss? That whether on facts and circumstances of case, learned CIT(A) w s justified by upholding action of learned AO by confirming disallowance of interest of Rs. 1,89,180 by treating that moneys were not borrowed in course of business? That whether on facts and circumstances of case, learned CIT(A) was justified by upholding disallowance of payment of Rs. 28,756 made on account of penalty on non-payment of dues to stock exchange as per rules are not connected with business transactions carried out?" relevant facts in this case, briefly stated, are that assessee is registered stockbroker with BSE of India and is claiming to be doing business of brokerage as well as jobbing work. In respect of jobbing work, assessee claimed before AO that to guard losses, he has to frequently buy and sell shares in market on his own account and on clients account. During assessment proceedings, AO observed that assessee has debited amount of Rs. 11,36,353 in P&L a/c, which included loss on account of jobbing activity Rs. 7,60,765, loss on account of trading Rs. 1,93,114, loss on account of Badla Rs. 1,20,390 and loss on account of short deliveries Rs. 94,228. In respect of loss on account of jobbing business, AO found that as this amount has got adjusted with business income of brokerage, assessee was asked to explain as to why this loss should not be treated as speculation loss, as this transaction out of which loss has resulted, is without actual delivery of shares. Therefore, contention of AO was that as per s 43(5), assessee has suffered loss on purchase and sale of shares without actual delivery being effected. In response to AO s query, assessee explained his case that he has to resort to purchase and sale of shares to guard his losses; therefore, as per cl. (c) of proviso to s. 43(5), assessee being stock broker, transactions of such nature do not call for being treated as speculative transactions. AO provided opportunity to assessee to explain case as to how he has entered into transactions which can be said to have been done to guard losses. In reply thereto, assessee could not adduce any single contract note pointing out in respect of which he has entered into transaction of purchase and sales of shares. By making this finding, AO came to conclusion that cl. (c) of proviso to s. 43(5) is not applicable to case of assessee; therefore, this loss is in nature of speculation loss. Accordingly, AO disallowed same. Further, since assessee filed return of income belated, this was also not carried forward. In respect of losses on account of trading, Badla and short deliveries also, AO treated transactions of assessee as speculation loss. In appeal before learned CIT(A), there was no change in facts and no other material was brought by assessee so as to exclude himself from purview of s. 43(5). Consequently, learned CIT(A) confirmed action of AO. assessee preferred appeal before us. We have heard parties and perused them carefully. As regards ground No. 1, learned Authorised Representative started his arguments strenuously by pointing out that assessee is registered stock broker and member of BSE of India and is engaged in brokering business. Besides this, assessee is also engaged in business of jobbing and trading of shares. In this connection, learned Authorised Representative referred to s. 28(i) and stated that assessee is deriving income from both businesses and falls under definition of s. 28(i). In support of his claim that since assessee has to guard loss he entered into transaction of purchase and sale of shares, therefore, cl. (c) of proviso to s. 43(5) was applicable to this case, meaning thereby, learned Authorised Representative s argument was that these transactions are in nature of hedging transactions, which has been carried on by assessee to guard loss on shares which he has purchased. learned Authorised Representative stated that in several judicial pronouncements, concept of hedging transactions has been accepted and has been held to be business loss. assessee in this regard has placed reliance on judgments of CIT vs. Mohanlal Ranchhoddas (1992) 108 CTR (Guj) 22: (1993) 203 ITR 304 (Guj), C.N.M.P. Investments (P) Ltd. vs. Asstt. CIT (2001) 73 TTJ (Del) 826: (2001) 78 ITD 297 (Del), CIT vs. Hotz Hotel Ltd. (2003) 181 CTR (Del) 257: (2003) 260 ITR 132 (Del), and ITO vs. Pali Ram Bhadarmal (2005) 95 TTJ (Jd) 1114: (2006) 152 TAXMAN 43 (Jd)(Mag). Relying upon these judgments, learned Authorised Representative tried to make his point that as per judicial decisions in these cases, hedging transactions have been held to be business loss and since in present case, assessee is doing business of purchase and sales of shares as hedging transactions should not be treated as speculative transactions. learned Authorised Representative further added that onus lay upon Department to single out any transactions which can be said to be speculative transactions and not in nature of hedging transactions. For this proposition, learned Authorised Representative relied on judgment in 243 ITR 233 (All) (sic), wherein it has been held that onus is on Department to prove that transactions are not hedging transactions. on Department to prove that transactions are not hedging transactions. On other hand, learned Departmental Representative referred to detailed orders of AO as well as CIT(A) and pointed out that authorities below have discussed in detail application of s. 43(5) in case of assessee and exemption being sought by assessee by virtue of cl. (c) of proviso to s. 43(5) could not be justified as assessee neither in front of lower authorities nor before Bench could cite any example by referring any single contract note under which he can claim that he has entered into transaction for guarding loss from price fluctuations. In this regard, learned Departmental Representative relied on judgment in SRJ Securities Ltd. vs. Asstt. CIT (2003) 81 TTJ (Del) 484: (2003) 86 ITD 583 (Del) and has pointed out that in this case assessee is broker and loss on account of trading in shares was held to be speculative transactions and adjustment of same with brokerage income has been denied. With regard to case law relied on by learned Authorised Representative, learned Departmental Representative s argument was that in those cases, no doubt, hedging transactions have been accepted as business transactions, but in present case, transaction has not been proved to be of hedging in nature, therefore, these case law relied on by learned Authorised Representative do not come to help case of assessee. We have considered rival submissions and have gone through orders of authorities below and material placed on record. question before us for decision is whether loss suffered by assessee of Rs. 7,60,765 in respect of transactions of purchase and sales of shares has to be regarded as speculative transactions or to be granted relief by virtue of cl. (c) of proviso to s. 43(5)? For better understanding, we reproduce cl. (c) of proviso to s. 43(5): "(c) contract entered into by member of forward market or stock exchange in course of any transaction in nature of jobbing or arbitrage to guard against loss which may arise in ordinary course of his business as such member; shall not be deemed to be speculative transaction;" If we interpret cl. (c) which assessee claims to be in his favour, we find that, no doubt, if transaction is entered by assessee to guard losses, it cannot be treated as speculative transaction, but then question remains to be answered is whether these transactions have been entered into by assessee as hedge to guard losses in respect of his investment, stock-in-trade or any purchase by contract note. In this respect, AO as well as CIT(A) have recorded categorical finding that assessee could not adduce any contract note in respect of which he can claim that these transactions have been entered into to safeguard loss of that contract note. Sec. 43(5) has been enacted in Chapter IV, where assessee s income under head Business is to be computed. Therefore, no doubt, assessee s claim that he is engaged in business of trading in shares may fall under s. 28(i) as claimed by learned Authorised Representative in his arguments, but while treating income as business income, s. 43(5) cannot be ignored. effect of s. 43(5) has to be given and only in case where cl. (c) of proviso to s. 43(5) is applicable, transactions can be treated as non-speculative transactions. Sec. 43(5) has been enacted where transactions are settled without actual delivery of shares and cl. (c) of proviso to s. 43(5) has been added only to safeguard existing investment, purchase, stock-in-trade, which has come to possession of assessee by actual delivery and in order to save erosion in their value, assessee is given leverage to sell and buy shares to guard losses of his existing purchase. In light of this interpretation, in spite of opportunity being given, assessee has not brought any facts or evidence to show in respect of which stock or purchase assessee was going to guard loss. In written submissions before authorities below as well as before us, learned Authorised Representative argued that assessee first purchased shares and then sells it and in this case his selling transaction only to guard loss in respect of purchase. It is not case that assessee sells first and buys it later again. We are unable to accept this contention of learned Authorised Representative as by way of this definition, assessee s case certainly falls under speculative transaction as either assessee purchases first or sells later, or sells first or purchases later, in both cases, transactions can be treated as speculative transactions unless he proves that transactions have been entered to guard loss of shares. In this case, assessee has not been able to make out his case. learned Authorised Representative s argument that at present there is amendment in s. 43(5) in which sale/purchase transaction F&O has been kept out of purview of speculative transaction. This argument of learned Authorised Representative also does not help, as in relevant assessment year we are concerned with cl. (c) of proviso to s. 43(5) only as stood then. learned Authorised Representative s argument relying on judgment of Allahabad High Court that onus is on Department also does not favour, as in that case, assessee was not given opportunity to explain his case, but that is not so in present case. In present case, assessee was given opportunity to explain his case especially in light of cl. (c) of proviso to s. 43(5). Therefore, we come to conclusion that transaction in respect of which assessee has suffered loss of Rs. 7,60,765 cannot be held to be business loss and AO was justified in holding this loss as speculation loss. Therefore, this ground of appeal of assessee is dismissed. As regards ground No. 2, AO disallowed trading loss of assessee amounting to Rs. 1,93,114 as business loss holding it as speculation loss by observing that sell/purchase transaction in respect of which this loss has been suffered either has been settled during same settlement period or was carried forward to subsequent settlement period without actual delivery of shares. learned Authorised Representative in support of his argument stated that this loss has been incurred by assessee on purchase and sale of shares in respect of which deliveries have been received, but could not be transferred in name of assessee as transfer deed remains valid for one year and if assessee receives delivery and later on sells it at loss without transferring shares in his name, cannot be termed as speculative transactions. In support of his claim, learned Departmental Representative relied on judgment in CIT vs. Mangal Chand (2002) 172 CTR (Raj) 112: (2002) 255 ITR 329 (Raj) and argued that in these two cases wherein it has held that if assessee gets delivery and sells it again without transferring shares in his name, cannot be regarded as speculative transaction. learned Departmental Representative, on other hand, pointed out that as per findings of AO as well as CIT(A), shares have been purchased and sold during same settlement period or in next settlement period. There is no finding with regard to delivery of shares so claimed by period. There is no finding with regard to delivery of shares so claimed by assessee in assessment proceedings. We have considered rival submissions and have gone through order of authorities below. We find that contention of learned Departmental Representative is correct and claim of learned Authorised Representative that this loss has been incurred by assessee on account of delivery of shares does not emanate. By nature of transactions of assessee and as per facts narrated by us earlier, it only reveals that assessee has been engaged in buying and selling of shares without effecting actual delivery. learned Authorised Representative has not adduced any single evidence by distinctive numbers and bill by which he can claim that delivery of shares has been received. Therefore, we are unable to accept argument of learned Authorised Representative and dismiss this ground of assessee. As regards ground No. 3, loss of Rs. 92,228 was incurred by assessee on account of short deliveries of shares received from clients. learned Departmental Representative s argument that if this loss has been settled by assessee on account of non-delivery of shares, then loss has to be on account of client and not on assessee s own account and this loss has also been incurred by assessee in course of speculation activity. learned Authorised Representative s argument was that in view of assessee s massive business and large number of clients, sometimes short deliveries of shares are received and loss is suffered by assessee. Therefore, this loss should be treated as business loss. As we have discussed nature of business of assessee in detail, we accept argument of learned Departmental Representative that this loss is on account of client for not effecting delivery. Therefore, this loss has rightly been held to be speculation loss by AO. Therefore, this ground of appeal of assessee is also dismissed. As regards ground No. 4, loss on account of badla charges suffered by assessee, learned Authorised Representative s argument was that badla charges are nothing but interest which assessee has to pay to stock exchange in course of settlement of shares with stock exchange. Therefore, this loss cannot be treated as speculation loss. learned Departmental Representative s argument in this respect was that since these badla charges have been paid by assessee also in respect of speculation business, therefore, these charges should also be treated as speculation loss. After considering rival submissions and facts of case, we find that badla charges are nothing but interest in nature which is paid by broker for non-delivery of shares. Therefore, in this respect, we accept contention of learned Authorised Representative that these badla charges should have been allowed by AO against business income of brokerage. Therefore, this ground of appeal of assessee is allowed. As regards ground No. 5, AO observed that assessee has borrowed money from bank and has diverted it to purchase of flat amounting to Rs. 10,51,000 and assessee was having own capital loss of Rs. 3,65,000 only. Therefore, drawing inference that assessee has utilized borrowed funds for purchase of personal assets, disallowed proportionate amount of interest from business income amounting to Rs. 1,89,180. learned Authorised Representative s argument that assessee has purchased flat in 1986 whereas AO has taken figure from balance sheet of 1992. learned Authorised Representative further added that even otherwise amount invested in flat should be considered as business assets in view of fact that assessee is engaged in business of brokering which is show-off business and assessee is required to invest to instil confidence among clients towards his creditworthiness. Therefore, disallowance of interest was not justified. On contrary, learned Departmental Representative s argument was that if Authorised Representative s explanation for treating purchase of flat as business assets is accepted then even day-to-day fooding expenditure of broker should be claimed as business expenditure. learned Departmental Representative also pointed out that in respect of earlier year also disallowance of interest has been done by AO, which has been accepted by assessee. After hearing rival contention, we are unable to accept argument of learned Authorised Representative for treating purchase of flat as business assets and as matter of fact, assessee has also not appealed against earlier year s disallowance of interest. It was also not disputed that assessee s capital was not sufficient to purchase flat. Therefore, we are of view that AO was justified in disallowing interest. Therefore, this ground of appeal of assessee is dismissed. As regard ground No. 6, AO made addition of Rs. 28,756 paid by assessee to stock exchange on account of auction charges and stamp duty. While making addition, AO has done so by observing that there was infringement of rules of stock exchange and expenses incurred by assessee being penal in nature cannot be allowed. learned Departmental Representative relied on orders of authorities below and learned Authorised Representative s argument was that these expenditures on account of auction charges have been incurred by assessee in ordinary course of business of brokerage. We find that explanation of assessee is acceptable in sense that in brokering business, massive transactions are done, brokers often resort to violation and penalties are imposed but these payments certainly do not fall within rigorous provisions of Act where this expenditure cannot be held to be disallowable. Therefore, we hold that this expenditure should be allowed to assessee against business income. In result, appeal filed by assessee is partly allowed. *** CHANDRAKANT KANTILAL SHAH v. ASSISTANT COMMISSIONER OF INCOME TAX