JUDGMENT B.P. Jeevan Reddy, C.J.
1. The Income-tax Appellate Tribunal has referred the following question under Section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the loss of Rs. 22,988 was a speculation loss ?"
2. The assessee is a registered firm. It deals in oil cakes. For the assessment year 1974-75, it claimed a loss of Rs. 42,931 comprising three items. We are concerned with only one item, namely, the sum of Rs. 22,988 paid to M/s. Arun Industries, Gujarat. The assessee's case was that he entered into a contract with M/s. Arun Industries, Gujarat, for supply of five wagons of khali (oil cakes) but that it could supply only three wagons and not the remaining two wagons. On this account, it was obliged to pay a sum of Rs. 22,988 by way of damages representing the difference of price to M/s. Arun Industries, Gujarat. The Income-tax Officer refused to believe the genuineness of this transaction on the ground that the order book could not be produced by the petitioner. In other words, the Income-tax Officer disbelieved the very payment of loss. On appeal, the Appellate Assistant Commissioner agreed with the conclusion of the Income-tax Officer but on a different reasoning. The Appellate Assistant Commissioner held that since the payment of loss is alleged to have been made in November, 1972, it falls in the assessment year 1973-74 and is not relevant to the assessment year 1974-75. On further appeal, the Tribunal dismissed the appeal on an entirely different ground. It took into consideration the contents of a debit note placed before it and, on that basis, came to the conclusion that the said payment was made not by way of damages but "for settlement of the difference of goods which the assessee could not supply to the Gujarat party". It further found that, according to the debit note, the assessee paid only the difference and that the assessee did not make payment for the cost of goods which the Gujarat party purchased in the absence of supply from the assessee. On the above reasoning, the Tribunal came to the conclusion that the loss is a speculation loss and cannot be said to be a business loss. Thereupon, the assessee obtained reference of the above question.
3. We are constrained to say at the outset that the Tribunal has dealt with the matter in a very superficial manner. It did not deal with the grounds upon which the Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim. It dismissed the appeal entirely on a new ground. From the paper-book supplied to us it does not appear that the Income-tax Officer or the Appellate Assistant Commissioner referred to the speculative nature of the transaction at any stage. Yet, having regard to the limitations of a reference under Section 256 and the question referred to us, we have no alternative except to answer the question as stated.
4. From the order of the Tribunal, it appears that the contract was for the supply of five wagons of oil cakes and that only three wagons were actually supplied. The assessee's case was that it could not supply two wagons because Messrs. Hira Lal Oils Mill, Sitapur, did not supply goods to him. The fact that, out of five wagons contracted, three wagons only of oil cakes were actually supplied is a strong factor in favour of the assessee. Moreover, the observation of the Tribunal that the said amount was paid not by way of damages but by way of settlement of difference of prices of goods which the assessee could not supply, is rather thin. After all, damages are ascertained with reference to difference of prices prevailing on the date of contract and on the date of breach. It was not necessary for the assessee to prove that the Gujarat party actually purchased two wagons of oil cakes from a third party and suffered loss on that account.
5. For the above reasons, we have to answer the question referred in the negative, that is, in favour of the assessee and against the Revenue. No costs.