1990 (10) TMI 52 - HC - Income Tax

High Court rules payment for goods not supplied is a business loss, not speculation loss

Prahlad Rai Murali Lal Versus Commissioner Of Income-Tax

The High Court determined that a loss claimed by an assessee, related to a payment made to settle goods not supplied, was a business loss rather than a ... Loss, Speculation Issues:1. Interpretation of whether a loss was a speculation loss or a business loss for the assessment year.2. Discrepancy in the treatment of the claim by the Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal.3. Evaluation of the genuineness of the transaction and the nature of the payment made by the assessee.Analysis:The High Court was tasked with determining whether a loss claimed by an assessee was a speculation loss or a business loss for the assessment year. The assessee, a registered firm dealing in oil cakes, claimed a loss of Rs. 42,931, with a specific amount of Rs. 22,988 paid to M/s. Arun Industries, Gujarat, being under scrutiny. The Income-tax Officer disbelieved the payment of the loss due to lack of an order book, while the Appellate Assistant Commissioner rejected the claim on the grounds of it being for the previous assessment year. The Tribunal, however, concluded that the payment was made for settlement of goods not supplied by the assessee, deeming it a speculation loss rather than a business loss.The High Court criticized the Tribunal for dismissing the appeal on a new ground without addressing the initial reasons for disallowing the claim by the Income-tax Officer and the Appellate Assistant Commissioner. Despite the lack of mention of the speculative nature of the transaction by the lower authorities, the Court was bound to answer the question referred under section 256. The Court noted that the contract was for five wagons of oil cakes, of which only three were supplied, supporting the assessee's case. The Court also highlighted that the payment made by the assessee need not prove the actual purchase by the Gujarat party from a third party to establish damages.Ultimately, the Court ruled in favor of the assessee, stating that the payment was more likely a business loss than a speculation loss, given the circumstances of the transaction and the lack of concrete evidence to deem it speculative. The decision was made based on the contractual terms and the nature of the payment, leading to a verdict against the Revenue.