( 1 ) THIS is a reference at the instance of the Assessee made under S. 256, (1) of the Income-tax Act, 1961, hereinafter called the Act. The question of law referred for the opinion of this Court is :" Whether on the facts and in the circumstances of the case, the appellate Tribunal was justified in holding that the loss of Rs. 11,100 was sustained by the Assessee in 'speculative business within the meaning of Explanation 2 to S. 28 read with sub-sec. (5) of S. 43 of the Income-Tax Act, 1961?"

( 2 ) THE Assessee carried on business in Kapas, Cotton and other sundry goods. There were purchases and sales of cotton bales and purchase of Kapas and sale of cotton after ginning. The Assessee returned a gross profit of Rs. 1,75,524 for the assessment year 1967-68. The Assessee claimed a deduction of the sum of Rs. 11,100 which was paid as difference to m/s. Patel Volkart Pvt. Ltd. , and M|s. Krishna Rajendra Mills Pvt. Ltd , Mysore in respect of non-delivery of 200 bales of cotton to the former and 100 bales of cotton to the latter under separate contracts entered with the parties. The Income-tax Officer disallowed the deduction on the ground that they relate to speculat