Per Sri G. Santhanam, Accountant Member - In these appeals, two by the assessee and one by the revenue, common issues are involved and for the sake of convenience, they are disposed of in a consolidated order.

2. The first point at issue in the appeals for the assessment year 1981-82 is whether the loss claimed by the assessee in a sum of Rs. 8,28,780 is a speculative loss and as such should be allowed only against profits and gains from speculation business.

3. The assessee is a registered firm dealing in import of edible oil and palm stearin oil for sale in the local market. Besides, it is also engaged in the crushing of castor seeds and thus producing castor oil for sale in the market. In addition, it dealt in R.B.D. palm oil also. During the previous year ending on 31-3-1981, it entered into a contract for the import of 500 MTs of palm stearin oil for US $ 417.50 per MT, C.I.F. Bombay, with M/s Manilal & Sons (Pte) Ltd., Singapore, on 17-10-1980. One of the terms of the contract was to open a confirmed irrevocable unrestricted letter of credit to be established by the assessee in favour of the seller on Bank of India, Singapore, for 100% value, by 22-10-1980, and the letter of credit was to be confirmed by the foreign bank. This was complied with accordingly by opening of a letter of credit through Andhra Bank on 23-10-1980. The assessee in turn entered into contracts with the following parties for the supply of the imported palm stearin oil in India:—

The foreign supplier did not honour the contract. As a result, the assessee had to pay damages in the form of price difference in terms of the contracts with the buyers after or near about the respective due dates of delivery envisaged in the respective contracts, and the sum involved is Rs. 8,28,780. This was claimed as a business loss.

4. In the proceedings under sec. 144B of the Income-tax Act, 1961, the learned Inspecting Assistant Commissioner instructed the Income-tax Officer to disallow the sum as speculation loss for the reasons that there was no need for the assessee to wait till the expiry of the period of the contract and the assessee had not explained the reasons for keeping quiet without settling the contract with the buyers before the expiry of the dates of delivery; that there was no material produced by the assessee to show that the four contracts were. settled after the breach and not before the broach and the onus lay on the assessee to prove its case. He relied on the decision of the Supreme Court in Davenport & Co. (P.) Ltd. v. CIT [1975] 100 ITR 715, and observed that there was an apparent conflict in the decision of the Supreme Court in Davenport & Co. (P.) Ltd.’s case (supra) and the decision of the same Court in CIT v. Shantilal (P.) Ltd. [1983] 144 ITR 57. He felt that in the latter case, the decision in Davenport & Co. (P.) Ltd.’s case (supra) was not cited, the decision rendered in Davenport & Co. (P.),Ltd.’s case (supra) was by a larger bench and, therefore, it should carry more weight than the decision in Shantilal (P.) Ltd.’s case (supra) for these reasons. he disallowed the loss of Rs. 8,28,780 as a speculation loss which could not be adjusted against the business profits. The Income-tax Officer in obedience to the instructions of the learned Inspecting Assistant Commissioner disallowed the loss.

5. The assessee appealed. The Commissioner of Income-tax (Appeals) proceeded on the basis that the reasons why the assessee was unable to supply the goods to the Indian buyers need not be gone into. He observed that in the case of Godrej Soaps Ltd., the payment of Rs. 2,50,000 was made or a debit note raised against the assessee b