Jaganmohan Reddy, C.J. - (1.) We had called for a reference from the Income-tax Appellate Tribunal on the following question, viz., " Whether in the circumstances of the case an adverse inference could be drawn from non- production of subsidiary books like saudabahi to the effect that the assessee has not proved that these transactions shown were the only speculative transactions and the assessee did not have other transactions which might fave resulted in profit." The assessment year is for 1948-49, for which the accounting year was the official year 1947-48. The assessee plies a lorry and carries on cloth business and business in groundnut oil etc. In the trading account for the purchase and sale of oil, the assessee disclosed a gross profit of Rs. 50,453. Against this he claimed a loss of Rs. 29,530 on account of settlement of speculative contracts alleged 1o have been entered into by the assessee for the purchase and sale of oil and kernel. The contracts which the assessee claimed, to have entered into were nine in number. Eight contracts related to kernel and one contract covered, speculative sale of groundnut oil. As regards the transactions in kernel, seven contracts were for sale of kerne while one contract was for purchase. The total quantity covered under the contracts for sale of kernel amounted to 4,134 bags. No contract for purchase of kernel was entered into simultaneously with the contracts for sale. The transactions covered the period from 6lh October, 1947 to 26th January, 1948. For the period from 1st April, 1947 to 6th October, 1947, there was no speculative business. The contracts for the sale of kernel were stated to have taken place between 6th October, 1947 and 4th November, 1947. The contract for the purchase of kernel was entered into on 26th January, 1948. There was no speculative business between 4th November, 1947 and 26th January, 1948. Thereafter also there was no fresh contract between 27th January, 1948 and 31st March, 1948. In the account books, the assessee had noted the transactions only at the time of settlement and not when the contracts were entered into. The assessee stated that the losses occurred on account of the fact that in respect of the contracts for sale of kernel, as there was a rise in prices, he could not deliver the goods and was, therefore, forced, to come to a settlement with the buyers and paid the differences in respect of his contract for purchase made with one Kanamarlapudi Ranganayakulu. It was stated that as the price went down, he had to pay the difference.
(2.) The Income-tax Officer who examined the books, in a very detailed and thorough order, giving reasons for not accepting set-off of the losses claimed by the assessee, held that the books of account do not show that these are the only speculative transactions which the assessee had entered into. The Appellate Assistant Commissioner agreed with the Income-tax Officer that the losses incurred by the assessee were spurious except in respect of the transaction made with one Ura "Venkateswararao. As, however the assessee was not maintaining any sauda-bahi or other contemporaneous record inrespectof his speculation business, he disallowed, the entire loss claimed by the assessee. In doing so he acted on a decision of the Patna High Court in Mahasukha Ram Madanlal v. Commissioner of Income-tax, (1955)27 I.T.R. 596 : A.I.R. 1955 Pat. 420. where, under similar circumstances the loss claimed in respect of forward contract business was not allowed, though there were contract forms, copies of telegrams and letters produced to support the case of the assessee. As there was no sauda bahi, there could not be any guarantee that the assessee had accounted for all the speculative transactions entered into by him in his accounts. In the appeal, the Tribunal also rejected the claim of assessee, observing that there is nothing to indicate that they were the only transactions, that there is nothing to show that the assessee did not have other transactions which might have resulted in profit and that in the absence of subsidiary books like sauda-bahi, the Departmental Officials were entitled to reject the claim, and consequently the appeal was dismissed. Before us, Mr. Ramarao contends that the production of sauda-bahi is not necessary and cites a decision of the Bombay High Court in K. H. Valia v. Commissioner of Income-tax, (1966) 59 I.T.R. 625..
(3.) It may be pointed out that in that case the assessee claimed the loss incurred by him in a solitary speculative transaction entered into by him. All the necessary material with regard to the transaction was placed before the Income-tax Officer, but he disallowed the loss on the ground that the assessee had failed to maintain a sauda-bahi. In those circumstances , a Bench of the Bombay High Court held that the position of the profit and loss as a whole in the individual speculative transaction entered into by the assessee was capable of being satisfactorily established, even in the absence of the sauda-bahi and that, therefore, the absence of a sauda-bahi was not material in that case and the assessee was entitled to claim, the loss. This case can be of no assistance to the assessee, because there only one speculative transaction was entered into which was accepted by the Income-tax Officer. Further, all the material relating to that transaction was also placed. But the Income-tax Department merely because some book was not maintained, had not accepted the loss which could have been easily ascertained from the other books. But in this case, as many as nine transactions have taken place, which goes to show that the assesse is in the habit of entering into speculative transactions and while claiming only losses, the Income-tax Department wanted to be certain that he had not made profits, which fact they could not ascertain in the absence of contemporaneous records or documents. As we have said earlier, the Income-tax Officer in his order of assessment, gave weighty reasons for not allowing the losses incurred on these transactions. He stated : "On the forward sale of goods no advances were collected and this is indeed very suspicious especially when most of the contracting parties were strangers to the assessee besides being men of slender resources. The assessee did not produce a contemporaneous record of all the contracts entered into by him from day to day. The accounts maintained for the oil business show only con- tract which ended in losses. The contracts as such were not drawn up on forms bound into a book and serially numbered and there is ample scope for manipulation by antedating the contracts and claiming fictitious losses.";