K.N.Seth, J. - (1.) The, assessee carried on business of purchases and sales of both Indian and foreign books in wholesale as well as in retail. This business was carried on by Sri D.R. Chawla and Sri C.M. Chawla (father and son respectively) in partnership under the name and style of M/s. Universal -Bookstall, Kanpur (hereinafter called "the Kartpur firm"). In the year 1963, an office was opened at Delhi for wholesale business in books as also a publishing house. The Delhi business was started under the name and style of M/s. U.B.S. Publishers and Distributors (hereinafter called "the Delhi firm") in partnership with two other persons (brother and mother of Sri C. M. Chawla). In the opinion of the Department, these two firms did not have separate identity and the Delhi firm was held to be a branch or an extension of the Kanpur firm. The Tribunal, however, did not accept the stand taken by the Department and treated them as distinct and different entities and that controversy is not before us. This reference arises out of the assessment of the Delhi firm.
(2.) It was stipulated between the Kanpur firm and the assessee-firm that all import licences held by the Kanpur firm shall be utilized by the asses-see-firm in consideration of the assessee-firm's paying to the Kanpur firm a net commission at the rate of 1% on the value of imports under the licences in the name of the Kanpur firm. In the assessment proceedings for the assessment year 1967-68 (ending on May 31, 1966), the ITO noticed that the assessee-firm had debited its purchases by an amount of Rs. 6,39,124 on the basis of an advice note dated June 11, 1966, from the Delhi branch of the Kanpur firm. It was claimed that this sum represented the assessee's additional liability to foreign suppliers in respect of books imported by it on credit up to the end of the previous year, i.e., up to 31st May, 1966, on account of devaluation of Indian currency by the Government of India on June 6, 1966. The assessee-firm also increased the value of its closing stock of the imported books by Rs. 2,06,806. Thus, the net loss claimed on account of devaluation amounted to Rs. 4,38,318.
(3.) The ITO disallowed the loss claimed principally oh the ground that the claim did not pertain to the previous year ending on 31st May, 1966, since the devaluation took place only on June 6, 1966, and the claim was made on the basis of the debit note issued by the U.B.S. Delhi branch on June It, 1966, which was also after the close of the accounting period. For the assessment year 1968-69, the ITO took the view that effect could be given at the most to the extent of Rs. 2,06,805. The balance amount of Rs. 4,31,319 did not relate to any transaction of the trading account for the assessment year 1968-69, hence it could not be considered in the trading results for the assessment year 1968-69, and the amount of Rs. 4,31,319 could not be allowed as a deduction in the profit and loss account.;