TMI Blog2006 (11) TMI 148X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. As no return was filed by him, the Income-tax Officer initiated proceedings under section 147(a) of the Act. The Income-tax Officer completed the assessment on a total income of Rs. 6,92,000 under section 144 of the Act and treated the entire amount of Rs. 6,72,000 as unexplained investment. The Income-tax Officer also initiated penalty proceedings under sections 271(1)(a), 271(1)(b), 271(1)(c) and 273(b) of the Act. The Income-tax Officer levied penalty of Rs. 6,72,000 under section 271(1)(c), Rs. 50,000 under section 273(b), Rs. 62,000 under section 271(1)(b) and Rs. 3,06,590 under section 271(1)(a) of the Act. Feeling aggrieved, the assessee came up in appeals before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) held that since the assessee failed to file the return within the time limit prescribed under section 139(1) of the Act, imposition of penalty under various sections was justified. Feeling dissatisfied with the order of the Commissioner of Income-tax (Appeals), the assessee filed appeals before the Appellate Tribunal and the Appellate Tribunal after hearing the parties and the materials on record, held as under: "4. We have c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the police which was subsequently confiscated and destroyed. The addition to the extent of Rs. 6,72,000 towards investment in the aforesaid business has been upheld up to the stage of the Tribunal and, therefore, it was not open to the Tribunal to delete the penalty imposed under the various sub-clauses of sub-section (1) of section 271 and section 273 of the Act. According to him, it was not open to the Tribunal to entertain the plea of business loss which it had already negatived in the quantum proceedings for determining the leviability of the penalty. He further submitted that the reassessment made for the first time would also be covered within the phrase "regular assessment" under the Act and, therefore, the failure on the part of the respondent-assessee to pay the advance tax invited penal provision. In support of his aforesaid pleas, he has relied upon the decision in the case of K. Govindan and Sons v. CIT [2001] 247 ITR 192 (SC). Sri Krishna Agrawal, learned counsel for the respondent-assessee, on the other hand, submitted that it is not in dispute that on the own showing of the Revenue the respondent-assessee was intercepted on June 1, 1971, by the police along with g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the profits out of the taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to fax as 'profits' under section 10(1) of the Act of 1922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business." In the case of CIT v. Piara Singh [1980] 124 ITR 40, the apex court has held as follows: "If the activity of smuggling can be regarded as a business, those who are carrying on that business must be deemed to be aware that a necessary incident involved in the business is detection by the customs authorities and the consequent confiscation of the currency notes. It is an incident as predictable in the course of carrying on the activity as any other feature of it Having regard to the nature of the activity possible detection by the customs authorities constitutes a normal feature integrated into all that is implied and involved in it The confiscation of the currency notes is a loss occasioned in pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jab and Haryana High Court in the case of Parkash Chand Sushil Kumar v. CIT [1989] 179 ITR 27. In the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. v. CIT [1997] 223 ITR 101, the apex court has held that where payment is being allowed towards contribution to any welfare fund or for the benefit of any individual which cannot be regarded as a form of illegal gratification and not against the public policy but to secure business, it has to be treated as legitimate expenses of the business. In the case of Ram Saran Nar Singh Prasad v. CIT [2001] 249 ITR 241, this court has held that the value of the gold and gold ornaments and cash confiscated by the customs authorities should be allowed as business loss or an expenditure under section 37 of the Act. However, we find that in the case of CIT v. Hiranand [2005] 272 ITR 626, the Rajasthan High Court has held as follows: "We find from the statement of case that the Tribunal accepted that the Central Excise Department, Jaipur, on January 24, 1979, seized the gold weighing 1,479 grams valued at Rs. 1,32,500 from the assessee. A finding of fact has also been recorded that the said gold was confiscated by the authorities. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch disbursements can be deducted as are really incidental to the business itself. They cannot be deducted if they fall on the assessee in some character other than that of a trader." In the case of Kanhaiya Lal v. CIT [1983] 143 ITR 55, this court has held as follows: "It is correct that the gold recovered from the assessee's possession was confiscated by the Central Excise authorities but before any setoff could be allowed, to the assessee, it was for him to prove that the confiscation of the gold amounted to a business loss. This could have been done by showing that that gold was his stock-in-trade, that he had been carrying on illegal business in gold and that the carriage of gold and its detection and confiscation by the Central Excise authorities amounted to a normal incidence of this business." In the case of Maddi Venkataraman and Co. P. Ltd. v. CIT [1998] 229 ITR 534, the apex court has held as follows: "The High Court referred to a large number of decisions where it has been held that payments tainted with illegality cannot be claimed as deduction under the Income-tax Act. Moreover, if an assessee is penalised under one Act, he cannot claim that amount to be set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the aforesaid business, the assessee commits infraction of law in smuggling gold resulting in confiscation of the said gold and loss occurs, in such an event no deduction can be allowed for carrying on a lawful business. The said deduction from an illegal business cannot be allowed as a loss in its lawful business. The present case falls under the category where a business is carried on by the assessee in a legal manner and he indulges in infraction of law and the losses suffered due to such infraction cannot be allowed while computing the income of the lawful business. In that view of the matter, we answer the question in the affirmative, in favour of the Revenue and against the assessee." In the case of Fakir Mohmed Haji Hasan v. CIT [2001] 247 ITR 290, the Gujarat High Court while considering the provisions of sections 69, 69A, 69B and 69C of the Act and after referring to the decisions of the apex court in the cases of K.C. Kothari [1971] 82 ITR 794 and Piara Singh [1980] 124 ITR 40 and also the Punjab and Haryana High Court in the case of Shri Ram Chander [1986] 159 ITR 689, has held as follows: "Under section 4 of the Income-tax Act, income-tax is to be charged in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 69C will not apply, in which event, the provisions regarding deductions, etc., applicable to the relevant head of income under which such income falls will automatically be attracted. The opening words of section 14 'save as otherwise provided by this Act' clearly leave scope for 'deemed income' of the nature covered under the scheme of sections 69, 69A, 69B and 69C being treated separately, because such deemed income is not income from salary, house property, profits and gains of business or profession, or capital gains, nor is it income from 'other sources' because the provisions of sections 69, 69A, 69B and 69C treat unexplained investments, unexplained money, bullion, etc., and unexplained expenditure as deemed income where the nature and source of investment, acquisition or expenditure, as the case may be, have not been explained or satisfactorily explained. Therefore, in these cases, the source not being known, such deemed income will not fall even under the head 'Income from other sources'. Therefore, the corresponding deductions which are applicable to the incomes under any of these various heads, will not be attracted in the case of deemed incomes which are covered u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Timber Traders case [1982] 137 ITR 346 (MP) and Bharat Insurance Co. Ltd.'s case [1983] 142 ITR 342 (Delhi) in certain cases. The proposition laid down in those decisions is not an absolute proposition. A solitary transaction may be a business but not always. There has to be some element of business in the activities. It depends on the facts of each case. In the facts and circumstances of this case, we are of the view that there is nothing to indicate nor is there any admission by the assessee or even a claim that he had been carrying on business in smuggling activities and, therefore, it is part of his business. One solitary adventure may be a business when it is legally carried on. One solitary illegal activity unconnected with any business activity cannot be said to be a business adventure. Therefore, we are of the view that a smuggling activity on a solitary occasion cannot be considered to be a business. This proposition finds support from the decision in M.B. Abdulla's case [1990] 183 ITR 96 by a two-judge Bench of the Supreme Court in which Piara Singh's case [1980] 124 ITR 40 (SC), was referred to and distinguished. With similar reasoning, we also distinguish the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion as to whether reassessment can be treated as a regular assessment or not for the purposes of sub-section (1) of section 273 of the Act in order to enable the assessing authority to initiate penalty proceedings under clause (b) of the aforesaid section, we find that sub-section (1) of section 273 of the Act empowers the assessing authority, in the course of any proceedings in connection with the regular assessment for any assessment year, to initiate proceeding upon satisfaction of certain conditions. The Kerala High Court in the case of Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 the Patna High Court in the case of CIT v. Ram Chandra Singh [1976] 104 ITR 77, the Punjab and Haryana High Court in the case of Smt. Kamla Vati v. CIT [1978] 111 ITR 248, the Orissa High Court in the case of CIT v. Ganeshram Nayak [1981] 129 ITR 43, the Bombay High Court in the case of D. Swarup, ITO v. Gammon India Ltd. [1983] 141 ITR 841, the Delhi High Court in the case of CIT v. Pratap Singh of Nabha [1982] 138 ITR 27, the Calcutta High Court in the case of Monohar Gidwany v. CIT [1983] 139 ITR 498 and CIT v. Smt. Radha Devi Poddar [1990] 185 ITR 544 (Cal) and the Rajasthan High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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