2006 (11) TMI 261 - AT - Income Tax

Summary

Issues Involved:
1. Legality and jurisdiction of the CIT(A)'s order.
2. Non-compliance with High Court directions by the AO.
3. Consideration of the Tribunal's decision on foreign exchange.
4. Sustaining the addition of Rs. 18,00,000 for unexplained investment.
5. Denial of deduction for confiscated goods and currency.
6. Non-application of Supreme Court and High Court precedents.

Summary:

1. Legality and Jurisdiction of the CIT(A)'s Order:
The assessee challenged the first appellate order on the grounds that it was "illegal, without jurisdiction, bad in law, thus, null and void."

2. Non-compliance with High Court Directions by the AO:
The assessee argued that the AO did not follow the "observations/directions of Hon'ble High Court of Rajasthan" while completing the assessment.

3. Consideration of Tribunal's Decision on Foreign Exchange:
The assessee contended that the CIT(A) failed to consider the Tribunal's decision dated 2nd April 2003, deeming it "out of scope of consideration in the present assessment."

4. Sustaining the Addition of Rs. 18,00,000 for Unexplained Investment:
The CIT(A) was alleged to have erred in sustaining the addition of Rs. 18,00,000 for "alleged unexplained investment in primary gold and US dollars" without considering the concept of real income.

5. Denial of Deduction for Confiscated Goods and Currency:
The assessee claimed that the CIT(A) erred in not allowing the deduction of Rs. 18,00,000 for goods and currency confiscated by customs, contrary to the Supreme Court's decision in "CIT vs. Piara Singh (1980) 124 ITR 40 (SC)."

6. Non-application of Supreme Court and High Court Precedents:
The CIT(A) was criticized for not following the ratio of the Supreme Court in "Piara Singh" and the Rajasthan High Court in "CIT vs. Hiranand (2004) 187 CTR (Raj) 32."

Tribunal's Findings:

Sustaining the Addition of Rs. 18,00,000:
The Tribunal upheld the addition, noting that the assessee was found with primary gold and US dollars during a search. The AO added Rs. 18,00,000 as unexplained investment, which was sustained by the CIT(A). The Tribunal found no merit in the assessee's contention that the High Court directed the AO to follow only the "Piara Singh" decision. Instead, the High Court directed the AO to consider all relevant decisions, including "Piara Singh."

Denial of Deduction for Confiscated Goods and Currency:
The Tribunal agreed with the CIT(A) that the loss due to confiscation was not allowable. The Tribunal referenced the Supreme Court's distinction between losses from lawful business infractions and inherently unlawful business. The Tribunal cited "Haji Aziz & Abdul Shakoor Bros. vs. CIT (1961) 41 ITR 350 (SC)" and "Ishwar Das vs. CIT (2000) 244 ITR 146 (All)" to support this view. The Tribunal also noted that the FEMA Tribunal's acquittal of the assessee on penalty grounds did not impact the assessment proceedings.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s order on both the addition of Rs. 18,00,000 for unexplained investment and the denial of the deduction for confiscated goods and currency. The grounds raised by the assessee were rejected.