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TMI Blog1997 (7) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the gold did not belong to the assessee. It was also submitted that if it was held to belong to the assessee, the deduction should be allowed for the confiscation by the customs authorities as held by the Supreme Court in the case of CIT v. Piara Singh [1980] 124 ITR 40/3 Taxman 67. The Assessing Officer did not accept the contention, since, according to him, there was no business of smuggling which made the assessee's case distinguishable from the case relied upon. Further, since, the source of investment was not explained, he added Rs.1,38,000 as unexplained investment. 3. By the time, the assessee's appeal was heard by the CIT(Appeals). There were further developments. The CIT(Appeals) noted that in the statement of the assessee, recorded on 12-7-1985 by the customs authorities, the assessee had admitted that earlier also he had brought foreign goods and carried it in his Hawai Chappal like this time. In an order passed by the Collector of Central Excise on 4-8-1989, it was stated that there was sale and purchase of the impugned primary gold in question. The CIT (Appeals) observed that even the Collector of Customs had held that the assessee was engaged in smuggling busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Supreme Court. What is in dispute is whether there was a business of smuggling and whether there was loss in this business of Rs.1,38,000 which could be set off against "Income from other sources" of Rs.1,38,000. 7. We find merit in the decision of the CIT(Appeals). The assessee had earlier also brought foreign goods and carried it in his Hawai Chappal. The Collector of Customs described the transaction as sale and purchase of impugned primary gold. There is a finding by the Assessing Officer that the assessee was the owner of the gold, from which it follows that it was a stock-in-trade of business. We agree that the case is covered by the decision of Vishnu Kumar Soni's case, extract from which has been given above and which, in-turn, has relied on the decision of the Supreme Court in Piara Singh's case. We, therefore, confirm the findings of the CIT(Appeals) that the confiscation of gold was a loss incurred in the course of business of smuggling and the sum of Rs.1,38,000 is allowableas a business loss, which has to be set off against "Income from other sources" of Rs.1,38,000 added under section 69A of the Act. 8. In the result, the Department's appeal is dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to page 11. This makes the difference to the case. It is not true to say that the assessee was caught while smuggling gold bars under the Customs Act for indulging in or carrying on smuggling activities and penalised under the relevant provisions of the Customs Act for such activities. The assessee in his confessional statement recorded on 11-7-1985 [and not 12-7-1985 as stated by my ld. Brother and by the Appellate Commissioner] before the Assistant Collector (Prev.) stated that the gold bars were given to him by Shri Ramjee Prasad S/o Shri Hanuman Sah, Moh. Loherpatti, Motihari, for delivery to Shri Ashok Kumar Khatri Tunchwala, S/o Shri Rambhajan Lal khatri of Bakerganj, Patna. The assessee further stated in his confessional statement that he had delivered a similar consignment of gold to the said party, Shri Ashok Kumar Khatri Tunchwala of Bakerganj, Patna a fortnight ago and which gold was also given to him by the said Shri Ramjee Prasad of Motihari. When the assessee appeared before the Assessing Officer on 17-8-1987 in compliance to summons issued to him under section 131 he had stated through his letter dated 17-8-1987 that he has been falsely implicated by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from other sources' representing unexplained investment as per the provisions of section 69A of the Act. It is, no doubt, true that the assessee stated in his confessional statement recorded on 11-7-1985 that on earlier occasion also he carried on gold bars in his Hawai Chappal to be delivered from Shri Ramjee Prasad to Shri Ashok Kumar Tunchwala, but this statement does not establish the carrying on of business in smuggled or contraband goods. 6. The COC in his order of 4-8-1989, besides the assessee, also penalised those two persons, viz., S/Shri Ramjee Prasad and Shri Ashok Kumar Khatri Tunchwala by saying that those two persons "clearly abetted" the contravention of the aforementioned provisions of law inasmuch as they meaning thereby S/Shri Ramjee Prasad and Ashok Kumar Khatri Tunchwala indulged in the sale and purchase of the impugned primary gold in question. The COC has never said that the assessee and those two accused persons were indulged in purchase and sale of primary gold. Reference may be made to the observations of the COC at page 11 of the assessee's paper book. 7. The Appellate Commissioner in order to give relief to the assessee perhaps picked up this sente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner as well as by my Ld. Brother on the Judgment of the Madhya Pradesh High Court in Vishnu Kumar Soni's case is wholly misplaced and out of context. In the case before the Madhya Pradesh High Court, the Income-tax Appellate Tribunal expressed the probability of the assessee being indulged in activity of smuggling gold and, therefore, the Madhya Pradesh High Court said that having said so the Tribunal should have allowed the value of gold confiscated as business loss. The facts in this case have no iota of semblance with the facts of Piara Singh's case before the Supreme Court or with the facts of the case of Shri Vishnu Kumar Soni, before the Hon'ble Madhya Pradesh High Court. I repeat in both those cases there was evidence of carrying on of regular activity or business in smuggled goods by those assessees. In this case, the assessee from very beginning has been denying even the ownership of the gold bars recovered and seized from him on 11-7-1985. The assessee's case from very inception has been that he has not been engaged or doing any smuggling business or activity and that he was merely carrying on gold taking it from Shri Ramjee Prasad and delivering it to Shri Ashok Kumar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to a decision that he was only a carrier? 2. Whether, the fact that penalties levied by the Collector of Central Excise on Shri Ramjee Prasad and Shri Ashok Kumar Khatri for abetting the contravention of section 8(1) of Gold Control Act, 1968 were set aside by the Appellate Tribunal, is relevant in coming to a decision that the assessee was only a carrier? 3. Whether, on the facts and evidence on record, the loss of Rs.1,38,000 suffered by the assessee on account of confiscation of gold bars is in the course of carrying on business in smuggled goods and, therefore, to be set off from the income of Rs.1,38,000 computed by the Assessing Officer as income from other sources in terms of section 69A of the Income-tax Act, 1961? Point for Reference by the Judicial Member: "Whether, on the facts and evidence on record the loss of Rs.1,38,000 suffered by the assessee on account of confiscation of gold bars is in the course of carrying on business in smuggled goods and, therefore, to be set off from the income of Rs.1,38,000 computed by the Assessing Officer as income from other sources in terms of section 69 of the I.T. Act, 1961?" ORDER Under sub-section (4) of section 255 of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer, however, both the assessee and his father did not deny the ownership of the gold, although in the written explanation which came from the assessee's counsel, it was submitted that the gold did not belong to the assessee. Another stand which the assessee took was that if the gold was held to belong to him, deduction should be allowed for the loss arising by its confiscation by the customs authorities, in terms of ratio of Apex Court decision in the case of Piara Singh. 4. None of these pleas found favour with the Assessing Officer according to whom smuggling could not be treated as the assessee's business which fact alone distinguished the present case from the ratio of Piara Singh's case. Since, the assessee had failed to prove the source of investment in the obtainment of gold which was seized from him, an addition of Rs.1,38,000 was made towards 'unexplained investment'. 5. When the matter reached first appeal, certain other developments had intervened. It was noted by the first appellate authority that in his statement recorded by the customs authorities on 12th July, 1985, the assessee had admitted that earlier also he had brought 'foreign goods' by transportin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer that the assessee was the owner of the gold, followed that such gold partook the character of his stock-in-trade. The case was, therefore, fully covered by the decision of the Madhya Pradesh High Court in the case of Vishnu Kumar Soni, in which reliance had been placed on the Supreme Court decision in the case of Piara Singh. He, therefore, took the view that the confiscation of gold amounted to a loss incurred by the assessee in the course of his business of smuggling entitling him to set it off against 'Income from other sources' of Rs.1,38,000 added under section 69A of the Act. 8. However, when the proposed order went to the ld. Judicial Member, he expressed his inability to subscribe to the first Member's view. 9. The ld. Judicial Member held that the assessee did not carry on any business during the previous year relevant to the year under appeal in smuggling of gold bars and, therefore, the loss occasioned to him as a result of the confiscation of the yellow metal was not a business loss required to be set off against his income assessed in a sum of Rs.1,38,000 in terms of section 69A of the Act. 10. Particularly with the aid of the order dated 4th August, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have any connection either with Ramjee Prasad of Motihari or Ashok Kumar Khatri Tunchwala and the recovery of gold bars from his 'Hawai Chappal'. These facts, as per the ld. Judicial Member, are found narrated clearly in COC's order dated 4-8-1989, about which no dispute was made before me. Reference was further made to this order as per which the assessee on the strength of his own admission dated 11-7-1985 was found to be in possession, custody and control of primary gold alleged to have been passed on to him by Ramjee Prasad, to be delivered to Ashok Kumar Khatri Tunchwala. On these facts, the assessee was penalised under section 71 of the Gold Control Act and the gold bars confiscated under section 74 of the same Act. 12. About the assessee's assertion that on earlier occasions he carried gold bars in his Hawai Chappal to be delivered from Ramjee Prasad to Ashok Kumar Khatri Tunchwala which was equivalent to his carrying on business in smuggled goods the ld. Judicial Member observed that even this stand which was a part of the assessee's confessional statement dated 11-7-1985 did not go to establish the carrying on of business in contraband or smuggled goods by him. He al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undantly clear that he was acting as a carrier of gold bars, on behalf of Ramjee Prasad of Motihari to be delivered to Ashok Kumar Khatri Tunchwala. The income-tax return filed by the assessee on 8-3-1990 duly verified by him also nowhere indicated the incurring of any business loss in smuggling activities nor any set off in respect thereof was claimed. His reply dated 17-8-1987 also claimed that he had been falsely implicated by the customs authorities when he refused to sign some papers. This categorical stand taken by the assessee in the three different situations on different occasions, in my opinion, put a seal on the fate of his claim that he was engaged in smuggling activities by himself. Even that part of the statement that a fortnight ago he had successfully taken the yellow metal in his Hawai Chappal is neither here nor there as in respect of his earlier misdemeanour, the assessee in his statement dated 11-7-1985 stated that (when translated in English): "Even before this, about 15 days ago, I had brought gold and given to him like that". This sentence is suffixed to averments of the assessee that the gold covered by the impugned transaction had to be delivered by him to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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