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TMI Blog2008 (9) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... ying and selling gold ornaments. The assessee, therefore, is admittedly in the business of making gold ornaments from the gold supplied to him by his clients. The business income of the assessee, therefore, admittedly comprises only of labour charges received on making and polishing gold ornaments. (ii) The business premises of the assessee were searched by the officers of DRI on April 24, 1991 when seven foreign marked gold bars were recovered and seized. The value of the gold bars was determined at Rs. 2,96,100. The statement of the assessee was recorded under section 108 of the Customs Act, 1962 in the DRI office on April 24, 1991. In the said statement, the assessee has categorically stated that he was getting orders for gold ornaments on job work basis where gold would be supplied to him by his client and he would make ornaments as per their requirements/ design in his capacity as a goldsmith. The assessee has also stated that the gold bars were handed over to him by one Raju from Bangalore for making jewellery upon payment of labour charges. (iii) By and under an order dated July 30, 1992, the Additional Collector of Customs confiscated the said gold bars and further impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said amount is addable to the income of the assessee under the provisions of section 69A of the Income-tax Act, 1961, as the gold was confiscated and never returned by the Customs authorities the same be treated as loss which sprang from carrying on business and was incidental to it and this deduction has to be allowed. The assessee relied before the Tribunal on the decision in the case of CIT v. Piara Singh reported in [1980] 124 ITR 40 (SC). (vii) The Tribunal by its order dated July 27, 2000 dismissed the appeal of the assessee. As regards the assessee's argument that the Assessing Officer had erred in adding the sum of Rs. 2,96,100 as income from undisclosed sources and the Commissioner of Income-tax (Appeals) further erred in upholding the action on the part of the Assessing Officer, the Tribunal gave its finding that the Commissioner of Income-tax (Appeals) had correctly held that the Assessing Officer was right in adding the sum of Rs. 2,96,100 under the provisions of section 69A, being the value of contraband gold recovered from the premises of the assessee. (viii) As regards the alternative submission of the assessee that the value of the gold seized and confiscated sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 3. We have heard at length the submissions of the advocates appearing for the assessee. We have not received any assistance from the advocate for the Department. The advocate for the assessee has placed very strong reliance on the decision which was also relied upon by him before the Tribunal, i.e., the decision of the hon'ble apex court in the case of CIT v. Piara Singh reported in [1980] 124 ITR 40. It is, therefore, necessary for us to set out the facts and discussion found in the said judgment at some length. 4. In the case of Piara Singh [1980] 124 ITR 40 (SC), the respondent Piara Singh was carrying on smuggling activities. Piara Singh was apprehended by Indian Police while crossing IndoPakistan border into Pakistan. A sum of Rs. 65,500 in currency notes was recovered from his person. On interrogation he stated that he was taking the currency notes to Pakistan to enable him to purchase gold in that country with a view to smuggle it into India. The Collector of Central Excise and Land Customs ordered confiscation of the currency notes. The Income-tax Officer took the proceedings under the Indian Income-tax Act, 1922 for assessing the assessee's income and determining his t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of Rs. 56,978 belonging to the assessee was seized by the Customs officials. In the assessment to the Income-tax, the assessee claimed the amount as a deduction stating that it represented trading and commercial loss of the firm. The Income-tax Officer rejected the claim on the ground that it did not relate to the business carried on by the assessee and that the assessee was not entitled to deduction of the said amount. The appeals preferred by the assessee to the Appellate Assistant Commissioner and Appellate Tribunal were also dismissed. On a reference to the High Court, it was held that to be entitled to deduction the loss must be one that springs directly from the business or trade which the assessee carries on or is incidental to the business that he carries on and not every sort or kind of loss which has absolutely no nexus or connection with his trade or business. It was held that loss sustained by confiscation of smuggled goods is absolutely foreign to the vocation or business of the assessee's firm. It is a loss incurred in some character other than that of a trader. Confiscation of the gold being result of the proceedings in rem falls completely outside the trade or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 65,500 and the appeal filed by the Revenue was dismissed with costs. 10. As set out hereinabove, in the case in hand the assessee was doing lawful business in gold. Admittedly his business pertains to making of ornaments from the gold provided by client of the assessee and business income of the assessee admittedly comprised of the labour charges received on making and polishing gold ornaments. It is, therefore, clear in the instant case that the assessee who is carrying on a lawful business in gold has committed infraction of law in smuggling gold into the country. Therefore, loss caused to the assessee pursuant to the confiscation of contraband gold cannot be said to be a trade or commercial loss connected with or incidental to the assessee's business. The facts of the present case, therefore, can be distinguished from the facts in Piara Singh's case [1980] 124 ITR 40 (SC) where the Tribunal proceeded on the basis that the assessee was carrying on a regular smuggling activity. The said Piara Singh was not doing any other business. The facts in the present case are similar to the facts in the case of Soni Hinduji Kushalji and Co. [1973] 89 ITR 112 (AP) where the hon'ble S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that there is no reason as to why in the instant case such deduction should not be allowed as business loss. It is pertinent to note that this argument will not be of assistance to the assessee because in the instant case we are of the view that the assessee is not entitled to any deduction for loss of gold as the assessee as set out herein was carrying on lawful business in gold and committed infraction of law in smuggling gold into the country. The loss caused to the assessee, therefore, is not a loss which springs directly from the carrying on of his business or is incidental to it. 12. It also needs to be noted that this court in the case of CIT v. Anil M. Gehi [2006] 284 ITR 338 (Bom) has dealt with in great detail the decision in Piara Singh's case [1980] 124 ITR 40 (SC) and have also set out how the hon'ble Supreme Court has explained the decision in Soni Hinduji Kushalji and Co. [1973] 89 ITR 112 (AP). This court has also categorically stated in Anil M. Gehi case [2006] 284 ITR 338 (Bom) that (page 348) : "It may be noted that it is not the case of the Revenue that the assessee was carrying on any other business, lawful as otherwise, for which the foreign currency was b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly in the business of manufacturing/making ornaments from the gold given to him by his clients and his business income constituted making charges that he receives from his client. He has made a categorical statement before the Customs authorities that the gold is always given to him by his client and even his licence specifies that he cannot buy or sell gold. As set out earlier, in our view, in the instant case the activity of smuggling gold into the country is, therefore, an infraction of law and certainly cannot form the stockintrade of the assessee. 14. The advocate for the assessee also submitted before us that once the value of the gold is treated as a deemed income of the assessee under section 69A of the Income-tax Act, it is obvious that the said income is treated as business income and, therefore, entitled to the deduction on the ground of business loss. We cannot agree with this contention advanced by the advocate for the assessee. The meaning of the word/phrase "income" used in section 69A of the Income-tax Act came up for interpretation before the hon'ble apex court in the case of Chuharmal v. CIT reported in [1988] 172 ITR 250. The hon'ble Supreme Court explained/ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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