TMI Blog2008 (9) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... J. JJ JUDGMENT The judgment of the court was delivered by 1. S. J. Kathawalla J . In the present appeal, the appellant (assessee) has impugned before this court the order passed by the Appellate Tribunal dated July 27, 2000 pertaining to the assessment year 199293. The substantial question of law on which the appeal is admitted by this court is as follows: "Whether the deemed income under section 69A can be set off against the loss due to the confiscation of the very same foreign marked gold bars on the basis of which addition is made?" 2. The relevant facts arising in the present appeal are as under: (i) The assessee is a goldsmith carrying on his business from room No. 7, 1st floor, Hendre Building, Sayani Road, Mumbai 400 025. The assessee possesses a certificate to carry on business as goldsmith issued under the Gold (Control) Act, 1968. Under the said certificate, the assessee is expressly prohibited from carrying on the business of buying 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 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the contention of the assessee was not accepted by Commissioner of Income-tax (Appeals) and the appeal of the assessee stood dismissed by an order of the Commissioner of Income-tax (Appeals) dated February 29, 1996. (vi) The assessee, therefore, preferred an appeal before the Appellate Tribunal impugning the order of the Commissioner of Income-tax (Appeals) dated February 29, 1996 and, inter alia, contended that no reason existed to presume that the assessee was the owner of the said gold bars. The assessee during the course of hearing also brought to the notice of the Tribunal that the Chief Metropolitan Magistrate has by order dated June 27, 1996 acquitted the assessee on the ground that the prosecution has miserably failed to prove that the accused was in any way concerned with the seven gold bars seized by the officers of DRI. The assessee before the Appellate Tribunal for the first time made an alternative plea, namely, that even assuming that the 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndings of the Tribunal including the Tribunal's confirmation pertaining to the addition of Rs. 2,96,100 under section 69A of the Income-tax Act, 1961. However, this court at the time of admission, admitted the appeal only on the question set out in paragraph 1 above. The grounds raised by the assessee in the above appeal in support of the said question on which the appeal is admitted is ground (F) and is reproduced hereunder. "Without prejudice to the above, the appellant submits that the Appellate Tribunal is not justified for not considering the alternative plea of the appellant that the value of the confiscated gold bars be allowed as business loss. The appellant states that presuming that the seized and confiscated gold belong to the appellant, then the value of the same ought to have been allowed as business loss in the hands of the appellant. Therefore, the confirmation of addition of Rs. 2,96,100 is uncalled for and the same may be allowed as business loss." 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sary incident involved in the business is detection by the Customs authorities and consequent confiscation of the currency notes. It is an incident predictable in the course of carrying on the activity as any other feature of it. The confiscation of currency notes is loss occasioned in pursuing the business; it is a loss in much the way as if the currency notes have been stolen or dropped on the way while carrying on the business. Applying the principle laid down by the hon'ble Supreme Court in Badridas Daga v. CIT [1958] 34 ITR 10, the hon'ble Supreme Court held that confiscation of currency notes is loss which springs directly from the carrying on of the business and is incidental to it. 7. In Piara Singh's case [1980] 124 ITR 40 (SC) the Revenue also cited before the hon'ble Supreme Court the case of Soni Hinduji Kushalji and Co. v. CIT [1973] 89 ITR 112 (AP). In that case the assessee was carrying on a lawful business in gold, silver and jewellery. The gold of the value 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 commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the view that the value of the gold confiscated by the Customs authorities in smuggling operation was not entitled to deduction against the estimated and assessed income from an undisclosed source. It was observed that loss arose by reason of an infraction of the law and as it had not fallen on the assessee as a trader or business man, the deduction could not be allowed. The hon'ble Supreme Court disapproved the decision given in J. S. Palekar's case [1974] 94 ITR 616 (Bom) by the Bombay High Court in the following terms (page 43 of 124 ITR) : "Apparently, the true significance of the distinction between an infraction of the law committed in the carrying on of a lawful business and an infraction of the law committed in a business inherently unlawful and constituting a normal incident of it was not pointedly placed before the High Court in that case." 9. The hon'ble Supreme Court was thereafter pleased to hold that the assessee (Piara Singh) was entitled to deduction 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. It was held by this court that the assessee was treated as a smuggler and his subsequent detention under the COFEPOSA Act confirmed that he was treated as a smuggler and foreign currency recovered was the amount involved in smuggling activity and confiscation of the amount was, therefore, business loss suffered by the assessee in conducting his business of smuggling. It was held that Revenue while bringing to tax a sum of Rs.4,56,980 as income of the assessee under section 69A could not deprive the assessee of the benefit of treating the said amount as a business loss. It was contended by the advocate for the assessee before us that even in this case the assessee had not admitted that he was a smuggler and despite his express denial the Tribunal as well as the court came to a finding that he was involved in smuggling business/activity and, therefore, entitled to the benefit of treating the amount of Rs. 4,56,980 as business loss. The advocate for the assessee further contended 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevance as this was not a case of business expenditure but was one of business loss. The business loss was allowable on ordinary commercial principles in computing the profits. Once, it was found that heroin seized forms part of the stockintrade of the assessee, it followed that the seizure and confiscation of such stockintrade had to be allowed as a business loss ; (ii) that even though the assessee was committing a highly immoral act in illegally manufacturing and selling heroin the case had to be decided on legal principles and not on one's own moral views. We are of the view that the decision of the hon'ble Supreme Court in Dr. T. A. Quereshi [2006] 287 ITR 547 will not be of any assistance to the assessee in the present case because in that case the Tribunal had reached a finding of fact that the assessee was in the business of manufacture and sale of heroin and the heroin seized was the assessee's stockintrade. In the instant case, as stated earlier, the assessee is admittedly 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 categori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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