TMI Blog2001 (8) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... on smuggling and illegal business in gold? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in stating that the assessee was not entitled for deduction of the value of confiscated gold merely because the smuggled gold was recovered from his residential house? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in not remitting the appeal back to the file of the Commissioner of Income-tax (Appeals) for considering the remaining grounds taken by the assessee in the appeal filed by him instead of merely allowing the appeal filed by the Department?" The petitioner is the assessee and he is carrying on business as a retail dealer in silver and silver articles. The assessee has no licence to deal in gold or gold ornaments. The assessee filed his return of income for the year 1983-84 on July 25, 1983, disclosing his total income at Rs.27,165. The assessee subsequently filed a revised return of income on October 24, 1985, disclosing total income at Rs.28,980. In the meanwhile, the Central Excise authorities had conducted a search at the residential premises of the assessee on May 5, 1982, and seized gold biscui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shop and, therefore, it did not form part of the closing stock, held that the petitioner is not entitled to deduction. In that view of the matter, the Tribunal set aside the order made by the Commissioner of Income-tax (Appeals) and restored the addition made by the Income-tax. Officer. Sri Y. Ratnakar, learned counsel appearing for the petitioner, would contend that all the Central Excise authorities and the Customs, Excise and Gold (Control) Appellate Tribunal, South Regional Bench at Madras (for short 'the CEGAT"), have held that the seized gold belongs to the petitioner; according to the Revenue, the assessee was carrying on illegal business in gold and this stand of the Department is reflected in the show-cause notices issued to the petitioner-assessee; the Income-tax Officer also stated in the assessment order that he is in agreement with the Central Excise authorities who have held that the assessee is carrying on smuggling business; the Commissioner of Income-tax (Appeals) also after referring to the orders of the Central Excise authorities opined that the assessee was carrying on smuggling of gold. Learned counsel would point out that it was never the case of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntain that evasion or contravention of law cannot be treated to be a trade or business pursuit so as to bring it under the purview of section 37 of the Act. The only question that arises for decision is whether the value of the gold biscuits and the gold jewellery confiscated by the Central Excise authorities would constitute an admissible deduction? In terms of section 37 of the Act, only an expenditure laid out or expended by the assessee wholly or exclusively for the purposes of the business or profession is entitled to be allowed as deduction in computing the income charged under the head "Profits and gains of business or profession". Therefore, the basic question to be considered is whether the value of the gold biscuits and the gold jewellery seized by the Central Excise authorities valued at Rs.3,30,400 can be considered to be an expenditure on the part of the petitioner-assessee laid out or expended by him wholly or exclusively for the purposes of his business or profession. In answering this question, it is appropriate to notice the undisputed facts at the threshold. First, the confiscated gold biscuits and gold jewellery were seized from the residential premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsuing the business Of smuggling; it was a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business and, therefore, it was a loss which sprang directly from the carrying on of the business and incidental to it and its deduction had to be allowed under section 10 of the Indian Income-tax Act, 1922. In Shri Ram Chander's case [1986] 159 ITR 689 (P H), the respondent therein, who was the assessee was apprehended on March 20, 1974, by the customs authorities near the village Ismalla on the Delhi-Rohtak Road, while he was going to Rohtak on a scooter. As a result of the search of the scooter, a specially designed cavity in the foot-board near the foot-brake covered with rubber mat was discovered and from its search, ten gold bars weighing ten tolas each bearing Swiss markings were recovered. The explanation offered by the assessee that the said gold bars were delivered to him by one Champat Rai of Rohtak for delivering the same to one Lal Chand was not accepted and the customs authorities forfeited the said gold valued at Rs.65,000. During the assessment proceedings relating to the assessment year 1974-75, the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the following question was referred to the Punjab and Haryana High Court under section 256(1) of the Act: "Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the addition under section 69A of the Income-tax Act on account of value of gold biscuits Rs.42,000 seized by the customs authorities cannot be allowed deduction as a business loss?" The Punjab and Haryana High Court, placing reliance on its own judgments in Piara Singh's case [1972] 83 ITR 678 and Shri Ram Chander's case [1986] 159 ITR 689 and the judgment of the Supreme-Court in Piara Singh's case [1980] 124 ITR 40, answered the above question in favour of the assessee and held that the Tribunal was not right in holding that the addition of the amount under section 69A of the Act on account of the value of the gold biscuits of Rs.42,000 seized by the customs authorities cannot be allowed deduction as business loss. It is very pertinent to notice that in Piara Singh's case [1980] 124 ITR 40 (SC); Shri Ram Chander's case [1986] 159 ITR 689 (P H) and Parkash Chand Sushil Kumar's case [1989] 179 ITR 27 (P H), the assessees were admittedly indulging in smuggling ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head 'Profits and gains of business or profession'. Explanation. -For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure." It is not unimaginative or unusual that there may be other expenses in earning the profits and gains of a business or profession or vocation which may not be proper deductions under sections 30 to 36 of the Act. It was, therefore, to meet this requirement that necessary provisions were made under section 10(2)(xv) of the Indian Income-tax Act, 1922, and the same provision has been re-enacted in section 37(1) of the Act. That is why this provision is generally called a "residuary provision". It is true that the residuary nature of the provision in section 37(1) of the Act will have to be given its full play a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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