1992 (8) TMI 117 - AT - Income Tax

Loss not incidental to business, not deductible under tax laws. Commissioner decision overturned. Assessing Officer's decision upheld.

The Tribunal held that the loss of Rs. 3,32,148 was not incidental to the assessee's business and arose from an infraction of law, thus not qualifying as ... Foreign Exchange, Interest Income, Interest On Deposit Issues Involved:1. Deletion of addition of Rs. 3,32,148 made on account of confiscation of goods by the customs department.2. Determination of whether the loss of Rs. 3,32,148 is an allowable deduction under tax laws.Issue-Wise Detailed Analysis:1. Deletion of Addition of Rs. 3,32,148:The core issue revolves around the deletion of an addition of Rs. 3,32,148 made by the Assessing Officer (AO) due to the confiscation of goods by the customs department. The AO noticed that the assessee had debited this amount due to the confiscation of goods, which were neither shown as sold nor reflected in the closing stock. The goods imported were supposed to be wool waste but were found to be synthetic/acrylic waste with negligible wool content, leading to their confiscation by the customs authorities. The AO held that the loss was not incidental to the assessee's business and thus not an allowable deduction.2. Allowability of the Loss as a Deduction:The Commissioner of Income Tax (Appeals) [CIT (A)] allowed the deduction, considering the loss as revenue in nature, citing various judgments. However, the Revenue appealed against this decision, asserting that the loss arose due to the infraction of law and should not be allowed as a deduction.Analysis of Precedents and Arguments:- Revenue's Argument: The learned Departmental Representative (D.R.) argued that the loss was due to the infraction of law, referencing the Bombay High Court decision in T. Khemchand Tejoomal v. CIT, which held that losses arising from violations of customs laws are not allowable deductions.- Assessee's Argument: The assessee's counsel contended that the goods were imported under a bona fide impression that they were wool waste. The counsel relied on the Tribunal's decision in International Woollen Mills v. ITO, where a similar loss was deemed revenue in nature and allowable. The counsel also referenced other cases such as Zenith Steel Pipes Ltd. (No. 2) v. CIT and CIT v. Shri Ram Chander, arguing that the loss was incurred in the ordinary course of business and should be allowed.Tribunal's Findings:- International Woollen Mills Case: The Tribunal distinguished this case, noting that the import in that case was through the State Trading Corporation, and there was a genuine difference of opinion regarding the definition of 'woollen rags.' In contrast, the present case involved direct import by the assessee and a clear breach of law.- Zenith Steel Pipes Ltd. Case: The Tribunal highlighted that the loss in this case was due to the deterioration of goods over time and not due to any infraction of law, making it distinguishable from the present case.- Ram Chander Case: The Tribunal noted that this case involved a consistent business of smuggling gold, which was not comparable to the isolated transaction in the present case.- Textool Co. Ltd. and Lakshmi Mills Co. Ltd. Cases: Both cases involved forfeiture of premiums under import licensing schemes without any infraction of law, making them distinguishable from the present case.- T. Khemchand Tejoomal Case: The Tribunal found this case to be closely aligned with the present case, where the loss arose due to the import of goods not conforming to the licence specifications, leading to confiscation by customs authorities.Supreme Court Precedent:The Tribunal also referenced the Supreme Court decision in Haji Aziz & Abdul Shakoor Bros. v. CIT, which held that losses arising from infractions of law are not deductible as they are not normal incidents of business.Conclusion:The Tribunal concluded that the loss of Rs. 3,32,148 resulted from an infraction of law, which is not a normal incident of business. Therefore, the loss cannot be allowed as a deduction. The order of the CIT (A) was set aside, and the AO's decision was restored.Result:The appeal by the Revenue was allowed.