Confiscation loss is not a business loss unless smuggling business is proved; a mere carrier cannot claim set-off.

A confiscation loss can be treated as a business loss only if the assessee was actually carrying on a smuggling business. On the facts examined, the assessee described himself as a carrier of gold bars for delivery to another person, consistently denied any smuggling business, and did not claim such business in the income-tax return or reply to notice. The customs confiscation proceedings under the Gold Control Act did not establish purchase and sale activity in smuggled gold. The earlier authorities cited were held inapplicable. The loss was therefore not allowable as a business loss and could not be set off against income assessed as unexplained investment under section 69A.

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Issues: Whether the loss arising from confiscation of gold bars could be treated as a business loss from smuggling activity and set off against income assessed as unexplained investment under section 69A; and whether the assessee was merely a carrier rather than a person carrying on a smuggling business.

Analysis: The third member examined the assessee's statement, the customs adjudication order, the income-tax return, and the reply to the section 131 notice. Those materials showed that the assessee had described himself as a carrier of the gold bars for delivery to another person, had not claimed to be carrying on any smuggling business in his return, and had consistently denied involvement in a business of smuggled or contraband goods. The confiscation proceedings were under the Gold Control Act and not shown to establish a business of purchase and sale of smuggled gold. The earlier cases relied upon were held inapplicable on these facts.

Conclusion: The loss from confiscation was not a business loss incurred in the course of a smuggling business and could not be set off against the income assessed under section 69A. The revenue's position was upheld on the referred question.

Final Conclusion: The reference was answered against the assessee on the substantive issue of set-off, leaving the assessment addition undisturbed at the stage of the third member's opinion.

Ratio Decidendi: A confiscation loss is allowable as a business loss only where the assessee is shown to have been carrying on a smuggling business; a mere carrier of contraband, without proof of such business activity, is not entitled to set off the loss against deemed income.

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