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TaxTMI 
TaxTMI 
TaxTMI 
1994 (2) TMI 125
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....f the same. Consequently the Assessing Officer delivered the copy of his (assessee's) said statement dated 29-9-1988 to the assessee and required him to explain the source of acquisition of the gold biscuit. By his reply dated 26-8-1991 the assessee contended that the statement before the Customs & Excise Authorities was made by him under duress. He appears to have denied also the ownership and possession of the said biscuit. It further appears that it was also pleaded by him that the said biscuit had delivered to him in 1982 by his grand father. The Assessing Officer did not accept the contention of the assessee and made an addition of Rs. 36,900 being the value of the investment made in acquisition of the gold biscuit by the assessee. The assessee carried the matter to DC(A) in appeal. 3. Before the learned DC(A) it was urged on behalf of the assessee that the biscuit did not belong to the assessee and the conclusions of the ITO were based on presumption only. In the alternative it was also urged that the gold was confiscated as a result of which the assessee suffered an identical loss. Therefore, the assessee was entitled to the allowance of the identical loss. Reliance in this....
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....emselves to the following question, namely, "Is a smuggler, who is taxed on his income from smuggling under the IT Act, 1922 entitled to a deduction under section 10(1) of the Act on account of the confiscation of currency notes employed in the smuggling activity?" and then applying the principle laid down in Badridas Daga v. CIT [1958] 34 ITR 10 (SC) and quoting with approval Grover J. in CIT v. S. C. Kothari [1971] 82 ITR 794 (SC) observed that-- "In our judgment, the High Court is right. The IT authorities found that the assessee was carrying on the business of smuggling. They held that he was, therefore, liable to income-tax on the income from that business. On the basis that such income was taxable, the question is whether the confiscation of the currency notes entitles the assessee to the deduction claimed. The currency notes carried by the assessee across the border constituted the means for acquiring gold in Pakistan, which gold he subsequently sold in India at a profit. The currency notes were necessary for acquiring the gold. The carriage of currency notes across the border was an essential part of the smuggling operation. If the activity of smuggling can be regarded as....
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....e, and the penalty was rightly held to fall on the assessee in some character other than that of a trader. Reference was made by the revenue to Soni Hinduji Kushalji & Co. v. CIT [1973] 89 ITR 112 (AP). The assessee's claim to the deduction of the value of gold confiscated by the customs authorities was found unsustainable by the court. The decision in that case can be explained on the ground that the assessee was carrying on a lawful business in gold, silver and jewellery and committed an infraction of the law in smuggling gold into the country. Our attention has also been Invited to J.S. Parkar v. V.B. Palekar [1974] 94 ITR 616 (Bom.), where on a difference of opinion between two learned judges of the Bombay High Court, a third learned judge agreed with the view that the value of gold confiscated by the customs authorities in smuggling operations was not entitled to deduction against the estimated and assessed income from an undisclosed source. It was observed that the loss arose by reason of an infraction of the law and as it had not fallen on the assessee as a trader or businessman a deduction could not be allowed. Apparently, the true significance of the distinction between an....
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....ioned by committing an infraction of law, which would not be a normal incident of such business, the loss so occasioned would not be an allowable deduction. 10. Judged in the light of the principles emerging from Piara Singh's case the position of the case in hand comes to this that herein the assessee was earning income from salary and property and carried on no business in gold whether lawful or unlawful. the assessee was found in possession of ten tolas of gold in the form of a biscuit and on being asked he could not, according to the IT authorities, explain the sources of investment in acquisition thereof. Here it may be observed that the assessee was found in possession of the gold biscuit at the shop of M/s. Kailash Chand Saraf, Alwar where he had allegedly gone to know about the purity of gold in the biscuit. At the assessment proceedings, the assessee took the plea that the gold biscuit had been given to him in 1982 by his grand father but such a plea could not be substantiated. The same plea appears to have been reiterated before the learned DC (Appeals) who does not appear to have dealt with it and, therefore, it shall be inferred that he had rejected such a plea. It may....