TaxTMI 
TaxTMI 
2005 (8) TMI 76
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....rder dated August 16, 1982 confiscated the foreign currency seized from the assessee and further imposed fine of Rs. 1,50,000 on the assessee for contravening the Foreign Exchange Regulation Act. The order of confiscation is confirmed by the Customs, Excise and Gold (Control) Appellate Tribunal ("the CEGAT") by order dated May 2, 1984. On these facts, the Income-tax Officer treated Rs. 4,56,980 as the assessee's income from undisclosed sources but rejected the assessee's claim for the loss suffered by him. The Commissioner of Income-tax (Appeals) upheld the Income-tax Officer's order and distinguished the assessee's case from that of CIT v. Piara Singh [1980] 124 ITR 40 (SC) by pointing out that Piara Singh was admittedly a smuggler while the assessee had denied the foreign currency belonged to him and therefore while the unexplained money was assessable under section 69A, the loss of foreign currency due to confiscation was not allowable. The assessee appealed to the Tribunal and argued that the customs authorities had treated the assessee as smuggler and had confiscated the foreign currency and therefore, he was entitled to deduction of the loss. Alternatively, it was argued t....
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....hat he was not the owner of the money seized. In view thereof, the Income-tax Officer and the Commissioner of Income-tax (Appeals) ordered that the sum of Rs. 4,56,980 held in foreign currency and seized from the assessee be treated as unexplained income of the assessee subject to tax under section 69A of the Income-tax Act, 1961. Section 69A provides as follows: "Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the Income-tax Officer, satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee for such financial year." In view of the non-satisfactory explanation given by the assessee to the customs authorities, as a result, the foreign currency came to be confiscated, the currency ....
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.... this court, the submission of the Revenue was that since the assessee was not carrying on the business of smuggling, the amount confiscated from him under section 69A would not be entitled to be treated as a business loss, as admittedly, the assessee was not carrying on the business of smuggling. Reference has been made to the judgment of the Andhra Pradesh High Court in the case of Bijjala Shivalingam v. CIT [2002] 253 ITR 105 wherein it was held that: "In order to claim deduction of expenditure under section 37(1) of the Income-tax Act, 1961, four conditions must be fulfilled, viz., (i) the expenditure in question is not of the nature described under the specific provisions of sections 30 to 36; (ii) the expenditure is not of the nature of capital expenditure; (iii) it is not a personal expenditure; and (iv) the expenditure has been laid out expended wholly or exclusively for the purposes of business or profession. Unless all the above four conditions coexist, the claim for deduction of expenditure under section 37(1) of the Act cannot be allowed." In the said case, the assessee was carrying on business as a retail dealer in silver and silver articles. The assessee had no ....
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....lchand. In other words, the assessee admitted his smuggling activity. Similarly, in Parkash Chand Sushil Kumar's case [1989] 179 ITR 27 (P & H), it is apparent from the judgment that Mr. Sushil Kumar, one of the partners of the assessee-firm was carrying on smuggling of gold. In the context of the position admitted by the assessees themselves and also having regard to the findings recorded by the authorities under the Customs Act, the Supreme Court and the Punjab and Haryana High Court, allowed deduction under section 37 of the Act as business or trading loss. The ratio of the above decisions of the Supreme Court and the Punjab and Haryana High Court is not applicable to the fact-situation of this case. We say this because, even according to the assessee himself he was not carrying on any smuggling activity." The legal position has been finally set to rest by the decision of the Supreme Court in the case of CIT v. Piara Singh [1980] 124 ITR 40 wherein the apex court has confirmed the decision of the Punjab and Haryana High Court in CIT v. Piara Singh [1972] 83 ITR 678 and has disapproved the judgment in the case of J.S. Parkar v. V.B. Palekar [1974] 94 ITR 616 (Bom) and the expl....
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....business must be deducted before the true figure of profits brought to tax can be computed. Grover J., speaking for the court, observed: "If the business is illegal, neither the profits earned nor the losses incurred would be enforceable in law. But, that does not take the profits out of the taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as 'profits' under section 10(1) of the Act of 1922. The tax collector cannot be heard to say that he will bring the gross receipts to tax. He can only tax profits of a trade or business. That cannot be done without deducting the losses and the legitimate expenses of the business." The apex court also noted in Piara Singh's case [1980] 124 ITR 40 that the Revenue had placed reliance on its judgment in the case of Haji Aziz and Abdul Shakoor Bros. v. CIT [1961] 41 ITR 350 (SC). The Supreme Court pointed out that in that case, the assessee carried on the lawful business of importing dates from abroad and selling them in India. The import of dates by steamer was prohibited. None the less he imported dates from I....
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....aryana High Court and allowed the deduction of Rs. 65,500 which was confiscated from Piara Singh while smuggling the same across the border, as a business loss. In the case on hand it is the contention of the Revenue that since that the assessee was admittedly not a smuggler and not carrying any illegal business or smuggling, that smuggling was not the business of the assessee and therefore, he was not entitled to deduction of Rs. 4,56,980 being the equivalent of the foreign currency seized from him. However, learned counsel for the Revenue has pointed out that although the assessee had denied before the customs authorities that he was a smuggler and was carrying the foreign currency as a part of his smuggling activities, the fact remained that the customs authorities confiscated the same as currency being smuggled and also levied penalty of Rs. 1,50,000 thereby treating him as smuggler. Further, it is pointed out that this High Court in Criminal Writ Petition/Application No. 33/82 filed by the assessee challenging his detention under the COFEPOSA Act, has confirmed that the detenu/the petitioner, i.e., the assessee herein was a member of a gang involved in smuggling. The assess....