2012 (5) TMI 704 - AT - Income Tax

Summary

Issues Involved:
1. Reopening and reassessment order u/s 148.
2. Disallowance of business loss on confiscated silver stock.
3. Disallowance of telephone expenses.
4. Penalty u/s 271(1)(c).

Summary:

Issue 1: Reopening and Reassessment Order u/s 148
The assessee challenged the reopening and reassessment order by the Asstt. CIT, arguing that it was a mere fresh application of mind to the same facts or a change of opinion, and that there was no reason to believe for reopening as it was based on an audit objection. The assessee also contended that the reassessment was beyond jurisdiction as no speaking order was passed against the objections raised. However, this ground was not pressed during the hearing and was dismissed as not pressed.

Issue 2: Disallowance of Business Loss on Confiscated Silver Stock
The assessee, a jeweller, claimed a business loss deduction of Rs. 1,05,02,075 for the confiscated silver stock. The silver was seized by the DRI, and the Customs Department did not accept the legality of the purchase from 18 NRIs. The Customs Tribunal (CEGAT) upheld the confiscation, and the Bombay High Court and Supreme Court upheld this decision. The Tribunal found that the loss crystallized in the year under consideration when the CEGAT order was received. The Tribunal held that the loss was a business loss as the silver was part of the stock-in-trade and allowed the deduction, referencing the Supreme Court decision in CIT v. Piara Singh, which allowed losses from illegal activities if they were incidental to the business.

Issue 3: Disallowance of Telephone Expenses
The assessee contested the disallowance of Rs. 5,058 from telephone expenses. The AO had estimated a 5% disallowance for personal use, which was confirmed by the CIT(A). The Tribunal upheld the disallowance, noting that the assessee did not maintain records to substantiate the claim.

Issue 4: Penalty u/s 271(1)(c)
The AO levied a penalty of Rs. 42,00,830 under s. 271(1)(c) for furnishing inaccurate particulars of income by claiming a loss on confiscated silver. The CIT(A) deleted the penalty, noting that the stock was consistently held as 'stock-in-trade' and written off based on the CEGAT order. The Tribunal upheld the CIT(A)'s decision, finding that the penalty was not justified as the quantum appeal had been allowed, and the loss was considered a business loss.

Conclusion:
The appeal of the assessee was partly allowed, specifically on the issue of business loss on confiscated silver stock, while the appeal of the Revenue was dismissed.