2014 (10) TMI 793 - HC - Income Tax

Allowability of business loss u/s 28 - Claim for deduction on gold seized by the Custom Authorities allowable business expenditure or not - Whether the loss incidental to business is allowable u/s 28 and the provision of Section 37(1) of the Income Tax Act, 1961 can override the provision of Section 28 or not Held that - Dr. TA Quereshi Versus Commissioner of Income-Tax 2006 (12) TMI 91 - SUPREME Court the loss which was incurred during the course of business even if the same is illegal is required to be compensated and for the loss suffered by the assessee Decided in favour of assessee.

Summary

Issues:
Challenge to Tribunal's order on business loss deduction claim.

Analysis:
The appellant, an individual dealing in bullion and gold jewellery, faced a search by the Income Tax Department leading to the seizure of substantial bullion quantities. The appellant disclosed undisclosed income, but the Assessing Officer made additions and disallowances, including a deduction claim of Rs. 40,34,898 for gold seized by Custom Authorities. The CIT (Appeals) upheld the disallowances, prompting the appellant to appeal to the Tribunal, which also dismissed the appeal.

The key issue framed by the Court was whether the Tribunal erred in disregarding the appellant's business activities and the claim for allowable business expenditure under the Income Tax Act, 1961. The appellant argued for the deduction based on a Supreme Court decision stating that even illegal business losses must be compensated. After hearing arguments, the Court ruled in favor of the appellant, allowing the appeal and directing the decision in favor of the assessee against the revenue.

In conclusion, the Court sided with the appellant, emphasizing the compensatory nature of business losses even if incurred illegally. The judgment favored the appellant's claim for deduction related to the seized gold, overturning the Tribunal's decision and allowing the appeal in favor of the assessee against the revenue.