1984 (6) TMI 14 - HC - Income Tax

Summary

Issues involved:
The issue involves the disallowance of Rs. 40,000 as business loss by the Income-tax Appellate Tribunal for the assessment year 1966-67, based on the possession of 280 tolas of gold confiscated by the Customs authorities.

Facts and Circumstances:
The individual assessee, engaged in the manufacture of gold and silver ornaments and a small cloth trade, reported an income of Rs. 1,990 from his professions. The Income Tax Officer (ITO) estimated the income at Rs. 3,000 and added Rs. 40,000 as income from undisclosed sources, based on the confiscation of 280 tolas of gold. The Appellate Authority Commission (AAC) upheld the assessment, leading to an appeal before the Tribunal.

Contentions and Arguments:
The assessee contended that the confiscated gold should be exempted as a business expense, citing legal precedent. The Department argued that since there was no evidence of the assessee being in the business of smuggling gold, the confiscation could not be considered a business loss.

Tribunal's Findings and Legal Precedents:
The Tribunal upheld the addition of Rs. 40,000 as income from undisclosed sources, considering the possession and confiscation of the gold. Referring to legal precedents, including CIT v. Kothari, it was argued that if the business in which the loss was sustained was the same as the business in which profit was derived, the loss should be considered in computing profits.

Judgment and Rationale:
The High Court held that the Tribunal was not correct in disallowing Rs. 40,000 as a business loss. Citing legal principles, including the deduction of losses incurred in carrying on an illegal business, the Court emphasized that the confiscation of the currency notes in the smuggling operation constituted a loss incidental to the business. Therefore, the assessee was entitled to claim the confiscated gold as a business loss.

Conclusion:
The Court's decision favored the assessee, ruling that the Tribunal erred in disallowing the Rs. 40,000 as a business loss. Each party was directed to bear their own costs in the case.