1994 (2) TMI 125 - AT - Income Tax

Summary

Issues Involved:

1. Applicability of Section 69A of the Income-tax Act, 1961.
2. Ownership and possession of the gold biscuit.
3. Explanation of the source of acquisition of the gold biscuit.
4. Allowance of loss due to confiscation of the gold biscuit as a deductible loss.

Detailed Analysis:

1. Applicability of Section 69A of the Income-tax Act, 1961:

The Assessing Officer (AO) noted that the assessee was found in possession of a gold biscuit weighing 10 tolas, which was seized by the Superintendent of Central Excise & Customs Department, Alwar. The assessee failed to satisfactorily explain the source of acquisition of the gold biscuit. Consequently, the AO made an addition of Rs. 36,900 under Section 69A of the Income-tax Act, 1961, being the value of the investment made in the acquisition of the gold biscuit.

2. Ownership and Possession of the Gold Biscuit:

The assessee contended that the statement made before the Customs & Excise Authorities was under duress and denied ownership and possession of the gold biscuit. However, the AO did not accept this contention and proceeded with the addition. Before the DC(A), the assessee reiterated that the biscuit did not belong to him and that the conclusions of the ITO were based on presumption only.

3. Explanation of the Source of Acquisition of the Gold Biscuit:

The assessee claimed that the gold biscuit was delivered to him in 1982 by his grandfather. However, this plea could not be substantiated during the assessment proceedings. The DC(A) did not expressly deal with this plea, implying its rejection. The assessee did not file a cross appeal or cross objection against this implied rejection. Thus, it was inferred that the plea was not accepted at any stage of the proceedings.

4. Allowance of Loss Due to Confiscation of the Gold Biscuit as a Deductible Loss:

The assessee argued that the loss due to the confiscation of the gold biscuit should be allowed as a deductible loss, relying on the Supreme Court decision in CIT v. Piara Singh [1980] 124 ITR 40. The DC(A) accepted this alternate contention and deleted the addition. However, the Revenue argued that the Piara Singh case was not applicable as the assessee was not engaged in any smuggling business, unlike Piara Singh, who was involved in a regular smuggling activity.

The Tribunal distinguished the facts of Piara Singh's case, where the assessee was carrying on a regular smuggling activity, from the present case, where the assessee was earning income from salary and property and was not involved in any business in gold, whether lawful or unlawful. The Tribunal noted that the loss must spring directly from carrying on the business and be incidental to it to qualify as an allowable deduction. Since the assessee was not carrying on any business activity related to gold, the loss due to confiscation was not allowable as a deduction.

Conclusion:

The Tribunal held that the loss on confiscation of the gold biscuit by the Customs & Central Excise Authorities was not suffered by the assessee in the course of carrying on any business activity, whether lawful or unlawful, and was not incidental to any business. Therefore, the loss was not allowable as a deduction. The addition of Rs. 36,900 under Section 69A was restored, and the appeal was allowed in favor of the Revenue.