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TMI Blog2003 (10) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e(s) : S. K. KESHOTE., K. S. RATHORE. JUDGMENT The judgment of the court was delivered by S.K. Keshote J. - The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short, "the Tribunal") has referred, under section 256(2) of the Income-tax Act, 1961 (hereinafter shall be referred to as "the Act, 1961"), at the instance of the Revenue, the following questions of law to this court for decision: "(i) Whether, on the facts and in the circumstances of the case, the decision of the Income-tax Appellate Tribunal is perverse inasmuch as the relevant material was not properly evaluated and wrong conclusions were drawn? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal had any material for the conclusion that the assessee was carrying on the illegal business of smuggling of gold? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss arising to the assessee due to confiscation of gold by the customs authorities is to be deducted from the amount included in his income as unexplained investment?" The Central Excise Department, Jaipur on January 24, 1979, seized foreign gold weighing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the gold never belonged to him and that the customs authorities have forcibly recorded his statement and got it signed. The Assessing Officer, after considering all these, was of the view that the amount of Rs. 1,32,500 is treated the income of the assessee from undisclosed sources. Before the Assessing Officer the assessee did claim deduction of this amount as business loss and placed reliance on the decision of the hon'ble Supreme Court in CIT v. Piara Singh [1980] 124 ITR 40. The Assessing Officer did not allow the claim on the ground that the assessee never admitted carrying on any business of gold smuggling. The matter was taken by the assessee to the Commissioner of Income-tax (Appeals), Rajasthan I, Jaipur, who also rejected the claim of the assessee on the ground that it was never the case of the assessee of having carried on any such business and that there was no basis for allowing the seizure of gold as business loss as what was proposed to be added was the unaccounted money which was utilized for acquiring of gold. The assessee has filed appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur. Before the learned Tribunal the plea of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was carrying on the business of smuggling, may be an illegal business and suffered loss as a consequence of confiscation of gold and it has rightly been allowed by the learned Tribunal as a loss in the business. The finding of fact has been recorded in favour of the assessee by the learned Tribunal that the assessee had been carrying on the illegal business of smuggling. After this finding of fact recorded the consequence thereof on the basis of the admitted facts it follows that the loss in the business due to confiscation of the gold has to be deducted from the amount included as his unexplained investment. We have given our thoughtful and anxious consideration to the rival contentions raised by learned counsel for the parries. It is an undisputed fact that the Income-tax Officer, D-Ward, Ajmer, while making the assessment of the income of the assessee for the assessment year 1979-80 added the value of seized gold of Rs. 1,32,500 and treated it to be income from other sources under section 69 of the Act, 1961. It was taken to be the income from other sources on account of unexplained investment, not recorded in the books of account of the assessee. The learned Tribunal h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble for the assessee to have indulged in the activities of dealing in smuggling gold. The Tribunal has also accepted the decision of the customs department that the assessee was caught in the process of smuggling. Therefore, the confiscation of the gold was a loss incurred in the course of business and the Tribunal was not right in not allowing Rs. 40,000 loss in the business. Reference here may be made to the decision of the apex court in the case of CIT v. S.C. Kothari [1971] 82 ITR 794. Their Lordships of the hon'ble Supreme Court held that for the purpose of section 10(1) of the Indian Income-tax Act, 1922, the losses which have actually been incurred in carrying on a particular illegal business must be deducted before the true figure relating to profits which have to be brought to tax, can be computed or if the business in which the loss was sustained was the same as the business in which the profit was derived that loss should be taken into account while computing the profits of the business under section 10(1) of the Act, 1922 even if the business was illegal. Reference fruitfully may be made to another decision of the hon'ble apex court in CIT v. Piara Singh [1980] 124 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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." We find that a similar view has been taken by the Andhra Pradesh High Court in Soni Hinduji Kushalji and Co. v. CIT [1973] 89 ITR 112. We find from the statement of case that the Tribunal accepted that the Central Excise Department, Jaipur, on January 24, 1979, seized the gold weighing 1,479 grams valued at Rs. 1,32,500 from the assessee. A finding of fact has also been recorded that the said gold was confiscated by the authorities. The assessee has admitted before the Central excise authorities that he had carried the gold though on behalf of other persons. It is true that before the Central Excise Department the plea of the assessee was that the gold never belonged to him and the customs authorities had forcibly recorded his statement and got it signed by him. The learned Tribunal has accepted as a fact that the assessee was under MISA and sentence was confirmed by ..... 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