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TMI Blog1981 (12) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... confiscated by the customs authorities during the year. He, therefore, asked the assessee to justify this claim. It was explained by the assessee that the loss was directly related to the business, that it had been incurred during the commercial transactions ordinarily carried on by the assessee, that the assessee had imported rags on genuine belief that they were covered by the import licence issued by the Government, that the assessee had claimed the loss because the rags had been confiscated by the Collector of Customs and that though the order of the Collector of Customs was not final and the assessee had filed the appeal against the said order which was pending, yet the assessee was entitled to the claim as it had debited the said amount in the books of account maintained on mercantile system of accounting. The ITO rejected this claim on two grounds. He firstly held that the order of the Collector of Customs was not final and secondly, the confiscation order was passed on the infringement of the Customs Act read with section 3 of the Import and Export Control Act. It was thus in fact a penalty for infringement of law and expenditure will be illegal expenditure. It was disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of the Customs Act in any case was there by the assessee and it is clearly indicated that the assessee was not entitled to the loss arising out of confiscation in view of the ratio of the Supreme Court judgment in the case of Haji Aziz & Abdulshakoor Bros. v. CIT [1961] 41 ITR 350. It was further argued that the alternative argument of the learned counsel for the assessee that he is entitled to the set off of the amount representing the value of confiscated goods can apply only if the assessee concedes that he is carrying on illegal business. Since there is no such concession, the judgment of the Supreme Court in the case of Piara Singh is not applicable. 8. Relying on the Calcutta High Court judgment in the case of Raghubir Prasad Gupta v. CIT [1979] 120 ITR 789, it was contended by the revenue that an amount paid to the customs authorities by way of fines in lieu of confiscation of goods imported without valid licence was held to be expenditure not wholly and exclusively laid out for purposes of the business of an assessee and as such not deductible under section 37(1) of the Income-tax Act, 1961 by the Calcutta High Court. The same is the case here and, therefore, the los ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... len Mills, Ludhiana, account the State Trading Corporation of India, New Delhi. The exporter has given a certificate in the following terms while exporting 204 bales, what is described as "Old Woolknits Rags": "We hereby certify that merchandise is of Japanese origin. We hereby certify that the goods were dry when packed." The description of the goods is as under : "TYPE 'OSAN/S,' - Old Woolknits Rags. Old, unserviceable, torn, mutilated, expected to sort - without guarantee pastels 25 per cent, medium 35 per cent, dark 20 per cent, fancy 20 per cent, shipment of goods commercially all wool." The import of 23 bales by Invoice No. 987 appearing at page 76 is not so clear as it is a photostat copy. 12. When the goods arrived in India, the customs authorities found that they were not woollen rags as the term was understood by them. To this, the assessee objected. The assessee also suggested that the goods be mutilated so as to render them, even if they were, without conceding that they are serviceable, unserviceable. The assessee also objected to the method adopted by the customs authorities in determining the type and character of the goods whether they were woollen or non-wooll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w Delhi, and the said account with the firm of Shoji & Co. Ltd. (page 77 of the assessee's paper book) show that the account is of International Woollen Mills, Ludhiana, account the State Trading Corporation of India, New Delhi. Therefore, it could not be said that the assessee in coalition or in collaboration with the State Trading Corporation subverted the licences which were issued for import of woollen rags to import something which was not permitted under the licences. The assessee, therefore, could not be said to have infringed any law so as to invite such penalty that could be said to be in violation of law and inadmissible as business expenditure. The role played by the assessee was that of simple importer who on the basis of genuine import licences ordered goods from exporters in Japan and on their arrival in India, these were found to be not conforming with the idea of woollen rags that was prevalent with the authorities, who had to interpret its connotation under the Customs Act. We are, therefore, of the considered opinion that the assessee did not infringe any law so as to be visited with any penalty or fine. The question, however, remains of confiscation of goods of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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