Income Tax Appellate Tribunal - Jaipur
Ashok Kumar Karola vs Assistant Commissioner Of Income Tax on 7 November, 2006
Equivalent citations: (2007)110TTJ(JP)397
ORDER
I.C. Sudhir, J.M.
1. The assessee has questioned first appellate order on the following grounds:
1. Under the facts and circumstances of the case, the order passed by the learned CIT(A), Alwar is illegal, without jurisdiction, bad in law, thus, null and void and therefore, deserves to be quashed.
2. Under the facts and circumstances of the case, the learned CIT (A), Alwar has erred in not appreciating the fact that while completing the assessment AO has not followed the observations/directions of Hon'ble High Court of Rajasthan.
3. Under the facts and circumstances of the case, the learned CIT (A), Alwar has erred in not considering the decision of the Tribunal of foreign exchange, New Delhi dt. 2nd April, 2003 while passing the order by holding that this issue is out of scope of consideration in the present assessment.
4. Under the facts and circumstances of the case, the learned CIT (A), Alwar has erred in sustaining the addition of Rs. 18,00,000 in respect of alleged unexplained investment in primary gold and US dollars without considering the concept of real income of the appellant.
5. Under the facts and circumstances of the case, the learned GIT (A), Alwar has erred in not allowing the deduction of the amount of goods and currency amounting to Rs. 18,00,000 confiscated by the customs authorities and not considering this loss in terms of the decision of Hon'ble apex Court in case of CIT v. Piara Singh while computing the income of appellant.
6. Under the facts and circumstances of the case, the learned CIT (A), Alwar has erred in not appreciating and following the ratio of Hon'ble Supreme Court in the case of Piaia Singh (supra) and jurisdictional Rajasthan High Court in case of CIT v. Hiranand (2004) 187 CTR (Raj) 32 while deciding the present appeal.
2. We have heard and considered the arguments advanced by the parties in view of orders of the lower authorities, material available on record and the decisions relied upon by them.
3. In the aforesaid grounds two issues have been raised. Firstly, as to whether the learned CIT (A) has erred in sustaining the addition of Rs. 18,00,000 in respect of alleged unexplained investment in primary gold and US dollars and secondly as to whether the learned CIT (A) has erred in not allowing the deduction of tax (sic) amount of goods and currency amounting to Rs. 18,00,000 confiscated by the customs authorities and not considering this as a loss in terms of the decision of Hon'ble Supreme Court in the case of CIT v. Piara Singh and of Hon'ble jurisdictional High Court in the case of CIT v. Hiranand (2004) 187 CTR (Raj) 32, while computing the income.
4. The facts in brief as per the record are that the assessee was carrying on the business of goldsmith. A search was conducted by the Directorate of Enforcement in the premises in possession of the assessee, wherein besides several documents like pass books, cheque books, exercise books, loose sheets etc. primary gold worth Rs. 18,00,000 and US dollars were found. The primary gold and US dollars were seized. IT Department was also informed. The AO added Rs. 18,00,000 towards unexplained investment in primary gold and US dollars in the original assessment. The assessee went in first appeal but could not succeed. He also preferred second appeal before the Tribunal. The Tribunal vide its order dt. 31st July, 2000 set aside the assessment to the file of the AO holding that the proper procedure of assessment had not been followed. On the claim of the assessee that he is entitled to the loss caused by confiscation of primary gold worth Rs. 18,00,000 and foreign currency in view of the decision of Hon'ble Supreme Court in the case of CIT v. Piara Singh (supra), the Tribunal observed that the loss is not allowable in view of the decision of Hon'ble Supreme Court in the case of Haji Aziz & Abdul Shakoor Bros. v. CIT which has been followed by Hon'ble Allahabad High Court in the case of Ishwar Das Alias Ishwax Lal Sindhi v. CIT . The assessee preferred appeal under Section 260A before the Hon'ble jurisdictional High Court. The Hon'ble High Court vide its judgment dt. 3rd Jan , 2003 in Appeal No. DB/77/2000 [reported as Ashok Kumar Karola v. Union of India and Ors. (2003) 185 CTR (Raj) 622-Ed.] held as under:
Considering the submissions, we do not find infirmity as far as the matter is to be remitted back to the AO. However, the AO is directed to follow the correct procedure for assessment of income-tax in search case. We made it clear that the AO should complete the assessment in accordance with law taking into account all the decisions of their Lordship on the issue including the decision in the case of Piara Singh (supra).
5. Keeping in view the aforesaid judgment of Hon'ble jurisdictional High Court, the AO made assessment making addition of Rs. 18,00,000 being unexplained investment in primary gold and US dollars seized during the course of search. He also made addition on estimated income from running of taxi, household expenses etc. The AO also did not allow loss to the assessee on account of confiscation of gold and foreign currency made by the Enforcement Directorate. The assessee went in first appeal but could not succeed. Hence, the assessee is now in second appeal before us against the said first appellate order. The grievance of the assessee is that the AO passed order dt. 26th March, 2004 in purported compliance of Hon'ble High Court judgment dt. 3rd Jan., 2003 and adopted the same income, which was worked out on passing of earlier assessment order in purported compliance of order dt. 31st July, 2000 of the Tribunal. The learned Authorised Representative alleged that the lower authorities have made and sustained the addition and disallowance of claim of loss without appreciating that the judgment of Hon'ble jurisdictional High Court had substantially modified the order of the Tribunal insofar as following of judgment of Hon'ble Supreme Court in the case of Piara Singh (supra) was concerned. It was submitted that it was incumbent on the lower authorities to follow the judgment of Hon'ble Supreme Court in the case of Piara Singh (supra) which distinguished to the judgment of Hon'ble Supreme Court in the case of Haji Aziz and Abdul Shakoor Bros. v. CIT (supra) and not to follow the judgment of Hon'ble Allahabad High Court in the case of Ishwar Das v. CIT (supra) which was based on earlier judgment of Hon'ble Supreme Court and not on the case of Piara Singh (supra). It was also argued that judgment of FEMA appellate authority dt. 2nd April, 2003 acquitting the assessee on the basis of reasonable benefit of doubt has also not been taken in view while deciding the matter. The learned Authorised Representative besides the above decisions also cited recent decision of Hon'ble Bombay High Court in the case of CIT v. Anil M. Gehni (2006) 200 CTR (Bom) 172 : (2006) 284 ITR 388 (Bom) holding that the confiscation of foreign currency was a loss of stock-in-trade of the assessee and when such amount is brought to tax as income of the assessee under Section 69A, he is entitled to the benefit of treating the amount confiscated from him as a business loss. The learned Authorised Representative referred relevant portion of the decision of Hon'ble Rajasthan High Court in the case of Hiranand (supra) wherein the Hon'ble High Court has been pleased to observe that the Revenue cannot be heard to say that it will bring the loss to tax. It can only tax profits of a trade or business and that cannot be done without deducting the losses and the legitimate expenses of the business. The Hon'ble High Court has ultimately held that the confiscation of the gold of the assessee is a loss therefrom, which has to be deducted from the amount included as unexplained investment. The learned Authorised Representative also referred page Nos. 83 to 87 of the paper book i.e. copy of order of Hon'ble Tribunal of FEMA dt. 2nd April, 2003. The learned Authorised Representative also submitted that no independent inquiry has been conducted by the Department to establish the ownership of the assessee on the confiscated items. In alternative it was argued that if it is held that the confiscated items belong to the assessee then claim of loss on the confiscated items may be allowed.
6. The learned Departmental Representative, on the other hand, placed reliance on the first appellate order while citing the following decisions in support:
(i) Bimal Kumar Damani v. CIT ;
(ii) CIT v. Hiranand (supra);
(iii) CIT v. Dr. T.A. Qureshi .
The learned Departmental Representative also submitted that the assessee was very much in possession of the premises where search was conducted and items in question were confiscated. In this regard he referred first appellate order para Nos. 3.1 to 3.4 with the submission that as per observation of the learned CIT (A) in the first round he had observed from the assessment records of earlier years that the assessee himself had disclosed his address at Laxman Mandir upto asst. yr. 1986-87 and after the search operation, the assessee started referring the address of Dahi Wali Gali, Bharatpur. He submitted further that on earlier occasions the issue of possession was not raised by the assessee.
7. After having gone through the orders of the lower authorities and the decisions relied on by the parties in view of the arguments advanced by them, we are not inclined to interfere with the first appellate order. We are conscious that the Tribunal is bound to follow the judgments and orders of the Hon'ble Courts but at the same time we are heavily burdened with this duty to see that the orders and judgments of the Hon'ble Courts should be followed in the strict sense of the spirit of the orders and the judgments of the Hon'ble Courts. The judgments and orders are to be followed in entirety looking into the similarity of facts and circumstances of those cases with the case of the assessee, which is very important aspect. In this regard, we find that the facts of the present case are different from the cases before the Hon'ble Courts, decisions of which have been relied upon by the learned Authorised Representative. In the case of CIT v. Anil M. Geni (supra), recently decided by Hon'ble Bombay High Court relied upon by the learned Authorised Representative, the assessee was engaged in smuggling only. Likewise in the case of CIT v. Hiranand (supra) before the Hon'ble Rajasthan High Court, the assessee was engaged in smuggling of gold only, whereas in the present case before us the assessee was in the business of goldsmith and smuggling of gold was not his regular business. In the case of Piara Singh (supra) before the Hon'ble Supreme Court relied upon by the learned Authorised Representative the assessee was engaged only in smuggling. The Hon'ble jurisdictional High Court in Appeal No. DB/77/2000 preferred against the order of the Tribunal vide its judgment dt. 3rd Jan., 2003 upholding the action of the Tribunal in directing the AO for completing the assessment afresh following the correct procedure of assessment of income-tax in search case, has been pleased to make it clear as "...the AO should complete the assessment in accordance with law taking into account all the decisions of their Lordships on the issue including the decision in the case of Piara Singh (supra)". Thus, we do not find substance in the contention of the learned Authorised Representative that the Hon'ble High Court had directed the AO to follow the decision in the case of Piara Singh (supra). The Hon'ble High Court in our view rather directed the AO to take into account the decision in the case of Piara Singh (supra) including other decisions on the issue. We find from the lower authorities that they have rightly understood the spirit of the Hon'ble jurisdictional High Court in the aforesaid judgment and have complied the same properly while deciding the issue. Under the aforesaid facts and circumstances we are of the view that the learned CIT (A) has rightly followed the decision of Hon'ble Allahabad High Court in the case of Ishwar Das v. CIT (supra) wherein similar facts as in the present case were there. The Hon'ble High Court was pleased to hold as under:
The Supreme Court has made a distinction for allowing losses incurred while indulging in infraction of law committed in carrying on lawful business and infraction of law committed in the business inherently unlawful. If lawful business is carried on by the assessee and the assessee commits infraction of law in smuggling gold resulting in confiscation of the said gold and loss occurs in such an event no deduction can be allowed as a loss in its lawful business. The present case fell under the category where a business is carried on by the assessee in a legal manner and he indulges in infraction of law and the losses suffered due to such infraction could not be allowed while computing the income of the lawful business.-Haji Aziz & Abdul Shakoor Bros. v. CIT .
8. The Hon'ble Supreme Court in the case of Piara Singh (supra) has been pleased to discuss its decision in the case of Haji Aziz & Abdul Shakoor Bros. (supra), wherein the Hon'ble Supreme Court has distinguished between infraction of law while carrying on lawful business and the infraction of law while carrying on illegal business. As per the decision of Hon'ble Supreme Court a penalty due to infraction of law while carrying out illegal business is allowable being incidental to illegal business. However, the penalty levied during carrying of legal business cannot be treated on same footings. Therefore, same cannot be regarded as incidental to business. In the case of Abdul Shakoor Bros. v. CIT (supra) the Hon'ble Supreme Court was pleased to hold that the penalty for infraction of law is not allowable as business expenses for a person who is engaged in the legal business. In the case of CIT v. Dr. T.A. Qureshi (supra) relied on by the learned Departmental Representative, a. doctor was found in possession of heroin in contravention of the provision of Narcotic Drugs and Psychotropic Substances Act. He claimed the loss from seizure of heroin as a business expenditure. The Hon'ble Court was pleased to hold that doctor found in possession of heroin in contravention of provisions of NDPS Act, loss from seizure of heroin could not be allowed as business expenditure in view of Explanation to Section 37 of the Act. The Hon'ble Court was pleased to hold that a mere reading of Explanation to Section 37 would clearly indicate that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and that no deduction or allowance shall be made in respect of such expenditure. Likewise in the case of Bimal Kumar Damani v. CIT (supra), relied upon by the learned Departmental Representative, it was held that a smuggling activity on a solitary occasion cannot be considered to be a business. That apart, illegal business of smuggling is in the nature of speculation and confiscation of smuggled goods amounts to a speculation loss. Thus, assessee cannot claim deduction of the confiscated amount as a business loss. While coming to this conclusion the Hon'ble High Court has been pleased to refer the decisions of Hon'ble Supreme Court in the cases of CIT v. Piara Singh (supra) and M.B. Abdulla v. CIT (1990) 82 CTR (SC) 362 : (1990) 183 ITR 96 (SC).
9. We thus fully subscribe our view with that of learned CIT (A) on the issues of sustaining the addition of Rs. 18,00,000 being unexplained investment in primary gold and US dollars seized during the course of search and denying of claim of loss to the assessee on account of confiscation of gold and foreign currency made by the Enforcement Directorate. So far as acquittal of assessee from levy of penalty of Rs. 50,000 on account of confiscation of gold and foreign currency from him by the FEMA Tribunal is concerned, we also agree with the view of the learned CIT (A) that the said learned Tribunal has cancelled the penalty after giving the assessee, the benefit of doubt. The penalty proceedings are also on different footings vis-a-vis the assessment proceedings. The IT Department thus cannot bank upon the conclusion arrived at in penalty proceedings while finalizing the assessment in a case. We thus uphold the first appellate order in question. The grounds are thus rejected.
10. The appeal is dismissed.