Confiscation of Smuggled Silver not allowable as 'Business Loss': Supreme Court [Read Judgement]
Smuggled Silver – Business Loss – Supreme Court – Confiscation of Smuggled Silver – Taxscan
Smuggled Silver – Business Loss – Supreme Court – Confiscation of Smuggled Silver – Taxscan
In a recent judgement, the Supreme Court of India held that confiscation of smuggled silver is not allowable as a’ business loss'.
A search was conducted by the Directorate of Revenue Intelligence (DRI) officers at the premises taken on rent by the assessee. The DRI recovered 144 slabs of silver from the premises and two silver ingots from the business premises of the assessee at 1397, Chandni Chowk, Delhi. The assessee was arrested under Section 104 of the Customs Act for committing an offence punishable under Section 135 of the Customs Act, 1962.
The Customs held that the assessee Shri Prakash Chand Lunia is the owner of silver/bullion and the transaction thereof was not recorded in the books of accounts. The Collector of Customs ordered the confiscation of the said 146 slabs of silver weighing 4641.962 Kilograms valued at Rs.3.06 Crores and imposed a personal penalty of Rs.25 Lakhs on Sh. Prakash Chand Lunia under Section 112 of the Customs Act. The Collector held that the silver under reference was of smuggled nature.
The Assessing Officer observed that the assessee was not able to explain the nature and source of acquisition of silver of which he is held to be the owner, therefore passed an assessment Order and made an addition of Rs.3,06,36,909/- under Section 69A of the Income Tax Act, 1961. The CIT(A) dismissed the appeal of the assessee. On appeal, the ITAT upheld the order of the CIT(A) so far as Section 69A is concerned and partly allowed the appeal of the assessee.
The ITAT set aside some minor other additions and remanded the matter to the AO for fresh examination. The AO re-examined the issue and an addition was made. The CIT(A) also upheld the order of the AO. The Assessee preferred the appeal against the fresh order passed by CIT(A) before the ITAT. The ITAT, in the second round as well upheld the order of the authorities below.
The order under Section 271 (i) (c) of the Income Tax Act came to be confirmed by both the CIT (A) and the ITAT. Accordingly, before the High Court, the assessee filed an appeal under Section 260A of the Income Tax Act against the Penalty order.
The High Court while deciding both cases together, qua the first question, decided in favour of the Revenue and to the second question, the High Court held that loss of confiscation by the DRI official of the Customs Department is business loss.
It was submitted by the respondent–assessee that they are engaged in the business of purchase and sale of silver. It is submitted that they claimed set off of the value of the 146 silver slabs as a loss on account of absolute confiscation rather than a claim of expenditure of any penalty and/or fine imposed for infraction of the law.
The provisions of Section 37(1) under the Act have been amended by Finance (No.2) Act, 1998 by introducing Explanation 1 thereto w.e.f. 01.04.1962 wherein any expenditure incurred by the assessee for any purpose which is an offence or prohibited by law is not an allowable business expense.
It was viewed that the respondent-assessee did not claim the value of silver bars confiscation as business expenses and thus claimed it as business loss.
In the case of Piara Singh (supra), the assessee was found to be in the business of smuggling currency notes and to that it was found that confiscation of currency notes was a loss occasioned in pursuing his business i.e. a loss which sprung directly from carrying on of his business and was incidental to it.
A two-judge Supreme Courtbench comprising Justice M R Shah and Justice M MSundresh observed that the main business of the assessee is dealing in silver. His business cannot be said to be smuggling of silver bars as was the case in the case of Piara Singh (supra) therefore the decision shall not be applicable.
The Court viewed that the impugned judgment and order passed by the High Court quashing and setting aside the orders passed by the Assessing Officer, CIT(A) and the ITAT rejecting the claim of the Assessee to treat the silver bars confiscated by the customs authorities as a business loss and consequently value allowing the same as business loss is unsustainable.
While allowing the appeal, the Court quashed and set aside the impugned judgment and the order passed by the High Court and restored the orders passed by the assessing officer, CIT(A) and the ITAT.
To Read the full text of the Order CLICK HERE
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