“Decision of a Criminal Court is not binding in a Civil Action”.
The division bench of the Calcutta High Court in a recent decision categorically held that the confiscation of the smuggled goods cannot be termed as “business loss” under the relevant provisions of the Income Tax Act, 1961 and therefore, the assessee cannot deduct such amount from his total income. The Court further observed that the acquittal of the assessee from the criminal charge of smuggling, then the decision of the criminal court is not relevant to decide an appeal filed under section 260 of the Income Tax Act for the reason that a decision of a criminal court is not binding in a civil action.
The Customs authority confiscated the goods of foreign origin which were found in the possession of the assessee. The assessee claimed the same to be business loss in the return of income for the relevant assessment year. the Department rejected the contentions and assessed the same as an income from undisclosed source. Accordingly, the amount wasadded to the income of the assessee as income from business.
On appeal, the CIT(A confirmed the addition and therefore, the assessee approached the High Court. the substantial question of law to be decided by the Court was that whether the confiscation of goods from the appellant amounted to a loss in business carried on by the appellant and was allowable under the Income Tax Act.
The division bench, while dismissing the appeal, observed that confiscation is a liability personal to the smuggler. There was nothing to indicate that smuggling was a part of the business activity of the assessee and he also did not admit that it was so. Ultimately the Court held that the confiscation of this smuggled goods could not be treated to be a business expenditure or a business loss for the purpose of deduction of the said amount in course of compensation of the profits and gains from the business of the assessee.
Subsequently, the Customs Authorities initiated criminal proceedings against the assessee for the offence of smuggling. After the trial, the lower court acquitted the accused. On appeal filed by the authorities also, the High Court confirmed the order of acquittal. It is this circumstance, the assessee filed a Review Application before the High Court to re-consider the earlier decision. The petitioner maintained that he is entitled to the income tax benefits since it has been held in the criminal case that it could not be proved beyond reasonable doubt that the watch movements were of foreign origin and there was no satisfactory explanation whether the seized cash was the sale proceed of the smuggled goods, it could not be proved beyond all reasonable doubt that the watch movement fell within the purview of prohibitory orders.
The Court, while rejecting the contention of the assessee found that the finding of the criminal court can be applied to the facts of this courtde hors the contextual aspects. In the view of the Court, the issue before the Income Tax Department was whether return made by the assessee reflectedthe true state of income and he had any undisclosed source of income. Thus, the assessment to tax of the assessee was the issue before the tax authorities and that connected question of undisclosed income and business loss etc. came up for consideration. Since before the assessing official the assessee could not explain the source of acquisition of the watch movements, the assessing official treated the income of the assessee under Section 69A of the Income Tax Act.
The Court, therefore pointed out that “In one case the failure of the assessee to explain acquisition of watch movements led to the assessment by the Income Tax Department and in another case the failure on the part of the prosecution to establish certain facts led to the acquittal of the petitioner. The respondents were different and the subject matter of enquires in two different proceedings were miles apart. The finding of the criminal court cannot be imported into the decision of the tax matter and to review the entire thing on the basis of the decision given by criminal court.”
The Court noticed the decision of the Apex Court in Vishnu Dutta Sharma versus Daya Sapre, in which it was held that “a finding in a criminal proceeding by no stretch of imagination would be binding in a civilproceeding.”
In view of the above findings, the Court observed that “the law on the point is well settled that a decision of a criminal court cannot be relied on as binding in a civil action. The judgment in the criminal court would not be relevant for disposal of an appeal under Section 260A of the Income Tax Act. It can be used only to establish the fact that an acquittal has taken place as a fact in issue in the subsequent civil proceeding. In a civil proceeding the grounds on which the acquittal was based cannot be taken into consideration. The standard of proof for imposing liability is widely different between the two proceedings.”
“And it is well settled that the appeal under Section 260A of the Income Tax Act is a civil proceeding as the proceeding before appellate Tribunal from whose the appeal has been filed is of a civil nature under Section 255(6) of the said Act. That apart, the petitioner’s application for review is also in terms of the Civil Procedure Code.” The Court added.
While upholding the decision of the division bench, the Court held that the confiscation of the smuggled goods which was only a solitary adventure was not part of the series of the activities undertaken by the assessee and this not having been claimed to be a business adventure by the assessee could not be treated as business loss or business expenditure.
Read the full text of the Judgment below.
