Case Law Details
ITAT PUNE BENCH ‘B’
Rajmal Lakhichand
versus
Assistant Commissioner of Income-tax
IT Appeal Nos. 1382 (Pune) of 2003 & 476 (Pune) of 2006
[ASSESSMENT YEAR 1997-98]
Date of Pronouncement- 25.05.2012
ORDER
Shailendra Kumar Yadav, Judicial Member
First appeal by the assessee is directed against the order of the CIT(A)-II. Nasik dt. 12th Sept., 2003 on quantum addition while second appeal by the Revenue is directed against the order of the CIT(A)-II, Nasik dt. 31st Jan., 2006 for asst. yr, 1997-98.
ITA No. 1382/Pn/2003 (Assessee’s appeal)
2. The assessee in its appeal has raised the following grounds :
“I 1. On the facts and circumstances of the case, the learned CIT(A)-II, Nasik legally erred in upholding the reopening and the reassessment order passed by the Asstt. CIT Circle 1, Jalgaon, in as much as :
— The initiation of reassessment proceedings was mere fresh application of mind to the same set of facts or a mere change of opinion;
— There was absence of reason to believe on the part of the Asstt. CIT as the reopening was done on the basis of an audit objection;
— The reassessment was beyond jurisdiction as no speaking order was passed against the objections raised by the appellant before proceedings with the reassessment.
2. It is prayed that the notice issued under s. 148 of the Act be quashed as being illegal and without jurisdiction and consequently or otherwise, the order passed by the Asstt. CIT under s. 143(3) r/w s. 148 of the Act be held to be void ab initio.
II 1. On the facts and circumstances of the case, the learned CIT(A) legally erred in disallowing a sum of Rs. 1,05,02,075 being the amount written off on account of confiscated silver stock as not being in the nature of business loss.
2. It is prayed that the Asstt. CIT be directed to allow the sum of Rs. 1,05,02,075 on account of write off of confiscated silver stock as business loss.
III Without prejudice to ground II above
1. On the facts and circumstances of the case, the learned CIT(A) legally erred in not allowing a sum of Rs. 82,61,649 taken by him as the cost of confiscated silver stock written off, as not being business loss.
2. It is prayed that the Asstt. CIT be directed to allow the loss of Rs. 82,61,649 estimated by the learned CIT(A) as the cost of the confiscated silver stock, as business loss.
IV 1. On the facts and circumstances of the case, the learned CIT(A) erred in confirming the disallowance of an estimated amount of Rs. 5,058 from out of telephone expenses.
2. It is prayed that the Asstt. CIT be directed to delete the addition of Rs. 5,058 from out of telephone expenses.”
Rajmal Lakhichand v. Asstt. CIT (Pune)
3. At the time of hearing, the learned counsel for the assessee has not pressed ground No, 1 pertaining to initiation of reassessment proceedings. The same is therefore, dismissed as not pressed.
4. As regards ground No. 2, the facts of the case are that the assessee is a jeweller and it is in this business for the last number of years. There was a search at the assessee’s premises by the DRI on 13th Feb., 1993 in which they found that the assessee had purchased silver weighing 1,913.295 kgs. and the same was seized. The stand of the assessee was that it had purchased silver of 194.25 kgs. from M/s Dilipkumar Hirachand, Jalgaon and the balance 1,713.80 kgs. through the agent in Mumbai who arranged the purchases of this quantity from 18 NRIs who had brought it from Middle-East countries. The DRI did not accept the contention of the assessee and seized the entire silver on the contention that the assessee did not prove that it was a legal purchase.
5. The assessee went in appeal before the Commr. Customs who after going through the records held that the silver was legally acquired by the assessee from 18 NRIs and Ms. Dilipkumar Hirachand, Jalgaon and there was nothing illegal about the transaction. The Commr. Customs reached above conclusion on appreciation of copies of the passports of the NRIs. copies of the customs duty receipts paid by them on the silver imported and the other relevant documents filed on behalf of assessee in support of assessee’s claim.
6. The Customs Department preferred an appeal before CEGAT (Customs tribunal) wherein it was held that the assessee’s contention of purchase of silver from 18 NRIs was not accepted. The CEGAT held that silver weighing 194.25 kgs. was purchased from M/s Dilipkumar Hirachand, Jalgaon but as all the silver bricks were melted by the assessee and above silver could not be segregated from the balance silver, the same was also rightly confiscated. Accordingly, CEGAT upheld the order of consideration by the customs officers. According to the assessee, this order of CEGAT was received by the assessee in April, 1996 and therefore, the assessee claimed the deduction of business loss of Rs. 1,05,02,075 which was the total cost of the silver confiscated in this year. Even the AO and the CIT(A) in income-tax proceedings have confirmed the disallowance on the ground that the silver was contraband and loss from such illegal activity cannot be allowed as a deduction.
7. Against the order of CEGAT, the assessee went in appeal before the Hon’ble Bombay High Court. However, the assessee had raised the question only about the purchases from M/s Dilipkumar Hirachand, Jalgaon. When the assessee realized the mistake, it sought permission for amending the question to encompass the issue of all the purchases of 1.913.295 kgs. including those made from the NRIs. However, the Hon’ble High Court did not accept the assessee’s plea and held that the question once referred cannot be amended to encompass larger issues. It was also held that the purchases of 194.25 kgs. made from M/s Dilipkumar Hirachand, Jalgaon were genuine and they were legally made and directed release of silver of 194.25 kgs. and for balance silver from NRIs, High Court did not entertain the assessee’s plea for amending the question in appeal. Accordingly, the assessee went in appeal before the Hon’ble Supreme Court wherein the order of the High Court was upheld by observing that the High Court was justified in not allowing the assessee to amend the question. Thus the assessee was not allowed to challenge the CEGAT order in respect of purchases from 18 NRIs for the reasons mentioned above. This issue has achieved finality in respect of customs proceedings with regards to purchases from 18 NRIs discussed above and confiscation thereof.
8. As stated above, the assessee has claimed the loss for the year under consideration. According to AO, all the relevant documents like customs receipts, purchase vouchers, etc. in support of its contention that the purchases from 18 NRIs were legally and properly made. However, the Department stated that in view of the Tribunal’s decision in the case of Kinetic Honda Motor Ltd. v. Jt. CIT [2001] 77 ITD 393 (Pune) that the order of CEGAT stands confirmed and in view of the above factual scenario the Tribunal should also hold that the above quantity of silver of 1,713.80 kgs. was not licitly purchased. In this background, the alternate stand of the assessee is that in view of the above Court decisions, the purchases from M/s Dilipkumar Hirachand, Jalgaon were licitly made and the assessee has given the cost of such purchases at Rs. 11,26,650. The stand of the assessee is that the loss to the above extent was therefore, allowable. The assessee has further submitted at relevant point of time that as and when it receives the above quantity of silver back from Customs Department, it would offer the same amount to tax. Without prejudice to above, it was submitted that because of CEGAT upheld confiscation of this stock, the loss was rightly claimed by the assessee. Without prejudice the assessee submitted that the loss on confiscation of 1,713.807 kgs. of silver costing Rs. 92,29,856 was also allowable. For this proposition the assessee made the detailed submissions and prayed to allow set off of loss. On the other hand, the learned Departmental Representative supported the orders of the AO and the CIT(A) on this issue.
9. After going through rival submissions and the material on record, we find that the assessee is dealing in gold and silver items. The assessee has accounted for all the above purchases in question. The earlier decision of Tribunal for asst. yr. 1992-93 where the disallowance of purchases under s. 40A(3) was not sustained with respect to above purchases in the assessee’s case reported in Rajmal Lakhichand v. Asstt. CIT [2001] 79 ITD 84 (Pune) which shows that it is not the case of unaccounted purchases.
10. Coming to the issue of crystallization of claim including loss, we find that the assessee has claimed the loss in the year under consideration, because the CEGAT order dt. 19th March, 1996 was received by him in April, 1996 and accordingly, the assessee reasonably apprehended that the stock confiscated would be irrecoverable. The business loss on account of confiscation could be claimed and allowed in the year in which the assessee prima facie loses the hope for recovery of the goods. In this background, we hold that the issue of claim of loss crystallized in the year under consideration when assessee received the order of CEGAT in April, 1996 as stated above.
11. Regarding claim of loss in course of business, we find that assessee has been in the jeweller business for a number of years and, hence, the business was already set up. The losses or business deductions are allowable once the business is set up. We find that Hon’ble Bombay High Court in the case of Western India Vegetable Products Ltd. v. CIT [1954] 26 ITR 151 has held that the company actually commenced business only on 1st Nov., 1946, when it purchased the groundnut oil mill, but prior to this date there was a period when the business could be said to have been set up and the company was ready to commence business and that there was evidence before the Tribunal to hold that the assessee company set up its business as from 1st Sept., 1946. Hon’ble Gujarat High Court in the case of CIT v. Saurashtra Cement & Chemical Industries Ltd. [1973] 91 ITR 170 has held that the activities which constituted the business of the assessee were divisible into three categories, the first category consisted to the activity of extraction of limestone by quarrying the leased area of land. This activity was necessary for the purpose of acquiring the raw material to be utilized in the manufacture of cement. The second activity comprised the activity of manufacture of cement by use of the plant and machinery set up for that purpose and the third category consisted of selling manufactured cement. These three activities combined together constituted the business of the assessee. The activity of quarrying the leased area of land and extracting limestone from it was as much an activity in the course of carrying on the business. Since extraction of limestone commenced in 1958, the assessee was carrying on business during the relevant years of account. The expenditure incurred by the assessee in carrying on the activity of extraction of limestone as also depreciation allowance and development rebate in respect of machinery employed in extracting limestone were deductible in computing the trading profits of the assessee for the asst. yrs. 1960-61 and 1961-62. Similar view has been taken by the Hon’ble Bombay High Court in the case of CIT v. Ralliwolf Ltd. [1980] 121 ITR 262. In view of above discussion, we hold that the assessee is in the business of silver trade and loss, as discussed above, has been suffered during the course of its business.
12. Regarding allowability of loss on confiscation of the stock although it was contraband or it was illegally acquired. For set off against the other income, we find that Hon’ble Supreme Court in the case of CIT v. Piara Singh [1980] 124 ITR 40 has held that the carriage of the currency note across the border was an integral part of the smuggling operation and detection by the customs authorities and consequent confiscation was a necessary incident and constituted a normal feature of such an operation. The confiscation of the currency notes was a loss occasioned in pursuing the business of smuggling. It was a loss in much the same way as if the currency notes had been stolen or dropped on the way while carrying on the business. It was a loss which sprang directly from the carrying on of the business and was incidental to it and its deduction had to be allowed, Hon’ble Rajasthan High Court (Jaipur Bench) in the case of CIT v. Hiranand [2005] 272 ITR 626 wherein the entire facts of the case showed that the assessee had been carrying on illegal business of smuggling. The confiscation of the gold of the assessee was a loss therefrom which had to be deducted from the amount included as unexplained investment. In the case of Dr. T.A, Quereshi v. CIT [2006] 287 ITR 547. Hon’ble Supreme Court observed that the assessee was a medical doctor. Some stock of heroine was seized and confiscated. Hon’ble Supreme Court held that it was a business stock and the assessee was dealing in it and therefore the loss on confiscation was allowed to be set off against the business income. In the case of Ram Saran Nar Singh Prasad v. CIT [2001] 249 ITR 241, the Allahabad High Court observed that the assessee was a jeweller and the loss on confiscation of stock was allowed to be set off. In this background, it is clear that it was the business stock of the assessee and the assessee is in this business for years together. Considering the assessee’s business line, silver was acquired as stock in course of business. Accordingly the business of a trader is set up when the first purchase is made. The business losses are to be allowed as a deduction which occurred in course of its business.
13. Let us analyze the decisions relied upon by the CIT(A). In the case of Soni Hinduji Kushalji & Co. v. CIT [1973] 89 ITR 112 (AP), wherein contraband gold of Rs. 56,978 was seized by the customs officer. In the said case, the assessee was dealing in gold. The loss on confiscation was disallowed on the ground that it is not incidental to the business of the assessee. This decision was taken care of by the Hon’ble Supreme Court in the case of Piara Singh (supra) wherein the Hon’ble Court held that the loss even from the illegal business can be allowed as a deduction In the case of J.S. Parkar v. V.B. Palekar [1974] 94 ITR 616 (Bom.) relied upon by the CIT(A). It was held that the loss upon confiscation of goods for infraction of law suffered by the assessee must be regarded as a loss falling on him (sic)income character other than the trader. In the case of J.S.Parkar (supra) the assessee was a carrier by sea and was not dealing in gold which was confiscated; the addition was made under s. 69A. Hence the loss did not have the character of a business loss. The ratio of J.S. Parkar’s case (supra) is not applicable to the facts of the case before us because assessee is dealing in silver trade. In the case of M.B. Abdulla v. CIT [1990] 183 ITR 96, relied upon by the CIT(A) the gold was seized and confiscated from assessee’s car and the addition was made under s. 69A and which was confirmed by the Tribunal. The assessee filed a rectification application on the logic of Supreme Court decision in Piara Singh’s case (supra) that the loss should be allowed and the same was rejected by holding that the issue in appeal was regarding the income while the rectification application was filed seeking reduction of loss. It was held that the question of claim of loss was not canvassed before the Tribunal and accordingly, the Hon’ble Supreme Court dismissed the appeal. Hence the ratio of M.B. Abdulla’s case (supra) is not applicable to the facts of assessee. The other case relied on by the CIT(A) is Manharlal C. Soni v. CIT [1995] 215 ITR 634 wherein the assessee was in possession of contraband gold in a hotel room. The gold was confiscated and the addition was made under s. 69A. The assessee was not found to be dealing in gold and hence, the question of allowing the business loss did not arise. In a case, wherein the contraband does not constitute the stock-in-trade of the assessee, the loss on confiscation is not allowable because it is not a business loss. In the case before us, the silver seized was undisputedly a stock-in-trade for the assessee and hence the confiscation thereof resulted in a business loss. So, the ratio of Manharlal C. Soni’s case (supra) is also not applicable to the facts of the present case. The next decision relied upon by the CIT(A) is CIT v. Maddi Venkataratnam & Co. (P.) Ltd. [1983] 144 ITR 373, wherein the assessee was exporting tobacco and it sold substandard quality of tobacco to the Singapore party. On appeal, the full sale price was shown and received and 20 per cent of the price (Rs. 2,88,000) was remitted to that party as a discount. It was held that this amount is not remitted through a legal channel, it was in violation of FERA and therefore, the deduction is not allowable. The claim was under s. 37 and thus as the expenditure was being illegal purposes, it could not be allowed as a deduction. In the case before us, the question is of deductibility of business loss under s. 28 and not as an expenditure under s. 37 of the Act and hence the ratio of this case is not applicable to the facts of the present case. The other case relied upon by the CIT(A) is Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684 wherein the question was about the deduction of interest under the ST Act. It was held that the interest payable was of a composite nature i.e. partly compensatory and partly penal in nature. Thus the component which is penal in nature was not allowable as a deduction under s. 37. This was not a case of allowance of business loss but it is a case of allowance of deduction under s. 37 and hence it does not apply to the facts of the case before us, In the case of Mahendra D. Jain v. ITO [2010] 323 ITR 644 wherein the assessee was a goldsmith. By the certificate under the Gold Control Act, the assessee was prohibited from carrying on the business of buying and selling the gold ornaments. In the search, the foreign marked gold bars were recovered from the assessee. The assessee claimed the loss due to confiscation as a business loss. It was held by the Bombay High Court that the ratio in the case of Dr. T.A. Quereshi (supra) is not applicable because the gold seized could not be the stock-in-trade with the assessee and accordingly, the question of allowing the loss as a business loss does not arise. Even this ratio does not come in the way of assessee because assessee has undisputedly showed the same in stock-in-trade being the business of trade of silver for number of years. We also find that in the case of Bank of America NT & SA v. Dy. CIT [2009] 27 SOT 97 (Mum.), the Tribunal has held that the losses incurred by the assessee in security transactions, in violation of s. 15 of the Securities Contracts (Regulation) Act, 1956, undisputedly borne out of books of assessee were eligible for set off against the profits from comparable transactions. The assessee has prayed for set off of Rs. 1,05,62,075 of confiscated silver stock as business loss. The confiscated silver was weighing 1,913.295 kgs. out of which the assessee has purchased silver of 194.25 kgs. from Dilipkumar Hirachand, Jalgaon, and the balance of 1,713.80 kgs. through agents in Bombay who showed the purchase of this quantity from 18 NRIs who had claimed to have brought it from Middle East country. As discussed above, in para 7 of this order the purchase of 194.25 kgs. from Dilipkumar Hirachand, Jalgaon was held genuine and same being legal, was directed to be released by Hon’ble High Court. So the issue before us remains with regard to allowability of set off of value of the silver weighing 1,713.80 kgs. confiscated by the Customs Department, claimed as business loss. In view of the above legal and factual discussions CIT(A) was not justified in disallowing the value of 1,713.800 kgs. of silver as well out of 1,913.295 kgs. valuing at Rs. 1,05,62,075 being the amount written off on account of confiscated silver stock as not being in the nature of business. The AO is directed accordingly.
14. The next issue pertains to confirmation of disallowance of an estimated amount of Rs. 5,058 out of telephone expenses. The assessee has disallowed 3 per cent of total expenses debited in P&L a/c on account of telephone expenses for use other than for its business it is an admitted fact that no records are maintained for use of telephone. The AO estimated the disallowance @ 5 per cent of total expenses which was confirmed by the CIT(A). We find that the assessee has not maintained any records to substantiate its claim. Therefore, we do not find any infirmity in the order of the CIT(A) in confirming the action of the AO who has estimated the disallowance at 5 per cent of total expenses on account of telephone expenses. This ground of the assessee is thus dismissed.
15. As a result, appeal of the assessee is partly allowed as indicated above.
ITA No. 476/Pn/2006 (Department’s appeal)
16. As stated above in assessee’s appeal in this order, the assessee is a partnership firm engaged in the business of gold and silver. During the assessment proceedings it was noticed by the AO that the assessee had debited an amount of Rs. 1,05,02,075 to the P&L a/c on account of loss of silver. It was further noticed from the note appended to the tax audit report that the DRI authorities had seized 1,913.295 kgs. stock of silver from the premises of the assessee firm on 10th Feb., 1993. It was also stated that the assessee’s appeal was allowed by the Collector, Customs. However, subsequently, the Collector’s decision was reversed by the Customs, Excise and Gold Control Tribunal (CEGAT). Western Region Bench, Mumbai vide its order dt. 19th March, 1996. The CEGAT also ordered confiscation of the entire quantity of silver seized earlier. The assessee preferred an appeal before the Hon’ble Bombay High Court against the above order of the CEGAT wherein the said order of the CEGAT on the confiscation was modified as stated above and the same has not been disturbed by the Supreme Court. Consequent to the order of the CEGAT and considering the uncertainties involved in the matter, the assessee has written off the cost of the confiscated silver in the year under consideration. According to the AO the matter being subjudice before the Hon’ble Bombay High Court at the relevant point of time, the deduction claimed by the assessee on account of loss of silver was added to the total income of the assessee. Therefore, considering the income chargeable to tax had escaped assessment and the case was opened under s. 147 of the Act and taken up for scrutiny. Order under s. 143(3) r/w s. 147 of the Act was passed on 13th March, 2002 disallowing the claim of the assessee in respect of the confiscated silver of Rs. 1,05,02,075. It was also held that the assessee’s claim was neither allowable under s. 28(i) of the Act nor under s. 37 of the Act as claimed. Consequently, penalty proceedings under s. 271(1)(c) of the Act were also initiated by AO who found that by claiming wrong set off of loss of illegal business (smuggling of silver) in regular course of business, assessee has furnished inaccurate particulars of his income thereby committed default under s. 271(1)(c) of the Act. Accordingly, he levied minimum penalty of Rs. 42,00,830.
17. The matter was carried in appeal before the first appellate authority wherein various contentions were raised. Having considered the same, the CIT(A) held as under :
“I have carefully gone through the written submissions filed on behalf of the appellant. I have also carefully considered the various contentions made by the appellant through its Authorized Representative, Shri N.S. Doshi, chartered accountant, along with various decisions relied upon, in support of the grounds of appeal. I have also gone through the penalty order being contested in this appeal. While disallowing assessee’s claim for loss on account of confiscation of stock, the AO has stated that in view of the fact that the assessee is in appeal against the confiscation of stock as a result of order of CEGAT and the decision of the Hon’ble High Court is still awaited, the confiscation of goods cannot be termed as a loss at this moment. The AO also showed his apprehension about the outcome of the High Court’s decision and the same having been decided in favour of the assessee and in that situation assessee being entitled to receive the goods back. In view of these facts it was held by him that the loss claimed by the assessee cannot be stated as trading loss and hence cannot be allowed under s. 28(i) of the Act. While examining the allowability of the loss of stock under s. 37 of the Act, it was held by the AO that the loss cannot be said to be an expenditure which can be claimed under s. 37 of the Act as it is on account of confiscation of goods which were purchased by the assessee and not any kind of expenditure claimed by the assessee. In view of the above, the AO held that the value of confiscated goods can neither be allowed under s. 28(1) of the Act nor under s. 37 of the Act. Accordingly, he added the amount of Rs. 1,05,02,075 on account of the disallowance of loss claimed by the assessee on account of confiscation of stock. The reason for initiating penalty proceedings under s. 271(1)(c) of the Act read with Expln. 1, is stated as disallowance of assessee’s above claim. During penalty proceedings, on consideration of assessee’s submission before him, the AO has found that the assessee has wrongly adjusted the loss on account of confiscated stock of silver. It is not clear as to how the AO has also stated in the penalty order that the loss of stock of silver is a short-term capital loss, as there is no such finding in the assessment order and it is also not clear as to how such a finding has helped the AO, in levying the penalty under s. 271(1)(c) r/w Expln. 1. One of the reasons stated by the AO is that the loss claimed by the appellant has been arrived on account of indulgence of illegal activities. Another observation made by the AO is that the stock of silver has not been confiscated on permanent basis. It has also been observed that loss or expenditure incurred due to illegal activity or violation of other statutory act is not allowable as business expenditure. In this background, the AO has held that the assessee has wrongly debited the above-referred amount to the P&L a/c instead of showing the same in the return of income as stock in the custody of Government Department.
5.1 It is an undeniable fact that the stock of silver under consideration was consistently being held by the appellant as ‘stock-in-trade’ since 1993 which has been written off on the basis of the order of the CEGAT directing the authorities to confiscate the said stock of silver. It is also a matter of fact that the audited accounts filed by the appellant with the original return of income contained a ‘note’ in respect of the writing off of the above-referred stock of silver. It is worth considering here that the assessment for asst. year 1993-94 (the assessment year relevant to the accounting year in which the silver in question was purchased) was finalized by the AO, after making an addition of Rs. 92,29,856, inter alia, on ground that payments made for the purchase of said silver had not been proved/must have been out of unaccounted income/identity of payee not proved etc. the said addition was confirmed by the CIT(A), Nasik, However, the Hon’ble Tribunal vide its order dt. 24th March, 2000 deleted the said addition allowing assessee’s appeal, the Hon’ble Tribunal accepted that the assessee had made payments for the purchase of silver as shown in its books of account and therefore, no addition is possible under s. 69/69C of the Act. This fact shows that the stock of silver under consideration was very much a part of the stock shown in the regular books of account and the assessee has decided to write off the said stock as a result of the order of the CEGAT ordering the authorities to confiscate the stock of silver under consideration. One of the observations made by the AO before levy of penalty under s. 271(1)(c) is that the appellant firm is likely to get back the confiscated goods if its appeal against CEGATs order is allowed by the High Court. In my opinion such an uncertainty cannot authorize the AO to levy penalty under s. 271(1)(c) even if such a claim can be held as disallowable on the ground of finality on the issue involved. Considering the facts of the case in totality and the various contentions made on behalf of the appellant along with the cases relied upon, I am convinced that the levy of penalty of Rs. 42,00,830 under s. 271(1)(c) is not based on proper footings and therefore cannot be sustained.”
18. The same has been opposed by the Revenue wherein the learned Departmental Representative submitted that the order of the AO on the penalty should be upheld while on the other hand, the learned Authorised Representative for the assessee supported the order of the CIT(A) stating that the CIT(A) has passed the order after taking into consideration made on behalf of the assessee.
19. After hearing the submissions of both the parties and perusing the material on record, we find that while disallowing the claim of the assessee for set off of loss on account of confiscation of stock, the AO has stated that in view of the fact that the assessee is in appeal against the confiscation of stock as a result of order of the CEGAT and the decision of Hon’ble High Court was still awaited, at the relevant point of time. The AO at relevant point of time had same apprehension about the outcome of the High Court’s decision and in case same is decided in favour of the assessee. In that situation the assessee being entitled to receive the goods back. In view of these facts, it was also held by him that the loss claimed by the assessee could not be stated as trading loss and hence could not be allowed under s. 28(i) of the Act. Now, the position is clear that the order of the CEGAT has achieved finality as observed above with certain modification as mentioned above. Accordingly, he added the amount of Rs. 1,05,02,075 on account of disallowance of loss claimed by the assessee on account of confiscation of stock. The reasons for initiating penalty proceedings under s. 271(1)(c) r/w Expln. 1 was stated as disallowance of assessee’s above claim of loss in the year under consideration. The claim of loss has been allowed by us in ITA No. 1382/Pn/203 which is part of this order itself. Same is not being repeated for sake of brevity. Thus assessee gets relief on quantum which is the basis for penalty in question. Considering the totality of the facts and circumstances, penalty levied by the AO is not justified. Accordingly, order of CIT(A) deleting penalty gets strength from an order in quantum that the AO was not justified in levying penalty under the provisions of s. 271(1)(c) of the Act.
20. In the result, the appeal of the assessee is partly allowed while the appeal of the Revenue is dismissed as indicated above.
On a reading of the tribunal’s order one is left with an indelible impression that the arguments on assessee’s behalf, so also the discussion, and conclusions reached, have gone on merrily on the dotted lines as on certain prior occasions, – on the beaten track, so to say- as laid by case law, with origin traced back to the historically leading Piara singh’s case.
One of the aspects which, however, attracts special attention is the finding of fact by the Customs, as upheld by the CEGAT (also, not disturbed by the HC). That is to the effect that the assessee’s claim to have purchased silver from 18 NRIs was not proved hence not accepted, leading to seizure of the confiscated commodity. Albeit, that is not readily reconcilable with the observation of / view taken by the ITAT that “the stock of silver under consideration was very much a part of the stock shown in the regular books of account” ; and “therefore, no addition is possible under s. 69/69C of the Act.
Be that as it may, some of the finer points with regard to the entire scheme of related provisions i.e. of sections 69, 69A, 69B and 69C came to be lucidly explained but in a different light by the High court of Gujarat in Fakir Mohmed Haji Hasan,s case (2002) 120 Taxman 11. That case is not seen to have been cited and relied on by the Revenue in the instant case.
For a detailed analysis and elucidation of those points, the published article – (2006) 156 Taxman 121 may be read; also,- (2007) 160 Taxman 145)