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Confiscated goods cannot be claimed as a trading loss incidental to business: SC
The Commissioner of Income Tax Jaipur Versus Prakash Chand Lunia (D) Thr.Lrs. & Anr.
(Civil Appeal Nos. 7689-90 of 2023)
- The Director of Revenue Intelligence set out a search at the business premises of the Respondent/assessee. The recovery yielded silver slabs/silver ingots. The assessee was in the business of making jewellery.
- The Collector of Customs vide order dated 18.12.1990 ordered confiscation of goods and imposed penalty. It was done on the premise that the goods were smuggled by the assessee.
- A claim was made by the assessee that the loss on account of confiscation would be allowable as trading loss being incidental to the business, and hence, deductible. This argument was duly rejected by the AO as he did not own the silver. The AO made the addition U/S 69A.
- The plea of ownership was given up by the Respondent/assessee before the High Court, and therefore, the decision of the assessing officer in bringing the loss suffered under Section 69A of the Income Tax Act, 1961.
Hon SC held as below:
- The word ‘any expenditure’ mentioned in Section 37 of the Income Tax Act (deals with allowability of expenses) takes in its sweep loss occasioned in the course of business, being incidental to it.
- As a consequence, any loss incurred by way of an expenditure by an assessee for any purpose which is an offence or which is prohibited by law is not deductible in terms of Explanation 1 to Section 37 of the Act.
- A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance to the same is not available for deduction regardless of the nature of business, as a penalty or confiscation cannot be said to be incidental to any business.
- So the loss on account of confiscation of undisclosed silver cannot be allowed as a deduction.
The copy of the order is as under: