1. The Tribunal has referred the following questions of law under section 256(1) of the Income-tax Act, 1961 :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in determining that the assessee was not entitled to set off the loss arising on the confiscation of the gold against the income brought to tax in respect of such gold, under section 69A of the Income-tax Act, 1961
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in coming to the conclusion that under section 69A of the Act, it is market value of the investment that has to be taxed and no the cost of acquisition of such investment ?'
2. The brief facts of the case are as follows :
On February 19, 1973, the Central Excise authorities raided the premises of the assessee and seized 45 tolas of gold, out of which we are concerned with only 4 1/2 pellets valued at Rs. 14,500. In the adjudication proceedings before the customs authorities, the said gold was absolutely confiscated. The Income-tax Officer added this amount under the head 'Other sources' under section 69A of the Act and that addition has been finally sustained by the Tribunal.
3. Before the Tribunal, the argument advanced on behalf of the assessee was that Rs. 14,500 should be considered as a loss arising out of the confiscation of the gold and should be set off against the assessed income in respect of the gold. In that connection, a decision of the Punjab and Haryana High Court in CIT v. Piara Singh was cited. The Tribunal did not accept the ratio of that decision. On the contrary, it relied upon the decision of the Bombay High Court in J. S. Parkar v. V. B. Palekar : 94ITR616(Bom) . The Tribunal said :
'...The confiscation of property or penalty incurred while indulging in prohibited trading activities does not amount to commercial loss though it happened in fact to be a loss according to the ordinary meaning of the word 'loss' as understood in common parlance. It was not a loss falling upon him as a person who had infracted law. The assessee was, therefore, not entitled to claim the loss suffered by him as a result of the confiscation of the gold in question. Respectfully following this ruling, we hold that the assessee is not entitled to claim the loss as an allowable deduction.'
4. The Tribunal, however, held :
'...The evidence on record itself shows that both the assessee and Ramaiah Setty were dealing in smuggled golf and that they have dealing with each other...'
5. It is now in dispute that the assessee was engaged in smuggling activities and was dealing in smuggled gold.
6. The decision of the Punjab and Haryana High Court on which the Tribunal did not place any reliance has been taken up in appeal to the Supreme Court and the Supreme Court has affirmed the view taken by the Punjab and Haryana High Court. The decision of the Supreme Court id CIT v. Piara Singh : 124ITR40(SC) . There the Supreme Court observed (at page 42) :
'Having regard to the nature of the activity, possible detection by the Customs authorities constitutes a normal feature integrated into all that is implied and involved in it. The confiscation of the currency notes is a loss occasioned in pursuing the business; it is 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 is a loss which springs directly from the carrying on of the business and is incidental to it...'
7. While reaching the above conclusion, the Supreme Court has disapproved the ratio of the decision of the Bombay High Court in J. S. Parkar v. V. B. Palekar : 94ITR616(Bom) on which the Tribunal has placed reliance.
8. In view of the decision of the Supreme Court in Piara Singh's case : 124ITR40(SC) , the assessee's claim for set off cannot be denied at all. He was dealing in smuggled gold and 4 1/2 pellets of gold were seized from him and confiscated. The value of the confiscated gold should be considered as a business loss which springs directly from carrying on of his activities of smuggling.
9. In the result, we answer the first question in the negative and in favour of the assessee.
10. In the view that we have taken, the second question does not call for an answer.