Income-tax ---

---Reference---Question of law--Business loss---Smuggling---Gold seized and treated as unexplained investment and added to income of assessee-- Gold seized confiscated---Tribunal treating it as capital loss and allowing set off of loss---Question of law arises for reference---Indian Income Tax Act, 1961, S.256(2).

Gold was seized from the possession of the assessee and the value of the gold was treated as unexplained investment and added to the income of the assessee. The Tribunal found that since the gold was confiscated, it amounted to capital loss and allowed the same to be set off against the addition. The Revenue filed an application under section 256(1) of the Income Tax Act, 196 1, which was rejected by the Tribunal. On an application under section 256(2) by the Revenue:

Held, allowing the Revenue's application, that a question of law, whether the Tribunal was right in holding that the amount of Rs.4,63,280 was a loss, especially in view of the fact that the assessee was admittedly not carrying on smuggling business as a regular activity, arose for reference.

CIT v. Piara Singh (1972) 83 ITR 678 (P&H); CIT v. Piara Singh (1980) 124 ITR 40 (SC); Krishnalal Jain (C.) v. CIT (1987) 163 ITR 747 (Kar.) and Shri Vishnu Kumar Soni v. CIT (1985) 155 ITR 34 (MP) ref.

V. K. Tankha for the Commissioner.

B. L. Nema for the Assessee.

JUDGMENT

A. K. MATHUR, C.J.---This is a reference under section 256(2) of the Income Tax Act, 1961, at the instance of the Revenue and the following question of law has been framed by the Revenue for calling for the statement of facts from the Tribunal:

"Whether, on the facts and circumstances of the case, the Income- tax Appellate Tribunal was right in law in holding that the amount of Rs.4,63,280 was a loss especially in view of the fact that the assessee was admittedly not carrying on smuggling business as a regular activity?"

The brief facts giving rise to this reference are that 119 tolas of gold was seized from the possession of the assessee ' by the Central Excise Department. The value of the said gold was treated as unexplained investment and added to the income of the assessee. The Tribunal found that the said gold was confiscated, which amounted to capital loss. The Tribunal, therefore, directed the same to be allowed as a set off against the said addition. Against that, an application was moved by the Revenue for referring the case before the Tribunal and that application was rejected by the Tribunal.

Against the order of the Tribunal, this reference application has been filed by the Revenue for calling for the statement of facts.

We have heard learned counsel for the parties and perused the record. The main case, which has been cited by learned counsel, is the decision of the Supreme Court reported CIT v. Piara Singh (1980) 124 ITR +0. It is also subsequently followed by the Madhya Pradesh High Court in Shri Vishnu Kumar Soni v. CIT (1985) 155 ITR 34, and then by the Karnataka High Court in Krishnalal Jain (C.) v. CIT (1987) 163 ITR 747, and then also, by the Punjab High Court in CIT v. Piara Singh (1972) 83 ITR 678. The question, which is of very vital importance is that the gold is smuggled gold and how can set off be given of that confiscated gold as a loss. The very activity of smuggling is against public morality and against the public law. When such articles are seized in the course of prevention of smuggling under the Customs Act how can set off such loss be given. Therefore, we are of the opinion that this case does involve a question of law. We directed the Tribunal to send the statement of case on the following questions of law for opinion of this Court:

"(i) Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the amounts of Rs.4,63,280 was a loss especially in view of the fact that the assessee was admittedly not carrying on smuggling business as a regular activity?

(ii) Whether the loss suffered by confiscation of gold is of an allowable nature or not under the Income-tax Act?"

The application for calling for a statement of case is allowed.

M.B.A./3122/FC Application allowed.