SUDHIR NARAIN, J. - (1.) THE Tribunal has referred the following question of law : "Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the cash and the value of the gold and gold ornaments confiscated by the Customs and Central Excise Department could not be allowed as a business loss or as an expenditure under S. 37(1) of the IT Act, 1961, in the computation of the assessee's income for the asst. year 1974 75 ?"
(2.) THE facts relating to this reference are as under : The assessee is an HUF deriving income, inter alia, from sarrafa, money lending and utensils business. In one shop sarrafa business was carried on, while in the other shop, utensils business was done. The preventive staff of the Customs and Central Excise Department searched both the shops on 31st May, 1973. They seized the following things from the two shops : Sarrafa shop After the seizure, the assessee submitted its explanation that it is not dealing in gold or gold ornaments and some of the seized articles belonged to the relative of the assessee or the pawnors who had pledged the gold ornaments when they had taken loan from it. This explanation was not accepted by the Collector of Customs and the gold ornaments were seized. The ITO also assessed the seized gold and gold ornaments as income of the assessee. The assessee preferred an appeal before the CIT(A). The appeal was dismissed. He however, reduced the income of the asst. yrs. 1972 73 and 1973 74. The Department as well as the assessee both preferred appeals before the Tribunal. The Tribunal dismissed the appeals. The assessee filed an application for making reference to this Court arising out of the order of the Tribunal and the Tribunal has referred the question to us narrated above. The admitted facts are that the primary gold and gold ornaments were seized from the petitioner by the Collector of Customs on the ground that the petitioner was carrying on the business without having any licence under the Gold (Control) Act. The ITO also did not accept the explanation submitted by the assessee that the primary gold and gold ornaments belong to others and it was not carrying on any business in gold and gold ornaments. The ITO, taking into account the value of the gold and gold ornaments assessed the income of the assessee. The question is whether in the facts and circumstances of the present case, the value of the gold and gold ornaments and cash confiscated by the Customs and Central Excise Department should be taken as 1. Cash Rs. 90,960 2. Gold ornaments weighing 1,259 gms. 3. Primary gold 6 gms. Besides some pronotes and books of account were also found and seized. Utensils shop 1. Gold ornaments 1,142 gms. 2. Rolling machine to manufacture ornaments. a business loss or as an expenditure under S. 37(1) of the IT Act, 1961, in the computation of the assessee's income for the asst. year 1974 75.
(3.) IN CIT vs. S.C. Kothari 1974 CTR (SC) 137 : (1971) 82 ITR 794 (SC) : TC 46R.223, the assessee claimed business loss but he was not allowed the set off under the first proviso to S. 24 (1) of the Indian IT Act, 1922, on the ground that the assessee had entered into illegal transaction in contravention of S. 15(4) of the Forward Contracts (Regulation) Act, 1952. The Supreme Court held that if the business in which the loss was sustained was the same in which the profit was derived, then the loss had to be taken into account while computing the profits of the business under S. 10(1) of the Indian IT Act, 1922.;