s.k. keshote, j. - (1.) : The Tribunal, Jaipur Bench, Jaipur (for short, `the Tribunal'), has referred, under s. 256(2) of the IT Act, 1961 (hereinafter shall be referred to as `the Act, 1961'), at the instance of the Revenue, following questions of law to this Court for decision: (i) Whether, on the facts and in the circumstances of the case, the decision of Tribunal is perverse inasmuch as the relevant material was not properly evaluated and wrong conclusions were drawn? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal had any material to the conclusion that the assessee was carrying on the illegal business of smuggling of gold? (iii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the loss arising to the assessee due to confiscation of gold by customs authorities is to be deducted from the amount included in his income as unexplained investment?"
(2.) THE Central Excise Department, Jaipur, on 24th of Jan., 1979, seized foreign gold weighing 1,469 gms. worth Rs. 1,32,500 from the assessee at Jaipur under s. 110 of the Customs Act, 1962 (for short, `the Act, 1962'), for contravention of the restrictions/prohibitions imposed vide notification issued under s. 11 of the Act, 1962, r/w s. 13(1) of the Foreign Exchange Regulations Act, 1973 (for short, `the Act, 1973'). In consequence of the information and material available with the Central Excise Department, the proceedings were initiated by the Revenue against the assessee and a notice was issued under s. 139(2) of the Act, 1961. In response to that notice the assessee filed his return of income on 30th of June, 1979. Since the case was completed without making necessary enquiries under s. 143(1) of the Act, 1961, on 26th of Nov., 1980, necessary approval under the provisions of s. 143(2)(b) thereof was obtained from the IAC, Ajmer Range, Ajmer, so as to complete the assessee's case under s. 143(3) after making necessary enquiries. On the basis of this approval received from that authority, notices under ss. 143(2) and 142(1) of the Act, 1961, were issued and served upon the assessee requiring him to file the details called for. After hearing the case the draft of the proposed order of assessment of the year 1979-80 was forwarded to assessee on 23rd of March, 1982, as the amount of variation to be proposed which was prejudice to the assessee exceeded Rs. one lakh in view of the provisions contained under s. 144(1)(b) of the Act, 1961. The assessee filed his objection to the proposed assessment order vide letter dt. 29th of March, 1982. The copy of the draft assessment order and the objections against the same of the assessee were forwarded by the AO to the IAC, Ajmer Range, Ajmer, for directions under s. 144B of the Act, 1961, to enable him to complete the assessment. The IAC, Ajmer Range, Ajmer, after hearing the assessee has issued directions vide his letter dt. 21st of Aug., 1982, to the AO for finalising the assessment. The gold was confiscated by the customs authorities. Before the customs authorities the assessee admitted that he had carried the gold on behalf of others, namely, Kanhiya Lal, Padam Chand and Dharam Chand. The plea of the assessee before the Department was that the gold never belonged to him and that the customs authorities have forcibly recorded his statement and got it signed.
(3.) THE AO, after considering all these, was of the view that the amount of Rs. 1,32,500 is treated the income of the assessee from undisclosed sources. Before the AO the assessee did claim deduction of this amount as business loss and placed reliance on the decision of Honourable Supreme Court in CIT vs. Piara Singh (1980) 17 CTR (SC) 111 : (1980) 124 ITR 40 (SC). THE AO did not allow the claim on the ground that the assessee never admitted of carrying on any business of gold smuggling. The matter was taken by the assessee to the CIT(A), Rajasthan-I, Jaipur, who also rejected the claim of the assessee on the ground that it was never the case of the assessee of having carried of any such business and that there was no basis for allowing the seizure of gold as business loss as what was proposed to be added was the unaccounted money which was utilised for acquiring of gold. The assessee has filed appeal before the Tribunal, Jaipur Bench, Jaipur. Before the learned Tribunal the plea of the assessee was that the decision in CIT vs. Piara Singh's case (supra), fully applied in the present case. The learned Tribunal opined that since the entire facts go to indicate that the assessee had been carrying on the illegal business of smuggling, the loss thereon from deemed confiscation had to be deducted from the amount included as unexplained investment. The alternative contention raised before the learned Tribunal that the confiscation of the gold has to be termed as a short-term capital loss and, as such, be allowed under s. 71(3) of the Act, 1961, it is held that this contention is only consequential. The Revenue filed application under s. 256(2) of the Act, 1961, and prayed for reference of the aforesaid questions for adjudication and decision to this Court. ;