THE COMMISSIONER OF INCOME TAX JAIPUR versus PRAKASH CHAND LUNIA (D) THR. LRS. & ANR.

Citation: [2023] 7 S.C.R. 85 · Decided: 24-04-2023 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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   [2023] 7 S.C.R. 85
85
THE COMMISSIONER OF INCOME TAX JAIPUR
v.
PRAKASH CHAND LUNIA (D) THR. LRS. & ANR.
(Civil Appeal Nos. 7689-90 of 2022)
APRIL 24, 2023
[M. R. SHAH AND M. M. SUNDRESH, JJ.]
Income Tax Act, 1961 – Explanation to s.37(1) – ‘any
expenditure’ in s.37 – Expenditure/loss incurred for any purpose
which is an offence or prohibited by law, not deductible in terms of
Explanation 1 to s.37 – High Court relying upon the decision of
Supreme Court in Piara Singh case allowed the loss of confiscation
of silver bars as a business loss – Sustainability of – Held: Not
sustainable – Explanation to s.37(1) provides that any expenditure
incurred by the assessee for any purpose which is an offence or
prohibited by law is not an allowable business expense – In the
present case, the main business of the assessee was dealing in silver
– His business cannot be said to be smuggling of the silver bars as
was the case in Piara Singh – Assessee was carrying on an otherwise
legitimate silver business and in attempt to make larger profits, he
indulged into smuggling of silver, which was an infraction of law –
High Court erred in relying upon the Piara Singh case – Impugned
judgment set aside – Order of the assessing officer, CIT(A) and
ITAT rejecting theclaim of the respondent-assessee to treat the silver
bars confiscated by the customs authorities as business loss restored
– Per M.M. Sundresh. J (Supplementing)‘any expenditure’ mentioned
in s.37 takes in its sweep loss occasioned in the course of business,
being incidental to it – Thus, 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 s.37 – 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 –
Decisions in Piara Singh and Dr. T.A. Quereshi do not lay down
correct law in light of the decision in Haji Aziz and the insertion of
Explanation 1 to s.37 – Impugned judgment set aside – Finance
(No.2) Act 1998 – Income Tax Act, 1922 – ss.10(1), (2).
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SUPREME COURT REPORTS
[2023] 7 S.C.R.
Allowing the appeals, the Court
HELD: 1.1 The provisions of Section 37(1) under the Act
has been amended by Finance (No.2) Act, 1998 by introducing
Explanation 1 thereto w.e.f. 01.04.1962 wherein any expenditure
incurred by the assessee for any purpose which is an offence or
prohibited by law is not an allowable business expense. It is true
that in the present case the respondent - assessee did not claim
value of silver bars confiscation as business expenses thus claimed
as business loss. However, the amendment to Section 37 might
have some bearing on the issue involved. [Para 6.1][98-C-D]
1.2 On going through the impugned judgment and order
passed by the High Court, it appears that the High Court has
simply relied upon the decision of this Court in the case of Piara
Singh. The High Court has materially erred in relying upon the
decision of this Court in the case of Piara Singh. [Para 6.2][98-E]
CIT, Patiala vs. Piara Singh 124 ITR 4 – held
inapplicable.
1.3 In the present case the ownership of the confiscated
silver bars of the assessee now cannot be disputed and even the
assessee is not disputing the same. Even on that also there are
concurrent findings by all the authorities below and including the
customs authorities. Therefore, the next question which is posed
for consideration before this Court is whether the assessee can
claim the business loss of the value of the silver bar confiscated
and whether the decision of this Court in the case of Piara Singh
would be applicable? To answer to the aforesaid question, it can
be seen that in the present case the main business of the
assessee is dealing in silver. His business cannot be said to be
smuggling of the silver bars as was the case in the case of Piara
Singh. In the assessee’s case he was carrying on an otherwise
legitimate silver business and in attempt to make larger profits,
he indulged into smuggling of silver, which was an infraction of
Civil law. In that view of the matter the decision of this Court in
the case of Piara Singh which has been relied upon by the High
Court while passing the impugned judgment and order and it has
been relied upon by the assessee shall not be applicable to the
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