Rambhai Nathbhai Gadhavi V. Asstt. Commissioner of Income-Tax

TAXAP/1062/2005

AI Insights

The case revolves around the appellant, Rambhai Nathbhai Gadhavi, whose business premises were raided by the police, leading to the discovery of foreign-made computer parts and an air conditioner. Following the raid, the Assessing Officer assessed the appellant's income, which was contested through various appeals up to the Income Tax Appellate Tribunal. The core legal issue was whether the loss incidental to the appellant's business, despite the illegal nature of some of the activities, is allowable under Section 28 of the Income Tax Act, 1961, and whether Section 37(1) could override this provision. The Gujarat High Court, referencing a similar case, ruled in favor of the appellant, allowing the business loss as a deductible expense.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 798833 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-11-2014
• Assessment Year: misc
• Other Referred Cases: Dr. T.A. Quereshi v. Commissioner of Income-tax, Bhopal
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: R K PATEL
• Keywords: Assessment; Business loss; Customs Department; Income Tax; Income tax appellate tribunal; Seizure of goods
• Section: 28; 37(1)

Judgement Text

"O/TAXAP/1062/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1062 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ RAMBHAI NATHBHAI GADHAVI....Appellant(s) Versus ASSTT. COMMISSIONER OF INCOME-TAX....Opponent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MR.VARUN K.PATEL, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 5 O/TAXAP/1062/2005 JUDGMENT Date : 05/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. By way of this appeal, the appellant has challenged the judgement and order dated 16.03.2005 passed by the Income Tax Appellate Tribunal, Rajkot Bench in Income Tax Appeal No. 40/RJT/2000 for the assessment year 1994-95. 2. The appeal was admitted by this Court for consideration of the following question of law: “Whether on the facts and in the circumstances of the case, the Tribunal has substantially erred in disregarding the fact that business is being carried on by the appellant and hence, the loss incidental to business is allowable u/s. 28 and the provision of section 37(1) of the Income-Tax Act, 1961 cannot override the provision of section 28?” 3. The business premises of the appellant was raided by the police on 19.06.1993 and on finding foreign made computer parts and air conditioner the police informed the Customs Department. The Assessing Officer assessed the total income of the assessee after the raid to be around Rs. 1,39,69,385/-. The appellant preferred appeal before the first appellate authority who confirmed the order of the Assessing Officer. Being aggrieved by the order of learned CIT(A), the appellant preferred appeal before the Tribunal. The Tribunal dismissed the appeal by disregarding the contention of the appellants on facts as well as in law. Page 2 of 5 O/TAXAP/1062/2005 JUDGMENT 4. This appeal was ordered to be heard with Tax Appeal No. 107 of 2004 which has already been decided by this Court vide judgement dated 16.10.2014 wherein this Court has passed the following order: “ 1.By way of this Tax Appeal, the appellant has challenged the judgment and order dated 29.01.2004 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot whereby the Tribunal has dismissed the Appeal. 2.While admitting the matter on 21.12.2004, this Court had framed the following issue :- Whether, on the facts and in the circumstances of the case, the Tribunal has substantially erred in disregarding the fact that business is being carried on by the appellant and hence, the loss incidental to business is allowable u/s 28 and the provision of Section 37(1) of the Income Tax Act, 1961 cannot override the provision of Section 28? 3.The facts giving rise to the Appeal are that :- The appellant an individual deals in bullion and gold jewellery. On 12.01.1999, a search was carried out on the residential as well as the business premises of the appellant and substantial quantities of bullion was found and seized by the Income Tax Department. On 18.01.1999, notice under Section 158BC was issued and in response, the return for the block period was furnished on 04.03.1999 by the appellant disclosing the total undisclosed income at Rs.1,39,75,834/=. It is the case of the appellant that the Assessing Officer did not accept the figure of undisclosed income as stated in the computation of income furnished by the appellant for the block assessment period and additions/disallowances were made alongwith charging of interest u/s.158BFA(1) of the Income Tax Act, 1961. Page 3 of 5 O/TAXAP/1062/2005 JUDGMENT One of the disallowance was pertaining to the claim of deduction of Rs.40,34,898/- on account of gold seized by the Custom Authorities. The appellant preferred first appeal before the learned CIT (Appeals) who confirm the allowances by rejecting the contentions of the appellant. The appellant preferred second appeal before the Tribunal and raised the contentions and explanations supported by documentary evidence on record to impress upon the Hon'ble Tribunal that claim for deduction of Rs.40,34,898/- on account of gold seized by the Custom Authorities was an allowable business expenditure under the Income Tax, 1961. However, the Tribunal dismissed the appeal of the appellant. 4.Learned Counsel for the appellant contended that in view of the decision of the Hon'ble Apex Court in the case of Dr. T.A. Quereshi v. Commissioner of Income-tax, Bhopal reported in 287 Income Tax Reports 547, the loss which was incurred during the course of business even if the same is illegal is required to be compensated and for the loss suffered by the appellant, the Court is required to answer this Tax Appeal in favour of the assessee. 5.Having heard learned Advocates appearing for the parties, this Appeal is answered in favour of the assessee and against the revenue. 6.The Appeal is allowed to the aforesaid extent. “ 5. In view of the aforesaid decision, since the present appeal is also governed by the same set of facts, this appeal also deserves to be answered in favour of the assessee and against the revenue. Present appeal is therefore allowed to the aforesaid extent. (K.S.JHAVERI, J.) Page 4 of 5 O/TAXAP/1062/2005 JUDGMENT (K.J.THAKER, J) divya Page 5 of 5 "