Andhra Pradesh H.C : Whether confiscation of goods exported by assessee must be treated as a loss of stock-in-trade and such business loss to be allowed

High Court Of Andhra Pradesh

CIT Vs. T. C. Reddy

Assessment Year : 2005-06

Section : 28(i)

Madan B. Lokur, Cj. And Sanjay Kumar, J.

IT Tribunal Appeal No. 582 Of 2011

February  24, 2012


Madan B. Lokur, CJ.-The grievance of the Revenue is with regard to an order dated December 29, 2010, passed by the Income-tax Appellate Tribunal, Hyderabad Bench “B”, Hyderabad, in I. T. A. No. 469/Hyd/2009, relevant for the assessment year 2005-06.

2. The assessee is the proprietor of a Pharmaceutical Company. During the course of his business, he exported bulk drugs to Mexico through San Diego Port, California, United States of America (USA). The goods were cleared by the Indian customs authorities and reached California, USA. During the transit from California to Mexico, the goods were seized by the Customs and Border Protection Force of the USA for some statutory violations.

3. The assessee claimed business loss before the Assessing Officer as a bad debt and alternatively loss of stock-in-trade. The Assessing Officer decided against the assessee. The Commissioner of Income-tax (Appeals) also decided against the assessee which led him to file an appeal before the Tribunal.

4. The Tribunal found as a matter of fact that the goods were stock-in-trade of the assessee. It was also found as a fact that the goods were confiscated by the authorities in the USA after they were cleared for export by the Indian customs authorities.

5. The Tribunal relied upon two decisions of the Supreme Court. The later decision is that of Dr. T. A. Quereshi v. CIT [2006] 287 ITR 547/157 Taxman 514. In that case, the assessee was manufacturing and selling heroin. On a raid having been conducted on his premises, the equipment as well as the heroin was seized. The assessee therein claimed loss of stock-in-trade. The Supreme Court relied upon an earlier decision rendered in the case of CIT v. Piara Singh [1980] 124 ITR 40/3 Taxman 67 for holding in favour of the assessee in that case.

6. In the case of Piara Singh (supra), the assessee was involved in smuggling and he was found in possession of some currency notes. These currency notes were seized and, accordingly, Piara Singh claimed loss of those currency notes as a business loss. The Supreme Court held that the loss arising out of confiscation of currency notes must be allowed as a business loss.

7. Following the decision in Piara Singh (supra), the Supreme Court held in T. A. Quereshi (supra) that since the stock-in-trade of Quereshi was seized and confiscated, it has to be allowed as a business loss.

8. Following the view taken by the Supreme Court in the above decisions, the Tribunal held that the confiscation of the pharmaceutical drugs exported by the assessee must be treated as a loss of stock-in-trade.

9. At this stage, it may be mentioned that the Assessing Officer, while deciding against the assessee, relied upon a decision of a Division Bench of this court in CIT v. K. Subbaraju & Venkateswar Rao & Co. [1989] 175 ITR 307/[1988] 36 Taxman 301 (AP). We have gone through that decision and find that there is no discussion on the subject. All that has been held in the case is that since the rice that was being transported by the assessee therein was confiscated because of a violation of law, the confiscation was proper. Therefore, the Tribunal in that case was incorrect in holding that the value of the stock written off by the assessee was allowable as a deduction.

10. As mentioned above, there is no discussion on the subject in the decision rendered by this court. The Division Bench of this court also did not consider the law laid down by the Supreme Court in Piara Singh (supra). In any case, the decision rendered by this court is now deemed to be overruled by the subsequent judgment of the Supreme Court in T. A. Quereshi (supra).

11. For the reasons mentioned above, in our opinion, no substantial question of law arises for consideration.

12. Dismissed.

[Citation : 356 ITR 516]