Loss on confiscation of smuggled items by DRI cannot be claimed as business loss

Last updated: 09 May 2023

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The Supreme Court has ruled that losses incurred from the confiscation of smuggled goods cannot be claimed as a business loss for tax deduction purposes. The court clarified that any expenditure or loss arising from an illegal or prohibited activity is not considered incidental to a legitimate business. Therefore, such losses are not deductible under Section 37 of the Income Tax Act.

Court :
Supreme Court of India

Brief :
The Supreme Court has set aside the Rajasthan High Court's order of allowing the loss claimed by assessee on account of confiscation of silver bars by the Customs department, as 'business loss' under Section 37(1) of the Income Tax Act, 1961. The assessee was carrying on a legitimate business of dealing in silver and in an attempt to make larger profits, he indulged into smuggling of silver. Since its business was not smuggling of silver bars, the said loss from confiscation of the smuggled items cannot be said to be a loss connected with or incidental to the assessee's business for claiming deduction under Section 37 of the Income Tax Act, 1961.

Citation :
CIVIL APPEAL NOS.7689-90 OF 2022

Daily Limit Reached