The acquittal by the criminal court for not proving the offence under the Customs Act is irrelevant for the purpose of the Income Tax Act. The assessee, by conceding that he had purchased the watches seized by the authorities, must explain the source with which the watches were purchased as per section 69 of the Act. Mere acquittal by the criminal court cannot save him from the liability under the Income Tax Act.

Jagannatha Shetty, J.—This is a reference under s. 256(2) of the I.T. Act, 1961 (shortly called "the Act").

2. The following question has been referred by the Income Tax Appellate Tribunal, Bangalore Bench, for the opinion of this court :

"Whether, on the facts and in the circumstances of the cases, the Tribunal was right in holding that the addition of Rs. 10,060 under section 69 of the Income Tax Act, 1961, was warranted ?"

3. For the assessment year 1975-76, a dispute arose as to the addition of income of Rs. 10,060 from undisclosed sources of the assessee. That amount represented the value of 80 wrist watches seized by the Customs authorities from the custody and possession of the assessee. At the time of seizure of the said wrist watches, the assessee confessed that the said watches belonged to him, but he later attempted to prove that the real owner of the said wrist watches was on S P Bhandary.

4. The Customs authorities confiscated the said watches and imposed a penalty of Rs. 2,000 on the assessee. The value of the watches confiscated was estimated at Rs. 10,060.

5. The ITO required the assessee to explain the source of investment of Rs. 10,060 for purchasing those watches. The assessee tried in vain to show that S.P. Bhandary was the owner of the watches. He could not prove the same. He could not produce any evidence to lend credence to his contention. On the contrary he had admitted before the customs authorities at the time of seizure of the watches that he was the owner of it. So the ITO added the sum of Rs. 10,060 to the income of the assessee as income from other sources.

6. The assessee took up the matter in appeal before the AAC who dismissed the appeal. The assessee's further appeal to the Tribunal was also dismissed.

7. It may be stated that the assessee was prosecuted by the Customs authorities before the criminal court for contravention of the provisions of s. 135 of the Customs Act. But that prosecution resulted in the acquittal of the assessee on the ground that the prosecution had failed to prove the offence under s. 135(1)(b) of the Customs Act, 1962.

8. Sri Sarangan, learned counsel for the assessee, contended before us that in the prosecution launched against the assessee, since there was an acquittal and since the assessee's plea was that the real owner of the watches was S.P. Bhandary, the value of the confiscated watches should not be added as income from undisclosed sources.

9. It seems to us that the acquittal by the criminal court for not proving the offence under s. 135(1)(b) of the Customs Act is irrelevant for the purpose of the I.T. Act. The assessee had conceded at the earliest that he had purchased the watches seized by the authorities. In the absence of any other acceptable evidence, it must be held that he was the real owner of the watches and not S.P. Bhandary. Since the assessee was the owner of the watches found in his possession, he must explain the source with which the watches were purchased. That is the requirement of s. 69 of the Act. The amount utilised for the purchase of the said watches did not find a place in the account books of the assessee. Nor was the assessee able to explain the source of the investment. Mere acquittal by the criminal court for want of proof of the offence alleged against him cannot, therefore, save him from the liability under the I.T. Act, so long as it is not proved that he is not the owner of the goods in question.

10. The next contention of Sri Sarangan is more interesting. He urged that since undisputedly the Customs authorities have confiscated the watches with an imposition of fine of Rs. 2,000, the whole of the price money of the watches should be considered as a loss while computing the income of the assessee.

11. In support of the contention, the learned counsel relied upon the decision of the Supreme Court in Commissioner of Income Tax, Patiala Vs. Piara Singh, AIR 1980 SC 1271. In that case the assessee was a smuggler. The question