Allowing the appeal of the Revenue the Court held that  the assessee did not claim the value of the confiscated silver bars as business expenses but as business loss. The ownership of the confiscated silver bars of the assessee was not disputed, and there were concurrent findings by all the authorities below and including the Customs authorities to this effect. The main business of the assessee was dealing in silver. His business could not be said to be smuggling of the silver bars. He was carrying on an otherwise legitimate silver business and in attempt to make larger profits, he indulged in smuggling of silver, which was an infraction of the law. Looking to the business of the assessee, namely, silver business and the fact that he was not in the business of smuggling silver, allowing the value of the confiscated silver as business loss was unsustainable. Explanation 1 to section 37 seeks to prohibit deduction of any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law. Due regard will have to be given to the words “any expenditure” and “any purpose”. The reiteration being a legislative clarification of the main provision is required to be taken note of, and the power of judicial review over an Explanation, which has been introduced to explain and remove the doubts of the main provision, is rather limited. Though the provision speaks of expenditure while not making a specific reference to loss, one has to press into service the accepted commercial practice and trading principles. If one is to treat the expenditure as a genus, a loss would become a specie. All losses would become expenditures but not vice versa. The word “any expenditure” mentioned in section 37 of the Act takes in its sweep loss occasioned in the course of business, being incidental to it.   If a loss in pursuance of an offence or prohibited business cannot be brought under section 115BBE of the Act for income assessed under sections 68, 69 and 69A to 69D of the Act, which deals with unexplained income, expenditure, etc., it can never be said that it could be brought under section 37(1) of the Act, despite the fact that the objectives behind both the provisions overlap with some connection. Section 115BBE being a subsequent legislation, the true meaning of section 37(1) can be understood on that basis. As a consequence, 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 section 37 of the Act. There cannot be a situation where an assessee carrying on an illegal business can claim deduction of expenses or losses incurred in the course of that business, while another assessee carrying on a legitimate one cannot seek deduction of loss incurred on account of either a confiscation or penalty. Such an expenditure or loss incurred for any purpose which is an offence shall not be deemed to have been incurred for the purpose of business or profession or incidental to it, and hence, no deduction can be made. A penalty or a confiscation is a proceeding in rem, and therefore, a loss in pursuance thereof 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. An assessee cannot claim deduction of loss in a case of confiscation or penalty, as arising out of carrying on of the business or incidental to it. Ratio in Haji Aziz and Abdul Shakoor Bros. v. CIT (1961)41 ITR 350(SC), J. S. PaLrkar v. V. B. Palekar (1974) 94 ITR 616 (Bom)(HC) and Soni Hinduji Kushalji and Co. v. CIT (1973)89 ITR 112 (AP)(HC)  approved. CIT v. Piara Singh (1980)124 ITR 40 (SC)   explained and distinguished. (AY.  1989-90)