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Issues:
1. Explanation of the source of investment in seized diamonds by the assessee. 2. Whether the foreign income earned by the assessee when he was a non-resident could be considered as the source of investment in the diamonds. 3. Claim for deduction of the value of confiscated diamonds as a loss. 4. Applicability of the Supreme Court decision in CIT vs. Piara Singh to the case. Analysis: 1. The appeal related to the assessment year 1981-82 where the assessee declared Nil income but was found in possession of diamonds upon arrival in India. The assessee provided varying explanations regarding the acquisition of the diamonds, initially claiming ownership from unknown persons and later stating they were received on an approval basis. However, subsequent investigations revealed inconsistencies in the assessee's explanations, leading to the conclusion that the source of investment in the diamonds was unproven. The Income Tax Officer (ITO) assessed the value of the diamonds as the assessee's income, a decision upheld by the CIT(A) and further appealed before the Tribunal. 2. The assessee argued that since the diamonds were of foreign origin and he had resided abroad for nine years before coming to India, the inference should be that the investment was made from foreign income earned during his non-resident period. However, the Tribunal rejected this argument as there was no evidence linking the foreign income to the diamond acquisition. With a time gap between the assessee's arrival in India and possession of the diamonds, the presumption was that the diamonds were acquired in India, justifying the addition made by the ITO. 3. The assessee sought a deduction for the value of the confiscated diamonds, claiming it as a loss. The Tribunal dismissed this claim, emphasizing that the smuggling of diamonds was not part of the assessee's business, and deductions could only be claimed from profits related to smuggling activities. As no income from smuggling had been declared or assessed, the deduction for the confiscated diamonds was deemed untenable. 4. The assessee relied on the Supreme Court decision in CIT vs. Piara Singh to support the deduction claim. However, the Tribunal found that the Piara Singh case involved smuggling activities, where the loss was considered deductible as it was incidental to the smuggling business. Referring to other precedents, the Tribunal concluded that the confiscation of contraband goods was not a trading loss connected to the assessee's business. Therefore, the Piara Singh decision was deemed inapplicable to the present case, and no deduction was allowed based on that judgment. In conclusion, the Tribunal dismissed the appeal, upholding the assessment of the seized diamonds as the assessee's income and rejecting the claims for deduction based on foreign income, loss due to confiscation, and the applicability of the Piara Singh decision.
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