Bhojal Gems, Surat V. The ACIT.,Circle-9, Surat

ITA 3155/AHD/2015

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2192 (ITAT-SURAT)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 06-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SRINIVAS T BIDARI
• Keywords: Rejection of books of accounts; Wrong claim; Onus to prove
• Section: 145; 271(1)(c); 2; 234B

Judgement Text

BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 1 OF 38 , , IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT . . , . . , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . . ./ ITA NO.2269 & 3155/AHD/2015 / A.Y.:2008-09 BHOJAL GEMS, 107, RATNASAGAR APARTMENT, NEAR SUMANGAL, VARACHHA ROAD, SURAT 395 006. [PAN: AACFB 6118 Q] V S . THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9, SURAT. APPELLANT /RESPONDENT /ASSESSEE BY SHRI RAJESH SHAH, CA /REVENUE BY SHRI SRINIVAS T.BIDARI CIT - DR / DATE OF HEARING: 26.09.2018 /PRONOUNCEMENT ON: 24 .10.2018 /O R D E R PER O. P. MEENA, ACCOUTANT MEMBER: 1. THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE TWO SEPARATE ORDERS OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-V, SURAT (IN SHORT THE CIT (A)) DATED 17.12.2012 ( FOR QUANTUM ADDITION) AND COMMISSIONER OF INCOME-TAX (APPEALS)-3, SURAT DATED 24.08.2015 (PENALTY ORDER DATED 27.03.2014 UNDER BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 2 OF 38 SECTION 271(1)(C)) PERTAINING TO ASSESSMENT YEAR 2008-09, IN RESPECT OF QUANTUM APPEAL WHICH IN TURN HAS ARISEN FROM THE ORDER PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 9, SURAT (IN SHORT THE AO) DATED 27.12.2010 UNDER SECTION 143 (3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND OTHER APPEAL IS AGAINST THE CONFIRMATION OF PENALTY ORDER DATED 27.03.2014 OF ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-9 SURAT UNDER SECTION 271(1)(C) OF THE ACT FOR THE ASSESSMENT YEAR 2008-09. I.T.A.NO. 2269/AHD/2015/A.Y. 2008-09 (QUANTUM APPEAL) : 2. THE GROUNDS OF APPEAL AS RAISED BY THE ASSESSEE ARE AS UNDER: 1. GROUND NO. (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW, AND IN ABSENCE OF ANY SPECIFIC DEFECT, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) OUGHT TO HAVE HELD THAT THE BOOK RESULT HAS BEEN WRONGLY REJECTED. 2. GROUND NO. (II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUT TO HAVE ALLOWED DEDUCTION OF RS. 2,95,06,400 ON ACCOUNT OF LOSS DUE TO THE THEFT WHEN SUFFICIENT EVIDENCES WAS GIVEN TO SHOW THAT LOSS HAD TAKEN PLACE AND WAS REQUIRED TO BE ALLOWED. 3. GROUND NO. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT TO HAVE DELETED ADDITION OF RS. 25,14,263 BEING 7.7% GROSS PROFIT ON RS. 2,95,06,400 WHEN THE ABOVE DIAMONDS WERE IN FACT STOLEN AND THAT THERE WAS NO SUCH DIAMONDS WHICH COULD HAVE BEEN SOLD. BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 3 OF 38 4. GROUND NO. (IV) MISCELLANEOUS RELATING TO CHARGING OF INTEREST US 234A, 234B AND 234C OF THE ACT. 3. GROUND NO.(1) RELATING TO REJECTION OF BOOKS OF ACCOUNTS: 4. BRIEF FACTS ARE THAT THE ASSESSEE IS IN THE BUSINESS OF THE IMPORT OF ROUGH DIAMONDS, MANUFACTURING OF POLISHED DIAMONDS AND EXPORT OF THE SAME. DURING THE PERIOD UNDER CONSIDERATION, THE ASSESSEE HAS STOP MANUFACTURING AND HAS CLAIMED TO SELL DIAMONDS FROM THE CLOSING STOCK. THE ASSESSEE HAS DISCLOSED A GROSS LOSS OF RS.4,46,25,746/- AND SALES OF RS.33,56,020/- AS COMPARED TO EARLIER YEARS GP OF RS.33, 02,278/- @4.19% ON THE TURNOVER OF RS.7,88,35,456/-. THE ASSESSEE HAS SOLD ITS ASSETS FOR RS.7.7 CRORES TO M/S. SUPER GEMS (INDIA) PVT. LTD., MUMBAI. THE ASSETS SOLD INCLUDE FACTORY LAND ALONG WITH BUILDING, FURNITURE AND FIXTURES INSTALLED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS SPECIFICALLY ASKED TO PRODUCE BOOKS OF ACCOUNTS AND QUALITATIVE PIECE WISE DETAILS. HOWEVER, THE ASSESSEE HAS PRODUCED THE BOOKS, WHICH WERE FOUND TO BE INCOMPLETE AS THE SAME WERE NOT MAINTAINED QUALITY WISE AND QUANTITY WISE. THE ASSESSEE HAS FAILED TO PRODUCE THE QUALITATIVE DETAILS OF STOCK LIKE PIECES, PURITY, COLOUR ETC., TO DETERMINE THE EXACT INCOME OF THE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 4 OF 38 ASSESSEE. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY BOOKS OF ACCOUNTS SHOULD NOT BE REJECTED VIDE ORDER SHEET ENTRY DTD. 15.12.2010. THE ASSESSEE HAS REPLIED VIDE LETTER DATED 23.12.2010 PLACING RELIANCE ON THE DECISION OF AHMEDABAD TRIBUNAL IN THE CASE OF DHAMI BROTHERS THAT IT IS NOT POSSIBLE IN DIAMOND INDUSTRY TO KEEP TALLY OF QUALITY DIAMONDS AS EACH DIAMOND IS A SEPARATE QUALITY BY ITSELF, AND THEREFORE, THIS REASON GIVEN BY THE AO FOR REJECTION OF BOOKS CANNOT BE SUSTAINED. THE AO HAS EXAMINED THE CONTENTIONS OF THE ASSESSEE AND OBSERVED THAT THERE WAS MANUFACTURING ACTIVITY DURING THE YEAR. DESPITE THIS FACT, THE ASSESSEE COULD NOT VALUE ITS STOCK OR INVENTORIED IT IS AS STOCK. IT IS ALSO SEEN FROM THE SALE BILLS (ALL LOCAL) THAT THE SAME DO NOT CONTAIN ANY QUALITY DETAILS. IT IS ALSO SEEN THAT THE ASSESSEE HAS PURCHASED POLISHED DIAMONDS DURING THE YEAR, THE QUALITY WISE DETAILS OF WHICH ARE ABSENT OR NOT PRODUCED. IT IS INCONCEIVABLE TO THINK THAT THE ASSESSEE COULD NOT INVENTORIED A STOCK OF 1310.15. CARATS OF POLISHED DIAMONDS. THE STOCK POSITION OF THE ASSESSEE IS GIVEN BELOW AS PER AUDIT REPORT: I TEMS OPENING PURCHASES SALES CLOSING ROUGH DIAMONDS NIL NIL NIL NIL BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 5 OF 38 MANUFACTURED DIAMONDS NIL NIL NIL NIL REJECTION DIAMONDS 37909.88 NIL NIL 37909.88 POLISHED DIAMONDS 958 352.15 352.15 NIL 5. IT IS UNBELIEVABLE THAT THE ASSESSEE COULD NOT MAINTAIN THE QUALITY DETAILS OF MERELY 958 CARATS AND 352.15 CARATS OF POLISHED DIAMONDS. THERE ARE SEVERAL CASES IN FAVOUR OF THE REVENUE, WHICH HOLDS THAT THE BOOKS OF ACCOUNTS CAN BE REJECTED IS SPECIFICALLY IN THE CASE OF DIAMOND BUSINESS, IF THE QUALITATIVE DETAILS ARE NOT PRODUCED. THE LD.AO PLACING RELIANCE IN THE CASE OF CIT V. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 44 (SC) / 54 TAXMAN 499/ 91 CTR 108 (SC) , RATANLAL OMPRAKASH V. CIT [1981] 132 ITR 640 (ORISSA), DCIT V. SAMIR DIAMONDS EXPORT PVT. LTD. 71 ITD 75 (MUM-TRIB) , M/S. PARVATI GEMS V. ACIT I.T.A.NO. 2846 & 3329/AHD/2007 REJECTED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. THE AO FURTHER CITED DECISION IN THE CASE OF M/S. PALADIYA BROTHERS I.T.A.NO. 225/AHD/2009 DTD. 26.06.2009 A.Y. 2005-06 IN WHICH CONTENTION WAS THAT THE QUANTITY DETAILS OF DIAMONDS COULD NOT BE MAINTAINED WAS SQUARELY REJECTED BY THE ITAT. IN THIS CASE ENTIRE ADDITION MADE TO THE ASSESSEES INCOME WAS RESTORED. THEREFORE, THE AO HELD THAT BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 6 OF 38 THE METHOD OF KEEPING THE BOOKS OF ACCOUNTS IS FAULTY FOR THE LACK OF MAINTENANCE OF QUALITATIVE DETAILS OF THE STOCK AND SALE OF DIAMONDS AND THEREFORE, THE BOOKS OF ACCOUNTS WERE REJECTED UNDER SECTION 145 (3) OF THE I.T. ACT. 6. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). THE CIT (A) OBSERVED THAT THE PERUSAL OF DETAILS SHOWED THAT THE APPELLANT WAS UNABLE TO PRODUCE THE QUALITATIVE DETAILS OF STOCK AND SALES, INCLUDING THE DETAILS, LIKE JANGADS OF DIAMONDS, WHICH WERE CLAIMED TO BE LOST TO DUE TO THEFT. THE AO ALSO NOTICED THE DISCREPANCY IN THE AUDIT REPORT PERTAINING TO LOAN AMOUNT OF RS55 LACS, WHICH HAS NOT BEEN SHOWN IN THE AUDIT REPORT. THE AO IN THE ASSESSMENT ORDER HAS RELIED ON SEVERAL CASE LAWS INCLUDING ITAT, AHMEDABAD JUDGEMENT WHEREIN THE NON-MAINTENANCE OF QUANTITATIVE AND QUALITATIVE TALLY HAS BEEN CONSIDERED AS A DEFECT IN THE BOOKS OF ACCOUNTS. THE APPELLANT WAS ALSO NOT ABLE TO PRODUCE ANY SATISFACTORY REPLY PERTAINING TO THE DEFECT IN THE AUDIT REPORT BEFORE THE AO. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO, THE APPELLANT WAS NOT ABLE TO BRING ON RECORD ANY NEW FACTS OR EVIDENCE TO THE REASON FOR NON-MAINTENANCE OF BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 7 OF 38 THE STOCK REGISTER. THE QUALITATIVE AND QUANTITATIVE TALLY ASSUMES MORE IMPORTANCE IN VIEW OF THE FACT THAT THE APPELLANT HAS CLAIMED THE LOSS OF DIAMONDS VALUED AT RS.2,95,06,400/-. SINCE THE APPELLANT IS NOT MAINTAINING THE QUALITATIVE AND QUANTITATIVE TALLY OF THE STOCK AS PER ITS SUBMISSIONS, THE QUESTION ARISES AS TO HOW DO THE APPELLANT CALCULATE AND ARRIVED AT THE LOSS FIGURE FROM THEFT? HOW WAS, HE ABLE TO IDENTIFY THE PIECE OF DIAMONDS STOLEN AND ATTRIBUTE THE VALUE TO THESE STOLEN PIECES? HOW WAS THE APPELLANT ABLE TO ARRIVE AT QUALITATIVE AND QUANTITATIVE FIGURE TO WORK OUT THE LOSS DUE TO THEFT? IN THE NORMAL CIRCUMSTANCES, IN ABSENCE OF DETAILS OF THE STOCK, IT IS NOT POSSIBLE TO ARRIVE AT THE FIGURE OF LOSS IN CASE OF THEFT. THE APPELLANT RELIED ON VARIOUS JUDGEMENTS ON THE NON-MAINTENANCE OF STOCK, WHICH WAS NOT CONSIDERED TO BE A DEFECT FOR REJECTION OF BOOKS OF ACCOUNTS, BUT THE PERUSAL OF THESE JUDGEMENT SHOWED THAT THE FACTS AND CIRCUMSTANCES IN THESE CASES WERE DIFFERENT WHICH ARE NOT APPLICABLE IN THIS CASE. IN THE PRESENT CASE, A LOSS HAS BEEN CLAIMED AND THE VALUE OF THIS LOSS ON ACCOUNT THEFT HAS BEEN CLAIMED WITHOUT PROVIDING ANY BASIS. THIS CLAIM OF LOSS ON ACCOUNT OF THEFT WITHOUT PROVIDING ANY BASIS OF CALCULATION MAKES THIS CASE DIFFERENT FROM THE CASE LAWS RELIED UPON BY THE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 8 OF 38 APPELLANT. IN ADDITION, THE APPELLANT WAS NOT ABLE TO PRODUCE ANY EXPLANATION REGARDING THE DEFECTS IN THE AUDIT REPORT DURING THE APPELLATE PROCEEDINGS. IN SUPPORT OF THIS FINDING, THE CIT (A) HAS ALSO PLACED RELIANCE IN THE CASE OF AMIYA KUMAR ROYALTY & BROS 206 ITR 306 (CAL) WHEREIN THE COURT HAS HELD WE WOULD HAVE BEEN IMPRESSED WITH THE CONTENTIONS, IF THE ASSESSEE HAD MAINTAINED THE STOCK BOOK SHOWING STOCK TALLY. IN THAT CASE, THE ACCOUNTS BEING FOOL PROOF, NO ADDITION COULD BE WARRANTED. FAILURE TO MAINTAIN STOCK ACCOUNTS IS A SUBSTANTIAL DEFECT IN THE ACCOUNTS JUSTIFYING AN INFERENCE THAT THE ACCOUNTS ARE MAINTAINED IN A MANNER FROM WHICH TRUE AND CORRECT PROFITS ARE NOT DEDUCTIBLE. THE CIT (A) FURTHER OBSERVED THAT SIMILAR VIEW HAS BEEN EXPRESSED IN THE CASE OF DONDRAM DULICHAND V. CIT 81 ITR 609 (BOM), S N NAMASIVAYAM CHETTIAR V. CIT 38 ITR 579 (SC). ACCORDINGLY, THE REJECTION OF BOOKS OF ACCOUNTS BY THE AO, BEING DEFECTIVE WAS HELD TO BE JUSTIFIED. 7. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE LOWER AUTHORITIES AND RELIED ON THE CASE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 9 OF 38 LAWS SUBMITTED BEFORE THEM. IT WAS SUBMITTED THAT EACH DIAMONDS HAVE DIFFERENT ATTRIBUTES AND EACH ATTRIBUTES HAVE VARIOUS CLASSIFICATIONS. EACH DIAMONDS IS CONFLUENCE OF VARIOUS PATTERNS OF CLASSIFICATION, WHICH CAN RESULT IN TO 6.65 TRILLION GRADING COMBINATIONS. THEREFORE, IT IS NOT POSSIBLE TO BRING DIAMONDS IN STRAIGHTJACKET FORMULA OF QUALITIES. IN THE CIRCUMSTANCES, IT IS NOT POSSIBLE TO REJECT BOOKS OF ACCOUNTS ON THIS GROUND. HENCE, THE AO WAS NOT JUSTIFIED IN REJECTION OF BOOKS. 8. AU CONTRAIRE, THE LD. SR. DR SUBMITTED THE ASSESSEE HAS NOT MAINTAINED QUANTITATIVE AND QUALITATIVE STOCKS OF DIAMONDS. THE ASSESSEE HAS PRODUCE BOOKS OF ACCOUNTS BEFORE THE AO, WHICH WERE INCOMPLETE. SINCE THE ASSESSEE IS CLAIMING LOSS DUE TO THEFT THEREFORE, IT WAS REQUIRED TO THE ASSESSEE TO PRODUCE PROPER EVIDENCE TO JUSTIFY THE MAINTENANCE OF BOOKS OF ACCOUNTS. HOWEVER, THE ASSESSEE HAS FAILED TO DO SO. THEREFORE, THE CIT (A) HAS RIGHTLY CONFIRMED THE REJECTION OF THE BOOKS OF ACCOUNTS. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS NOT MAINTAINED THE QUALITY DETAILS OF MERELY 958 CARATS AND 352.15 BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 10 OF 38 CARATS OF POLISHED DIAMONDS. THE LD.AO PLACING RELIANCE IN THE CASE OF CIT V. BRITISH PAINTS INDIA LTD. [1991] 188 ITR 44 (SC) / 54 TAXMAN 499/ 91 CTR 108 (SC) , RATANLAL OMPRAKASH V. CIT [1981] 132 ITR 640 (ORISSA), DCIT V. SAMIR DIAMONDS EXPORT PVT. LTD. 71 ITD 75 (MUM-TRIB) , M/S. PARVATI GEMS V. ACIT I.T.A.NO. 2846 &3329/AHD/2007 REJECTED THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE. IT IS FOUND THAT THE ASSESSEE WAS UNABLE TO PRODUCE THE QUALITATIVE DETAILS OF A STOCK AND SALES, INCLUDING THE DETAILS, LIKE JANGADS OF DIAMONDS, WHICH WERE CLAIMED TO BE LOST DUE TO THEFT. THE AO ALSO NOTICED A DISCREPANCY IN THE AUDIT REPORT PERTAINING TO LOAN AMOUNT OF RS. 55 LACS, WHICH HAS NOT BEEN SHOWN IN THE AUDIT REPORT. THE ASSESSEE WAS ALSO NOT ABLE TO PRODUCE ANY SATISFACTORY REPLY PERTAINING TO THE DEFECT IN THE AUDIT REPORT BEFORE THE AO. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO, THE ASSESSEE WAS NOT ABLE TO BRING ON RECORD ANY NEW FACTS OR EVIDENCE TO THE REASON FOR NON-MAINTENANCE OF THE STOCK REGISTER. WE FURTHER, FIND THE ASSESSEE HAS CLAIMED THE LOSS OF DIAMONDS VALUED AT RS.2,95,06,400/-. HOWEVER, HOW THIS LOSS COULD BE QUANTIFIED, WHEN THE ASSESSEE IS NOT MAINTAINING ANY STOCK TALLY. IT IS NOT IN DISPUTE THAT THE ASSESSEE IS NOT MAINTAINING BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 11 OF 38 THE QUALITATIVE AND QUANTITATIVE TALLY OF THE STOCK AS PER ITS SUBMISSIONS, THEREFORE, A QUESTION ARISES AS TO HOW DID THE ASSESSEE HAS CALCULATED AND ARRIVED AT THE LOST FIGURE FROM THEFT. HOW THE ASSESSEE WAS ABLE TO IDENTIFY THE PIECE OF DIAMONDS STOLEN AND ATTRIBUTE THE VALUE TO THESE STOLEN PIECES? HOW WAS THE APPELLANT ABLE TO ARRIVE AT QUALITATIVE AND QUANTITATIVE FIGURE TO WORK OUT THE LOSS DUE TO THEFT? IN THE NORMAL CIRCUMSTANCES, IN ABSENCE OF DETAILS OF THE STOCK, IT IS NOT POSSIBLE TO ARRIVE AT THE FIGURE OF LOSS IN CASE OF THEFT. THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED ON VARIOUS JUDGEMENTS ON NON-MAINTENANCE OF A STOCK BEFORE THE AUTHORITIES BELOW, IN WHICH IT WAS NOT CONSIDERED TO BE A DEFECT FOR REJECTION OF BOOKS OF ACCOUNTS HOWEVER, THE CIT (A) HAS POINTED OUT THAT THE PERUSAL OF THESE JUDGEMENT SHOWED THAT THE FACTS AND CIRCUMSTANCES IN THESE CASES WERE DIFFERENT WHICH ARE NOT APPLICABLE IN THIS CASE. IN THE PRESENT CASE, A LOSS HAS BEEN CLAIMED AND THE VALUE OF THIS LOSS ON ACCOUNT THEFT HAS BEEN CLAIMED WITHOUT PROVIDING ANY BASIS. THEREFORE, WE ARE OF THE VIEW THAT THE CLAIM OF LOSS BECAUSE OF THEFT AND THE VALUATION OF LOSS, WITHOUT PROVIDING ANY BASIS OF CALCULATION MAKES THIS CASE DIFFERENT FROM THE CASE LAWS RELIED UPON BY THE ASSESSEE. WE FURTHER, OBSERVED THAT THE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 12 OF 38 ASSESSEE WAS NOT ABLE TO PRODUCE ANY EXPLANATION REGARDING THE DEFECTS POINTED OUT IN THE AUDIT REPORT DURING THE ASSESSMENT PROCEEDINGS. IN SUPPORT OF THIS FINDING, THE CIT (A) HAS ALSO PLACED RELIANCE IN THE CASE OF AMIYA KUMAR ROYALTY & BROS 206 ITR 306 (CAL) WHEREIN THE HONBLE HIGH COURT HAS HELD WE WOULD HAVE BEEN IMPRESSED WITH THE CONTENTIONS, IF THE ASSESSEE HAD MAINTAINED THE STOCK BOOK SHOWING STOCK TALLY. IN THAT CASE, THE ACCOUNTS BEING FOOL PROOF, NO ADDITION COULD BE WARRANTED. FAILURE TO MAINTAIN STOCK ACCOUNTS IS A SUBSTANTIAL DEFECT IN THE ACCOUNTS JUSTIFYING AN INFERENCE THAT THE ACCOUNTS ARE MAINTAINED IN A MANNER FROM WHICH TRUE AND CORRECT PROFITS ARE NOT DEDUCTIBLE. WE ALSO NOTE THAT THE AO HAS CITED DECISION IN THE CASE OF M/S. PALADIYA BROTHERS I.T.A.NO. 225/AHD/2009 DTD. 26.06.2009 A.Y. 2005-06 IN WHICH CONTENTION WAS THAT THE QUANTITY DETAILS OF DIAMONDS COULD NOT BE MAINTAINED WAS SQUARELY REJECTED BY THE ITAT. IN THIS CASE ENTIRE ADDITION MADE TO THE ASSESSEES INCOME WAS RESTORED. THESE DECISIONS SUPPORTS THE CASE OF THE AO. THEREFORE, WE HOLD THAT THE METHOD OF KEEPING THE BOOKS OF ACCOUNTS IS FAULTY AND FOR THE LACK OF MAINTENANCE OF QUALITATIVE DETAILS OF STOCK AND SALE OF DIAMONDS AND THE BOOKS BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 13 OF 38 OF ACCOUNTS WERE CORRECTLY REJECTED UNDER SECTION 145 (3) OF THE I.T. ACT. THEREFORE, THIS GROUNDS OF APPEAL IS ACCORDINGLY, DISMISSED. 10. GROUND NO. (II) RELATES TO CONFIRMATION OF LOSS DUE TO THEFT OF RS.2,95,06,400/-. 11. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED A LOSS OF RS.2,95,06,400/- DUE TO LOSS OF POLISHED DIAMONDS WEIGHING 958 CARATS THAT WAS LYING IN THE OPENING STOCK. THE ASSESSEE WAS ISSUED SHOW CAUSE ASKING AS TO WHY THE LOSS SHOULD NOT BE DISALLOWED. THE ASSESSEE VIDE ITS SUBMISSIONS FILED COPIES OF AFFIDAVITS OF THE PUANCHAS. IT WAS SUBMITTED THAT FOR EVERY THEFT THERE IS NO SUCH REQUIREMENT THAT THE ONE SHOULD GO TO THE POLICE FOR MAKING COMPLAINT OF THEFT. IN PAST THE POLICE HAD HARDLY BEEN ABLE TO FIND OUT SUCH STOLEN DIAMONDS IN OTHER CASES. THE AO EXAMINED AND OBSERVED THAT THE ASSESSEES GENERAL COMMENT THAT THE POLICE DEPARTMENT WAS UNABLE TO FIND THE STOLEN DIAMONDS IS TOTALLY UNACCEPTABLE. THE ASSESSEE HAS PRESUMED THAT THE STOLEN DIAMONDS WOULD NOT FOUND EVEN BEFORE FILING THE COMPLAINT. THIS SHOWS THE MALAFIDE INTENTION OF THE ASSESSEE TO GENERATE LOSS TO BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 14 OF 38 ADJUST THE CAPITAL GAIN ARISING FROM THE SALE OF ASSETS. THE ASSESSEE CLAIMED TO HAVE FOLLOWED THE PRACTICE OF CALLING PUANCHAS TO DETERMINE THE ACT OF THEFT. IF THIS HAD BEEN THE PRACTICE, THERE WOULD NOT HAVE BEEN ANY CASE FILED WITH THE POLICE DEPARTMENT. THEREFORE, IT IS UNACCEPTABLE THAT SOME PUANCHAS WHO DO NOT FILE RETURN OF THEIR INCOME WAS ENTRUSTED BY THE ASSESSEE TO CERTIFY THE LOSS. THE ASSESSEE CLAIMED THAT THE PUANCHAS HAVE TRIED TO IDENTIFY OR RECOVER THE STOLEN DIAMONDS. HOWEVER, THERE IS NO MENTION OF SUCH ACT IN THE AFFIDAVIT OF PUANCHAS FILED BY THE ASSESSEE. IN FACT DEPONENTS CLAIMED THAT THEY WERE OF THE VIEW THAT THERE WERE OLD ASSOCIATES WERE RESPONSIBLE FOR THE SAME WHICH WAS IN NOT NAMED. THE AFFIDAVITS OF PANCHAS FILED BY THE ASSESSEE WERE CAREFULLY OBSERVED AND FOLLOWING DEFECTS WERE NOTICED: FIRST OF ALL, THE AFFIDAVITS WERE FILED ONLY WHEN SPECIFIC DETAILS OF THE THEFT WERE DEMANDED CONSISTENTLY AND AFTER SHOW CAUSE SHOWN FOR REJECTION OF BOOKS OF ACCOUNTS. THE AFFIDAVITS DON NOT MENTION THE DATE ON WHICH THE THEFT WAS DETECTED. THE CIRCUMSTANCES OF THE DETECTED IT IS NOT MENTIONED. THE REASON FOR NOT FILING THE COMPLAINT WITH THE POLICE FOR THE THEFT WORTH RS.2,95,06,400/- HAS NOT BEEN MAINTAINED. IF THERE INDEED WAS PANCHAS WAS DRAWN BY ABOVE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 15 OF 38 MENTIONED PUANCHAS THEN WHY THE COPY OF SAID PUANCHAS HAS NOT BEEN FILED ON RECORD. THE ASSESSEE HAS FAILED TO GIVE IDENTIFICATION OF THE PANCHAS JUST LIKE THAT THE PAN NUMBER, RETURN OF INCOME, NATURE OF BUSINESS. HENCE, THE CLAIM OF LOSS OF RS.2,95,06,400/- WAS DISALLOWED. 12. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). IT WAS SUBMITTED THAT THEFTS TAKE PLACE FREQUENTLY IN DIAMOND FACTORIES BECAUSE IT IS EASY TO PILFER DIAMONDS OF HIGH VALUE. YET VERY RARELY POLICE COMPLAINTS ARE FILED. IN ADDITION, WITH THE HELP OF REPUTED PANCHAS, DIAMONDS ARE EITHER FOUND AND CULPRIT ARE PERSUADED TO PART WITH THE DIAMONDS. THE FIR WITH POLICE IS NOT SUCCESSFUL AS SOME TIMES INNOCENT WORKERS ARE BEATEN. IN THIS BACKGROUND, THAT MECHANISM EVOLVED AND PREVALENT IN DIAMOND INDUSTRY OF CONTACTING A PANCH TO ENTERED IN TO THIS FIELD. THIS IS WHAT HAS BEEN DONE BY THE ASSESSEE AND IT IS ONLY WHEN THE PANCHAS FAILS TO RECOVER DIAMONDS THAT THE LOSS IS WRITTEN OFF. HOWEVER, CIT (A) OBSERVED THAT IT IS NOT ACCEPTABLE THAT THE ASSESSEE HAS ACCEPTED A LOSS OF RS.2,95,06,400/- AND NOT FILED POLICE COMPLAINT. THE ASSESSEES GENERAL COMMENT THAT THE POLICE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 16 OF 38 DEPARTMENT WAS UNABLE TO FIND STOLEN DIAMONDS IS TOTALLY UNACCEPTABLE. THE ASSESSEE HAS PRESUMED THAT THE STOLEN DIAMOND WOULD NOT BE FOUND EVEN BEFORE FILING OF COMPLAINT. THIS SHOWS THAT MALAFIDE INTENTION OF THE ASSESSEE TO GENERATE LOSS SO AS TO ADJUST THE CAPITAL GAINS ARISING FROM SALE OF ASSETS. IT CAN BE SAID THAT LOSS OCCURRED AT THE RIGHT TIME WHEN THE ASSESSEE GAINED A HUGE INCOME OF RS.5,96,54,378/- ON SALE OF ASSETS. THE ASSESSEE HAS FILED AFFIDAVITS OF PANCHAS, WHICH WERE FILED LATE HENCE; THE AO COULD NOT CROSS VERIFY THE SAME. FURTHER, NO POLICE COMPLAINT FILED NOR ANY DATE OF THEFT HAS BEEN FURNISHED AND THE AFFIDAVITS OF PANCHAS LACKED BASIC DETAILS SUCH AS DATE OF THEFT, IDENTITY OF PANCHAS ETC. THE ASSESSEE ALSO PRODUCED A LETTER FROM SURAT DIAMOND ASSOCIATION, WHICH ALSO MENTIONED THAT THE SAME PRACTICE IS BEING FOLLOWED. HOWEVER, IT HAS BEEN SEEN THAT THE CLAIM HAS NOT BEEN SUPPORTED BY ANY EVIDENCE. IN ABSENCE OF FUNDAMENTAL AND BASIC DETAILS SUCH AS DETAILS OF STOCK STOLEN, DATE OF THEFT, PLACE AND LOCATION OF THEFT, SUSPECTED PERSON / EMPLOYEE, INSURANCE CLAIM, WHETHER THE DIAMONDS WERE RECOVERED OR NOT ETC., IT IS VERY DIFFICULT TO ACCEPT THE CLAIM OF THE APPELLANT. THE FILING OF FIR WITH POLICE, WHICH IS CRUCIAL EVIDENCE IN CASE OF THEFT, WHICH HAS NOT BEEN BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 17 OF 38 DONE IN THIS CASE. THE CLAIM FOR INSURANCE AND NON-FILING OF POLICE COMPLAINT IS AN ABERRATION IN THE NORMAL CIRCUMSTANCES OF THE THEFT. THE ONUS OF FURNISHING EVIDENCE THAT SUCH LOSS DUE TO THEFT TOOK PLACE IN ON THE APPELLANT. THE BASIC PRINCIPLE OF LAW THAT ANY CLAIM OF LOSS INCLUDING LOSS DUE TO THEFT UNDER THE PROVISIONS OF INCOME TAX ACT,1961 IS FOLLOWING : LOSS OCCURRED SPRING DIRECTLY FROM CARRYING ON BUSINESS AND IS INCIDENTAL TO IT AND NOT ANY LOSS SUSTAINED BY THE ASSESSEE, EVEN IF IT HAS SOME CONNECTION WITH HIS BUSINESS . THE LOSS SHOULD BE GENUINE AND CAN BE PROVEN BASED ON MATERIALS ON RECORD BY RELYING UPON THE RULE OF PREPONDERANCE OF PROBABILITY. THE VARIOUS COURTS HAVE HELD SIMILAR VIEWS WHILE DECIDING THE CLAIM OF LOSS DUE TO THEFT OR EMBEZZLEMENT BY THE EMPLOYEES AS THE INSTANT CASE. IN THE CASE OF SARYA SUGAR MILLS (P) LTD. 111 ITR 263 (SC) THE SUPREME COURT HELD THAT THE CLAIM OF THEFT IS ALLOWABLE IF IT IS PROVED THAT IT IS HAPPENED IN THE COURSE OF BUSINESS AND THE CLAIM OF THEFT IS GENUINE ON THE BASIS OF MATERIAL AND CIRCUMSTANCES AVAILABLE. 13. THE CIT (A) FURTHER RELIED IN THE CASE OF BADRIDAS DAGA 34 ITR 10 (SC) IN SUPPORT OF HIS VIEW. THE CIT (A) FURTHER OBSERVED BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 18 OF 38 THAT THE EXPRESSION BURDEN OF PROOF MEANS DIFFERENTIATING TWO THINGS. THUS, THE CIT (A) HELD THAT THE APPELLANT WAS UNABLE TO BRING ON RECORD SUCH AS POLICE REPORT, INSURANCE CLAIM, FILING OF FIR, NAME OF THE SUSPECTED EMPLOYEE ALONG WITH PROOF THAT HE WAS ACTUALLY EMPLOYED, PLACE FROM WHERE THE THEFT TOOK PLACE ETC. IN ABSENCE OF ANY EVIDENCE, THE ADDITION MADE BY THE AO WAS CONFIRMED. 14. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE HAD PURCHASED DIAMONDS ONLY OF 352.15 CARATS AND SAME QUANTITY WAS SOLD DURING THE YEAR UNDER CONSIDERATION, WHICH IS NOT IN DISPUTE. THE ASSESSEE WAS HAVING OPENING STOCK OF 958 CARATES, WHICH WAS SLOW MOVING AND WAS KEPT IN HIS MUMBAI OFFICE. THE DAY ON WHICH THERE WAS HEAVY RAIN IN MUMBAI AND OFFICE WAS CLOSED. ON THAT DAY A PERSON, NAMELY MR. MAVJIBHAI S/O LAVJIBHAI SAVANI HAS STOLEN THE STOCK OF 958 CARATES FROM THE OFFICE. THE PARTNER OF THE ASSESSEE FIRM, WHEN OPENED THE OFFICE HAD COME TO KNOW THAT THE STOCK OF 958 CARATES IS MISSING. THEY HAVE TRIED TO LOCATE THE STOCK, BUT FAILED. ON ENQUIRY FROM SECURITY STAFF, THEY CAME TO KNOWLEDGE THAT PERSON MR. MAVJBHAI HAD COME TO OFFICE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 19 OF 38 AND DOUBT WAS CAME IN THE MIND OF PARTNERS. THEY HAVE THEREFORE, MADE ENQUIRY AND FOUND THAT MR. MAVJIBHAI HAD LEFT THE COUNTRY AND HAD GONE TO BELGIUM. IN THIS SITUATION, THE PARTNERS WERE OF THE BELIEF THAT POLICE COMPLAINT IT WILL NOT BE POSSIBLE TO RECOVER THE GOODS STOLEN. HENCE, THEY HAVE APPOINTED PANCHA, WHICH ARE BUSINESSPERSON OF DIAMOND INDUSTRY AND BY THEIR PRESSURE CAN RECOVER THE GOODS. IT WAS THE MAIN REASONS THAT POLICE COMPLAINT WAS NOT MADE. IN THIS SITUATION, WHEN THERE IS DIFFICULTIES IN RECOVERY THE GOODS, THEY DO NOT WANT TO TAKE FURTHER, TENSION OF POLICE DEPARTMENT. THE LEARNED COUNSEL FOR THE ASSESSEE CONTENDED THAT THERE IS NO MENTION IN THE I T ACT THAT IN CASE OF THEFT NO DEDUCTION WOULD BE ALLOWED, IF POLICE COMPLAINT WERE NOT MADE. IF THE ASSESSEE HAS INCURRED LOSS, THE SAME IS ALLOWABLE AND THERE IS NO CONDITION ATTACHED THAT WITHOUT POLICE COMPLAINT LOSS WOULD NOT BE ALLOWABLE. THE ASSESSEE HAS APPOINTED PANCHAS AND MADE EVERY EFFORTS TO RECOVER THE GOODS FROM SAID PERSON. THE PANCHAS HAS CONTACTED SUCH PERSON MR. MAVJIBHAI AND WHO CALLED THEM TO BELGIUM. THE PANCHAS WERE WENT TO BELGIUM AND MET MR. MAVJBHAI AND HE HAS PROMISED TO PAY THAT TIME BUT NOT PAID AFTERWARDS. THE PANCHAS HAVE TRIED TO CONTACT AGAIN MAVJIBHAI, BUT COULD NOT BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 20 OF 38 CONTACT HIM. IN THIS SITUATION, THE ASSESSEE HAS FILED AFFIDAVIT OF PANCHAS BEFORE THE AO AND LD. CIT (A) WHICH FORMS PART OF PAPER BOOK. THE ASSESSEE CAN TRY FOR FURTHER, AFFIDAVITS FROM PANCHAS ABOUT THEIR VISIT TO BELGIUM WHO HAD MET WITH MR. MAVJBHAI, IF THE TRIBUNAL ALLOWED SOME FURTHER, TIME. THEREFORE, IT WAS CONTENDED THAT LOSS IS BUSINESS LOSS AND ALLOWABLE AS DEDUCTION. FURTHER, THE AO HAS NOT BROUGHT ON RECORD ANY SINGLE EVIDENCE THAT THE ASSESSEE HAS SOLD GOODS OUTSIDE BOOKS. THE AO HAS NOT RELIED ON NOTARIZED AFFIDAVIT WITHOUT GIVING ANY REASON. IT MAY BE NOTED THAT THE PANCHAS APPOINTED ARE NOT NEAR RELATIVE OF THE ASSESSEE. THE AO HAD NOT CALLED THE PANCHAS NOR RECORDED ANY STATEMENT FROM THEM. THE AO HAS NOT BROUGHT ON RECORD THAT THE ASSESSEE HAS RECEIVED ANY CONSIDERATION FROM STOLEN DIAMONDS. IF SALE ARE MADE AND BECOMES IRRECOVERABLE THE SAME IS ALLOWED TO BE WRITTEN OFF IN BOOKS IN SAME WAY THE LOSS ON STOLEN GOODS CAN BE WRITTEN OFF IN STOCK AND ALLOWED AS EXPENSES. THE ASSESSEE HAS SHOWN LONG-TERM CAPITAL GAIN OF RS.97,80,182/- WHEREAS THE AO HAS TAKEN IN COMPUTATION RS.1,07,50,190/- WITHOUT ANY REASON GIVEN IN THE ASSESSMENT ORDER. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER, PLACED RELIANCE IN THE CASE OF DHEERAJ ASSOCIATES PVT. LTD. BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 21 OF 38 V. CIT [2011] 338 ITR 207 (CAL) WHEREIN IT WAS HELD THAT THERE WAS NO JUSTIFICATION FOR TRIBUNAL TO DISBELIEVE THE ALLEGATION OF THEFT FROM THE MATERIAL ON RECORD. THERE WAS NO FINDING BY EITHER THE POLICE OR THE INSURANCE COMPANY BROUGHT ON RECORD TO DISBELIEVE THE ALLEGATION OF THEFT. THE FACT THAT THE POLICE COULD NOT RECOVER THE GOODS OR THAT THE GUILTY PERSON WERE NOT PUNISHED COULD NOT GO AGAINST THE ASSESSEE. THE AMOUNT WAS DEDUCTIBLE. 15. PER CONTRA, THE LD. SR. DR SUBMITTED THAT THE ASSESSEE HAS FAILED TO BRING ON RECORD ANY EVIDENCE IN SUPPORT OF HIS CLAIM THAT GOODS WERE STOLEN. THE AFFIDAVITS OF PACNHAS WERE FILED ON 23.12.2010 WHEN THE ASSESSMENT WAS GETTING TIME BARRED BY 31.12.2010 HENCE; THE AO HAS NO TIME TO EXAMINE THEM. FURTHER, THE ASSESSEE HAS NOT MADE ANY POLICE COMPLAINT REGARDING THEFT NOR BROUGHT ON RECORD THE LOCATION, PLACE WHERE THE THEFT WAS TAKEN PLACE. THEREFORE, LOWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE CLAIM OF LOSS, AS IT WAS NOT FOUND TO BE GENUINE AND SUPPORTED WITH BOOKS OF ACCOUNTS. THEREFORE, NATURAL PRESUMPTION IS THAT THE GOODS SOLD OUTSIDE BOOKS OF ACCOUNTS, AND LOSS IS CLAIMED TO SET-OFF PROFIT ARISEN FROM SALE OF ASSETS. BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 22 OF 38 16. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE HAS MADE PURCHASES OF POLISHED DIAMONDS OF 352.15 CARATS DURING YEAR, WHICH WERE SOLD DURING THE YEAR. HOWEVER, THE OPENING STOCK OF POLISHED DIAMONDS OF 958 CARATS WORTH RS.2,95,06,400/- WAS CLAIMED TO BE LOSS ON ACCOUNT OF THEFT. THE ASSESSEE WAS ASKED TO SHOW CAUSE VIDE ORDER SHEET ENTRY DATED 15.12.2010 AS TO WHY THIS LOSS SHOULD NOT BE DISALLOWED. IN RESPONSE TO WHICH, THE ASSESSEE HAS FILED COPIES OF AFFIDAVIT FROM FIVE PANCHAS DTD. 23.12.2010. THE PERUSAL OF ASSESSMENT ORDER REVEALS THAT THE AO HAD ASKED TO FURNISH DETAILS OF LOSS FROM THE BEGINNING OF ASSESSMENT PROCEEDINGS BUT SAME WAS NOT FILED. THE ASSESSEE HAS FILED AFFIDAVITS ON 23.12.2010 WHEN THE ASSESSMENT WAS GETTING TIME BARRED BY 31.12.2010. THUS, THE AO HAD NO OCCASION TO VERIFY THE VERACITY OF AFFIDAVITS. IT IS ALSO SEEN THAT THE AFFIDAVITS DOES NOT MENTION THE EXACT DATE OF THEFT. THE CIRCUMSTANCES OF DETECTION OF THEFT IS NOT MENTIONED. THE ASSESSEE HAS FAILED TO GIVE DETAILS OF PANCHAS LIKE PAN, RETURN OF INCOME FILED BY THEM AND NATURE OF BUSINESS CARRIED ON BY THEM. THE PERUSAL OF ASSESSMENT BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 23 OF 38 ORDER AS WELL AS APPELLATE ORDER REVEALS THAT WHEN AND WHERE THE THEFT TOOK PLACE IS NOT FIND PLACE IN THESE ORDERS. FOR THE FIRST TIME, THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THEFT TOOK PLACE ON THE DAY WHEN THERE WAS HEAVY RAIN IN MUMBAI. STILL THE ASSESSEE HAS IS NOT ABLE TO PINPOINT THE EXACT DATE OF THEFT. EVEN IF, WE ASSUMED THAT THEFT TAKEN PLACE ON THE DAY OF HEAVY RAIN, THEN WE FIND FROM AFFIDAVITS ALSO DOES NOT SPELL OUT ACTUAL DATE OF THEFT, PLACE OF THEFT AND ONLY SAYING THAT THEFT TAKEN PLACE DURING THE ACCOUNTING YEAR ENDING ON 31 ST MARCH 2008. THE AFFIDAVITS DOES NOT TALK ABOUT THEIR EFFORTS OR ANY VISIT TO BELGIUM AS CLAIMED BY THE ASSESSEE BEFORE US. IT IS STRANGE THAT THE ASSESSEE HAS NOT LODGED ANY POLICE COMPLAINT WHEN THE GOODS WORTH OF RS.2.95 CRORES HAVE BEEN STOLEN ON THE GROUND THAT THE POLICE WILL NOT BE ABLE TO RECOVER THE DIAMONDS. THE BOOKS OF ACCOUNTS ARE AUDITED ON 11.12.2008. THE AFFIDAVIT HAS BEEN OBTAINED FROM PANCHAS ON 23.12.2010 I.E. AFTER TWO YEARS FROM THEFT. THERE IS NO COMMUNICATION BEFORE THIS FROM PANCHAS. IF THE CONTENTION OF THE ASSESSEE WAS TRUE, THEN THERE SHOULD HAVE BEEN LETTER OF APPOINTMENT OF PANCHAS. THERE SHOULD BE A PANCHNAAMA WHICH MIGHT HAVE BEEN DRAWN THAT A THEFT TOOK PLACE AT MUMBAI BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 24 OF 38 OFFICE AND THE EMPLOYEE OF THE ASSESSEE WAS A SUSPECT PERSON. WE FIND THAT THE ASSESSEE HAS NOWHERE STATED THE NAME OF SUSPECTED PERSON. IT IS ONLY FOR THE FIRST TIME, BEFORE US, IN WRITTEN SUBMISSIONS OF THE ASSESSEE, THE NAME OF MR. MAVJIBHAI SAVANI HAS BEEN SURFACED AS SUSPECT. HOWEVER, AGAIN, NO EVIDENCE THAT PANCHAS HAVE VISITED BELGIUM HAS BEEN FILED NOR SUCH EVENT IS DISCERNIBLE FROM THE SO-CALLED AFFIDAVITS FILED. THIS CLAIM WAS NOT MADE BEFORE THE AO OR CIT (A) DURING APPELLATE PROCEEDINGS. WE FIND THAT THE ASSESSEE HAS MADE GENERAL SUBMISSIONS THAT THE POLICE DEPARTMENT WAS UNABLE TO FIND STOLEN DIAMONDS, WHICH IS VERY UNACCEPTABLE. THE ASSESSEE HAS PRESUMED THAT THE STOLEN DIAMOND WOULD NOT BE FOUND EVEN BEFORE FILING OF POLICE COMPLAINT. THIS SHOWS THE MALAFIDE INTENTION OF THE ASSESSEE TO GENERATE LOSS SO AS TO ADJUST THE CAPITAL GAINS ARISING FROM SALE OF ASSETS. IT CAN BE SAID THAT LOSS OCCURRED AT THE RIGHT TIME WHEN THE ASSESSEE GAINED A HUGE INCOME OF RS.5,96,54,378/- ON SALE OF ASSETS. THE ASSESSEE HAS FILED AFFIDAVITS OF PANCHAS ON 23.12.2010 WHEN THE ASSESSMENT WAS GETTING TIME BARRED, HENCE, THAT WAS NO TIME LEFT WITH THE AO TO EXAMINE THE SAME OR THE AO COULD CROSS VERIFY THE SAME. FURTHER, NO POLICE COMPLAINT FILED NOR ANY DATE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 25 OF 38 OF THEFT HAS BEEN FURNISHED. THEREFORE, THE AFFIDAVITS OF PANCHAS LACKED BASIC DETAILS SUCH AS DATE OF THEFT, IDENTITY OF PANCHAS ETC. EFFORTS MADE BY THEM, MEETING HELD BY THEM AND INQUIRIES MADE IN THIS REGARD. THE ASSESSEE ALSO PRODUCED A LETTER FROM SURAT DIAMOND ASSOCIATION, WHICH ALSO MENTIONED THAT THE SAME PRACTICE IS BEING FOLLOWED BUT NO DETAILS OF THEFT IN THE CASE OF THE ASSESSEE HAS BEEN GIVEN BY THEM. HOWEVER, IT HAS BEEN SEEN THAT THE CLAIM HAS NOT BEEN SUPPORTED BY ANY EVIDENCE. IN ABSENCE OF FUNDAMENTAL AND BASIC DETAILS SUCH AS DETAILS OF STOCK STOLEN, DATE OF THEFT, PLACE AND LOCATION OF THEFT, SUSPECTED PERSON / EMPLOYEE, INSURANCE CLAIM, WHETHER THE DIAMONDS WERE RECOVERED OR NOT ETC. IN SUCH SITUATION, WE ARE NOT PERSUADED WITH CONTENTION OF THE ASSESSEE AND IT IS VERY DIFFICULT TO ACCEPT THE CLAIM OF THE ASSESSEE. THE FILING OF FIR WITH POLICE WHICH IS CRUCIAL EVIDENCE IN CASE OF THEFT HAS NOT BEEN DONE IN THIS CASE. THE CLAIM FOR INSURANCE AND NON-FILING OF POLICE COMPLAINT IS AN ABERRATION IN THE NORMAL CIRCUMSTANCES OF THE THEFT. THE ONUS OF FURNISHING EVIDENCE THAT SUCH LOSS DUE TO THEFT TOOK PLACE IN ON THE APPELLANT. THE BASIC PRINCIPLE OF LAW TO CLAIM ANY LOSS IS THAT THE LOSS OCCURRED SPRINGS DIRECTLY FROM CARRYING ON BUSINESS AND IS INCIDENTAL TO IT AND NOT ANY LOSS BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 26 OF 38 SUSTAINED BY THE ASSESSEE, EVEN IF IT HAS SOME CONNECTION WITH HIS BUSINESS. THE LOSS SHOULD BE GENUINE AND CAN BE PROVEN ON THE BASIS OF MATERIALS ON RECORD BY RELYING UPON THE RULE OF PREPONDERANCE OF PROBABILITY. THE THEFT WAS CLAIMED TO BE AT MUMBAI OFFICE WHEREAS PANCHAS ARE APPOINTED FROM SURAT. HOW THESE PANCHAS COULD BE ABLE TO TRACE THE THIEF OF MUMBAI. THE CIT (A) HAS RELIED IN THE CASE OF SARYA SUGAR MILLS (P) LTD. 111 ITR 263 (SC) WHERE THE HONBLE SUPREME COURT HELD THAT THE CLAIM OF THEFT IS ALLOWABLE IF IT IS PROVED THAT IT IS HAPPENED IN THE COURSE OF BUSINESS AND THE CLAIM OF THEFT IS GENUINE ON THE BASIS OF MATERIAL AND CIRCUMSTANCES AVAILABLE. BUT, IN THE ENTITY INSTANT CASE, THE LOSS IS GENUINE IS NOT PROVED. IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCES, WE HELD THAT THE ASSESSEE WAS UNABLE TO BROUGHT ON RECORD SUCH POLICE REPORT, INSURANCE CLAIM, FILING OF FIR, NAME OF THE SUSPECTED EMPLOYEE ALONG WITH PROOF THAT HE WAS ACTUALLY EMPLOYED , PLACE FROM WHERE THE THEFT TOOK PLACE ETC. EVEN ACTION TAKEN REPORT OF PANCHAS WERE ALSO NOT FILED. THUS, IT APPEARS THAT LOSS IS CLAIMED WITH A INTENTION TO SET OFF PROFIT EARNED ON ACCOUNT OF SALE OF ASSETS AND THEREFORE, THERE APPEARS MALAFIDE INTENTION OF THE ASSESSEE TO CLAIM SUCH LOSS AGAINST OTHER INCOME AS THE TIMING BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 27 OF 38 OF LOSS IS COMMENSURATE WITH EARNING HUGE INCOME OF RS.5,96,54,378/- ON SALE OF ASSETS. WE ALSO OF THE VIEW THAT GENERALLY, THEFT OCCURS DURING THE TRANSIT OF GOODS. THERE IS NO CHANCE WHERE THE GOODS ARE KEPT IN SAFE CUSTODY OF LOCKER OF WHICH KEYS AE KEPT BY THE OWNER OF GOODS. FURTHER, NO PRUDENT BUSINESSPERSON WOULD EVER AVOID NOT TO FILE ANY POLICE COMPLAINT OR MAKE ANY INSURANCE CLAIM OF LOSS ON ACCOUNT OF THEFT. THUS, IN ABSENCE OF ANY IOTA OF EVIDENCE BROUGHT ON RECORD, WE ARE OF THE CONSIDERED OPINION THAT THE LOWER AUTHORITIES WERE JUSTIFIED IN DISALLOWING THE CLAIM OF LOSS. ACCORDINGLY, GROUND NO. (II) IS DISMISSED. 17. GROUND NO. (III) ADDITION ON ACCOUNT OF ESTIMATED PROFIT OF RS.25,14,263/- ON UNACCOUNTED SALES OF RS. 2.95 CRORES. 18. SHORT FACTS ARE THAT THE AO AFTER DISALLOWING CLAIM OF LOSS OF THEFT OF RS.2,95,06,400/- TREATED IT AS SALE MADE OUTSIDE BOOKS OF ACCOUNTS. THEREFORE, THE AO HAS ESTIMATED GROSS PROFIT @ 7.7% ON RS.2,95,06,400/- AND MADE ADDITION OF RS.25,14,263/-. THE ADDITION SO MADE HAS BEEN CONFIRMED BY THE CIT (A). BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 28 OF 38 19. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. WE FIND THAT THE GROUND RELATED TO LOSS ON THEFT HAS BEEN DISMISSED AND SAME STANDS CONFIRMED BY US IN EARLIER PART OF THIS ORDER. THEREFORE, WE HOLD THAT THE AO HAS RIGHTLY HELD THE LOSS AS SALE OF STOCK OF DIAMONDS OUTSIDE BOOKS. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE AO HAS RIGHTLY ESTIMATED PROFIT AT RS.25,14,263/- ON UNDISCLOSED SALES. ACCORDINGLY, THIS GROUNDS OF APPEAL IS THEREFORE, DISMISSED. 20. SO FAR GROUND NO.IV RELATING TO CHARGING OF INTEREST UNDER SECTION 234A, 234B AND 234C IS CONCERNED, WE ARE OF THE VIEW THAT CHARGING OF INTEREST IS MANDATORY AS HELD BY THE HON`BLE SUPREME COURT IN THE CASE OF ANJUM M. H. GHASWALA [2001] 252 ITR 1 (SC), THEREFORE, WE UPHELD THE SAME. THIS GROUND IS THEREFORE, DISMISSED. 21. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED. I.T.A.NO.3155/AHD/2015/A.Y. 2008-09: PENALTY UNDER SECTION 271(1)(C) 22. GROUND NO. 1 AND 2 STATES THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND AS PER LAW, THE LEARNED BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 29 OF 38 COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN CONFIRMING PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. 23. SUCCINCT FACTS ARE THAT AO HAS ALSO INITIATED PENALTY UNDER SECTION 271(1)(C) ON THE DISALLOWANCE OF LOSS OF RS.2,95,06,200/- ON ACCOUNT OF THEFT WHICH WAS NOT FOUND GENUINE. THE AO FURTHER, MADE ADDITION OF RS.25,14,263/- BEING PROFIT ON SALE OF DIAMOND. THESE ADDITIONS WERE CONFIRMED BY THE CIT (A). THEREFORE, THE AO AGAIN ISSUED SHOW-CAUSE NOTICE, WHICH WAS NOT REPLIED BY THE ASSESSEE. THE AO THEREFORE, PLACING RELIANCE IN THE CASE OF M/S. DHARMENDRA TEXTILE PROCESSORS AND OTHERS 166 TAXMAN 65(SC) LEVIED A PENALTY OF RS.1,08,83,820/- BEING 100% OF TAX SOUGHT TO BE EVADED. 24. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT (A). THE CIT (A) OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT THEY HAD NOT REPORTED THE THEFT TO POLICE OF POLISHED DIAMONDS OF FEAR OF WORKERS BEING HARASSED AND WORKER LEAVING FACTORY IS THEREFORE, CONTRADICTORY TO FACTS. WHEN THERE WAS NO ROUGH DIAMONDS AT ALL WITH THE APPELLANT SINCE LONG, HOW THE WORKERS BEING HARASSED IS CONCOCTED STORY. THE THEFT IS CLAIMED OF POLISHED BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 30 OF 38 DIAMONDS OF OPENING STOCK, WHICH SHOULD BE IN A VERY SAFE CUSTODY OF EITHER PARTNER OF SELECTED PERSON ENJOYING FULL CONFIDENCE. THERE IS NO QUESTION OF GENERAL WORKER BEING THERE BEING INVOLVED AND THEREFORE, BEING HARASSED. THE ASSERTION OF AFFIDAVITS OF PANCHAS IS SUFFER FROM SERIOUS SHORTCOMINGS AND CANNOT BE BELIEVED. NO ONE IS REFERRING TO THE EXACT MONTH WHEN IT CAME TO BE NOTICED. THERE IS NOT AN IOTA OF REFERENCE TO THE VIGOROUS EFFORT TO FIND THE CULPRITS, WHICH WOULD HAVE BEEN DONE IF SUCH HIGH VALUE THEFT HAD ACTUALLY TAKEN PLACE. THE USE OF SUCH LANGUAGE, IN SUCH GENERALITIES ONLY LENDS TO SUPPORT TO THE VIEW, THAT THE WHOLE STORY HAS BEEN MADE TO TRY TO EVADE THE TAX WHICH WOULD HAVE BEEN PAYABLE ON THE SALE OF ASSETS. BESIDES, THE PROVISION OF EXPLAIN (B) TO SECTION 271(1)(C) ARE APPLICABLE AS THE ASSESSEE HAS FAILED TO SUBSTANTIATE HIS EXPLANATION AND HAS FAILED TO PROVE THAT HIS EXPLANATION IS BONA FIDE IN RESPECT OF THESE FACTS. 25. BEING, AGGRIEVED THE ASSESSEE FILED THIS APPEAL BEFORE THE TRIBUNAL. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AO HAS MADE ADDITION ON THE BASIS THAT THERE IS NO THEFT AND THE ASSESSEE HAS SOLD THE GOODS OUTSIDE BOOKS OF ACCOUNTS. THE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 31 OF 38 LEARNED ASSESSING OFFICER FAILED TO BRING SINGLE EVIDENCE IN HIS SUPPORT THAT THE ASSESSEE HAS SOLD GOODS OUTSIDE BOOKS OF ACCOUNTS TO ANY PARTY OR RECEIVED ANY CONSIDERATION, THEN NO PENALTY CAN BE LEVIED. THE LD.AO HAD NOT RELIED THE NOTARIZED AFFIDAVITS OF PANCHAS (APPOINTED BY THE ASSESSEE) WITHOUT GIVING ANY REASON. IT IS TO BE NOTED THAT PANCHAS APPOINTED BY THE ASSESSEE ARE NOT HIS NEAR RELATIVES. THE AO HAS NOT EVEN CALLED AND RECORDED STATEMENT OF THE PANCHAS AND TRIED THE FACTS AND TRUTH. THE AO HAS ALSO NOT BROUGHT ON RECORD THAT THE ASSESSEE HAS RECEIVED ANY CONSIDERATION OUT OF STOLEN STOCK. IN CASE, SALES IS MADE AND THE AMOUNT IS IRRECOVERABLE AND IF THE ASSESSEE CLAIMS ITS AS BAD DEBT THEN THE SAME IS ALLOWABLE AND CONDITION PRECEDENT TO ITS EXPENSES IN JUST TO WRITTEN OFF IN THE BOOKS OF ACCOUNTS. ON SAME PRINCIPLE THE ASSESSEE HAS WRITTEN OFF STOLEN STOCK IN THE BOOKS OF ACCOUNTS HENCE, IS TO BE ALLOWED AS EXPENSES AND PENALTY CANNOT BE LEVIED. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT NOTICE UNDER SECTION 274 FOR PENALTY UNDER SECTION 271(1) (C) DTD. 27.12.2010 IS ISSUED IN STANDARD FORMAT AND RELEVANT CLAUSE NOT STRIKE OFF HENCE, PENALTY UNDER SECTION 271(1) (C) IS BAD IN LAW. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER, SUBMITTED IN THE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 32 OF 38 ASSESSMENT ORDER PENALTY IS NOT INITIATED FOR ADDITION OF RS.25,14,263/- IN PARA 11.2 WHERE THE ADDITION IS MADE. HENCE, THE AO HAS FAILED TO MENTION THAT PENALTY IS INITIATED FOR CONCEALMENT OF INCOME OF FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IT IS COMPULSORY TO INITIATE PENALTY FOR SEPARATELY FOR EACH AND EVERY ADDITION, WHICH IS NOT MADE IN THIS CASE, HENCE, PENALTY CANNOT BE LEVIED. 26. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT THERE IS NO CONTEMPORARY EVIDENCE IS FOUND OF THEFT. THE ONLY EVIDENCE FILED IS AFFIDAVIT OF PANCHAS AND NO POLICE COMPLAINT IS MADE. SINCE THE ASSESSEE HAD FAILED TO BRING ANY EVIDENCE ON RECORD FOR THEFT HENCE, THE LOWER AUTHORITIES ARE JUSTIFIED IN IN IMPOSING PENALTY. 27. WE HAVE CONSIDERED THE FACTS AND PERUSED THE MATERIAL ON RECORD AND ALSO GONE THROUGH THE ASSESSMENT ORDER, WHICH SHOWED THAT THE ASSESSEE HAS CLAIMED LOSS OF RS.2,95,06,200/- ON ACCOUNT OF THEFT OF POLISHED DIAMONDS. WE HAVE DISCUSSED THIS CLAIM IN QUANTUM APPEAL IN EARLIER PART OF THIS ORDER AND DISMISSED THE QUANTUM APPEAL FILED BY THE ASSESSEE. WE FIND THAT THE CLAIM OF BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 33 OF 38 THE ASSESSEE THAT THEY HAD NOT REPORTED THE THEFT TO POLICE OF POLISHED DIAMONDS OF FEAR OF WORKERS BEING HARASSED AND WORKER LEAVING FACTORY IS THEREFORE, CONTRADICTORY TO FACTS. WHEN THERE WAS NO ROUGH DIAMONDS AT ALL TO BE APPELLANT SINCE LONG, HOW THE WORKERS BEING HARASSED IS THEREFORE A CONCOCTED STORY. THE THEFT IS CLAIMED OF POLISHED DIAMONDS OF OPENING STOCK, WHICH SHOULD BE IN A VERY SAFE CUSTODY OF EITHER PARTNER OF SELECTED PERSON ENJOYING FULL CONFIDENCE. THERE IS NO QUESTION OF GENERAL WORKER BEING THERE BEING INVOLVED AND THEREFORE, BEING HARASSED. THE ASSERTION OF AFFIDAVITS OF PANCHAS IS SUFFER FROM SERIOUS SHORTCOMINGS AND CANNOT BE BELIEVED. NO ONE IS REFERRING TO THE EXACT MONTH WHEN IT CAME TO BE NOTICED. THERE IS NOT AN IOTA OF REFERENCE TO THE VIGOROUS EFFORT TO FIND THE CULPRITS, WHICH WOULD HAVE BEEN DONE IF SUCH HIGH VALUE THEFT HAD ACTUALLY TAKEN PLACE. THE USE OF SUCH LANGUAGE, IN SUCH GENERALITIES ONLY LENDS TO SUPPORT TO THE VIEW, THAT THE WHOLE STORY HAS BEEN MADE TO TRY TO EVADE THE TAX WHICH WOULD HAVE BEEN PAYABLE ON THE SALE OF ASSETS. THEREFORE, IT CANNOT BE SAID THAT THIS CLAIM OF LOSS OF POLISHED DIAMONDS WAS BONAFIDE ONE. THEREFORE, IN VIEW OF THESE BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 34 OF 38 CIRCUMSTANCES, THE CLAIM OF THE ASSESSEE CANNOT BE SAID TO BE BONAFIDE MORE PARTICULARLY WHEN NO VOLUNTARY RETURN OF INCOME WAS FILED. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS CONCEALED THE INCOME CHARGEABLE TO TAX FOR ASSESSMENT YEAR UNDER CONSIDERATION ATTRACTING THE PENALTY U/S 271(1) (C) OF THE ACT. THEREFORE, ACCORDING TO US, THERE WAS CONSCIOUS AND DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO EVADE TAX BY CLAIMING FALSE CLAIM OF THEFT OF POLISHED DIAMONDS. A PERUSAL OF THE PENALTY ORDER REVEALS THAT THE AO HAS REJECTED THE CONTENTIONS ON THE BASIS THAT THE APPELLANT HAS CONSCIOUSLY EVADED TAX BY CLAIMING WRONG CLAIM OF THEFT, WHICH IS NOT SUPPORTED BY ANY EVIDENCE. FURTHER, THE QUANTUM APPEAL OF THE ASSESSEE HAS BEEN DISMISSED BY CIT (A) AS WELL AS TRIBUNAL. WE FIND THAT EXPLANATION I TO SECTION 271(L) (C) OF THE ACT PROVIDES THAT THE PENALTY WOULD BE DEEMED TO ATTRACT WHERE IN RESPECT OF A FACT MATERIAL TO THE COMPUTATION OF INCOME EITHER NO EXPLANATION IS OFFERED, OR EXPLANATION OFFERED IS FOUND TO BE FALSE. THE ASSESSEE, THOUGH HAS OFFERED AN EXPLANATION CLAIMING THAT THE POLICE COMPLAINT WAS NOT FILED DUE TO FEAR AND HARASSMENT OF WORKER, BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 35 OF 38 WE FIND THAT THERE WAS NO DIAMOND STOCK LEFT AND FACTORY WAS CLOSED HENCE, THERE WAS NO OCCASION FOR THE WORKERS TO BE FEARED. FURTHER, CLAUSE (B) OF EXPLANATION 1 TO SECTION 271(1)(C)OF THE ACT, PROVIDES THAT WHERE THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE ITS EXPLANATION AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONAFIDE AND ALL THE FACTS RELATING TO THE SAME HAVE BEEN DISCLOSED, PENALTY IS LEVIABLE. WE FIND THAT THE ASSESSEE HAS NOT BEEN ABLE TO SUBSTANTIATE HIS EXPLANATION REGARDING THEFT OF POLISHED DIAMONDS. THEREFORE, THE ASSESSEE`S EXPLANATION WAS NOT FOUND TO BE ACCEPTABLE BY THE AO, AND THUS IT FOLLOWS THAT THE ASSESSEE WAS UNABLE TO SUBSTANTIATE HIS EXPLANATION BY PROVIDING VARIOUS EVIDENCES AND JUDICIAL OPINIONS. WE ARE, THEREFORE, OF THE VIEW THAT THE ADDITION HAS BEEN CORRECTLY MADE. THE CASE OF THE ASSESSEE IS, THEREFORE, IS COVERED BY EXPLANATION 1 TO SECTION 271(1) (C) OF THE ACT. BASED ON THE FACTS OF THE CASE, WE NOTE THAT THE ASSESSEE HAD NOT MADE FULL AND TRUE DISCLOSED WITH NECESSARY FACTS IN THE RETURN OF INCOME AND THEREFORE FURNISHED INACCURATE PARTICULARS OF INCOME AND CONCEALED THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THEREFORE, WE HOLD THAT THE AO HAS RIGHTLY BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 36 OF 38 LEVIED PENALTY UNDER SECTION 271(1) (C) OF THE ACT. HOWEVER, WE FIND THAT THE AO HAS NOT INITIATED PENALTY ON THE ADDITION OF RS.25,14,263/- ON ESTIMATED ADDITION ON ACCOUNT OF GROSS PROFIT ON LOSS OF POLISHED DIAMONDS CLAIMED ON ACCOUNT OF THEFT. SINCE THE AO HAS NOT INITIATED PENALTY ON THIS ADDITION THEREFORE, NO PENALTY IN RESPECT OF THIS AMOUNT CAN BE LEVIED. FURTHERMORE, THE GROSS PROFIT ADDITION IS MADE ON ESTIMATE HENCE, NO PENALTY UNDER SECTION 271(1) (C) IS LEVIABLE ON MERE ESTIMATE. IN VIEW OF THIS MATTER, WE ARE OF THE CONSIDERED OPINION THAT NO PENALTY IS LEVIABLE ON THIS AMOUNT, THEREFORE, THE AO IS DIRECTED TO DELETE THE PENALTY IF LEVIED IN RESPECT OF RS.25,14,263/- AND RECALCULATE THE PENALTY IN RESPECT OF ADDITION OF RS.2,95,06,400/- BEING LOSS ON THEFT CLAIMED BY THE ASSESSEE. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 28. THE CONTROVERSY THAT PENALTY ARE QUASI CRIMINAL IN NATURE OR NOT HAS BEEN BROUGHT TO AN END BY THE JUDGMENT OF THREE MEMBER BENCH OF SUPREME COURT IN THE CASE OF M/S. DHARMENDRA TEXTILE PROCESSORS AND OTHERS 166 TAXMAN 65(SC) WHEREIN HONBLE SUPREME COURT HAS SAID THAT LIABILITY IMPOSED UNDER SECTION 271(1) BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 37 OF 38 (C) IS PURELY A CIVIL LIABILITY AND THERE IS NO REQUIREMENT TO ESTABLISH MEN-S-REA BEFORE LEVYING PENALTY. 29. SO FAR AS THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IN THE NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271(1)(C), THE RELEVANT CLAUSE HAS NOT BEEN STRIKE OUT SO AS TO SHOW ON WHICH ACCOUNT PENALTY IS LEVIED. HOWEVER, WE FIND THAT THE ASSESSEE HAS NOT TAKEN ANY SUCH SPECIFIC LEGAL GROUND OR ADDITIONAL GROUND BEFORE THE TRIBUNAL THAT NOTICE ISSUED UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT IS DEFECTIVE. THEREFORE, UNLESS THE GROUND IS SPECIFICALLY TAKEN, NO SUCH LEGAL GROUND CLAIM IS ADMISSIBLE, HENCE, SAME IS REJECTED. IN THE LIGHT OF ABOVE FACTS, JUDICIAL PRONOUNCEMENTS, WE ARE SATISFIED THAT THE CONDITIONS LAID DOWN IN EXPLANATION 1 TO SECTION 271(1) (C) ARE SATISFIED. THUS, THE ASSESSEE IS DEEMED TO HAVE CONCEALED THE PARTICULARS OF INCOME AND THEREBY HAS FURNISHED INACCURATE PARTICULARS OF HIS INCOME AND CONCEALED THE INCOME CHARGEABLE TO TAX. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT LD. CIT (A) WAS RIGHT IN CONFIRMING THE LEVY OF CONCEALMENT PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF LOSS OF RS.2,95,06,400/- BHOJAL GEMS VS. ACIT-CIRCLE-9, SURAT /I.T.A. NO. 2269 & 3155/AHD/2015/A.Y.: 2008-09 PAGE 38 OF 38 ON ACCOUNT OF THEFT OF POLISHED DIAMONDS CONFIRMED AND PENALTY IN RESPECT OF ESTIMATED ADDITION OF RS.25,14,263/- IS DELETED. ACCORDINGLY, ALL THE ABOVE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 30. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR LEVY OF PENALTY UNDER SECTION 271(1) (C) IS PARTLY ALLOWED. 31. IN THE RESULT, QUANTUM APPEAL IS DISMISSED IN ITA NO.2269/AHD/2015 AND PENALTY APPEAL IS PARTLY ALLOWED IN ITA NO.3155/AHD/2015. 32. THE ORDER PRONOUNCED IN OPEN COURT ON 24-10-2018. SD/- SD/- ( . . /C.M. GARG) ( . . /O.P.MEENA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER DATED: 24 TH OCTOBER 2018/OPM / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) THE CIT(A)4. / PR. CIT 5. , / D.R. (ITAT) 6. / GUARD FILE ITAT. BY ORDER / / TRUE COPY / / ASSISTANT REGISTRAR, SURAT