2015 (1) TMI 1334 - HC - Income Tax

Addition u/s 68 - Held that - What will be the implication after section 68 is applied to the opening balance of a little over ₹ 12 lakhs in this case vis- a -vis the further transactions is a serious question of fact which has to be considered and for that purpose we are of the opinion that a remand is required. We should not be deemed to have expressed any opinion as to whether the peak credit theory is applicable to the facts and circumstances of the case or is not applicable to the facts and circumstances of the case. That question is left to be decided by the Tribunal on the basis of evidence, which may be adduced before them and they shall allow letting in of necessary evidence, if the assessee so desires. The limited question to be considered is whether the assessee is entitled to any benefit on the basis of peak credit theory. In the result, the order under challenge is set aside and the matter is remanded to the learned Tribunal for re-hearing. The learned Tribunal is requested to hear out the matter within a period of six months from the date of communication of this order.

Summary

Issues:
Challenge to Tribunal's order reducing tax liability based on peak credit theory application.

Analysis:
The appeal challenged a Tribunal's order that reduced the tax liability of the assessee from the original amount. The appellant contended that the peak credit theory should have been applied, citing a Madras High Court judgment that income additions must be treated as the real income of the assessee. The appellant's senior advocate argued that the opening balance should be considered as unexplained income, relying on the Madras High Court's view. The apex court's affirmation of this view was also presented as supporting precedent.

The Revenue, represented by an advocate, opposed the application of the peak credit theory. The advocate argued that the appellant, being an entry operator, did not establish a continuity of transactions necessary for applying the peak credit theory. It was also pointed out that the theory was not raised before the Assessing Officer or in the appeal memo.

The Court examined the arguments presented by both sides. It was noted that the factual foundation for applying the peak credit theory was not established by the assessee, although some arguments were made before the Commissioner of Income-tax (Appeals). The Court found that the Tribunal's decision was based on a different judgment and lacked consideration of the specific facts of the case. Consequently, the Court set aside the order and remanded the matter to the Tribunal for re-hearing within six months. The Tribunal was instructed to allow the assessee to present additional evidence if desired and determine whether the peak credit theory applied to the case.

In conclusion, the Court disposed of the appeal by remanding the matter to the Tribunal for further consideration regarding the application of the peak credit theory to determine the assessee's tax liability.