2014 (1) TMI 1411 - HC - Income Tax

Method of working the peak credit - Held that - During assessment proceedings, the assessee has explained the documents fully and also filed statement of working the peak credit in which no defect was pointed out The admission of undisclosed income made by the assessee under section 132(4) is an important piece of evidence but the same is not conclusive and it is open to the assessee, who made the admission to show that it is incorrect and the same was made under a mistaken belief of facts or law - Peak of Rs.16,93,308/- is worked out in assessment year 2006-07, whereas, peak of Rs.61,742/- is worked out in assessment year 2006-07 The Tribunal accordingly decided the matter - Decided against Revenue.

Summary

Issues:
1) Interpretation of peak amount for Assessment Year 2007-08
2) Acceptance of peak credit theory by the assessee

Analysis:
Issue 1 - Interpretation of peak amount for Assessment Year 2007-08:
The case involved a company engaged in trading of auto parts where a Search and Seizure operation was conducted, leading to the surrender of Rs.40 lakhs as undisclosed income by the company's Director. However, upon filing the return of income, the company declared a significantly lower income of Rs.61,742 for the Assessment Year 2007-08. The appellant contended that such an explanation was not acceptable given the initial surrender of a substantial amount. The Tribunal examined the working of peak amounts, where the assessee explained the method of calculation disregarding the nature of entries and persons involved. The Assessing Officer raised concerns about not segregating entries for each person separately but the Tribunal held that since the assessee owned all transactions, segregation was unnecessary. The Tribunal also noted the continuous rotation of funds and adjustments made by the assessee in the peak statement. Ultimately, the Tribunal directed the Assessing Officer to restrict the addition to the peak amounts of Rs.16,93,308 for 2006-07 and Rs.61,742 for 2007-08.

Issue 2 - Acceptance of peak credit theory by the assessee:
The Tribunal emphasized the importance of the explanation provided by the assessee during assessment proceedings and the filing of a detailed peak credit statement. It highlighted that an admission made under section 132(4) is significant evidence but not conclusive, allowing the assessee to prove its incorrectness due to mistaken belief. The Tribunal verified the peak statement, which arranged receipts and payments date-wise from 2005-06, leading to the determination of peak amounts for the respective assessment years. Based on this analysis, the Tribunal modified the lower authorities' orders and directed the Assessing Officer to limit the addition to the peak amounts calculated by the assessee.

Overall, the High Court dismissed the appeal, finding no substantial questions of law raised and upholding the Tribunal's decision regarding the interpretation of peak amounts and acceptance of the peak credit theory by the assessee.