2016 (1) TMI 214 - AT - Income Tax

Peak credit of additions - whether AO as well as CIT (A) has erred in not appreciating the peak working as submitted by the appellant, without giving any reasons for the same - Held that - It is obvious that no separate direction is uncalled for as the normal steams of income has to be taxed separately. Further, in our opinion, the income receipts credited to P & L Account or bank account earned out of business are outside the exercise of peak credit analysis and they are separately taxed ie in addition to the peak credits in any year. The income credited to the books of account of the assessee or the bank should be considered exclusive of the peak credit of additions in the assessment. Therefore, we approve the views of the CIT (A). Considering the same, the decision of the CIT (A) vide paras 5 to 5.8 of his order is an order. Thus, the order of the CIT (A) on these issues is fair and reasonable and it does not call for any interference. - Decided against assessee. Penalty u/s 271(1)(c) - Held that - We agree with the view taken by the CIT (A) while upholding the penalty orders passed by the AO u/s 271(1)(c) of the Act in respect of all the assessment years under consideration. Accordingly, the decision taken by CIT (A) vide paras 5.6 and 5.7 of his order is fair and reasonable. However, as contended by the Ld Counsel for the assessee the penalty levied by the AO @ 200% of the tax to be evaded by reason of concealment of income is on higher side and therefore, considering the factual matrix of the present case, we direct the AO to restrict the penalty to 100% of the tax to be evaded instead of 200% levied by him, which in our considered opinion would meet the ends of justice. - Decided in favour of assessee partly

Summary

Issues Involved:

1. Peak Credit Working
2. Inclusion of Regular Income in Peak Credit
3. Levy of Penalty under Section 271(1)(c)

Issue-wise Detailed Analysis:

1. Peak Credit Working:

The primary issue revolves around the proper method for calculating peak credit. The assessee argued that the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT (A)] erred by not appreciating the peak working submitted by the assessee and not giving credit for income offered in the return of income. The AO calculated the peak credit for each assessment year independently, without considering the cumulative peak credit from previous years. The CIT (A) noted that the AO's method was incorrect and that the correct approach would be to compute the peak credit for each subsequent assessment year by reducing the peak credit computed as taxable in the earlier assessment year. The Tribunal upheld the CIT (A)'s view, emphasizing that the previous unexplained investment should explain the subsequent investment, and thus, only the incremental peak should be considered taxable for the subsequent year.

2. Inclusion of Regular Income in Peak Credit:

The assessee contended that regular income should not be included in the peak credit additions, arguing that the Tribunal's directions were only on the peak credits and did not reference normal streams of income. The Tribunal clarified that normal streams of income should be taxed separately from peak credit additions. The income credited to the Profit & Loss Account or bank account from business activities is outside the peak credit analysis and should be taxed in addition to the peak credits. Therefore, the Tribunal agreed with the CIT (A) that regular income should be considered exclusive of peak credit additions, and upheld the CIT (A)'s decision.

3. Levy of Penalty under Section 271(1)(c):

The assessee challenged the penalty levied under Section 271(1)(c) of the Income Tax Act, which was imposed at 200% of the tax sought to be evaded. The penalty was related to the commission income shown in the return of income filed in response to notice under Section 153A and unexplained deposits and investments. The CIT (A) upheld the penalty orders but directed that the penalty should be computed based on the undisclosed income determined as per the Tribunal's directions. The Tribunal agreed with the CIT (A) that the assessments were not set aside, and the AO was only required to follow the Tribunal's directions for computing the amounts of additions. However, the Tribunal found the 200% penalty excessive and directed the AO to restrict the penalty to 100% of the tax to be evaded, considering it a fair and reasonable measure.

Conclusion:

The Tribunal dismissed the five quantum appeals of the assessee, affirming the CIT (A)'s decisions on the peak credit working and inclusion of regular income. However, the Tribunal partly allowed the five appeals related to the penalty under Section 271(1)(c), reducing the penalty from 200% to 100% of the tax sought to be evaded. The order was pronounced on 16th October 2015.