2017 (9) TMI 1668 - HC - Income Tax

Addition u/s 69C - amount candid and voluntary surrender made by the assessee during the course of survey - Held that - It will not be out of place to mention that except the statement in the letter the AO has no other material on record to assess the income of Rs. 1, 82, 00, 000/-. It is settled proposition of law that merely on the statement that too also was taken in view of threat given in question No.36 as narrated by Mr. Gupta and the same sought to have been relied upon there is no other material either in the form of cash bullion jewellery or document in any other form which can come to the conclusion that the statement made was supported by some documentary evidence. We have gone through the record and find that the CIT (A) has rightly observed as stated hereinabove which was confirmed by the Tribunal. - Decided in favour of assessee

Summary

Issues Involved:
1. Justification of the Tribunal in deleting the addition made by the Assessing Officer.
2. Validity of the voluntary surrender made by the assessee during the survey.
3. Legality of the assessment based on the statement and lack of supporting evidence.
4. Application of peak credit theory by CIT(A).

Detailed Analysis:

1. Justification of the Tribunal in Deleting the Addition Made by the Assessing Officer:
The Tribunal allowed the appeal of the assessee and dismissed the Department's appeal, leading to the appellant challenging this decision. The High Court had to determine whether the Tribunal was justified in deleting the addition of Rs. 40,28,668/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 69C of the Income Tax Act. The AO had based the addition on statements made during a survey, which the Tribunal found unsubstantiated by any other evidence.

2. Validity of the Voluntary Surrender Made by the Assessee During the Survey:
The Department conducted a survey on 19.07.2007, during which the directors of the assessee company admitted to an additional income of Rs. 2,00,00,000/-. The assessee company offered this additional income for various assessment years, with the balance amount of Rs. 1,82,00,000/- for AY 2006-07. The AO considered this as a voluntary surrender and assessed the income accordingly. However, the Tribunal found that this admission was made under duress and without any corroborating evidence.

3. Legality of the Assessment Based on the Statement and Lack of Supporting Evidence:
The AO's assessment was primarily based on the statements recorded during the survey. The CIT(A) and the Tribunal both found that there was no material evidence to support the addition of Rs. 1,82,00,000/-. The CIT(A) noted that the figure was informed to the assessee by the Department officials during the survey and was not based on any document seized. The Tribunal upheld this view, emphasizing that an assessment could not be made solely on the basis of statements without any supporting documentary evidence.

4. Application of Peak Credit Theory by CIT(A):
The CIT(A) applied the peak credit theory, which is an accepted accounting principle used to avoid multiple counting of the same sums in cases with several credit and debit entries. The CIT(A) directed the AO to apply this theory, resulting in a peak credit of Rs. 54,03,668/- as on 10.10.2005. The Tribunal and the High Court found this approach to be appropriate and consistent with the facts of the case.

Conclusion:
The High Court concluded that the Tribunal was justified in deleting the addition made by the AO, as the assessment lacked supporting evidence beyond the statements made during the survey. The voluntary surrender by the assessee was found to be under duress and not corroborated by any material evidence. The application of the peak credit theory by the CIT(A) was upheld as a reasonable method to determine the income. Consequently, the appeal by the Department was dismissed, and the issue was decided in favor of the assessee.