2012 (9) TMI 593 - HC - Income Tax

Addition on account of Peak credit - undisclosed income - ITAT deleted the addition made in block assessment - Held that - Considering the gist of the statement of Hemant Shah, Director of the Company who advanced loans it is is seen therefrom that the assessee s name was not mentioned by him at all as beneficiary of the accommodation entry business carried by him and merely stated that he did not deal with any ship-breaker and he had given only loan after taking cash and deducting commission. Even if the Revenue can be said to have successfully established that Mahendra Shah was carrying on the business of giving accommodation entries for commission, it does not follow that the loans taken by the assessee from the various companies allegedly belonging to the Madhupuri Group of Companies were accommodation loans. From the statement it is not possible to establish any link between Mahendra Shah and the creditor companies or that he was in a position to influence those companies into carrying on the accommodation entry business - The material on the basis of which the addition in the present case is sought to be made falls short of the requirement of the sub-section (1) of 158BB which says that computation of the undisclosed income of the block period has to be made on the basis of evidence found as a result of search as there is nothing to link the assessee with the accommodation entry business stated to be carried on by Mahendra Shah whose statement constituted the sole basis of the addition - in favour of the assessee

Summary

Issues:
1. Addition of peak credits as income from undisclosed sources
2. Validity of Tribunal's order

Analysis:
1. The appeal involved the addition of Rs.28,50,000 as peak credits in the block assessment order on account of income from undisclosed sources. The case originated from a search conducted on individuals belonging to the Madhupuri Group of Jamnagar, Gujarat. The Assessing Officer initiated proceedings under Section 158BD against the assessee based on a satisfaction note recorded after statements and document seizures. The assessee contested the validity of the proceedings and the addition of peak credits, arguing that loans were genuine and not accommodation entries. The Assessing Officer, however, added the peak credit amount as undisclosed income, leading to the completion of the assessment.

2. The CIT(Appeals) reviewed the case and found that no incriminating evidence was passed to the Assessing Officer regarding the assessee. The CIT(Appeals) also noted that no opportunity to cross-examine a key individual was provided, and no concrete evidence linked the loans to accommodation entries. The Tribunal, after considering the evidence and legal precedents, upheld the CIT(Appeals) order, emphasizing the lack of substantial evidence linking the assessee to the alleged accommodation entry business. The Tribunal's decision was based on the insufficiency of evidence and the unreliable nature of the sole basis for the addition, i.e., the statement of a related individual.

3. The High Court, upon examining the facts and contentions, analyzed the statement of the individual central to the case. The Court observed that the statement did not specifically implicate the assessee, and the answers provided were general and lacked concrete links to the alleged accommodation entry business. The Court highlighted the necessity for evidence to establish a connection between the assessee and the purported illegal activities. Ultimately, the Court upheld the Tribunal's decision, deeming it appropriate based on the evidence presented. The first substantial question was answered in favor of the assessee, dismissing the Revenue's appeal, while the second question was also decided in favor of the assessee.

4. The judgment emphasized the importance of substantial evidence and concrete links in cases involving additions to undisclosed income. The decision underscored the need for a clear connection between the assessee and alleged illegal activities to justify such additions. The Court's thorough analysis of the evidence and legal provisions led to the dismissal of the Revenue's appeal and a ruling in favor of the assessee.