2015 (11) TMI 394 - HC - Income Tax

Peak of unexplained debit - Held that - Peak credit theory-One of the commonest defects of an assessee, where a single credit or number of credits appear in the books in the account of any particular person side by side with a number of debits is that they should all be arranged in serial order, that a credit following a debit entry should be treated as referable to the latter to the extent possible and that, not the aggregate but only the peak of the credit should treated as own explained. To give a simple example, suppose there are credits in the assessee s book in the account. A or ₹ 5,000 each on October 1, 1990, and again on November 5, 1990, but there is a debit by way of repayment shown on October 27, 1990, the expla nation will be that the credit appearing on November 5, 1981, has or could have come out of the withdrawal/repayment on October 27, 1981. This plea is generally accepted as it is logical and acceptable (whether the creditor is a genuine party or not), provided there is nothing in the material on record to show that a particular with drawal/repayment could not have been available on the date of the subsequent credit. A refinement or extension of the plea occurs where the credits appear not in the same account but in the accounts of different per sons. Even then, if the genuineness of all the person is disbelieved and all the credits appearing in the different account are held to be the assessee s own moneys, the assessee will be entitled to set off and a determination of the peak credit after arranging all the credits in the chronological order. - Decided against Revenue.

Issues Involved:
1. Whether the Income-tax Appellate Tribunal erred in law regarding the peak of unexplained debit and credit.
2. Whether the Tribunal erred in allowing peak credits to be set off inter-year.
3. Whether the Tribunal failed to establish the availability of peak credit for subsequent years.
4. Whether the Tribunal erred in holding peak debits of one year as an explanation for peak credits of the subsequent year.
5. Whether the Tribunal's order resulted in the total income being less than the undisclosed income shown in the block return.
6. Whether the Tribunal was justified in permitting additional grounds of appeal regarding non-issuance of notice under section 143(2).
7. Whether the Tribunal was right in law in allowing additional grounds of appeal when only cross-objections were filed.
8. Whether the Tribunal erred in quashing the Assessing Officer's order under section 158BC/154/251.

Detailed Analysis:

1. Tribunal's Error in Law Regarding Peak of Unexplained Debit and Credit:
The Tribunal held that the peak of unexplained debit of Rs. 35,81,988 in the assessment year 1995-96 would be subsumed in the higher debit of Rs. 48,01,158 in the assessment year 1996-97. The Revenue contended that this was erroneous without appreciating the decision in CIT v. K. Palaniappan, which states that concealed income detected in an earlier year cannot be a source of credit entry for a subsequent year. The court found that the Tribunal's decision did not contravene the principles established in the cited case, as the facts differed significantly.

2. Allowing Peak Credits to be Set Off Inter-Year:
The Tribunal allowed the peak credit of the assessment year 1995-96 to be set off against the peak credit of the assessment year 1996-97. The Revenue argued that the Tribunal's earlier order did not direct such a benefit. The court upheld the Tribunal's decision, noting that the Tribunal's directions were followed correctly.

3. Establishing Availability of Peak Credit for Subsequent Years:
The Tribunal's decision did not establish that the peak credit of the assessment year 1995-96 was available for induction in the assessment year 1996-97. The court found that the Tribunal had correctly considered the chronological arrangement of credits and debits, as directed in its previous orders.

4. Holding Peak Debits as Explanation for Subsequent Peak Credits:
The Tribunal held that the peak of unexplained debits in the assessment year 1996-97 would explain the peak of unexplained credits in the subsequent assessment year 1997-98. The Revenue argued that this was done without proper findings and contrary to the decision in CIT v. K. Palaniappan. The court found that the Tribunal's approach was consistent with the principles of accountancy and did not contravene the cited case.

5. Resulting Total Income Less Than Undisclosed Income in Block Return:
The Revenue contended that the Tribunal's order resulted in the total income being less than the undisclosed income shown by the assessee in the block return, violating section 156BC. The court found no merit in this argument, as the Tribunal's computation was based on a logical arrangement of credits and debits.

6. Permitting Additional Grounds of Appeal Regarding Non-Issuance of Notice:
In Income Tax Appeal No. 160 of 2012, the Tribunal permitted additional grounds of appeal regarding the non-issuance of notice under section 143(2). The Revenue argued that this was unjustified as no such ground was raised before the Assessing Officer or the Commissioner of Income-tax (Appeals). The court upheld the Tribunal's decision, noting that procedural rules allowed for such grounds to be admitted.

7. Allowing Additional Grounds When Only Cross-Objections Were Filed:
The Revenue argued that the Tribunal erred in allowing additional grounds of appeal when the assessee had filed only cross-objections. The court found that the Tribunal acted within its discretionary powers to admit additional grounds.

8. Quashing the Assessing Officer's Order Under Section 158BC/154/251:
The Tribunal quashed the Assessing Officer's order under section 158BC/154/251, relying on its earlier order dated February 13, 2004. The Revenue contended that this was erroneous as the earlier order was under appeal. The court noted that the earlier appeals had been dismissed, and the Tribunal's decision was consistent with the law.

Conclusion:
The court dismissed the appeals, answering all questions against the Revenue and upholding the Tribunal's decisions. The Tribunal's approach in considering the chronological arrangement of credits and debits and its adherence to procedural rules were found to be legally sound.

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