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TMI Blog2016 (12) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... ide the matter to the file of the AO to apply the peak credit theory after taking into consideration both the debtors and creditors entries found recorded in the seized documents. - Decided in favour of assessee for statistical purposes. Addition on account of undisclosed/unexplained house hold expenses - assessee has contended that the household expenditure has been incurred out of his salary withdrawals - Held that:- As except for AY 2009-10 in respect of which documents were found during the course of search, no documents are found in respect of any of the other years and the AO has only made an estimation without any underlying documents. The basis of estimation which ranges from 50,000 to 2,50,000 is also not clear from the records. Though both AO and ld CIT(A) has taken cognizance of the said contentions of the assessee, however no credit/setoff has been given. As against the total addition of 8,00,000 made by the AO towards undisclosed household expenditure, the assessee has reported in his return of income, an amount of 8,92,000 as salary income for all the respective years taken together, besides income from other sources. We therefore find force in the said contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on u/s 132 of Income Tax Act, 1961(in short the Act) was carried out on 24.08.2009 at the business and residential premises of Sh. Damodar Das Agarwal, of whom the assessee is one of the employees and during the course of search, certain loose papers/documents were found and seized. The assessee's name was included in the search warrant and was confronted with these loose papers/documents and he admitted that these loose papers/documents belong to him and he was involved in money lending business. Thereafter, notice u/s 142(1) was issued to assessee on 11.05.2011 in response to which return of income was filed wherein certain additional income is offered which is tabulated as under: Assessment Year Additional income offered 2005-06 1,68,400.00 2007-08 22,175.00 2008-09 1,95,400.00 2009-10 10,249.00 2010-11 11,658.00 Total 4,07,882.00 Thereafter, the assessments were completed u/s 143(3) r.w.s. 153A of the Act by making additions to the tune of ₹ 45,43,730/- on account of undisclosed debtors and further addition of ₹ 8,00,000/- was made on account of undisclosed/unexplained house hold expenses. 2.1 The 1st ground of the appeal for the A.Y. 2005-06 is agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hart of inflows and outflows of funds, year wise has been prepared. 4.8 The argument taken by the appellant is that while calculating the peak, the maximum of debit and credit amount is to be considered as whatever comes into the business in cash is duly available and from that only payment is to be made. So peak is the maximum of what comes and what goes as it shows the maximum of undisclosed and unaccounted amount. It is to be noted that this proposition cannot be treated as proposition of law. These are only the inferences which can be drawn based upon the normal probabilities. These inferences can also be displaced by any material on record which may indicate to the contrary. The basic idea behind the peak credit theory is to avoid double addition and to bring only the actual income of the assessee to suffer tax, where there are a large number of unexplained credit and debit entries. However, this theory would apply only in the case of a undisclosed bank account, where deposits of cash are found alongwith cash withdrawals. Therefore, it is important to understand the facts of each case before computing the peak credits. This method of computing peak credit in my opinion would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DamodarDas Modi at D-32, Subhash Marg, C-Scheme, Jaipur, who is engaged in the money lending business contain loose papers were found and seized which were marked as "Annexure AS-1, Exhibit 1 to 3" containing some transactions of credit and debit entries in the names of various persons which the assessee admitted as belonging to his money lending activity. Based on these entries assessee has worked out additional undisclosed income by arranging the entries of incoming or outgoing figures noted and wherever there was shortfall of cash the same was taken as unexplained and accordingly ₹ 4,07,882/- was offered as additional income in various assessment years as tabulated above based on the entries found noted in the seized papers. The necessary working of fund flow as submitted by assessee during the course of assessment proceedings is placed in paper book. During the course of assessment proceedings the Ld. AO asked the assessee to record the entries found noted in the seized papers of all the debtors and creditors and submit the year-wise closing balances which are submitted and find place in the paper book. From the perusal of the respective pages, the Hon'ble Bench would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al manner and without application of mind to the submissions made before him. The Ld. CIT(A) has held that the peak credit theory is not a proposition of law but is only an inference drawn on probabilities and therefore, the peak credit theory need not be followed. In this regard it is submitted that the purpose of peak credit theory has been completely ignored by the Ld. CIT(A), which is to avoid double taxation of the same income, inasmuch as the same goes beyond the charging section of the Act itself. Therefore, before arriving at the taxable income, necessary adjustments have to be made so as to arrive at the correct taxable income and to avoid considering same income twice for taxation. Further, the application of peak credit theory has been upheld in various judicial pronouncements. Accordingly the assessee has prepared the cash flow statement of the debtors and creditors and offered the maximum peak amount in a particular year. It is well established law in this regard that where the debit and credit both are unexplained the credit and debit entries have to be set off against each other to the extent possible and only the peak of credit (negative or positive) can be consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the convenience or sweet will of the Assessing Officer. In this regard, reliance is placed on the following case laws: Glass Lines Equipments Co. Ltd. V/s CIT 253 ITR 454 (Guj.): Interpretation of documents - Documents must be read as a whole. It is a well settled canon of interpretation that a document has to be read as a whole" it is not permissible to accept a part and ignore the rest of the document. 22 TW 684 Hissaria Brothers V/s ACIT (Jpr.): Held that the seized document has to be read in its entirety and the parties are not allowed to read only that part which is suitable to it. 21 Tax World 213 Lal Chand Agarwal V/s ACIT: In no case AO can be allowed to consider a part of a particular document as true being favourable revenue and other part of the very document as false since that is favourable to assessee - Duality of the approach of AO is not fair - Thus, in view of the above, it is submitted that when on the seized papers debtors as well as creditors both were appearing, there was no justification for the AO to accept only the debtors as genuine and holding the creditors as non-genuine, more particularly when the debit / credit entries both were borne out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties and perused the material available on the record. It is not in dispute that the assessee is engaged in the business of money lending. It is also not in dispute that the entries/transactions in Ex.1 - 3 of Annexure AS-1 of the seized documents found during the course of search pertains to money lending transactions of the appellant and which were not disclosed earlier in the books of accounts and offered to tax. These entries/transactions relates to money advanced to various persons by the assessee and the amount returned back by the said borrowers or amount borrowed by the assessee for further lending to its borrowers. These seized documents contain the name of various debtors and creditors to whom the money has been advanced and taken on credit by the assessee. The assessee has prepared a cash flow statement considering the entries relating to the debtors and creditors and offered the maximum peak amount as worked out for respective years in its return of income filed subsequent to issuance of notice u/s 153A of the Act. The AO has considered the entire amount of outstanding debtors at the year-end as assessee's undisclosed investment in the form of debtors. The AO has not g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nkage in terms of inflow and outflow of funds are established, it is immaterial whether these transactions are happening in physical form or routed through the banking channel. Accordingly, we do not see any infirmity in applying the peak credit theory in the facts of the present case. In light of this discussion, we set aside the matter to the file of the AO to apply the peak credit theory after taking into consideration both the debtors and creditors entries found recorded in the seized documents. Similarly, given that for all these years, the facts are pari-materia, our above findings and directions shall apply equally in respect of rest all years under consideration. The grounds of appeal no. 1 and 1.1 for all these years are thus, allowed for statistical purposes. 8. The 2nd ground of the assessee's appeal for the A.Y. 2005-06 is against sustaining the addition of ₹ 50,000/- on account of undisclosed/unexplained house hold expenses. The Assessing Officer has observed that page Nos.10,11,25,26,27,37,39,41,43,45,47,48,50,51, 53,55,57,59,61,63 of Exhibit -1 of Annexure AS1 also belongs to him and these papers are related with the normal house hold expenditure incurred by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mate basis as tabulated below: A.Y. Amount 2005-06 50,000.00 2006-07 75,000.00 2007-08 1,00,000.00 2008-09 1,25,000.00 2009-10 2,00,000.00 2010-11 2,50,000.00 Total 8,00,000.00 Brief facts pertaining to these grounds of appeal are that, during the course of search certain papers were seized which were alleged to contain details of normal house hold expenditure incurred by assessee in the year under appeal, as reproduced at page 9 of the assessment order, and total expenditure recorded on the said pages was of ₹ 1,91,099/-, none of which related to the year under appeal. The Ld. AO after referring to the seized papers estimated the house hold expenditure for various assessment years and no credit was given to the declared expenditure made the addition of the entire amount. In this regard it is submitted that assessee's family consists of himself, his wife, two children and parents. Assessee's father is a retired government employee and having pension income which was utilized for household purpose. Besides, assessee's mother is also assessed to tax and having made withdrawal. Assessee has received salary which was fully utilized in household expenses which fa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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