ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2, MADURAI vs. NEELAMEGAM ALAGARSAMY, MADURAI
What did the Tribunal hold?
The Tribunal allowed telescoping of income, allowing the assessee to use previously taxed income as the source for subsequent additions. This prevents double taxation of the same income.
What were the facts?
A search operation revealed undisclosed cash transactions maintained outside regular books of account. The Assessing Officer treated these cash receipts as unexplained cash credits. The assessee claimed these were part of a separate cash-based film financing activity.
What were the issues?
Whether cash transactions found during a search, maintained outside books, constitute unexplained cash credits. Whether the benefit of telescoping should be allowed to explain such cash receipts.
Which sections of the Income-tax Act were involved?
Section 132,Section 147,Section 148,Section 143(2),Section 139(1),Section 68,Section 115BBE,Section 151(ii)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI ABY T VARKEY & SHRI S.R.RAGHUNATHA
Heard together (4 matters)
Read from the judgment's own cause title. This page is filed under one of them.
आदेश / O R D E R
PER S.R.RAGHUNATHA, AM:
The captioned appeals preferred by the Assessee and the Revenue, together with the Cross Objections filed by the Assessee, are directed against the respective orders passed by the Learned Commissioner of Income Tax (Appeals)-19, Chennai [hereinafter referred to as the "Ld.CIT(A)"], arising out of the assessment orders framed by the Deputy Commissioner of Income Tax, Central Circle-2, Madurai [hereinafter referred to as "the AO"], for the Assessment Years 2015-16 to 2023-24. Since common issues are involved, these appeals and Cross Objections were heard together and are being disposed of by this consolidated order for the sake of convenience and brevity. The particulars of the appeals and the Cross Objections are as under:
No of days of Section under delay which in Date of assessment Date of filing assessment order was CIT(A)'s of the S. No AY order passed order Appeal By ITA / CO No appeal 1 2015-16 Revenue 523 / CHNY / 2026 - 2 2015-16 31.03.2024 143(3) r.w.s 147 26.11.2025 Assessee 1245 / CHNY / 2026 30 days 3 2016-17 Revenue 564 / CHNY / 2026 - 4 2016-17 31.03.2024 143(3) r.w.s 147 26.11.2025 CO 27 / CHNY / 2026 14 days 5 2017-18 Revenue 565 / CHNY / 2026 - 6 2017-18 31.03.2024 143(3) r.w.s 147 26.11.2025 CO 26 / CHNY / 2026 14 days 7 2018-19 Revenue 566 / CHNY / 2026 - 8 2018-19 31.03.2024 143(3) r.w.s 147 26.11.2025 Assessee 1246 / CHNY / 2026 30 days
:-3-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
9 2019-20 31.03.2024 143(3) r.w.s 147 26.11.2025 Revenue 567 / CHNY / 2026 - 10 2020-21 31.03.2024 143(3) r.w.s 147 15.12.2025 Revenue 1367 / CHNY / 2026 9 days 11 2021-22 Assessee 1247 / CHNY / 2026 2 days 12 2021-22 31.03.2024 143(3) r.w.s 147 15.12.2025 Revenue 1368 / CHNY / 2026 9 days 13 2022-23 31.03.2024 143(3) 15.12.2025 Revenue 1369 / CHNY / 2026 9 days 14 2023-24 30.03.2025 143(3) 15.12.2025 Revenue 1370 / CHNY / 2026 9 days
At the outset, we note that there is a delay in filing certain appeals by the assessee as well as by the Revenue. There is also a delay in filing the cross objections by the assessee, the particulars of which are tabulated hereinabove. We have carefully considered the petitions for condonation of delay along with the affidavits and the reasons assigned by the respective parties. On being satisfied that the parties were prevented by sufficient and reasonable cause from presenting the appeals/cross objections within the prescribed period of limitation, and there being no material to indicate any deliberate or mala fide delay, we are inclined to condone the delays in the interest of substantial justice.
Accordingly, the delays in filing the respective appeals and cross objections are condoned and the appeals/cross objections are admitted for adjudication on merits.
The brief facts of the case, as borne out from the assessment records, are that the assessee is an individual engaged in the business of film financing and film distribution under the proprietary concern, M/s.Sushma Cine Arts, Madurai. The assessee belongs to a family engaged in the film financing business and is stated to have management and control over more than 50 cinema theatres in the region.
A search and seizure operation u/s.132 of the Act was conducted on 02.08.2022 at the residential and business premises of the assessee. During the course of the search, various loose sheets, handwritten records and other documents were found and seized, inter alia, from the Chennai office of M/s.Sushma Cine Arts. According to the Revenue, the seized documents were
:-4-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 maintained by the office staff under the instructions of the assessee and constituted a systematic record of cash transactions carried on outside the regular books of account, recording both business-related and personal cash receipts and payments.
Pursuant to the search, the AO initiated reassessment proceedings u/s.147 of the Act by issuing notices u/s.148 for AY(s) 2015-16 to 2021-22, whereas regular scrutiny assessments were initiated by issuing notices u/s.143(2) of the Act for AY(s) 2022-23 and 2023-24. In response to the notices issued u/s.148 of the Act, the assessee furnished returns of income admitting additional income over and above the income originally returned u/s.139(1) of the Act. The additional income offered by the assessee in the returns filed pursuant to the notices u/s.148 of the Act is tabulated below:
AY Amount Date of Date of Amount Additional originally issue of filing of the returned income returned notice return of u/s.148 of the offered in the u/s.139 of u/s.148 of income Act (Rs.) return filed the Act (Rs.) the Act u/s.148 of u/s.148 of the the Act Act (Rs.) 2015-16 75,91,250 30.03.2023 29.06.2023 1,22,98,760 47,07,510 2016-17 92,00,500 30.03.2023 29.06.2023 2,69,52,410 1,77,51,910 2017-18 96,72,540 30.03.2023 29.06.2023 2,50,25,050 1,53,52,510 2018-19 1,12,63,900 30.03.2023 29.06.2023 3,00,99,650 1,88,35,750 2019-20 95,81,780 26.03.2023 29.06.2023 3,16,52,420 2,20,70,640 2020-21 1,18,10,390 26.03.2023 29.06.2023 3,35,41,770 2,17,31,380 2021-22 52,31,100 26.03.2023 29.06.2023 1,46,28,940 93,97,840
During the course of the assessment proceedings, the AO examined the seized loose sheets and observed that the entries contained therein covered the period from 01.01.2015 to 30.06.2022. According to the AO, the seized records reflected continuous cash receipts and corresponding cash payments maintained outside the regular books of account and represented a parallel and undisclosed cash ledger maintained by the assessee. Based on the entries contained in the seized material, the AO quantified the cash receipts relatable to each assessment year and treated the same as unexplained cash receipts, the details of which are as under:
:-5-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
Assessment Cash inflows recorded in the Cash outflows Year loose sheets, treated as as per the loose unaccounted cash receipts by sheets (Rs.) the AO and made an addition u/s.68 r.w.s 115BBE of the Act in the respective A.Y.(Rs.) 2015-16 8,52,52,000 8,80,82,013 2016-17 32,58,50,500 33,21,55,037 2017-18 26,76,87,025 28,72,65,125 2018-19 32,32,48,200 31,83,08,200 2019-20 43,80,82,850 41,29,62,580 2020-21 39,40,85,100 40,73,18,617 2021-22 19,07,80,200 17,58,42,400 2022-23 33,03,85,980 33,03,85,880 2023-24 7,73,72,800 7,37,77,280 Total 243,27,44,655 242,60,92,652 8. The AO observed that none of the aforesaid cash transactions had been recorded in the regular books of account or disclosed in the returns of income originally filed u/s.139(1) of the Act. Accordingly, show cause notices were issued proposing to treat the entire cash receipts reflected in the seized material as unexplained cash credits chargeable to tax.
In response thereto, the assessee admitted that he was carrying on a separate cash-based film financing activity in addition to his disclosed business of film distribution. It was explained that advancement of cash to film producers was a normal trade practice in the film industry to facilitate production and timely release of films. According to the assessee, the seized documents represented a single and continuous cycle of money-lending transactions wherein the same funds were repeatedly rotated amongst various borrowers. It was, therefore, contended that the entire cash receipts could not be brought to tax repeatedly and that only the peak credit representing the maximum amount of funds deployed at any point of time was liable to be considered for taxation. On this basis, the assessee computed the peak credit at Rs.12,96,61,646/-, being the highest outstanding balance as on 23.01.2021, and allocated the same proportionately amongst the relevant assessment years. Consequentially, the assessee offered additional income in the returns filed pursuant to the notices
:-6-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 issued u/s.148 of the Act. The details of the peak credit and based upon such peak, the additional income admitted by the assessee for the assessment years under consideration are as under.
:-7-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 10. The AO, however, did not accept the assessee's plea regarding applicability of the peak credit theory. According to the AO, the seized material did not merely record loan transactions but also contained entries relating to personal expenditure, capital investments and other cash outgoings. The AO further observed that the assessee had failed to establish the identity, creditworthiness and financial capacity of the persons whose names appeared in the seized records. No confirmations or supporting documentary evidence had been furnished in respect of such persons. Likewise, no details were produced to demonstrate the segregation of principal and interest components in the alleged loan recoveries. The AO also observed that the claim regarding complete rotation of funds remained unsubstantiated, particularly when part of the cash receipts had admittedly been utilised for personal expenses and investments. The source and nature of the cash receipts were also held to have remained unexplained.
The AO placing reliance upon the statutory presumptions available u/s.132(4A) and 292C of the Act, as well as the judicial precedents referred to in the assessment orders, the AO held that the seized documents constituted reliable evidence of undisclosed cash transactions carried on by the assessee. Consequently, the AO treated the entire cash receipts reflected in the seized loose sheets, including the income already offered by the assessee in the returns filed pursuant to section 148 of the Act, as unexplained cash credits u/s.68 of the Act and brought the same to tax u/s.115BBE of the Act. The additions made towards unexplained cash credits for the respective assessment years are as under:
AY Addition made (Rs.) 2015-16 8,52,52,000 2016-17 32,58,50,500 2017-18 26,76,87,025 2018-19 32,32,48,200 2019-20 43,80,82,850 2020-21 39,40,85,100 2021-22 19,07,80,200
:-8-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 AY Addition made (Rs.) 2022-23 33,03,85,980 2023-24 7,73,72,800 Total 243,27,44,655
Apart from the aforesaid additions, the AO also made substantive additions on account of alleged suppression of sales for AY(s) 2020-21 to 2023- 24, as under:
(Amount in Rs) AY 2020-21 AY 2021-22 AY 2022-23 AY 2023-24 11,87,24,861 6,84,23,969 6,16,65,632 17,76,68,471
Accordingly, the AO completed the assessments u/s.143(3) r.w.s 147 of the Act for the AY(s) 2015-16 to 2021-22, and u/s.143(3) of the Act for AY(s) 2022-23 and 2023-24, determining the total income after making additions towards unexplained cash credits u/s.68 r.w.s 15BBE of the Act and, wherever applicable, additions on account of alleged suppression of sales. The details of the same are as under:
AY Cash Substantive Total income Date of Assessment receipts as addition determined by assessment framed u/s. per the loose towards sales the AO (Rs.) order sheets suppression added u/s.68 (Rs.) r.w.s 115BE of the Act (Rs.) 2015-16 8,52,52,000 - 9,28,43,249 31.03.2024 143(3) r.w.s 147 2016-17 32,58,50,500 - 33,50,51,004 31.03.2024 143(3) r.w.s 147 2017-18 26,76,87,025 - 27,73,59,294 31.03.2024 143(3) r.w.s 147 2018-19 32,32,48,200 - 33,63,35,983 31.03.2024 143(3) r.w.s 147 2019-20 43,80,82,850 - 44,76,64,630 31.03.2024 143(3) r.w.s 147 2020-21 39,40,85,100 11,87,24,861 52,46,20,351 31.03.2024 143(3) r.w.s 147 2021-22 19,07,80,200 6,84,23,969 26,44,35,275 31.03.2024 143(3) r.w.s 147 2022-23 33,03,85,980 6,16,65,632 42,51,97,508 31.03.2024 143(3) 2023-24 7,73,72,800 17,76,68,471 27,43,57,061 30.03.2025 143(3)
Being aggrieved by the assessment orders, particularly the additions made towards the alleged unexplained cash receipts u/s.68 r.w.s 115BBE of the Act and the additions made towards suppressed sales, the assessee preferred separate appeals before the Ld.CIT(A).
:-9-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
The appeals filed by the assessee were disposed of by the Ld.CIT(A) by way of common appellate order dated 26.11.2025 for AY(s) 2015-16 to 2019-20 and 15.12.2025 for AY(s) 2020-21 to 2023-24, whereby the appeals were partly allowed.
While adjudicating the issues arising from the assessment orders, the Ld.CIT(A) undertook an elaborate examination of the assessment records, the seized cash-flow statements and loose sheets, the peak cash-flow computation furnished by the assessee before the AO, as well as the returns of income filed by the assessee in response to the notices issued u/s.148 of the Act. Upon appreciation of the entire material available on record, the Ld.CIT(A) recorded a categorical factual finding that the seized documents depicted a continuous, integrated and repetitive circulation of cash, wherein the same pool of funds was successively received, advanced, recovered and thereafter redeployed. According to the Ld.CIT(A), the seized material did not establish that every cash receipt represented an independent inflow of unexplained money. On the contrary, the AO had failed to identify any particular receipt as a fresh introduction of funds divorced from an earlier cash outflow or subsequent recovery reflected in the very same cash cycle.
The Ld.CIT(A) further observed that the entries relating to personal expenditure, capital expenditure or investments merely represented the application or deployment of the available cash and, by themselves, could not constitute a fresh source or independent receipt of income. The Ld.CIT(A) further held that if any particular investment or expenditure was otherwise found to be unexplained, the same could be subjected to examination under the appropriate charging provisions of the Act upon recording the requisite factual findings. However, the mere presence of such expenditure entries in the common seized cash ledger could not justify treating each corresponding cash
:-10-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 receipt as a separate item of undisclosed income, resulting in multiple taxation of the same circulating funds.
Accepting the assessee's contention regarding the applicability of the peak credit theory, the Ld.CIT(A) accepted the incremental peak reflected in the seized cash-flow statement as the appropriate basis for determining the extent of unexplained cash available during each assessment year. The Ld.CIT(A) thereafter compared the annual incremental peak with the additional income voluntarily disclosed by the assessee in the returns filed u/s.148 of the Act and sustained only such portion of the incremental peak as remained uncovered by the income already offered to tax.
Accordingly, for A.Y.2015-16, the Ld.CIT(A) found that the yearly incremental peak amounted to Rs.1,68,72,013/-, whereas the assessee had already offered an additional income of Rs.47,07,511/- in the return filed u/s.148 of the Act. Consequently, only the differential amount of Rs.1,21,64,502/- was sustained as representing unexplained cash receipts, while the balance addition of Rs.7,30,87,498/- out of the AO’s total addition of Rs.8,52,52,000/- was deleted. Likewise, for AY(s) 2018-19 and 2021-22, the Ld.CIT(A) sustained only the differential amounts of Rs.44,14,081/- and Rs.6,63,00,428/-, respectively. In respect of the remaining assessment years, the Ld.CIT(A) noticed that the additional income voluntarily disclosed by the assessee in the returns filed u/s.148 of th Act exceeded the corresponding yearly incremental peak. Accordingly, no further addition was considered warranted, and the additions made by the AO were deleted in their entirety. The year-wise computation adopted by the Ld.CIT(A) has been reproduced in the impugned appellate orders and is extracted hereinbelow:
:-11-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
The Ld.CIT(A) also examined the legal sustainability of the additions made by the AO u/s.68 of the Act. Upon an analysis of the statutory requirements of section 68 of the Act, the Ld.CIT(A) held that the provision contemplates the existence of a credit entry in the books of account maintained by the assessee for the relevant previous year. In the present case, the
:-12-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 additions had been made exclusively on the basis of seized loose sheets and cash records, which admittedly did not form part of the regular books of account maintained by the assessee. The Ld.CIT(A) further recorded a finding that the seized material disclosed only one identifiable source of funds, namely, the assessee's finance and film distribution business, and did not reveal the existence of multiple or independent unexplained sources of income. Consequently, the Ld.CIT(A) concluded that the provisions of section 68 of the Act, as well as the consequential taxation u/s.115BBE of the Act, were inapplicable to the facts of the present case and that the AO was not justified in subjecting the gross cash receipts reflected in the seized loose sheets to tax under the said provisions.
It is pertinent to note that the Revenue has not preferred any appeal challenging the aforesaid findings recorded by the Ld.CIT(A) regarding the inapplicability of section 68 r.w.s 115BBE of the Act. During the course of hearing, the Ld.DR also fairly confirmed that no grievance has been raised by the Revenue on this aspect. Consequently, the findings recorded by the Ld.CIT(A) on the non-applicability of section 68 r.w.s 115BBE of the Act have attained finality and do not fall for our adjudication in the present batch of appeals. We, therefore, refrain from expressing any opinion on the correctness or otherwise of the said findings.
Further, in so far as the additions made by the AO towards alleged suppression of sales for AY(s) 2020-21 to 2023-24 are concerned, the Ld.CIT(A), after considering the facts and evidence on record, granted partial relief by deleting certain additions and, in respect of certain transactions, sustained only the profit element embedded therein by adopting an estimated rate of profit. Significantly, neither the assessee nor the Revenue has challenged the said findings before this Tribunal. Both the Ld.AR and the Ld.DR fairly submitted that no grounds have been raised against the adjudication rendered by the Ld.CIT(A) on the issue of sales suppression. Accordingly, the
:-13-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 findings recorded by the Ld. CIT(A) in relation to the additions towards alleged sales suppression have also attained finality and are not the subject matter of the present appeals. We, therefore, refrain from examining the said issue any further.
The surviving controversy before us, therefore, is confined to the additions sustained by the Ld.CIT(A) towards unexplained cash receipts reflected in the seized loose sheets. The assessee, being aggrieved by the partial confirmation of such additions, has preferred the present appeals primarily contending that the additional income voluntarily offered in the earlier assessment years ought to have been telescoped and set off against the additions sustained in the subsequent assessment years, as the seized material represents one continuous and common cash circulation. The Revenue, on the other hand, has challenged the relief granted by the Ld. CIT(A) by contending that the AO was justified in treating the entire cash receipts reflected in the seized documents as undisclosed income and that the deletion granted by the first appellate authority is contrary to law and the facts on record.
Apart from the aforesaid issue on merits, the assessee has also raised certain legal grounds assailing the validity of the reassessment proceedings, particularly the legality of the sanction accorded under the Act for issuance of notice u/s.148 of the Act. Both the Ld.AR and the Ld.DR addressed elaborate arguments on the respective legal as well as factual grounds raised in these cross appeals, which shall be dealt with in the succeeding paragraphs.
Revenue Appeals for the AY(s) 2015-16 to 2023-24 25. We shall first take up the appeals preferred by the Revenue. We observe that, for all the assessment years under consideration, the Revenue has raised substantially identical grounds of appeal involving common questions of fact. Therefore, for the sake of convenience, consistency and to avoid repetition, the
:-14-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 grounds of appeal raised by the Revenue in A.Y.2015-16 are reproduced hereunder as the lead grounds:
The Ld.CIT(A) erred in not appreciating that the addition has been made on the basis of seized material found during the course of the search & a sworn statement recorded u/s.132(4) from the assessee, both of which have evidentiary value and the legal presumption embedded in Section.132(4), which states that the “contents of such books of account and other documents are true? 2. The Ld.CIT(A) erred in relying on the decision of the Hon’ble Supreme Court in the case of CBI Vs V.C. Shukla (3 SCC 410) & decision in the case of Common Cause vs UOI and failed to appreciate that the Assessing Officer has correctly arrived presumption u/s.132(4A) and 292C of the Act in respect of the materials seized during the course of search, which was further strengthened by sworn statement recorded from the assessee? 3. The Ld.CIT(A) erred in holding that seized document is only secondary evidence and did not have any evidentiary value in respect of entries found therein without any corroborative evidence, without appreciating that the entries found in the seized materials were in the form maintained systematically mentioning the transactions and amounts and the author of seized material, the assessee, admitted the nature of transactions in his sworn statement u/s 132(4) which is under oath. 4. The Ld.CIT(A) erred in treating the seized loose sheets found and seized during the course of search proceedings u/s 132 of the Act, as of no significance when the Act clearly rests th burden of proof on the assessee u/s 132(4A) of the Act. 5. The Ld.CIT(A) erred in giving the benefit of peak credit to the assessee when the onus was on the assessee to prove the nature of transactions & their genuineness to qualify for computation of peak credit, which was not discharged by the assessee nor did the Ld.CIT(A) give any finding of fact to consider the peak credit in the case. 6. For these grounds and any other ground including amendment of grounds that may be raised during the course of the appeal proceedings, the order of the Hon’ble ITAT may be set aside and that of the Assessing Officer be restored. 26. Having carefully considered the rival submissions, the material available on record, the findings recorded by the AO and the Ld.CIT(A), and the judicial precedents relied upon by both the parties, we are of the considered view that each of the grounds raised by the Revenue requires independent examination. Accordingly, we propose to adjudicate the Revenue's appeals ground-wise. It is clarified that, the findings and conclusions recorded by us while adjudicating the
:-15-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 grounds for A.Y. 2015-16 shall apply mutatis mutandis to the Revenue's appeals for all the other assessment years, namely A.Ys. 2016-17 to 2023-24.
Ground Nos. 1, 4 and 5 raised by the Revenue are directed against the order of the Ld.CIT(A) deleting the additions made by the AO by treating the entire cash inflows reflected in the seized loose sheets as unexplained cash receipts of the assessee chargeable to tax.
The brief facts relevant to the adjudication of the aforesaid grounds are that the assessee is engaged in the business of film financing and film distribution. A search and seizure operation u/s.132 of the Act was conducted on 02.08.2022 at the residential and business premises of the assessee. During the course of search, certain handwritten loose sheets were found and seized. According to the AO, the said loose sheets contained a systematic and continuous record of unaccounted cash transactions comprising cash inflows and corresponding cash outflows relating to the business as well as personal affairs of the assessee. On the basis of the entries contained in the seized material, the AO quantified the cash inflows and cash outflows for the respective assessment years as under:
AY Cash Inflows (Rs.) Cash Outflows (Rs.) 2015-16 8,52,52,000 8,80,82,013 2016-17 32,58,50,500 33,21,55,037 2017-18 26,76,87,025 28,72,65,125 2018-19 32,32,48,200 31,83,08,200 2019-20 43,80,82,850 41,29,62,580 2020-21 39,40,85,100 40,73,18,617 2021-22 19,07,80,200 17,58,42,400 2022-23 33,03,85,980 33,03,85,880 2023-24 7,73,72,800 7,37,77,280 Total 243,27,44,655 242,60,92,652 29. On the basis of the aforesaid seized material, the AO proposed to treat the entire cash inflows recorded therein as unexplained cash credits of the assessee taxable u/s.68 r.w.s 115BBE of the Act for the respective assessment years. In response, the assessee submitted that the entries represented a
:-16-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 continuous cycle of unaccounted cash receipts and payments pertaining to the same business activity and that the real income arising therefrom could be determined only by applying the peak credit theory. It was further contended that the assessee had already computed the unaccounted business income by adopting the peak credit method and had voluntarily offered proportionate additional income in the respective assessment years. Accordingly, it was pleaded that no separate addition was warranted towards the gross cash receipts reflected in the seized material.
The AO, though having initially considered the applicability of the peak credit theory, ultimately rejected the explanation furnished by the assessee. According to the AO, each cash receipt represented an independent unexplained cash credit liable to tax u/s.68 of the Act. Consequently, the AO treated the entire cash inflows recorded in the seized loose sheets as unexplained cash credits and made additions for the respective assessment years as under:
AY Addition made (Rs.) 2015-16 8,52,52,000 2016-17 32,58,50,500 2017-18 26,76,87,025 2018-19 32,32,48,200 2019-20 43,80,82,850 2020-21 39,40,85,100 2021-22 19,07,80,200 2022-23 33,03,85,980 2023-24 7,73,72,800 Total 243,27,44,655 31. Aggrieved by the assessment order, the assessee preferred appeals before the Ld.CIT(A). Upon consideration of the seized material and the submissions of the assessee, the Ld.CIT(A) accepted the assessee's contention that the seized loose sheets reflected a continuous circulation of funds and that the same warranted application of the peak credit principle rather than taxation of the gross receipts. The Ld.CIT(A) accordingly computed the
:-17-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 incremental peak credit for each assessment year and compared the same with the additional income voluntarily offered by the assessee. Wherever the incremental peak exceeded the additional income already offered, the excess alone was sustained as addition, whereas in the remaining years, where the additional income offered was higher than the incremental peak, the additions made by the AO were deleted in entirety. The relief granted by the Ld. CIT(A) is summarized below: (Amount in Rs.) AY Addition made Incremental Additional Addition Addition by the AO peak credit income sustained deleted offered by the assessee 2015-16 8,52,52,000 1,68,72,013 47,07,511 1,21,64,502 7,30,87,498 2016-17 32,58,50,500 82,39,416 1,77,51,906 0 32,58,50,500 2017-18 26,76,87,025 0 1,53,52,781 0 26,76,87,025 2018-19 32,32,48,200 2,14,25,948 1,70,11,867 44,14,081 31,88,34,119 2019-20 43,80,82,850 74,26,007 2,20,70,636 0 43,80,82,850 2020-21 39,40,85,100 0 2,17,68,996 0 39,40,85,100 2021-22 19,07,80,200 7,56,98,262 93,97,834 6,63,00,428 12,44,79,772 2022-23 33,03,85,980 0 1,76,57,354 0 33,03,85,980 2023-24 7,37,72,800 0 39,42,761 0 7,73,72,800
The relevant observations of the Ld.CIT(A) in deleting the above additions are as under:
“6.3.10 The undersigned has carefully considered the submissions made by the appellant, the contents of the seized material, the reasoning recorded in the assessment order, and the judicial precedents cited. The essence of the appellant’s grievance raised in this ground is that the AO, having initially accepted the application of the peak credit principle to the seized cash transactions and having required the appellant to compute and allocate the peak-based income year-wise proceeded to issue show cause notice(s) quantifying the peak, at the assessment stage. However, while finalizing the assessment, the AO disregarded the appellant’s admission of income based on the peak credit method in the return filed u/s 148 of the Act and proceeded to treat the entire cash transactions recorded in the seized loose sheets as unexplained cash credits u/s 68 of the Act. Instead of considering the peak working or correlating the cash trail, the AO added the entire gross receipts reflected in the seized materials as unexplained income. The contention of the AR is that this action of the AO has resulted in taxing the same circulating capital twice, once in the form of peak income already offered, and again in the form of total receipts, thereby effectively treating each repeated deployment of the same cash corpus as fresh taxable income. The AR asserted that such a method leads to double taxation of the same stream of funds and is inconsistent with established legal principles.
:-18-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 6.3.11 The undersigned has carefully examined the issue under consideration. No doubt, it is an undisputed fact on record that the seized loose sheets represent a detailed, chronological, and continuous cash ledger maintained outside the regular books of account. These documents record daily inflows and corresponding outflows of cash relating to unaccounted financing activities undertaken by the appellant. A careful reading of the entries demonstrates that these were not isolated or independent receipts, but rather part of an ongoing funding and recovery mechanism commonly seen in informal money-lending or cash-based trade finance operations. The seized material also reflects simultaneous withdrawals, repayments, redeployments and recurring utilisation of the same pool of funds, confirming that the transactions formed a closed and repetitive cash circuit rather than multiple unrelated receipts. 6.3.12 The appellant has furnished a detailed peak credit computation derived from the seized cash ledger, which tracks the cumulative inflows and outflows of unaccounted cash transactions over the relevant period. This working reconciles each receipt with corresponding withdrawals, repayments, and redeployments, ultimately identifying the maximum outstanding balance at any single point in time. Such a balance represents the highest amount of unexplained capital employed in the underlying financing activity. The said computation was submitted before the AO in response to specific queries raised u/s 142(1) of the Act and was available on record during the entire course of assessment proceedings. The same is brought to the notice of the under signed. For clarity and proper appreciation of the facts, the peak credit computed for the AY 2015-16, based on the seized cash flow statements, and adopted by the appellant while admitting additional income in the return(s) filed u/s 148 of the Act, is summarised below: . . . 6.3.13 On the basis of the peak credit worked out for all the years under consideration the appellant has admitted the following peak balance as an income. . . . 6.3.14 The undersigned notes that the methodology adopted by the appellant is neither novel nor self-serving but is firmly rooted in a well- accepted legal and accounting principle evolved through consistent judicial interpretation while dealing with undisclosed cash transactions forming part of a continuous business cycle. Various appellate forums have repeatedly held that where seized documents reveal a running account structure involving inflow and outflow of cash, such as informal financing, unrecorded lending, or off-book trading, the same cash is often recycled multiple times for business purposes. In such situations, every receipt cannot be treated as fresh unexplained income. Instead, the correct approach is to identify the highest unexplained balance at any given point of time, as that figure represents the greatest level of unexplained capital actually deployed. This principle has evolved to prevent distortion of taxable income and avoid the inflated or artificial assessment resulting from treating each recycled receipt as a separate taxable event. The logic is straightforward: when an
:-19-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 assessee receives cash, redeploys it, collects repayment, and reinvests the same amount, the inflows do not represent fresh introductions of capital but merely the movement of the same concealed corpus within a closed loop. 6.3.15 However, despite this settled legal position, and despite the AO himself initially invoking the concept of peak by preparing an alternate working during the show-cause stage, the AO ultimately disregarded the very methodology he required the appellant to follow. Instead, he proceeded to treat every single cash receipt appearing in the seized loose sheets as independent unexplained income u/s 68 of the Act, without correlating such receipts to earlier withdrawals or repayments reflected in the same running ledger. This approach is inherently flawed because it ignores the transactional continuity demonstrated by the seized records, and assumes, contrary to fact, that each entry represents a fresh infusion of unaccounted funds. 6.3.16 The undersigned observes that the conduct of the AO in this regard warrants detailed discussion. As evident from the assessment order(s) passed, it can be seen that the AO after calling upon the appellant to furnish a peak computation and even preparing his own alternative version during the assessment proceedings, issued show cause notice mentioning the peak working and did not dispute the correctness of the method, the working, or the factual foundation on which the peak was computed by the appellant. At no stage did the AO demonstrate any mathematical error, omission, or inconsistency in the appellant’s computation of the peak credit, nor was any contrary working placed on record to prove that the peak method could not be applied to the seized material. The AO has rejected the peak credit theory on the ground that the seized loose sheets contain entries not only of lending and recovery transactions but also of personal and capital expenditure, which, according to him, represent permanent withdrawals not capable of forming part of the re-circulated cash cycle. On careful consideration, the undersigned is of the view that this reasoning does not justify the rejection of the peak computation in the present case for the following reasons viz.. Firstly, the mere presence of entries relating to personal expenditure or capital deployment alongside lending and receipt transactions does not in any manner alter the fundamental character of the seized loose sheets as a running cash account recording continuous inflows and outflows. The ledger structure remains that of a consolidated cash flow record, and the flows— whether applied toward business advances, repayments, household expenditure, or asset acquisition—originate from the same underlying pool of undisclosed funds. The undersigned is of the view that where such a cash ledger demonstrates circulation of funds within a closed system, the end- use of the cash, whether business or personal, is irrelevant for determining the applicability of the peak credit principle. What matters is the source and continuity of cash movement, not the nature of its eventual application. Secondly, the expenditure entries do not create a new source of income. They merely demonstrate application of funds, and not further unexplained credits. The fact that some withdrawals resulted in capital assets or personal expenses only confirms utilisation of the same undisclosed pool already captured in the peak balance, it does not convert each corresponding receipt
:-20-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 into a fresh taxable credit. Once the unaccounted source is identified and taxed, the expenditure or redeployment from that source cannot be taxed again or treated as a reason to deny peak telescoping. Thirdly, the AO has not identified a single receipt which can be shown to be independent, unconnected with prior cash outflow, or representing a fresh unexplained cash introduction outside the established running account pattern. In the absence of such a finding, the reliance on the nature of expenditure cannot be a valid ground to disallow peak computation. Lastly, even assuming certain entries in the seized ledger represent personal expenditure or capital outlay, such items, at most may require independent examination under the appropriate deeming provisions such as section 69 (unexplained investment) or section 69C (unexplained expenditure) of the Act, depending on the facts and evidentiary position. The Act provides distinct statutory mechanisms for addressing such situations, and if the AO believes that any component of expenditure was separately taxable, the proper course would have been to invoke the relevant provision with supporting reasoning and factual linkage. However, the existence of personal or capital expenditure entries cannot be used as a basis to disregard the peak credit principle or to treat every receipt in the ledger as a distinct unexplained cash credit u/s 68 of the Act. Such an approach effectively results in taxing the same concealed capital multiple times merely because it reappears in the ledger as it moves through the transaction cycle. This not only leads to duplication of additions but results in an unintended punitive overlay not contemplated by the statute. Judicial precedent is categorical that the taxing framework cannot be stretched to manufacture artificial income where the entries reflect a rotation of the same funds. 6.3.17 Therefore, the reasoning advanced by the AO for rejecting the peak computation lacks merit both legally and factually. The presence of expenditure entries does not destroy the cyclical nature of the ledger; rather, it evidences utilisation of the same undisclosed corpus already captured within the peak working. Once the source of funds is taxed through the peak credit computation, taxing the gross receipts or treating utilisation as a justification to deny telescoping amounts to double taxation of the same asset base, which the law does not permit. Accordingly, the rejection of the peak theory by the AO cannot be upheld. 6.3.18 The undersigned is of the view that the AO having accepted the peak credit in the show cause notice and rejected the same in the assessment order is contrary to the principle that assessment orders must be reasoned, coherent, and based on a consistent application of law. Further, higher appellate forums have repeatedly held that an assessment must reflect judicial discipline, fairness, and application of mind rather than a mere revenue-maximizing exercise. By first accepting the peak concept and then disregarding it without justification, the AO has undermined the integrity of the assessment process. 6.3.19 Most critically, the approach adopted results in clear double taxation. The appellant has already offered income based on the peak credit in the return filed u/s 148 of the Act. By again taxing the entire receipts arising
:-21-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 from the same cycle of transactions, the AO has taxed both the capital base and the income arising from it. At this juncture, it is appropriate to rely upon the decision in the case of CIT v. Ishwardass Mutha ([2004] 270 ITR 597) the Hon’ble High Court of Rajasthan has held as under. "2. In D.B. IT Ref No. 43/1998 it appears that the assessee Ishwardass Mutha filed a return in the year 1983 showing the total income of Rs.13,410 representing share from M/s.Chogalal Bhimraj, a firm. This return was accepted under section 143(1) on 19th March, 1983, in a routine manner. On the basis of certain incriminating documents seized in the course of search, the assessing authority opined that there was an escapement of income. Accordingly, he issued a notice under section 148 and found that there was unexplained investment in the money-lending business during the period 24th May, 1980, to 1st Nov., 1980, aggregating to Rs.78, 000. Thus, an addition was made of Rs.78, 000 on account of alleged unexplained investment in the money-lending business. This was confirmed by the CIT (A). Before the Tribunal, it was contended that the Assessing Officer has committed error in taking the debit side only, he could take into account the peak credit. This contention was accepted and worked out the peak credit of Rs.48, 000 out of the addition of Rs.78,000 made by the Assessing Officer. Thus, the Tribunal sustained the addition only to the extent of peak credit of Rs. 48,000. The Hon’ble High Court after making the above observation upheld the Tribunal’s application of peak credit in respect of repeated money-lending transactions reflected in seized papers. 6.3.20 It is also appropriate to rely upon the decision of the Hon’ble High Court of Madras in the case of PCIT v. Shri A. Anbukkannan in T.C.A. No. 216 & 217 of 2019 dated 04.03.2019, wherein, the Hon’ble High Court was pleased to upheld the order of the ITAT in adopting the method of peak credit on account of alleged undisclosed income. The relevant part of the said order is reproduced herein below: 4. The findings of the learned Tribunal upholding the order of the learned Commissioner of Income Tax (Appeal) in this regard are quoted below for ready reference:- "9. We have considered the rival contentions and perused the orders of the authorities below. It is not disputed by the Revenue that assessee had both cash deposits as well as cash withdrawals in his bank account with Axis Bank accounts with Pudukkottai and T.Nagar Branch. Though learned Assessing Officer had listed out the major transactions at paragraph 4 of the assessment order, a date wise analysis of the bank accounts were not done. Assessee can always say that cash deposits in the bank account had come out of an earlier cash withdrawal as long as the time interval between the withdrawals and deposits are not so significantly substantial to disbelieve the source. Whether the assessee was carrying on any money lending business, has no relevance when an assessment is made considering the amounts deposited in the bank accounts. However, in our opinion, cash deposits http://www.judis.nic.in alone cannot be the subject of an addition
:-22-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 ignoring the cash withdrawals. Hence, finding of learned Commissioner of Income Tax (Appeals) that Peak Credit of Rs.18,12,888/- alone could have been considered for the addition cannot be faulted. In so far as transactions other than cash are concerned, it may be true that assessee was earning commission from money lending. However, the finding of the learned Commissioner of Income Tax (Appeals) that assessee was earning 1% commission of the deposits in the bank account was only a surmise. Even if there were some commission earnings it gets subsumed in the Peak Credit of Rs.18,12,888/- considered for addition. The further addition of Rs.3,67,758/- was not justified in the fact and circumstances of the case, such addition stands deleted. 10. In the result, appeal of the Revenue is dismissed whereas that of the assessee is partly allowed." 5. Having heard the learned counsel for the Revenue, we are satisfied that no substantial question of law arises in the present Appeals filed by the Revenue and we are of the considered opinion that only if the Assessee has http://www.judis.nic.in failed to explain the entries in bank account, then the additions made by the Authorities under the Act on the basis of Peak Credit can be adopted to remove the cascading effect of the unexplained credit entries in the bank account. The assessee had both cash deposits and cash withdrawals in his bank account with the same bank. Therefore, the method of 'Peak Credit' was rightly adopted for addition of the alleged undisclosed income of the Assessee and this is a well settled and common principle so adopted. The finding of facts of the Authorities below cannot be said to be perverse or illegal in any manner. It is significant to bring on record that the above decision of the Hon’ble High Court was relied by the jurisdictional tribunal in the case of Chinnu Srinivasan v. The Income Tax Officer in I.T.A. No.1769/Chny/2024 dated 25.09.2024 and restricted the addition. 6.3.21 Further in the case of CIT v. K. S. M. Guruswamy Nadar & Sons [1984] (149 ITR 127/19 Taxman 533), Hon’ble High Court of Madras held as under "But in this case in addition to the bogus cash credit there is an addition towards suppression of profit. In such a case as this, when there are two additions, it is always open to the assessee to explain that the suppressed profits during the year has been brought in as cash credits and, therefore, one has to be telescoped into the other and there can be only one addition." 6.3.22 From the above judicial precedents, it can be inferred that taxing the same stream of funds multiple times merely because it circulates does not convert it into fresh income and has consistently been held to be contrary to the scheme of the Act. Therefore, the omission of reasoning and disregard of the peak concept, despite its acknowledged relevance, renders the rejection of the peak credit theory by the appellant by the AO is unjustified. The peak computation furnished by the appellant is therefore entirely consistent with the nature of the seized material, which clearly reflects a continuous cycle of lending, receipts, repayments, and redeployment of the
:-23-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 same pool of unaccounted funds. The seized loose sheets do not depict isolated or independent cash credits; rather, they constitute a running ledger where each receipt is intrinsically linked to earlier outflows. In such circumstances, treating every receipt as fresh unexplained income, as the AO has done in the case of the appellant, results in a distorted assessment divorced from the factual pattern of transactions. 6.3.23 On the other hand, the peak working submitted by the appellant identifies the point at which the unaccounted capital deployed in such activities reached its maximum. This approach ensures that the concealed capital base is taxed without exaggeration or duplication. The undersigned is of the view that taxing the peak achieves the intended legislative consequence, bringing to tax the real unexplained investment, without artificially multiplying income by re-taxing the same funds upon every entry in the ledger. Further, the computation aligns with well-established jurisprudence where higher appellate forums have repeatedly held that the purpose of assessment is to determine the true extent of undisclosed income, not to apply tax mechanically or punitively. In the present case the peak theory has been judicially evolved precisely to address cases like the present one, where the same cash is recycled across multiple entries, and where taxing every movement would produce an inflated and unrealistic taxable figure. 6.3.24 On a holistic appreciation of facts and law, the peak computation represents a fair, rational, and legally recognised method of determining undisclosed income arising from seized material of this nature. It correctly measures the maximum deployment of unexplained funds rather than treating each movement of cash as a separate taxable credit. Accordingly, the peak working submitted by the appellant constitutes the appropriate and lawful basis for assessment, and therefore the addition made by the AO by taxing the total receipts again cannot be sustained in the eyes of law. 6.3.25 The AR asserted that the appellant has already disclosed and offered to tax the income attributable to the undisclosed cash cycle by way of the peak credit computation in the return filed in response to notice u/s 148 of the Act. This admission squarely covers the undisclosed capital deployed in the unrecorded money-lending activity reflected in the seized material. At no stage has the AO demonstrated, through analysis of entries or otherwise, that any portion of the receipts appearing in the seized sheets represents a fresh infusion of unexplained funds outside the closed loop of circulation already captured in the peak balance. There is no finding that any specific receipt constitutes an independent credit unconnected with earlier outflows or that it pertains to a separate transaction stream distinct from the accounted rotation cycle. Instead, the addition made u/s 68 of the Act merely totals the receipts side of the ledger, treating each inflow as a standalone unexplained credit. Such an approach, without appreciation of corresponding withdrawals and redeployments, artificially inflates taxable income by repeatedly taxing the same corpus of funds every time it reappears in the ledger. This not only disregards the factual nature of the transactions but directly conflicts with longestablished jurisprudence preventing multiple taxation of the same circulating fund.
:-24-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 6.3.26 Further, since the appellant has already offered the peak-based income and the AO has neither rejected the methodology with reasons nor identified any unexplained element outside the peak, the parallel addition of the gross receipts constitutes double taxation of the same income stream. Such duplication is prohibited in law, being both unjustified and contrary to the basic principles of taxation jurisprudence. 6.3.27 Therefore, in the absence of any contrary evidence or reasoning from the AO and considering the legal position governing peak assessment in cases of circulating undisclosed funds, the undersigned is constrained to align with the appellant’s contention. Once the peak credit method has been applied and income arising therefrom has been duly offered to tax. 6.3.28 In view of the above discussion and analysis, the undersigned holds that taxing the entire cash turnover appearing in the seized loose sheets for each assessment year, without recognising that the same funds were repeatedly circulated, would result in unjust duplication and excessive assessment. The application of the peak credit theory appropriately reflects the real income embedded in such transactions and ensures that only the maximum unexplained balance at any point of time is subjected to tax. The peak workings furnished by the appellant are found to be in line with the seized material, and the principle has consistently been upheld by judicial fora to avoid double taxation of the same funds. Considering the same, along with the additional income voluntarily declared by the appellant in response to notice u/s 148 of the Act, only the differential amount, wherever applicable, warrants sustenance. Accordingly, after reconciling the peak credit computation with the admitted income, the additions sustainable for the respective assessment years stand quantified as under……..” 33. Being aggrieved by the relief granted by the Ld.CIT(A), the Revenue is in appeal before us and has challenged the deletion of the additions made by the AO towards the alleged unexplained cash receipts reflected in the seized loose sheets.
The Ld.DR, supporting the assessment order, vehemently submitted that the Ld.CIT(A) has erred both on facts and in law in deleting the additions made by the AO. It was contended that the additions were not based on mere conjectures or surmises, but were founded upon incriminating material seized during the course of search proceedings conducted u/s.132 of the Act, coupled with the sworn statement recorded from the assessee u/s.132(4) of the Act. The seized documents and the statement recorded during search constitute substantive evidence having significant evidentiary value under the scheme of the Act.
:-25-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
The Ld.DR further submitted that the Ld.CIT(A) failed to appreciate the statutory presumption embodied in sections 132(4A) and 292C of the Act. Once books of account, documents or loose sheets are found and seized from the possession or control of the assessee during the course of a valid search, a legal presumption arises that such documents belong to the assessee and that the contents thereof are true. Unless the assessee successfully rebuts the statutory presumption by adducing cogent, credible and convincing evidence, the Revenue is entitled to rely upon such seized material. It was argued that the assessee failed to discharge this burden and, therefore, the Ld.CIT(A) was not justified in disregarding the evidentiary value of the seized loose sheets.
The Ld.DR further contended that the Ld.CIT(A) committed a serious error in treating the seized loose sheets as insignificant despite the fact that they were recovered during the course of search from the possession of the assessee. It was submitted that the Act places the initial burden upon the assessee to rebut the presumption available u/s.132(4A) of the Act. In the absence of any satisfactory explanation regarding the nature, source and contents of the entries recorded in the seized documents, the AO was fully justified in treating the cash receipts reflected therein as unaccounted income. According to the Ld.DR, the Ld.CIT(A) ignored the statutory mandate and shifted the burden upon the Revenue contrary to the provisions of the Act.
The Ld.DR also assailed the action of the Ld.CIT(A) in granting the benefit of peak credit to the assessee. It was submitted that the theory of peak credit is not an automatic or universal principle applicable in every case involving cash transactions. The benefit of peak credit can be extended only where the assessee establishes, by reliable evidence, that the withdrawals have in fact been recycled into subsequent deposits and that there exists a direct nexus between the debit and credit entries. In the present case, the assessee neither furnished any evidence to establish the identity and nature of the
:-26-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 transactions nor demonstrated the rotation of funds. In the absence of such foundational facts, the Ld.CIT(A) could not have granted the benefit of peak credit merely on assumptions.
The Ld.DR further submitted that the Ld.CIT(A) has not recorded any categorical finding of fact demonstrating that the impugned cash receipts and cash payments formed part of a single circulating fund or that the conditions necessary for applying the principle of peak credit stood satisfied. The appellate order, according to the Ld.DR, is completely silent regarding the factual basis and methodology adopted for computing the alleged peak credit. In the absence of any such finding, the relief granted is arbitrary and contrary to settled principles governing the application of the peak credit theory.
In view of the foregoing submissions, the Ld.DR prayed that the order of the Ld.CIT(A) deleting the additions and granting the benefit of peak credit deserves to be set aside and that the assessment order passed by the AO be restored.
Per contra, the Ld.AR, placing reliance on order of the Ld.CIT(A) and submitted that the Ld.CIT(A) had, after a comprehensive appreciation of the facts, seized material, documentary evidence, and the applicable legal position, rightly deleted the additions made by the AO for the AY(s) 2015-16 to 2023-24. It was contended that the findings recorded by the Ld.CIT(A) are based on cogent reasoning and proper appreciation of the evidence on record and do not suffer from any factual or legal infirmity, much less perversity, so as to warrant interference by this Tribunal. The Ld.AR, therefore, prayed that the appeals preferred by the Revenue deserve to be dismissed.
We have carefully considered the rival submissions, perused the orders of the authorities below and examined the seized material and other documents placed on record. The issue arising for our consideration is whether the AO was
:-27-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 justified in bringing to tax the entire cash inflows reflected in the seized loose sheets as unexplained cash credits, or whether the Ld.CIT(A) was justified in holding that the seized documents represented a continuous circulation of the same unaccounted funds and that, consequently, only the incremental peak credit, after giving due credit for the additional income voluntarily offered by the assessee, could be brought to tax.
At the outset, we find that there is no dispute regarding the ownership of the seized documents, the fact that the entries recorded therein represent transactions outside the regular books of account, or the obligation of the assessee to offer to tax the income embedded in those transactions. The assessee has not disowned the seized loose sheets or disputed that they relate to its undisclosed activities. On the contrary, the assessee accepted the seized material, prepared a transaction-wise cash-flow statement therefrom, computed the peak deployment of the unaccounted funds and voluntarily offered additional income in the returns filed in response to the notices issued u/s.148 of the Act.
The real dispute between the parties is, therefore, one of measurement and not one of ownership or admissibility of the seized material. An admission that the transactions are unaccounted does not lead to the consequence that every movement of cash recorded in the seized documents constitutes income in the hands of the assessee. Tax is levied on income computed in accordance with the provisions of the Act and not upon the mechanical aggregate of all entries appearing on the receipt side of a cash record. The existence of undisclosed transactions and the determination of the income embedded in such transactions are two distinct matters. While the former stands admitted, the latter must necessarily be determined having regard to the true character, continuity and interrelationship of the entries recorded in the seized documents. The AO’s own description of the seized material assumes significance in this regard. The entries were recorded daily in the nature of a running account. The
:-28-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 records extend continuously from January 1, 2015 to June 30, 2022 and contain both receipts and payments. They record advances, recoveries, repayments, inter-office transfers and recurring dealings with various persons. The annual cash receipts and cash payments recorded over the entire period are also of nearly the same magnitude. Against the aggregate cash inflows of Rs.243,27,44,655/-, the aggregate cash outflows were quantified by the AO himself at Rs.242,60,92,652/-. The difference between the aggregate inflows and outflows over the entire period is thus marginal when compared with the total volume of transactions.
The above features materially support the factual conclusion of the Ld.CIT(A) that the seized documents record a revolving cash-financing system and not a series of wholly isolated and unrelated receipts. The close correspondence between the inflows and outflows, their chronological recording, the repeated appearance of the same parties, and the continuous cycle of advances and recoveries demonstrate that the seized sheets constitute one integrated cash ledger. The documents cannot reasonably be read as evidencing only receipts while the contemporaneous payments and recoveries recorded in the very same documents are ignored.
Where the same unaccounted fund is advanced, recovered and advanced again, addition of every recovery as fresh income produces a cascading, artificial and commercially unreal result. Every subsequent circulation of the same corpus cannot be regarded as a new accretion to the income of the assessee merely because it appears again on the receipt side of the ledger. The peak credit principle addresses this distortion by identifying the highest amount of unexplained capital outstanding at any point of time.
The application of peak credit neither legitimises the undisclosed activity nor absolves the assessee from the liability to tax. It brings to tax the maximum unexplained exposure of the assessee while preventing the same fund from
:-29-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 being counted repeatedly merely because it moves through the cash ledger. The object is to determine the greatest amount of unexplained capital actually employed and not to aggregate every movement of that capital as though each circulation represented an independent source of income.
The Hon’ble Madras High Court in PCIT v. A. Anbukkannan, T.C.A. Nos.216 and 217 of 2019, order dated March 4, 2019, upheld the adoption of the peak credit method where cash deposits and withdrawals formed part of a running account. The Hon'ble High Court approved the finding that cash deposits could not be considered in isolation by ignoring corresponding withdrawals and that the peak method appropriately removes the cascading effect of repeated unexplained entries. The relevant finding of the Hon'ble Madras High Court reads as follows:-
"5. Having heard the learned counsel for the Revenue, we are satisfied that no substantial question of law arises in the present Appeals filed by the Revenue and we are of the considered opinion that only if the Assessee has failed to explain the entries in bank account, then the additions made by the Authorities under the Act on the basis of Peak Credit can be adopted to remove the cascading effect of the unexplained credit entries in the bank account. The assessee had both cash deposits ad cash withdrawals in his bank account with the same bank. Therefore, the method of 'Peak Credit' was rightly adopted for addition of the alleged undisclosed income of the Assessee and this is a well settled and common principle so adopted. The finding of facts of the Authorities below cannot be said to be perverse or illegal in any manner." 48. This Tribunal following the aforesaid judgment of the Hon’ble Madras High Court applied the same in Chinnu Srinivasan v. ITO, I.T.A. No.1769/Chny/2024, order dated 25.09.2024 and DCIT v. Auathan Ramesh Kumar, I.T.A.Nos. 2397 & 2399/Chny/2025 dated 28.11.2025.
The principle of telescoping is equally well established. In CIT v. K.S.M. Guruswamy Nadar & Sons [1984] 149 ITR 127 (Madras), the jurisdictional High Court held that where suppressed profits are available for introduction as cash credits, one addition may be telescoped against the other instead of taxing the
:-30-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 same fund twice. In CIT v. Ishwardass Mutha [2004] 270 ITR 597 (Rajasthan), the Hon'ble Rajasthan High Court sustained the application of peak credit in relation to repeated money-lending transactions reflected in seized material. Similarly, in CIT v. Golani Brothers [2018] 300 CTR 245 (Bombay), the Hon'ble Bombay High Court reiterated that where expenditure is shown to have been incurred out of unaccounted receipts already brought to tax, a separate addition of the same expenditure would amount to taxing the same fund twice. These authorities embody the broader principle that, while every unexplained source of income is liable to be taxed, the same undisclosed fund cannot be repeatedly subjected to tax merely because it is subsequently applied, recovered or redeployed.
More recently, the Coordinate Ahmedabad Bench of the Tribunal, in Prakash Mishrimal Sanghvi v. DCIT, I.T.A. Nos.1138 to 1146, 1148 to 1155 and 1184/Ahd/2024, order dated 18.02.2025, rejected the addition of gross credits amounting to Rs.196.80 crore and affirmed the adoption of the peak of the unexplained miscellaneous ledger. The Tribunal observed, in substance, that it is the undisclosed income and not every undisclosed receipt that constitutes the subject matter of taxation. Though the said decision is of persuasive value, the reasoning adopted therein is consistent with the jurisdictional authorities referred to hereinabove.
We find that the AO has not identified any specific receipt as a fresh introduction of unexplained money unconnected with an earlier outflow. No date-wise examination has been undertaken to demonstrate a break in the cash trail. No particular entry has been isolated as arising from a separate source outside the revolving cash-financing activity. Nor has any mathematical error or material omission in the assessee's peak computation been brought on record. The additions have instead been made by simply totalling the entries appearing on the receipt side of the seized ledger.
:-31-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 52. We, therefore, agree with the Ld.CIT(A) that the gross-receipt method adopted by the AO is unsustainable. It selectively relies upon one side of a single evidentiary record while ignoring the other side. It treats a repayment or recovery as fresh income without first demonstrating that such repayment or recovery is unrelated to an earlier deployment of cash. Such a method cannot be accepted merely because the underlying transactions were admittedly unaccounted.
The artificial nature of the AO’s method is also apparent from the resulting additions. The gross cash receipts sought to be assessed range from Rs.8.52 crore in the first assessment year to Rs.43.80 crore in a subsequent assessment year, even though the same seized ledger records corresponding annual outflows of almost similar magnitude. These gross figures cannot be reconciled with the maximum capital exposure disclosed by the very same documents. The method adopted by the AO thus converts cash circulation or turnover into taxable income without determining the income or unexplained capital actually embedded therein.
The principal objection of the Revenue is that part of the cash recorded in the seized documents was utilised for personal expenditure or capital purposes and, consequently, such amount exited the financing cycle and could not remain available to explain a subsequent receipt. As an abstract proposition, we agree that a withdrawal shown to have been irretrievably spent cannot thereafter be treated as cash in hand available for a subsequent deposit or deployment. A peak computation must necessarily account for permanent applications of funds and cannot proceed on the assumption that every outflow remains available for recirculation.
That proposition, however, does not resolve the controversy in the present appeals. The relevant enquiry is factual, namely, whether a particular subsequent receipt is a fresh introduction of unexplained money or represents
:-32-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 a recovery, repayment or transfer connected with an earlier financing outflow. The mere presence of personal expenditure or capital outlay entries somewhere in a common cash ledger does not, by itself, establish that every subsequent receipt represents a fresh unexplained source.
We find that the Ld.CIT(A) has not ignored the expenditure entries. The Ld.CIT(A) has examined the seized records and found that the entries represented applications from the common undisclosed cash pool and that the AO had not linked any identified subsequent receipt with a shortfall allegedly created by a particular permanent application. The assessee's computation covered the complete ledger and arrived at a running balance after considering the receipts and payments appearing therein.
The Revenue has not placed before us any alternative transaction-wise peak computation demonstrating the date on which the available cash stood exhausted, the amount of the resulting deficit, and the particular subsequent receipt that consequently required a fresh unexplained source. In the absence of such a receipt-wise analysis, the general assertion that some of the payments were personal or capital in nature cannot justify taxation of the entirety of the receipts.
The show-cause notices issued during the course of assessment proceedings cannot substitute for this missing factual finding. It appears that the AO had, at the show-cause stage, referred to an alternate cumulative peak and to the possible applicability of sections 69 and 69C of the Act. Those proposals, however, were not adopted, quantified or reasoned through in the final assessment orders.
An assessment order is not necessarily confined to the proposal contained in a show-cause notice. Nevertheless, where the AO departs from an earlier methodology and adopts a materially different basis of computation, the
:-33-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 final conclusion must rest upon an intelligible factual and arithmetical analysis. In the present case, the final orders contain only the gross receipt totals. They do not explain why the alternate peak referred to in the show-cause notice was factually or arithmetically correct, why the assessee's peak working was incorrect, or which particular expenditure resulted in an uncovered subsequent receipt requiring a fresh source.
Further, expenditure is an application of money; it is not, without anything more, a second receipt or a fresh source of income. Where a particular investment or expenditure is shown to have an unexplained source outside the cash pool already brought to tax, the Act contains appropriate provisions, including sections 69 and 69C, which may be invoked upon satisfaction of the statutory conditions. In the assessments before us, however, the AO did not make any independent addition u/s.69 or 69C by identifying an unexplained investment or expenditure having a source outside the peak cash pool.
The Revenue cannot convert the mere presence of personal expenditure or capital outlay entries into a justification for taxing every receipt u/s.68 of the Act. Such an approach confuses the application of funds with the source of funds and would result in taxation of the same undisclosed corpus once as a receipt and again when it is applied.
We accordingly reject the contention of the Revenue that the existence of personal and capital expenditure entries, by itself, renders the peak credit principle inapplicable. Thus, the finding of the Ld.CIT(A) is, therefore, based upon the seized material and cannot be characterised as arbitrary or perverse.
The Ld.DR further emphasised that the assessee did not furnish confirmations, formal loan agreements or other supporting documentation from every person whose name appeared in the seized loose sheets. The absence of such confirmations reinforces the conclusion that the transactions were
:-34-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 unaccounted and that the unexplained capital employed in those transactions must be subjected to tax. It does not, however, establish that the gross amount of every receipt constitutes income in the hands of the assessee.
The failure to prove the identity or creditworthiness of a counterparty cannot transform a recovery of money previously advanced into a fresh accretion of income on every occasion. Where the document itself records an advance followed by recovery or repayment, the legal consequence must be determined by considering the entire transaction and not merely the receipt entry in isolation. The evidentiary deficiency does not justify repeated taxation of the same capital.
The reliance placed by the Revenue upon the statutory presumptions contained in sections 132(4A) and 292C of the Act also does not advance its case on the question of quantification. The assessee has accepted that the documents belong to him and that the entries relate to his undisclosed activities. The statutory presumptions permit the Revenue to rely upon the seized documents and to presume, subject to rebuttal, that their contents are true. Those provisions, however, do not authorise the Revenue to read only the receipt side of the seized documents, disregard the payment side, or deem the entire turnover of a cash ledger to be income. If the contents of the seized documents are presumed to be true, the receipts, payments, transfers, advances, recoveries and repayments recorded therein must all be considered together. The statutory presumption applies to the document as a whole and not selectively to those entries that yield the highest possible addition.
The Ld.CIT(A) has not disregarded or neutralised the presumptions available to the Revenue. On the contrary, the Ld.CIT(A) has applied the seized material in its entirety and has determined the maximum unexplained balance disclosed by that material. The Ld.CIT(A) thereafter compared the incremental
:-35-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 peak with the additional income already offered by the assessee and sustained the differential amount wherever the peak exceeded the admitted income.
The appellate relief was thus not granted by rejecting the seized documents but by accepting them as a complete record of the undisclosed cash activity. The Revenue's method, in contrast, repeatedly taxes the movement of the same corpus by treating every recovery as a fresh receipt without giving any effect to the corresponding deployment recorded in the same documents. We find no support in sections 132(4A), 292C or section 68 for such a result.
We also find considerable significance in the fact that, during the assessment proceedings, the AO himself required the assessee to furnish a peak computation and considered an alternate peak while issuing the show- cause notices. However, while finalising the assessments, the AO abandoned the peak methodology and adopted the gross-receipt method without identifying any defect in the transaction-wise working submitted by the assessee.
The AO was not bound to accept the computation merely because he had initially considered it. The AO was nevertheless required to record cogent reasons for rejecting it and to demonstrate, with reference to the seized entries, why the same funds could not have been circulated or why particular receipts represented independent introductions. The final assessment orders contain no such reasoning. A conclusion involving additions aggregating to Rs.243.27 crore could not have been sustained merely by totalling the receipt column without examining the corresponding payments recorded in the same evidence. The Ld.CIT(A), on the other hand, did not grant blanket relief to the assessee. The Ld.CIT(A) determined the incremental peak credit for each assessment year and compared it with the additional income voluntarily offered in the corresponding return. Wherever the incremental peak exceeded the additional income already offered, the differential amount alone was sustained. Consequently, additions of Rs.1,21,64,502/- for the assessment year 2015-16,
:-36-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 Rs.44,14,081/- for the assessment year 2018-19 and Rs.6,63,00,428/- for the assessment year 2021-22 were sustained. In the remaining years, the additional income already offered was found to be equal to or greater than the incremental peak, and no further addition was sustained.
The methodology adopted by the Ld.CIT(A) thus ensures that the maximum unexplained capital disclosed by the seized material is subjected to tax while also giving due credit for the income already voluntarily returned by the assessee. It avoids both under-assessment and multiple assessment of the same circulating fund. We find this approach to be consistent with the factual structure of the seized ledger and the settled principles governing peak credit and telescoping.
The Revenue has not pointed out any mathematical error in the year-wise incremental peak accepted by the Ld.CIT(A). No particular receipt has been shown to have been omitted from the computation. No independent introduction has been identified. No transaction-wise alternative peak has been furnished before us. Nor has the Revenue demonstrated that the additional income voluntarily offered by the assessee was wrongly adjusted against the incremental peak.
In the absence of any such material, the Revenue's challenge remains confined to the general proposition that the transactions were unaccounted and that the assessee had not furnished confirmations. Those circumstances justify taxation of the unexplained income embedded in the seized transactions, but they do not justify assessment of gross receipts by ignoring the continuous circulation of the funds and the corresponding outflows appearing in the same seized material.
Having regard to the entirety of the facts and circumstances, we are of the considered view that the AO was not justified in treating the entire cash
:-37-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 inflows reflected in the seized loose sheets as unexplained cash credits under section 68 r.w.s 115BBE of the Act. The gross-receipt method adopted by the AO results in repeated taxation of the same circulating funds and fails to determine the real unexplained income or capital embedded in the transactions. The Ld.CIT(A) has correctly appreciated the seized documents as a continuous cash ledger, applied the peak credit principle, accounted for the incremental peak arising in each assessment year, and granted credit for the additional income already offered by the assessee. The findings of the Ld.CIT(A) are therefore supported by the seized material and the applicable judicial principles and have not been shown to be perverse or contrary to law.
We, therefore, find no infirmity in the order of the Ld.CIT(A) restricting the additions to the differential incremental peak wherever such peak exceeded the income voluntarily offered by the assessee and deleting the balance gross- receipt additions made by the AO.
Accordingly, the order of the Ld.CIT(A) on this issue is affirmed and Ground Nos.1, 4 and 5 raised by the Revenue for the AY(s) 2015-16 to 2023- 24 are dismissed.
Ground No.2 raised by the Revenue is that the Ld.CIT(A) erred in relying upon the judgment of the Hon'ble Supreme Court in the case of CBI vs. V.C.Shukla [(1998) 3 SCC 410] and the decision in Common Cause vs. Union of India, while ignoring the statutory presumptions available to the AO u/s.132(4A) and 292C of the Act, in respect of the materials seized during the course of search, which according to the Revenue stood further fortified by the sworn statement recorded from the assessee.
At the outset, on a careful and comprehensive examination of the impugned appellate orders of the Ld.CIT(A) for the assessment years under consideration, we find that the very premise on which the present ground of
:-38-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 appeal has been raised is factually incorrect. A meticulous reading of the appellate order demonstrates that the Ld.CIT(A) has nowhere referred to, discussed or placed reliance upon the judgment of the Hon'ble Supreme Court in CBI vs. V.C. Shukla or the decision in Common Cause vs. Union of India for granting relief to the assessee. The impugned order does not contain any finding, observation or reasoning founded upon the aforesaid decisions. Therefore, the allegation made by the Revenue that the Ld.CIT(A) has erroneously relied upon the said judgments is wholly unsupported by the contents of the appellate order itself.
It is evident that the findings recorded by the Ld.CIT(A) are based upon an independent appreciation of the seized materials, the documentary evidence placed on record, the explanations furnished by the assessee, the assessment records and the applicable provisions of the Act. The relief granted by the Ld. CIT(A) is based upon his own appreciation of the facts and evidentiary materials available on record and not on the basis of the judicial precedents referred to by the Revenue in the memorandum of appeal. Therefore, the foundation on which the Revenue has assailed the order of the Ld.CIT(A) is itself non-existent.
It is a well-settled principle of appellate jurisprudence that every ground of appeal must arise from the findings recorded in the order impugned before the appellate forum. An appellate authority is required to adjudicate only those grievances which emanate from the actual reasoning adopted by the lower authority. If a ground is founded upon a factual assumption which is demonstrably contrary to the record, such a ground cannot be sustained. Equally, an appellate forum cannot be called upon to adjudicate an issue which neither forms part of the reasoning of the lower authority nor constitutes the basis of the relief granted therein.
In the present case, the Revenue has attributed certain reasoning to the Ld. CIT(A) which, in fact, is conspicuously absent from the impugned order.
:-39-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 Once it is found that the Ld. CIT(A) has not relied upon the judgments in CBI vs. V.C. Shukla or Common Cause vs. Union of India, the further contention raised by the Revenue regarding the applicability of the presumptions u/s.132(4A) and 292C of the Act, or the evidentiary value of the sworn statement recorded during the course of search, does not arise for consideration under this specific ground. The Revenue cannot challenge a finding which has never been recorded, nor can it seek adjudication on a proposition which does not form part of the reasoning contained in the appellate order.
It is equally trite that the correctness or otherwise of the findings actually recorded by the Ld.CIT(A), if agitated by the Revenue through separate and independent grounds of appeal, shall have to be examined on their own merits with reference to the reasoning contained in the impugned order and the material available on record. However, Ground No.2, as presently drafted, does not challenge any actual finding of the Ld.CIT(A). Instead, it proceeds entirely on an erroneous factual assumption that the appellate authority had relied upon certain judicial precedents which are, in fact, not even referred to in the impugned order. Such a ground, lacking any factual substratum, is liable to fail at the threshold.
In view of the foregoing discussion, we hold that Ground No.2 raised by the Revenue for the AY(s) 2015-16 to 2023-24 is misconceived, factually untenable and does not emanate from the impugned order of the Ld.CIT(A). Since the very basis of the ground is absent from the appellate order under challenge, no adjudication on the merits of the contentions sought to be raised therein is called for. Accordingly, Ground No.2 raised by the Revenue for the AY(s) 2015-16 to 2023-24 is dismissed.
Similarly, the Revenue's Ground No.3 proceeds on an entirely erroneous factual premise. A careful reading of the impugned appellate orders demonstrates that the Ld.CIT(A) has nowhere recorded any finding that the
:-40-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 seized document constituted "only secondary evidence" or that it had "no evidentiary value". The Revenue has attributed to the Ld.CIT(A) an observation which is conspicuously absent from the appellate order. It is a settled principle that the correctness of an appellate order has to be tested on the basis of the findings actually recorded therein and not on assumptions or inferences drawn by the assessee. A ground of appeal founded upon a non-existent finding cannot be sustained.
The impugned appellate orders shows that the Ld.CIT(A) examined the evidentiary worth of the seized material in the context of the facts of the case and the legal requirements governing appreciation of evidence. The Ld.CIT(A) did not reject the seized material merely because it was a seized document. Rather, the appellate authority evaluated whether the entries contained therein, in the facts of the present case, were sufficient by themselves to sustain the additions made by the AO. The discussion in the appellate order is thus directed towards the probative value of the document in the absence of supporting evidence and not towards its admissibility or its character as "secondary evidence". The distinction between admissibility of a document and the weight to be attached to it is well recognized in law. The Revenue, by confusing these distinct concepts, has misread the findings recorded by the Ld.CIT(A).
The further assertion in the ground that the assessee admitted the nature of the transactions in the statement recorded u/s.132(4) of the Act also does not advance the Revenue's case insofar as the present ground is concerned. The issue raised by the Revenue is directed against an alleged finding of the Ld.CIT(A) regarding the nature of the seized document. Since no such finding exists in the appellate order, the reference to the statement u/s.132(4) of the Act is wholly beside the point. The correctness or otherwise of the appreciation of the statement recorded during search would arise only if the Ld.CIT(A) had in fact rejected the seized document on the reasoning attributed by the Revenue, which is not the case here. An appeal before the Tribunal must
:-41-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 challenge an actual error committed by the first appellate authority. Where the ground itself proceeds on an incorrect reading of the appellate order and seeks to assail observations which were never made, the ground becomes devoid of factual foundation and is liable to fail at the threshold. The Tribunal cannot adjudicate upon a grievance based on findings that are not contained in the impugned order.
In view of the foregoing, we hold that the Revenue has completely misconstrued the findings recorded by the Ld.CIT(A). As the Ld.CIT(A) has neither held that the seized document was merely secondary evidence nor recorded that it lacked evidentiary value solely for that reason, the very basis of Ground No.3 is factually incorrect. Consequently, the ground raised by the Revenue, being founded on a non-existent finding, is devoid of merit and is accordingly dismissed for all the assessment years under consideration, namely AY(s) 2015-16 to 2023-24.
Ground No.6 raised by the Revenue is general in nature and does not call for any specific adjudication. The said ground neither challenges any independent finding recorded by the Ld.CIT(A) nor sets out any distinct grievance warranting consideration by this Tribunal. It is well settled that a general or residuary ground, in the absence of any specific plea or supporting arguments, does not require separate adjudication.
Further, during the course of hearing, the Ld.DR did not seek leave to raise any additional or amended grounds of appeal, nor was any other issue canvassed before us beyond the grounds originally set out in the memorandum of appeal. In the absence of any specific submissions or challenge on any independent issue, nothing survives for our consideration under the aforesaid ground.
:-42-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 89. Accordingly, Ground No.6 raised by the Revenue for the AY(s) 2015-16 to 2023-24, being merely general in nature and not requiring any separate adjudication, is dismissed.
In the result, all the appeals of the Revenue for the AY(s) 2015-16 to 2023-24 are dismissed.
Assessee’s appeals for the AY(s) 2018-19 and 2021-22 91. We shall now advert to the appeals preferred by the assessee for the AY(s) 2018-19 and 2021-22. The primary grievance raised by the assessee in these appeals is that the additions of Rs.44,14,081/- and Rs.6,63,00,428/-, respectively, sustained by the Ld.CIT(A), ought to have been telescoped against the excess additional income voluntarily offered and assessed in the preceding assessment years.
In support of the aforesaid contention, the Ld. AR drew our attention to a detailed statement depicting the availability of excess additional income offered in the earlier assessment years and submitted that, upon granting the benefit of telescoping, the addition of Rs.44,14,081/- sustained for the A.Y.2018-19 would stand fully absorbed. It was further contended that, in respect of the A.Y.2021- 22, only a sum of Rs.25,32,075/- would survive for assessment out of the total addition of Rs.6,63,00,428/-, after allowing the benefit of telescoping against the excess income already brought to tax in the earlier years.
Per contra, the Ld.DR strongly opposed the aforesaid submissions of the Ld. Authorised Representative and supported the orders of the lower authorities.
We have carefully considered the rival submissions, the assessment order, the appellate order and the detailed working furnished in support of the claim for telescoping. The issue for adjudication is whether the additions
:-43-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 sustained towards alleged unaccounted cash receipts in the assessment years under consideration are liable to be reduced by granting telescoping of the excess income already offered in the earlier assessment years.
The settled principle of taxation is that the same income cannot be subjected to tax twice under different heads or in different assessment years. The doctrine of telescoping is a well-recognised principle evolved by judicial precedents to avoid double taxation where the Revenue seeks to tax unexplained investments, cash credits, expenditure or receipts, while the assessee establishes that sufficient income has already been disclosed and taxed and that such disclosed income constitutes the probable source for the impugned additions. Once the availability of taxed funds is established and the Revenue does not bring any material to demonstrate their utilization elsewhere, the benefit of telescoping cannot ordinarily be denied.
It is also well settled that while considering a claim of telescoping, mathematical precision is neither contemplated nor required. What is relevant is the existence of sufficient taxed income available with the assessee which can reasonably explain the impugned addition. The principle is based on preponderance of probabilities and commercial realities rather than rigid accounting entries. The Revenue cannot assess the same circulating funds repeatedly merely because they assume different forms in different assessment years.
In the present case, the assessee has furnished a comprehensive year- wise statement demonstrating the additional income voluntarily offered in the returns of income, the estimated undisclosed business income on alleged suppressed sales, the taxable peak credit assessed in the respective years and the resultant excess income remaining available for telescoping. The working furnished by the assessee is reproduced below for clarity:
:-44-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
(A) (B) (A+B) (C) (A+B-C) Estimated undisclosed Total of Excess of Additional income on additional Taxable income Income alledged income and Peak Credit available for Admitted in suppressed sales estimated of the Year telescoping AY the ITR (Rs.) (Rs.) business income (Rs.) (Rs.) 2016-17 1,77,51,906 0 1,77,51,906 82,39,416 95,12,490 2017-18 1,53,52,781 0 1,53,52,781 0 1,53,52,781 2019-20 2,20,70,636 0 2,20,70,636 74,26,007 1,46,44,629 2020-21 2,17,68,996 61,14,330 2,78,83,326 0 2,78,83,326 6,73,93,226
Total of excess income available for telescoping in the subsequent assessment years as above 6,73,93,226 Less: Adjustment against the addition sustained by the Ld.CIT(A) for the A.Y.2018- 19 44,14,081 Excess income available for telescoping against the addition of Rs.6,63,00,428/- sustained in AY2021-22 6,29,79,145
Addition sustained by the Ld.CIT(A) in A.Y.2021-22 6,63,00,428 Less: Excess income to be telescoped as per the above workings 6,29,79,145 Less: Estimated business income for the A.Y.2021-22 on alleged suppressed sales 7,89,208 Addition to be sustained for the A.Y.2021-22 25,32,075
The above working indicates that after considering the taxable peak credits assessed in the respective years and after taking into account the estimated undisclosed business income separately assessed, the assessee still had excess taxed income aggregating to Rs.6,73,93,226/- available for telescoping. The Revenue has not disputed the above figures of additional income offered by the assessee. In the absence of any contrary material, the availability of the aforesaid funds remains uncontroverted.
In so far as A.Y.2018-19 is concerned, the Ld.CIT(A) sustained an addition of Rs.44,14,081/- towards alleged unaccounted cash receipts. The assessee has sought adjustment of the said addition against the excess taxed income available in the earlier assessment years. The statement furnished shows that the aggregate excess income for the AY(s) 2016-17 and 2017-18 available for telescoping amounted to Rs.2,48,65,271/-, which is substantially higher than the addition sustained in the A.Y.2018-19.
:-45-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 100. Once it is accepted that the assessee possessed sufficient taxed funds far in excess of the addition sustained, there remains no justification for taxing the same amount once again merely because the Revenue has characterized it as unexplained cash receipts. Such an approach would result in taxing the same income twice, which is impermissible under the Act. Since the availability of excess disclosed income is not disputed, the assessee is clearly entitled to telescoping of the addition sustained.
Accordingly, the addition of Rs.44,14,081/- sustained by the Ld.CIT(A) for A.Y.2018-19 is directed to be telescoped against the excess income already offered and assessed in the other assessment years. Consequently, the said addition stands deleted. The grounds raised by the assessee on this issue are allowed.
After allowing telescoping of Rs.44,14,081/- against the addition sustained for A.Y.2018-19, the balance excess income available with the assessee works out to Rs.6,29,79,145/-, as under:
i. Total excess income available for telescoping: Rs.6,73,93,226/- ii. Less: Adjustment allowed in Assessment Year 2018-19: Rs.44,14,081 iii. Balance available for telescoping : Rs.6,29,79,145/- 103. The Ld.CIT(A) sustained an addition of Rs.6,63,00,428/- for A.Y.2021-22 towards alleged unaccounted cash receipts. The assessee has further demonstrated that an estimated business income of Rs.7,89,208/- attributable to the alleged suppressed sales has already been separately brought to tax and therefore cannot once again constitute the basis for taxing the entire cash receipts.
We find considerable merit in the submissions of the assessee. Once the sufficient taxed funds are available for telescoping, the addition representing
:-46-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 the same circulating funds cannot survive except to the extent it exceeds the available explained source.
Applying the above principles, the addition sustained by the Ld.CIT(A) requires the following adjustment:
i. Addition sustained by the learned CIT(A): Rs.6,63,00,428/- ii. Less: Excess income available for telescoping: Rs.6,29,79,145/- iii. Balance: Rs.33,21,283/- iv. Less: Estimated business income already assessed on alleged suppressed sales: Rs.7,89,208/- v. Balance addition, if any, surviving : Rs.25,32,075/- 106. Therefore, out of the addition of Rs.6,63,00,428/- sustained by the Ld.CIT(A) for the A.Y.2021-22, a sum of Rs.6,29,79,145/- is directed to be deleted by granting telescoping against the excess income already assessed in the hands of the assessee. Further, credit is also directed to be given for the estimated business income of Rs.7,89,208/- already brought to tax. Consequently, only the balance amount of Rs.25,32,075/- survives for assessment.
The above direction is in consonance with the settled judicial principle that where sufficient taxed income is available with the assessee, the same must be treated as the source for explaining subsequent additions. Denial of telescoping in the present facts would inevitably result in taxing the very same income repeatedly in different assessment years, which is contrary to the fundamental principles governing assessment under the Income-tax Act.
Accordingly, the AO is directed to grant telescoping to the extent discussed hereinabove while giving effect to this order. The addition of Rs.44,14,081/- sustained by the Ld.CIT(A) for A.Y.2018-19 is deleted in full. In
:-47-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 A.Y.2021-22, the addition is deleted to the extent of Rs.6,29,79,145/- and only the balance addition of Rs.25,32,075/- shall survive.
In view of the above discussion, the grounds of appeal raised by the assessee on the issue of telescoping are allowed.
Insofar as the AY(s) 2018-19 and 2021-22 are concerned, the assessee has also raised various other grounds challenging the legality of the impugned additions and the assessment proceedings. However, since the principal issue relating to the grant of telescoping benefit has been considered and adjudicated by us hereinabove, which substantially governs the outcome of these appeals, we do not consider it necessary to adjudicate the remaining grounds. Accordingly, the said grounds are left open and are not being adjudicated, with no opinion being expressed thereon.
In the result, the appeal of the assessee for the AY(s) 2018-19 and 2021- 22 stands allowed partly.
Assessee’s appeal for the A.Y.2015-16 112. In the present appeal, the assessee has, inter alia, assailed the validity of the reassessment proceedings by specifically challenging the legality of the approval accorded u/s.151(ii) of the Act, contending that the sanction granted by the specified authority is not in accordance with law and, consequently, the assumption of jurisdiction u/s.147 of the Act is vitiated.
We have carefully considered the aforesaid legal challenge. However, having examined the issues arising in the appeal on merits and having upheld the order of the Ld.CIT(A) upholding the peak credit theory for the reasons discussed in the preceding paragraphs, we are of the considered view that no separate adjudication on the jurisdictional grounds is called for in the facts and circumstances of the present case. Any finding rendered by us on the legal
:-48-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 issue would merely be academic and would not have any bearing on the ultimate outcome of the appeal.
Accordingly, without expressing any opinion on the merits of the legal grounds relating to the validity of the reopening of the assessment, including the challenge to the sanction accorded u/s.151(ii) of the Act, we leave the said grounds open.
In the result, the appeal filed by the assessee for the A.Y. 2015-16 is dismissed.
Cross objections of the Assessee for the AY(s) 2016-17 and 2017-18 116. In these Cross Objections, the assessee has, inter alia, assailed the validity of the reassessment proceedings by specifically challenging the legality of the approval accorded u/s.151(ii) of the Act, contending that the sanction granted by the specified authority is not in accordance with law and, consequently, the assumption of jurisdiction u/s.147 of the Act is vitiated.
We have carefully considered the aforesaid legal challenge. However, having examined the issues arising in the appeal on merits and having upheld the order of the Ld.CIT(A) upholding the peak credit theory for the reasons discussed in the preceding paragraphs, we are of the considered view that no separate adjudication on the jurisdictional grounds is called for in the facts and circumstances of the present case. Any finding rendered by us on the legal issue would merely be academic and would not have any bearing on the ultimate outcome of the appeal.
Accordingly, without expressing any opinion on the merits of the legal grounds relating to the validity of the reopening of the assessment, including the challenge to the sanction accorded u/s.151(ii) of the Act, we leave the said grounds open.
:-49-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026
In the result, the Cross Objections filed by the assessee for the AY(s) 2016-17 and 2017-18 are dismissed.
In result, the present appeals before us are disposed of as under:
i. the appeals of the Revenue in ITA Nos. 523, 564, 565, 566, 567, 1367, 1368, 1369 and 1370/Chny/2026 for the AY(s) 2015-16 to 2023-24 respectively are dismissed;
ii. the appeals of the assessee in ITA Nos.1246 & 1247/Chny/2026 for the AY(s) 2018-19 and 2021-22 are partly allowed;
iii. the appeal of the assessee in ITA No.1245/Chny/2026 for the A.Y.2015- 16 is dismissed; and
iv. the Cross Objections of the assessee in CO Nos.27 & 26/Chny/2026 for the AY(s) 2016-17 and 2017-18 stands dismissed.
Order pronounced in the open court on 03rd August, 2026 at Chennai.
Sd/- Sd/- (एबी टी वर्की ) (एस. आर. रघुनाथा) (ABY T VARKEY) (S. R. RAGHUNATHA) न्यायिर्क सदस्य/Judicial Member लेखासदस्य/Accountant Member चेन्नई/Chennai, धदनाांक/Dated, the 03rd August, 2026 Devadas
:-50-: ITA Nos. 1245 to 1247/Chny/2026, 523, 564 to 567/Chny/2026, 1367 to 1370/Chny/2026 & CO Nos.26 & 27/Chny/2026 आदेश की प्रतितिति अग्रेतिि/Copy to: 1. अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. धिभागीय प्रधिधनधि/DR 5. गार्ड फाईल/GF DEVADAS Digitally signed by DEVADAS GOPALANACHARY GOPALANACHARY Date: 2026.08.05 10:49:12 +05'30'
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