LATE SHRI SANDEEP SHYAM TANDON,MUMBAI vs. DCIT-(26)(1), MUMBAI

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ITA 1794/MUM/2026Status: DisposedITAT Mumbai13 July 2026AY 2007-0811 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the initial deposit amount was subsumed within the peak balance already offered for tax and therefore, the addition for the initial deposit was unjustified. The Tribunal also held that penalty under Section 271(1)(c) cannot be levied on the legal heir after the assessee's demise.

What were the facts?

The assessee's legal heir was informed about a foreign bank account held by the deceased. The peak balance in this account was accepted and tax was paid. However, the Assessing Officer (AO) reopened the case for multiple assessment years, bifurcated the peak balance, and made an additional addition for the initial deposit.

What were the issues?

Whether the initial deposit in a foreign bank account is taxable when it is part of a larger peak balance already offered for tax, and whether penalty under Section 271(1)(c) can be imposed on a legal heir after the assessee's death.

Which sections of the Income-tax Act were involved?

Section 69A,Section 143(3),Section 147,Section 271(1)(c),Section 159

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES “F”, MUMBAI

Before: Shri Sandeep Gosain (JM) & Shri Arun Khodpia (AM)

For Appellant: Shri Ravikant Pathak
For Respondent: Shri Vinod Badoni
Hearing: 22.06.2026Pronounced: 13.07.2026

Heard together (2 matters)

ITA No. 1792/Mum/2026
ITA No. 1794/Mum/2026

Read from the judgment's own cause title. This page is filed under one of them.

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “F”, MUMBAI Before Shri Sandeep Gosain (JM) & Shri Arun Khodpia (AM) ITA No. 1886/Mum/2026 (A.Y. 2005-06) ITA No. 1792/Mum/2026 (A.Y. 2005-06) ITA No. 1793/Mum/2026 (A.Y. 2006-07) ITA No. 1794/Mum/2026 (A.Y. 2007-08) Late Shri Sandeep Shyam Tandon Vs. DCIT-26(1) 147, 14th Floor, Atlanta, Nariman Kautilya Bhavan Point, Mumbai-400 021. BKC, Mumbai-51. PAN : AAAPT1953H (Appellant) (Respondent) Assessee by Shri Ravikant Pathak Respondent by Shri Vinod Badoni Date of Hearing 22.06.2026 Date of Pronouncement 13.07.2026 ORDER Per Arun Khodpia, AM: The captioned appeals are preferred by the assessee, directed against the separate orders of Ld. Commissioner of Income Tax (Appeals), NFAC, Delhi (in short ‘Ld. CIT(A)’) for Assessment Year 2005-06, 2006-07 & 2007-08 respectively, arises out of the separate orders under section 143(3) r.w.s. 147 of the Income Tax Act (in short ‘The Act’) for aforesaid AY’s and penalty order under section 271(1)(c) of the Act for A.Y. 2005-06.

2.

Since these appeals pertain to the same assessee, having interconnected and identical issues, under akin facts and circumstances, therefore, are heard together and decided by this common order.

2 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon .

3.

In ITA No. 1792/Mum/2026 for AY 2005-06, the assessee has assailed the addition under section 69A of the Act of Rs. 36,70,000/- (CHF 1,00,000) on account of initial deposit made by the assessee, while opening an account in HSBC Bank, Geneva, Switzerland in financial year 2004-05.

4.

Regarding A.Y. 2006-07 & 2007-08, the assessee challenged the rate of USD adopted by the AO, while making addition of peak balance in the HSBC Bank, Geneva account of the assessee, wherein the AO has adopted rate of Rs. 45 per dollar, whereas as per assessee the rate should have been multiplied in accordance with provisions of Rule 115 of the Act. The rate difference issue was raised by the assessee before CIT(A) also, by placing provisions of Rule 115 of the Act. According to clause (c) of sub-rule (1) of Rule 115 the rate of exchange for the calculation of the value in rupees for any income accruing or arising or deemed to accrue or arise to the assessee in foreign currency or received or deemed to be received by him or on his behalf in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date. The specified date in this reference would be the last date of the previous year of the assessee. Further, the telegraphic transfer buying rate is defined in Rule 26, extracted as under: 26. For the purpose of deduction of tax at source on any income payable in foreign currency, the rate of exchange for the calculation of the value in rupees of such income payable—

3 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . (i) to an assessee outside India; (ii) to a Unit located in an International Financial Services Centre; (iii) by a Unit located in an International Financial Services Centre to an assessee in India, shall be the telegraphic transfer buying rate of such currency as on the date on which the tax is required to be deducted at source under the provisions of Chapter XVIIB by the person responsible for paying such income. Explanation.—For the purposes of this rule,— (i) "International Financial Services Centre" shall have the meaning assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005); (ii) "telegraphic transfer buying rate", in relation to a foreign currency, means the rate or rates of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), for buying such currency, having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency, where such currency is made available to that bank through a tele- graphic transfer; (iii) "Unit" shall have the meaning assigned to it in clause (zc) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005).]

5.

Before proceeding further, it would be appropriate to mention brief facts of

the case. The appellant herein is legal heir of late Shri Sandeep Tandon. The

assessee had filed his income tax return for A.Y. 2007-08 on 26.10.2007 declaring

total income of Rs. 7.87 crore. Subsequently, assessee passed away on

17.03.2010. Later, legal heir Mr. Shalin Tandon was informed by the

Investigation Wing of the Department that his late father was holding a foreign

bank account in HSBC, Geneva. It is also informed by the department that the

4 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . peak amount in the said account was USD 60,25,553/- for Ay 2007-08. The legal heir accepted such information and have paid tax of Rs. 13.81 crore on 05.09.2011, on the said peak balance to avoid any negative publicity and informed the same to the Director General of Income Tax (Investigation) vide letter dated 06.09.2011. Subsequently, the case of the assessee was reopened through legal heir for A.Y. 2005-06, 2006-07 & 2007-08 and notices under section 148 of the Act were issued. While passing the assessment order under section 143(3) read with section 147 of the Act, peak balance for which taxes were already paid by the legal heir in 2011 has been bifurcated by the AO in two assessment years i.e. A.Y. 2006-07 and 2007-08. The AO considered the exchange rate of Rs. 45 per US dollar for A.Ys. 2006-07 and 2007-08 and had divided the total peak amount in USD 44,91,734 and USD 15,13,819/- in A.Y. 2007-08 and For A.Y. 2005-06, respectively. The AO had also made an addition of CHF 1,00,000/-, being the alleged opening deposit, over and above addition of peak balance made in A.Y. 2006-07 and 2007-08, which works out to Rs. 36,70,000/-. In this respect, it was the submission by Ld. AR that while addition made by the AO and confirmed by CIT(A) considering peak balance in the hands of the assessee, which inter-alia includes opening deposit of CHS 1,00,000/- also, therefore the same cannot be added once again. Ld. AR relied on the decision of Hon'ble Allahabad High Court in the case CIT Vs. Sharraf Trading Co., 376 ITR 534, wherein Hon'ble Court held that, if the unexplained deposit on account of peak credit is higher than

5 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . the unexplained credit, which would be subsumed in the peak credit itself, therefore, no further addition would be required. On this aspect, it is also submitted by Ld. AR that there was no material on record, which would remotely suggest that any such minimum balance is required to open an account, therefore it was the prayer that such an addition made without any basis, was a finding only on surmises, conjecture and doubts. Therefore, the addition made by the AO and confirmed by CIT(A) is liable to be deleted.

6.

Ld. Sr. DR on the hand representing the Revenue supported the orders of revenue authorities.

7.

We have considered the rival submission, perused the material available on record and case law relied upon by the assessee. Apparently, in the present case, the exchange rate to be adopted is expressly defined under the provisions of Rule 115 r.w.r. 26 of Income Tax Rules, 1962, which shall apply to the facts of the instant case. We find substance in the contention raised by the Ld. AR, who had apprised this issue before CIT(A); however the same was not adjudicated. Since the statute has provided a clear provision regarding adoption of rate of exchange under Rule 115 of the Act, it is the prerogative of the revenue authorities to adopt rate provided from any other source or on a fair estimation basis. Therefore, we deem it fit to direct the AO to re-compute the quantum of addition following the

6 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . provisions of Rule 115 r.w. Rule 26 of the IT rules, which has to be adopted and addition be recomputed accordingly.

8.

Coming to the issue raised for A.Y. 2005-06, we find that once the assessee has suo moto has accepted the peak balance as its undisclosed income for 2007- 08, which was further divided by the AO in A.Y. 2006-07 and 2007-08. Moreover, the amount of addition was USD 60,25,553/- (Rs. 7.87 Crore), whereas addition for A.Y. 2005-06 for opening of an account with minimum balance CHS 1,00,000/- for which addition was made for Rs. 36,70,000/- which is less than the total addition made under peak credit. Therefore, we find substance in the submission of the assessee that such amount has been subsumed, while the balance of peak credit has been offered for tax. On this aspect, we find that the observations of Hon'ble Allahabad High Court in the case of Sharraf Trading Co. (supra) are relevant, wherein Court dealt with an identical issue and held as under: - "1. Whether the Hon'ble Income Tax Appellate Tribunal has erred in law in holding that the peak of unexplained debit of Rs.35,81,988/-in A.Y. 1995-96 would be subsumed in the higher debit of Rs.48,01,158/- in the A.Y. 1996-97 and in thereby deleting addition on account of the unexplained peak credit of Rs.35,81,988/- for A.Y. 1995-96, without appreciating the ratio of the decision of the Hon'ble Madras High Court in the case of CIT v. K. Palaniappan reported in 242 ITR 719 in which the Hon'ble High Court has held that the concealed income detected in an earlier year cannot be a source of any credit entry for the subsequent year as otherwise the purpose of provisions of section 68 of the I.T. Act would be defeated ?

7 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . …….. 30. We may also notice that against Tribunal's earlier order dated 13th February, 2004, department filed appeal under Section 260A before this Court. We are informed that these appeals preferred by department have also been dismissed by this Court. These appeals i.e. ITA No. 179/2004 and other connected appeals have been dismissed by a Division Bench vide judgment dated 13th December, 2013. Therein the Court in paragraphs no. 14 and 15 has said: - "14. Regarding the peak theory, it may be mentioned that the peak theory was defined in the Sampath Iyengar's Law of Income-tax, Vol. 3, 9th edition, page 3547. Accordingly, "Peak credit" theory - One of the commonest defects of an assessee, where a single credit or number of credits appear in the books in the account of any particular person side by side with a number of debits is that they should all be arranged in serial order, that a credit following a debit entry should be treated as referable to the latter to the extent possible and that, not the aggregate but only the "peak" of the credit should treated as own explained. To give a simple example, suppose there are credits in the assessee's book in the account. As or Rs.5,000 each on 1st October, 1990 and again on 5th November, 1990 but there is a debit by way of repayment shown on 27th October, 1990, the explanation will be that the credit appearing on 5th November, 1981 has or could have come out of the withdrawal/repayment on 27th October, 1981. This plea is generally accepted as it is logical and acceptable (whether the creditor is a genuine party or not), provided there is nothing in the material on record to show that a particular withdrawal/repayment could not have been available on the date of the subsequent credit. 15. A refinement or extension of the plea occurs where the credits appear not in the same account but in the accounts of different persons. Even then, if the genuineness of all the person is disbelieved and all the credits appearing in the different account

8 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . are held to be the assessee's own moneys, the assessee will be entitled to set off and a determination of the peak credit after arranging all the credits in the chronological order."

9.

In backdrop of the aforesaid facts, circumstances and jurisprudence, we find that the amount of CHF 1,00,000/-, which is added to the income for A.Y. 2005-06 cannot be treated as justified. First, there was no material for making such addition, this was purely on the basis of assumption by the AO that such amount is required to open the account and secondly the addition made of CHF 1,00,000/- in A.Y. 2005-06 while computing peak credit in A.Y. 2007-08, such balance would stand subsumed in the amount of peak credit, which was much higher than the amount of initial deposit as alleged by the Revenue. We thus, are of the considered view that the addition of CHF 1,00,000/-, equivalent to the amount of Rs. 36,70,000/- made by the AO under section 69A of the Act and sustained by CIT(A), de hors any material to opine that such amount was paid and does not form part of peak credit offered by the assessee, would not tenable in the eyes of law. Therefore, we direct to set aside the order of CIT(A) on this aspect and to delete the addition of Rs. 36,70,000/-. 10. In the result, the appeals of the assessee for A.Y. 2005-06, 2006-07 and 2007-08 are allowed in above terms. 11. ITA No. 1886/Mum/2026 is against the penalty under section 271(1)(c) of the Act, which was imposed for Rs. 12,35,400/- by the AO vide order dated

9 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . 7.8.2015, which is further challenged by the assessee before CIT(A) but remained unsuccessful, as the Ld. CIT(A) had confirmed the same. 12. On this issue Ld. AR argued that the penalty proceedings in the present case have been initiated against the legal heir of the deceased assessee, which is not tenable in the eyes of law. Ld. AR placed his reliance on the decision of Hon'ble Madras High Court in the case of CIT Vs. S. Gowri (2020) 116 taxmann.com 764, wherein Hon'ble Court answered a similar question of law in favour of the assessee with the following observations: - “2. The following Substantial Question of Law arises for consideration of this Court: "Whether in the facts and circumstances of the case and in law, the Appellate Tribunal is correct in interpreting Section 159 of the Income-tax Act to the effect that penalty under section 271(1)(c) cannot be levied on the legal representative, ignoring the specific provision contained in clause (2)(b) of Section 159 of the Act? 8. Since the provisions of Section 271(1)(c) of the Act depend upon the guilty animus or mens rea on the part of the assessee concerned, naturally, as legal representative, the wife cannot be held liable to defend those penalty proceedings or be held guilty of any mens rea on the part of the husband. Therefore, unless the penalty proceedings are concluded against a living assessee, the legal heirs cannot be held liable to face those

10 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . proceedings or pay any sum determined as penalty payable under section 271(1)(c) of the Act.”

13.

It is submitted by Ld. AR that Hon'ble Madras High Court decided the aforesaid issue after discussing various orders rendered by Hon'ble Gujarat High Court and Hon'ble Madras High Court in the case of ACIT Vs. F.P. Gaekwad (74 Taxman 551) and CIT Vs. Dr. K.C.G. Verghese (416 ITR 155). Therefore, it was the prayer that unless penalty proceedings are concluded against living assessee, legal heirs cannot be held liable to face those proceedings or pay any sum determined as penalty payable under section 271(1)(c) of the Act. 14. Per contra, Ld. DR vehemently supported the orders of the revenue authorities. 15. On a thoughtful consideration of the aforesaid facts, circumstances and submission of the parties, we find that the penalty in the present case was imposed on the legal heir of the assessee after the demise of the assessee and the same was initiated with reference to impugned order under section 143(3) read with section 147 of the Act, which was passed upon the legal heir of the deceased assessee. Therefore, the issue is squarely covered by the decision of Hon'ble Madras High Court in the case of CIT Vs. S. Gowri (supra) and accordingly penalty imposed under section 271(1)(c) of the Act in the instant case would liable to be vacated, and we direct, to do so.

11 ITA No. 1792 to1794 & 1886/Mum/2026 Late Shri Sandeep Shyam Tandon . 16. In combined result, all the aforesaid appeals of the assessee in ITA No. 1792 to1794 & 1886/Mum/2026 are allowed in above terms. Order pronounced in the open court on 13.07.2026.

Sd/- Sd/- (SANDEEP GOSAIN) (ARUN KHODPIA) Judicial Member Accountant Member Mumbai : Dated 13.07.2026 Copy of the order forwarded to : 1. The appellant 2. The respondent 3. CIT-concerned 4. DR, ITAT, Mumbai 5. Guard file By order (Dy/Asstt. Registrar) ITAT, Mumbai.

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