ACIT, INCOME TAX vs. SANT EKNATH TRADING COMPANY, AURANGABAD

When the case called for, none appeared on behalf of the respondent-assessee despite due service of notice of hearing. Even on the previous dates of hearing fixed on 09.07.2025, 11.08.2025, 17.09.2025, 12.11.2025, 22.12.2025 and 10.02.2026, there is no representation from the side of respondent-assessee. We therefore proceed to adjudicate the appeal with the assistance of ld. Departmental Representative and available material on record.

Grounds raised by the Revenue reads as under :

Brief facts of the case are that the assessee is a partnership firm and filed original return of income for A.Y. 2014-15 on 23.09.2014 declaring income of Rs.51,68,230/-. A search and seizure action was conducted in Disha (Kotgire) group of Aurangabad, Pune and Kolkata on 21.01.2020. The seized material/documents contains information related to the assessee firm. After recording proper satisfaction as provided u/s.153C of the Act, ld. Assessing Officer carried out the assessment proceedings. Ld. Assessing Officer observed that the hand written seized diary belonging to Disha group contains the daily transactions in date-wise manner appearing to be a cash book for unaccounted receipts and payments made and received from Devanand Narayan Kotgire ( in short ‘DNK’). Details of such receipts and payments from F.Y. 2013-14 to F.Y. 2019-20 have been extracted by the Assessing Officer on page 3 of the assessment order working out the Peak amount and the same reads as under :

Ld. Assessing Officer based on the above working made the addition for peak credit at Rs.2,53,36,402/- and assessed the income at Rs.3,05,04,632/-.

Aggrieved assessee preferred appeal before ld.CIT(A) and succeeded as ld.CIT(A) held that Devanand Narayan Kotgire has owned up the transactions with the assessee and has offered the income on the basis of peak theory @8% in respect of those transactions which related to his business and offered peak credit in respect of those transactions which was owned up by him as his own money/transactions. Ld.CIT(A) further held that there is no question of bringing to tax the income arising out of these transactions in the case of the appellant assessee as the income has already been taxed in the hands of DNK on the basis of Peak Credit Theory.

Aggrieved Revenue is now in appeal before this Tribunal.

Ld. Departmental Representative at the outset submitted that the issue on merits deserves to be restored to the file of ld.CIT(A) for re-adjudication in light of the decision of this Hon’ble Tribunal dealing with similar set of facts in the case of DCIT Vs. Navin Hanumanprasad Bagadiya in ITA No.990/PUN/2024 order dated 26.09.2025. 9. We have heard the ld. Departmental Representative and perused the record placed before us. We have gone through the decisions relied on by ld. DR and on due consideration of the facts discussed hereinabove, we note that similar set of facts were adjudicated in the case of DCIT Vs. Navin Hanumanprasad Bagadiya (supra) wherein this Tribunal has dealt with the facts and decided as follows :

In the above submissions, the main contention of the assessee is that since the alleged transactions are business transactions and have been owned by DNK no separate additions need to be made in the hands of assessee. We note that during the course of assessment proceedings the transactions appearing in the pocket diaries indicate that assessee has made net cash payment to DNK on year to year basis and the cumulative difference has increased upto Rs.6,05,31,261/-. It is also an admitted fact that during F.Y. 2013-14 relevant to the A.Y. 2014-15 the receipts are Rs.22,38,970/- and payments are at Rs.13,50,000/-. Prior to A.Y. 2014-15 whether any addition has been made in the hands of assessee during A.Y. 2010-11 to A.Y. 2013-14, information is not available on record. In the subsequent assessment proceedings from A.Y. 2015-16 and onwards the ld. AO has made the addition only if the cumulative balance has increased in comparison to the preceding years cumulative balance. Now the transactions in diaries clearly depict that cash payments have been made by the assessee and the source of such cash payments needs to be explained.

Now coming to the Affidavit given by DNK, the same has been executed on the very same day when the assessment proceedings have been concluded in the case of assessee on 29.09.2021 and there is no reference of said Affidavit in the assessment order. This Affidavit was placed before ld.CIT(A) in the said Affidavit DNK has stated as under : “I Devanand S/o. Narayan Kotgire aged about 56 years R/o. Disha Square, Sutgirni Chowk, Garkheda, Aurangabad – 431 001 hereby declare and confirm that there was a search u/s.132 of Income Tax Act, 1961 on dated 21.01.2020 and during the search operation some diaries were found and seized containing cash transactions, some names, some expenses and sale receipts in cash from various projects. I hereby confirm that I owned up all transactions and nobody is related to it. The income calculated by me on the basis of diaries for all assessment years from 2014-15 to 2020-21, belongs to me only and I am ready to pay tax and interest thereon to avoid litigation and buy mental peace. Hence this Affidavit.”

On the basis of the above Affidavit, the assessment proceedings in the case of DNK were concluded and additions were made keeping into consideration the peak balance and treating the transactions as business transactions and income calculated @8% on such business receipts. However, ld.CIT(A) has observed that since DNK has owned up the transactions, sustaining the addition in the hands of assessee would tantamount to double addition. We however find that this finding of ld.CIT(A) is not correct because the transactions in the pocket diaries were regarding cash receipts and payments and the payments made by the assessee in cash were much more than the receipts from DNK and ld.CIT(A) ought to have dealt with the issue about source of cash available with the assessee for making payment to DNK. On the contrary, ld.CIT(A) merely took the basis of the Affidavit and has deleted the addition without examining as to whether DNK has owned up total cash payments or only the profit element in such business transactions. The transactions in the pocket diaries records the two types of transactions, firstly receipt and payment in cash and secondly if the transactions is of business nature then the profit element embedded in such transactions in the hands of DNK who has carried out the same. DNK has carried out the business transactions and so he has offered the net profit on the business transactions but the question still remains about the first part of the transactions, i.e. the source of cash available with the assessee to make payments to DNK. This issue remained to be adjudicated by ld.CIT(A) inspite of the fact that ld. Assessing Officer has referred to the total transactions in the assessment order but ld.CIT(A) failed to examine the issue in entirety. Further, ld.CIT(A) has totally disregarded the fact that ld. Assessing Officer has made the addition for unexplained cash which has never been owned up by DNK in the return of income filed before the AO as unexplained/unaccounted cash. Merely offering the net profit on the business transaction will not be sufficient to explain the source of cash payment made by assessee to DNK. Ld.CIT(A) failed to verify all these aspects prior to giving relief to the assessee.

In light of our aforesaid discussion, we are of the considered opinion that the issues need to be remanded to the file of lower authorities. We therefore set aside the impugned order and restore the issues raised by Revenue in the instant appeal to the file of ld.CIT(A) for re-adjudication as per our observations referred supra. Ld.CIT(A) shall give reasonable opportunity to the ld. Juri ictional Assessing Officer to make submissions regarding the Affidavit filed by DNK as well as to the assessee and examine the amount of addition accepted by DNK vis-à-vis the total amount of excess cash payment given by the assessee to DNK. If necessary, ld.CIT(A) may also call for a remand report from ld. JAO. After considering the same, ld.CIT(A) shall decide the issue in accordance with law as contemplated u/s.250(6) of the Act. Grounds of appeal raised by the Revenue are allowed for statistical purposes.”

In light of the above decision and the same being squarely applicable on the facts of this case, ld.CIT(A) is directed to carry out necessary examination of the facts viz. (1) whether the total peak credit as has been added by the Assessing Officer in the hands of assessee has been offered by DNK in its Income Tax Return (2) In case DNK has treated it as business transaction and has offered Net Profit @8% on such transactions of receipt and payment, then ld.CIT(A) has to examine the source of funds available with the assessee given to DNK. For carrying out this exercise as well as the direction given by this Tribunal in the case of DCIT Vs. Navin Hanumanprasad Bagadiya (supra), Ld.CIT(A) shall call for the Income Tax Return and the assessment records of DNK along with the Remand Report from the ld. Juri ictional Assessing Officer to this effect. Finding of ld.CIT(A) is set aside and the grounds of appeal raised by the Revenue are allowed for statistical purposes.

In the result, the appeal of the Revenue is allowed for statistical purposes.

The Pr. CIT concerned. विभ गीय प्रतितनधि, आयकर अपीलीय अधिकरण, “B” बेंच, 4. पुणे / DR, ITAT, “B” Bench, Pune. ग र्ड फ़ इल / Guard File. 5. आिेश नुस र / BY ORDER,