NADESSAN SIVAPRAGASAM,CHENNAI vs. ACIT CENTRAL 3(1), CHENNAI

PER G. MANJUNATHA, AM: These three appeals filed by assessee are directed

against common order passed by the learned Commissioner of

Income Tax (Appeals)-18, Chennai, dated 07.01.2021 and

pertain to assessment years 2015-16 to 2017-18. Since, facts

are identical and issues are common, for the sake of

convenience, these three appeals were heard together and are

being disposed off, by this consolidated order.

that these appeals filed by the assessee are time barred by 5

days for which necessary petition for condonation of delay

2 ITA Nos. 112 to 114/Chny/2021

along with affidavit explaining reasons for the delay has been

filed. The AR further submitted that the assessee could not file

appeals within the time allowed under the Act, due to the fact

that the assessee was unwell due to fever and because of self-

quarantines which caused delay of 5 days. The delay in filing

appeals is neither intentional nor willful but for the unavoidable

reasons, therefore, delay may be condoned in the interest of

advancement of substantial justice.

condonation of delay petition filed by the assessee submitted

that the reasons given by the assessee does not come within

the ambit of reasonable and bonafide reasons, which can be

considered for condonation of delay and hence, appeals filed

by the assessee may be dismissed as not maintainable.

by the assessee for condonation of delay, we are of the

considered view that reasons given by the assessee for not

filing the appeals within the time allowed under the Act comes

under reasonable cause as provided under the Act for

3 ITA Nos. 112 to 114/Chny/2021

condonation of delay and hence, delay in filing of appeals are

condoned and appeals filed by the assessee are admitted for

adjudication.

for all three assessment years, and therefore, for the sake of

brevity, grounds of appeal filed for the assessment year 2015-

16 are reproduced as under:-

“ 1. The order of the learned Commissioner of Income Tax Appeal is arbitrary, incorrect and also against facts & circumstances of the case. 2. The CIT(A) had erred in upholding order of the Assessing Officer in regard to additions made and assessment made thereon. 3. The CIT(A) had failed to appreciate that the Assessing Officer has neither pointed out any discrepancies in books of account nor rejected books of account maintained by the assessee, instead he relied only on seized records which do not provide any conclusion to rely upon. 4. The CIT(A) had failed to appreciate that the Assessing Officer erred in making addition of Rs.4,27,00,000/- and without any tangible material evidence on record. 5. The CIT(A) had failed to appreciate that the Assessing Officer had relied on sworn statements to his convenience without proper justification when the assessee had made two different statements under shock, stupor and duress. 6. The CIT(A) had failed to appreciate that the Assessing Officer did not corroborate entries in seized materials vis a vis

4 ITA Nos. 112 to 114/Chny/2021

books of account or any other external evidences in support of additions made. 7. The CIT(A) ought not to have accepted order of the Assessing Officer as same is bad in law as he had no reasons to assess an income different from what had been offered by appellant

10 The CIT(A) had erred in applying various Doctrines to facts To the case.

5 ITA Nos. 112 to 114/Chny/2021

appreciating the control of Govt. over arrack shop in Pondiherryand Karaikal and reasoned upholding oforder of A0 on surmise. 14 The CIT (A) had failed to follow the various case laws as brought to his notice by the appellant during the course of appeal proceedings before him.

16.The CIT(A) had followed judicial cases which are different from facts and circumstances of the case of appellant.

17.Without prejudice to above grounds, appellant prays that Assessing Officer maybe directed to grant telescoping benefit of receipts and payments as indicated in seized material.”

engaged in the business of dealer in petrol pump and trading in

liquor. The main business activity of the assessee is retail trade

of country liquor in and around Karaikkal approved by the Govt.

of Puducherry. The assessee is also engaged in the business

of dealer of Hindustan Petroleum Corporation Ltd., besides, the

assessee is one of the promoter/director of M/s.Kals Distilleries

Pvt. Ltd., which is engaged in the business of manufacturing of

6 ITA Nos. 112 to 114/Chny/2021

Indian made foreign liquor (IMFL) and supply only to Tamilnadu

State Marketing Corporation, a State Govt. owned undertaking.

A search & seizure operation u/s.132 of the Income Tax Act,

1961, was conducted on 26.05.2016 at the residential premises

of the assessee. During the course of search proceedings on

26.05.2016, certain books and documents were found and

seized, which contains details of transactions of unaccounted

income generated and spent outside regular books of account

during the financial years 2014-15 to 2016-17 and relevant

pages of seized documents (diaries) is scanned and extracted

in the assessment order in para 8 on pages 5 to 30 of the

assessment order. The assessee was asked to explain notings

in the seized documents. A sworn statement u/s.132(4) of the

Income Tax Act, 1961, was recorded on 26.05.2016 and in

response to question No.14, the assessee stated that notings

contained in seized diary relating to unaccounted income

generated from his business and spent outside regular books

of account and writings is in lakhs. He further stated that he

could not recollect details of persons from whom unaccounted

income is received and for what purpose same was spent.

However, he admitted undisclosed income of Rs.4.27 crores for

7 ITA Nos. 112 to 114/Chny/2021

financial year 2014-15 and Rs.6.61 crores for financial year

2015-16 and Rs.5.10 crores for financial year 2016-17. He

further stated that above disclosure includes a sum of Rs.1.60

crores cash found during the course of search in the residential

premises of the assessee and further, a sum of Rs.3.00 crores

cash given to Mr. Santosh. The assessee has reiterated his

admission of undisclosed income made during the course of

search in the statement recorded on 26.05.2016 and by another

statement recorded on 18.06.2016. However, instead of

undisclosed income offered in the case of M/s.Kals Distilleries

Pvt. Ltd., the assessee came forward to offer undisclosed

income in his individual capacity as unaccounted income

generated from proprietary concern, M/s. Natesh Agencies.

Further, immediately after search, i.e., about two weeks from

date of search, the assessee had filed a letter dated 18.06.2016

along with affidavit dated 04.08.2016 and retracted from his

admission of additional income on the ground that admission

was taken during the course of search by coercion, but not on

the basis of any material found during the course of search.

Act, 1961 was issued. In response, the assessee filed his return

8 ITA Nos. 112 to 114/Chny/2021

of income on 10.08.2018 and declared total income, which was

declared in the original return of income filed u/s.139(1) of the

Act, without admitting any undisclosed income offered during

the course of search. The case was taken up for scrutiny.

During the course of assessment proceedings, the Assessing

Officer has called upon the assessee to explain as to why

undisclosed income offered during the course of search

towards unaccounted income generated outside regular books

of account should not be added to total income. In response to

notice, the assessee vide his letter dated 26.10.2018 filed

detailed written submissions on the issue and argued that

admission taken during the course of search and the statement

recorded u/s.132(4) of the Act is not voluntary, but by

coercion. The assessee has retracted from his statement by

filing letter dated 18.06.2016 along with affidavit dated

04.08.2016 and explained why admission made during the

course of search is incorrect.

assessee on the ground that retraction made by the assessee

subsequent to date of search is an afterthought and without

9 ITA Nos. 112 to 114/Chny/2021

any basis and thus, made additions towards undisclosed

income offered during the course of search and cash found

during the course of search on the ground that incriminating

materials found during the course of search and its contents

clearly established fact of earning unaccounted income and

spending outside regular books of account is proved. Further,

the assessee has admitted additional income and also specified

manner in which such undisclosed income is earned. The

admission made by the assessee is further strengthened by the statement of Mr.Santosh, employee of NAC Jewellers Pvt. Ltd,

where he has stated that the assessee had given amount of

Rs.3.00 crores in cash, as land advance and for purchase of

pooja articles. The assessee has reiterated his stand in

subsequent statement recorded u/s.132 (4) of the Act. In the

statement recorded during the course of assessment

proceedings u/s.131 (1) of the Act, the assessee has

confirmed seized documents belongs to him and transactions

appearing in diaries relating to proprietary concern. Although,

the assessee has filed retraction along with affidavit, but said

letter and affidavit are not acknowledged by the investigation officer. Therefore, the Assessing Officer opined that information

10 ITA Nos. 112 to 114/Chny/2021

collected during the course of search, coupled with statement

recorded from the assessee during the course of search and

post-search investigation clearly established fact of

unaccounted income earned from business and spent outside

regular books of account. Therefore, made additions towards

unaccounted income offered during the course of search for the

assessment years 2015-16 to 2017-18.

preferred appeal before the CIT(A). Before the learned CIT(A), the assessee has filed detailed written submissions on the

issue which has been reproduced at para 6 on page 10 to 21 of

the learned CIT(A) order. The sum & substance of arguments of

the assessee before the learned CIT(A) are that purported diary

found during the course of search is nothing but a dumb

document, which does not show any light on income earned

from business outside books of account and spent for

expenses. The assessee further contended the he is in the

business of retail trading of country liquor and also dealer for

Hindustan Petroleum Corporation Ltd., cannot generate so much unaccounted income, because these two trades are

11 ITA Nos. 112 to 114/Chny/2021

highly regulated by the Government. From the seized

documents nothing can be made out whether any income is

earned during the relevant period and if earned, from which

source said income is earned. Similarly, nothing could be made

out from document regarding expenditure incurred outside

books of account. If you see document, stereotype recording is

recorded whereby it recorded some figures in credit and some

figures in debit and credit side says ‘amount supply’ and debit

side says ‘amount paid’. The Assessing Officer inferred that

credit side amount supply means income earned, which is not

disclosed in regular books of account and summed up and

made additions for each assessment years. However, the

Assessing Officer has conveniently ignored debit side of the

amount paid on the ground that debit pertains to expenditure

incurred outside books of account. But, fact remains that from

the said document nothing is discernible, whether any income is

earned and from what source of income and any expenditure is

incurred for what purpose, therefore, on the basis of said

document, no addition can be made. The assessee has also

agitated additions made by the Assessing Officer in light of

certain judicial precedents and argued that except admission,

12 ITA Nos. 112 to 114/Chny/2021

the Assessing Officer has not brought on record any evidence

to prove that the assessee has earned unexplained income.

Although, the Assessing Officer has heavily relied upon

decision of the Hon’ble Madras High Court in the case of

Kishore Kumar Vs. DCIT (2014) 52 taxman.com 449, but if you

go through said decision, the assessee has admitted

undisclosed income, which is based on certain incriminating

materials. Further, there was no retraction from the assessee

and in that context, the Hon’ble Court came to the conclusion that admission is piece of evidence and additions can be made

on that basis. Therefore, the assessee submitted that additions

made by the AO should be deleted.

submissions of the assessee and also taken note of various

facts, opined that documents found during the course of search

in the form of diary, coupled with statement recorded during

the course of search clearly brought out facts of earning

unaccounted income from his business and spending for

expenses outside books of account. The assessee had also explained modus operandi of generating unaccounted income

13 ITA Nos. 112 to 114/Chny/2021

by way of inflation of expenditure. A perusal of seized materials

and noting contained therein indicate that incriminating

documents is speaking one where systematic and regular

recording has been made on date-wise. A comparison with

regular books of account has indicated that cash receipts

evidenced by jottings have not been reflected in the books of

account. The jottings have evidentiary value, because they are

not random jottings, but regular systematic capturing data

maintained in parallel besides regular books of account. The

handwriting of author of the impugned seized materials that was

recovered has established place from which seized materials

was recovered has been brought on record. From the above, it

is very clear that generation of unaccounted money and

utilization of unaccounted income so generated as evidenced

from seized materials. The assessee has explained modus

operandi of generation of unaccounted income and has

admitted additional income in the statement recorded u/s.132(4)

of the Income Tax Act, 1961. The said admission has been

reiterated in subsequent statement recorded u/s.132(4) of the

Act. Although, the assessee has filed retraction along with

affidavit, but could not prove filing of affidavit before the

14 ITA Nos. 112 to 114/Chny/2021

investigation officer, which is evidenced from fact that there is

no signature or acknowledgement in the retraction letter filed by

the assessee. Further, retraction filed by the assessee is an

afterthought, because the assessee has clearly admitted

undisclosed income, which is supported by material found

during the course of search. Therefore, the learned CIT(A)

opined that there is no merit in the arguments taken by the

assessee that additions made by the Assessing Officer on the

basis of admission is incorrect. The learned CIT(A) also

discussed issue at length in light of various decisions, including

decision of Hon'ble Jurisdictional High Court of Madras in the

case of B.Kishore Kumar Vs. DCIT (supra) and opined that

where the assessee himself stated in sworn statement recorded

during the course of search about undisclosed income, same

has to be levied to tax on the basis of admission without

scrutinizing documents. The learned CIT(A) has also discussed

the issue of retraction in light of certain judicial precedents and

held that the assessee has retracted his admission on the

ground that coercion and undue influence, however, failed to

demonstrate with evidence that admission taken during the

course of search is by coercion and undue influence. Therefore,

15 ITA Nos. 112 to 114/Chny/2021

rejected arguments of the assessee and sustained additions

made towards undisclosed income. Aggrieved by the order of

the learned CIT(A), the assessee is in appeal before us.

learned CIT(A) erred in sustaining additions made towards

undisclosed income offered during the course of search without

appreciating fact that document relied upon by the Assessing

Officer does not show any light on undisclosed income earned

by the assessee and spent towards expenditure outside regular

books of account. The learned A.R further submitted that if you

go through document relied upon by the Assessing Officer, it is

very clear that so called diary claims to have been found during

the course of search contain some debits and credits with

some figures. However, nothing can be made out from the

document to show that the assessee has earned unaccounted

income. Further, the Assessing Officer has conveniently taken

credit entires in the documents and observed that the assessee

has earned undisclosed income, whereas ignored debit side of

the documents, even though, the assessee has clearly stated

that debit side also pertains to expenditure incurred. The

16 ITA Nos. 112 to 114/Chny/2021

learned A.R for the assessee referring to seized documents

found during the course of search and financial statements

filed by the assessee for relevant assessment years submitted

that the assessee is into the business of trading in arrack in the

State of Puducherry and said business is highly controlled by

the State Government. The assessee is also engaged in the

business of distributor for Hindustan Petroleum Corporation

Ltd., which is once again, highly controlled trade from Govt. If

you go through nature of business carried out by the assessee

and total sales achieved for relevant assessment year, it is

highly improbable that the assessee has earned so much

unaccounted income from said business. Further, if you go

through seized documents, nothing is specified regarding

income & expenditure. It is only the Assessing Officer has

inferred that credit entry represents income, debit entry

represents expenditure and both sides are outside regular

books of account of the assessee, without specifying from

which source the assessee has earned unaccounted income

and what purpose the assessee has spent expenditure outside

books of account. No doubt, one entry in the document

pertains to cash paid to Mr.Santosh of NAC Jewellers Pvt. Ltd.

17 ITA Nos. 112 to 114/Chny/2021

for purchase of land, which was claims to have been paid on

27.05.2016 i.e., on the date of search. The cash paid to said

party was also found in the premises and he had admitted fact

that the assessee has paid cash. Except this, nothing is made

out from the document that to whom said amount is paid. The

Assessing Officer has simply ignored all debit entries and taken

credit entries as unaccounted income and made additions for all

three years. Therefore, the learned A.R submitted that first of

all, there cannot be any additions on the basis of said

document, because it is dumb document, nothing can be made

out from said document to allege that the assessee has made

unaccounted income outside regular books of account. If at all,

document is considered to be correct, then, when the

Assessing Officer has considered credit entries as income

earned outside regular books of account, he ought to have

considered debit entries, which is paid for expenditure incurred

outside regular books of account. If you accept this theory,

only possible solution is to adopt peak credit theory to sustain

additions made by the Assessing Officer, for which the

assessee has filed working of peak credit for each of the

assessment years and arrived at peak credit of Rs.36.25 lakhs

18 ITA Nos. 112 to 114/Chny/2021

for the assessment year 2015-16, Rs.73.13 lakhs for the

assessment year 2016-17 and Rs.422.00 lakhs for the

assessment year 2017-18. Therefore, requested to direct the

Assessing Officer to work out additions by applying peak credit

theory.

the learned CIT(A) submitted that there is no merit in the

arguments of the counsel for the assessee for applying peak

credit theory, because question of application of peak credit

theory comes into operation only in case of repeated cash

deposits and withdrawals from bank accounts. In this case,

documents found during the course of search indicate

unaccounted income earned from his business for three years

and said income has been spent for expenditure outside books

of account. The assessee has admitted unaccounted income

earned from his business, which is supported by entries

contained in documents found during the course of search.

However, the assessee could not establish payments made to

various persons for expenditure outside books of account and

purpose of such payments. Therefore, question of application of

19 ITA Nos. 112 to 114/Chny/2021

peak credit theory does not arise. The learned D.R further

submitted that as regards arguments of the assessee that

documents found during the course of search does not show

any light on undisclosed income or expenditure, the learned DR

submitted that the Assessing Officer as well as learned CIT(A)

has brought out clear facts in light of documents found during

the course of search, coupled with statement recorded from the

assessee, modus operandi of generating unaccounted income

and spending for expenditure outside regular books of account

and thus, made additions towards undisclosed income earned

for all three years and hence, their orders should be upheld.

available on record and gone through orders of the authorities

below. The facts borne out from records indicate that during the

course of search on 26.5.2016 document called diary marked

as ANN/KVK/NS/B&D/S-2 (page 1 to 12) was found and

seized, which contains some jottings date-wise with

narration amount from supply for credit side and amount paid

for debit side. The incriminating documents found during the

course of search was extracted in para 8 of the assessment

20 ITA Nos. 112 to 114/Chny/2021

order. A statement u/s.132(4) of the Act was recorded from the

assessee on the date of search and called upon the assessee

to explain contents recorded in the seized documents. In

response to specific question, the assessee claims to have

admitted earning unaccounted income and spending for

expenditure outside regular books of account for three

assessment years. The Assessing Officer, on the basis of

admission of the assessee in the statement recorded

u/s.132(4) of the Income Tax Act, 1961, come to the conclusion

that the assessee had earned unaccounted income which was

not disclosed in the regular books of account and made

additions for three assessment years. In the process, the

Assessing Officer has ignored explanation furnished by the

assessee in light of retraction along with affidavit filed

immediately after date of search on the ground that retraction

filed by the assessee is only an afterthought, but not based on

any evidences. The Assessing Officer has discussed the issue

at length in light of statements recorded from the assessee,

coupled with documents found during the course of search and

also cash found in the premises of Mr. N. Santhosh of M/s.NAC

Jewellers Pvt. Ltd. According to the Assessing Officer, the

21 ITA Nos. 112 to 114/Chny/2021

assessee has paid a sum of Rs.3.00 crores in cash to

Mr.Santosh on the date of search, as per seized documents

found during the course of search. This is strengthened by cash

found in the premises of Mr.Santosh, where during the course

of search a sum of Rs.3.00 crores was found in the premises of

Mr.Santosh. Therefore, the Assessing Officer was of the

opinion that the assessee has earned undisclosed income

which is outside regular books of account and thus, made

additions for three assessment years.

reasons given by the Assessing Officer to make additions

towards undisclosed income for three assessment years, we

find that except purported diary found during the course of

search and statement recorded from the assessee, nothing is

on record which indicates that the assessee has earned

undisclosed income of such magnitude amount from his two

business activity of retail trading activity in country liquor in the

State of Puducherry and trading in petrol & diesel from the

agency of Hindustan Petroleum Corporation Ltd., because

trading in country liquor in the State of Puducherry is highly

22 ITA Nos. 112 to 114/Chny/2021

regulated by State Government and from said business, it is

highly improbable to generate such huge amount of

unaccounted income. The assessee has maintained regular

books of account which are audited by Accountant and in the

said books of account, the Assessing Officer does not made out

any discrepancy with regard to income or expenditure. The

assessee has purchased goods from Puducherry Distillers Ltd.

for all three assessment years. If you verify purchases made

by the assessee as per audited financial statement with Form

26AS, purchases reported in financial statement in three

assessment years is matching with purchases reported in Form

26AS. The Assessing Officer has not brought on record any

evidence of sales outside regular books of account, in fact

except so called diary no evidence was with the Assessing

Officer to allege that the assessee has made sales outside

regular books of account. Therefore, from the above, it is very

clear that from retail trading of country liquor, possibility of

generating unaccounted income is highly improbable. As

regards retail trading of diesel and petrol, the assessee is a

dealer for Hindustan Petroleum Corporation Ltd. The dealership

of oil marketing companies is highly regulated, where dealers

23 ITA Nos. 112 to 114/Chny/2021

will get nominal amount of commission on sales made. The

question of generation of unaccounted income from dealership

of oil marketing companies is highly improbable. Once again,

the assessee has maintained regular books of account which

was audited by an Accountant. The Assessing Officer does not

make out any discrepancy in books of account nor does the

Auditor have reported any adverse comments in the books of

account of the assessee. From the above, it is very clear that

from the business of dealer of Hindustan Petroleum Corporation

Ltd., question of generation of such huge magnitude of

unaccounted income cannot arise.

reasons given by the Assessing Officer to make additions

towards unaccounted income on the basis of document found

during the course of search, we ourselves do not subscribe to

reasons given by the Assessing Officer for simple reason that

so called document relied upon by the Assessing Officer does

not show any light on unaccounted income earned by the

assessee from his two business. We have carefully gone

through seized document, which is part of assessment order

24 ITA Nos. 112 to 114/Chny/2021

and jottings contained in said document. The seized diary is a

dumb document containing some numbers without any details

of party from whom income was earned or source from which

said income was generated. Similarly, the document contains

some numbers without any details of party to whom it was paid

and purpose of payment. It was simply recorded that on so & so

date amount from supplies and same has been considered by

the Assessing Officer as unaccounted income. Similarly, it was

mentioned that amount paid on some date and the Assessing

Officer inferred that said payment is for expenditure which is

outside regular books of account and thus, the Assessing

Officer has rejected debit side of the document claims to have

incurred for expenditure and assessed credit side of the

document as income earned from undisclosed source of

income. First of all, document relied upon by the Assessing

Officer cannot be considered as a document, because in the

said document nothing can be discernible, whether earning of

income and spending for expenditure. Therefore, same cannot

be taken as evidence in absence of any corroborative details to

substantiate entries. Therefore, we are of the considered view

that the Assessing Officer has completely erred in considering

25 ITA Nos. 112 to 114/Chny/2021

said document and relied upon entries contained therein to

come to the conclusion that the assessee has earned

unaccounted income from his business.

decisions of various courts and the tribunals. The Assessing

Officer has heavily relied upon the decision of the Hon'ble

Jurisdictional High Court of Madras in the case of B.Kishore

Kumar Vs. DCIT (supra) and observed that once admission is

made in the statement recorded u/s.132(4) of the Act, there is

no need to go into verification of documents, because

admission is sufficient to make addition. We have gone through

decision relied upon by the Assessing Officer. No doubt, the

Hon’ble Madras High Court has come to the conclusion that

once there is voluntary admission from the assessee in the

sworn statement recorded u/s.132(4) of the Act, same needs to

be taxed, on the peculiar facts of that case, where the assessee

has given admission towards undisclosed income which is

supported by incriminating documents found during the course

of search. Further, the assessee has not retracted from his

admission, however, contested the issue only during the course

26 ITA Nos. 112 to 114/Chny/2021

of assessment proceedings. Under those facts, the Hon’ble

High Court came to the conclusion that admission in the

statement is sufficient to make additions, unless contrary

evidence leads to take different view. In this context, it is

worthwhile to refer to decision of the Hon’ble Supreme Court in

the case of M/s. Pullangode Rubber Produce Co. Ltd. Vs. State

of Kerala (1973) 91 ITR 18, wherein the Hon’ble Supreme Court

has laid down proposition that an admission is extremely

important piece of evidence, but it cannot be said that it is

conclusive. In other words, admission is a piece of evidence,

where said admission is supported by evidences which suggest

undisclosed income earned from business. In absence of any

corroborative evidence to strengthen admission made in the

statement recorded u/s.132(4), no addition can be made only

on the basis of admission itself. The very same legal principle

has been expressed by the Hon’ble High Court of Madras in the

case of CIT Vs S.Jayalakshmi Ammal (2016) 74 taxmann.com

35, wherein it was held that if there is no corroborative

documentary evidence, then statement recorded u/s.132(4) of

the Act, alone should not be basis for making any addition. A

similar view has been expressed by the Hon’ble Jharkhand

27 ITA Nos. 112 to 114/Chny/2021

High Court in the case of M/s. Shree Ganesh Trading

Company Vs. CIT (2013) 30 taxmann.com 170. The Hon’ble

Delhi High Court in the case of CIT Vs Anzal Properties &

Industries (2018) 98 taxmann.com 398 (Del), has reiterated

similar legal position. Various Benches of Tribunals, including

decision of the ITAT., Mumbai, in the case Pooja Bhatt Vs ACIT

73 ITD 205, has considered an identical issue and held that

addition based on rough notes not sustainable, unless

corroborative evidence suggests that what is recorded in loose

sheet is true and correct which suggests unaccounted income

earned from business which is not recorded in regular books of

account. The sum & substance of ratio laid down by various

High Courts and Tribunals are that admission in the statement

recorded u/s.132(4) is important piece of evidence, provided

such admission should be supported by corroborative evidence,

which suggests what is recorded in incriminating materials

found during the course of search is true and correct, which

shows unaccounted income earned by the assessee from

business which is not recorded in the regular books of account.

This legal principle is also strengthened from the CBDT Circular

No.286/2/2003 dated 10.03.2003, where it has directed is field

28 ITA Nos. 112 to 114/Chny/2021

officers to focus on collection of evidences during search and

seizure which lead to information as regards undisclosed

income, instead of taking admission of income in the statement

recorded u/s.132(4) of the Income Tax Act, 1961.

examine case of the assessee, absolutely there is no evidence

with the Assessing Officer to allege what is recorded in the

seized document shows unaccounted income earned by the

assessee from his business. As we have noted already in our

order, document relied upon by the Assessing Officer is nothing

but dumb document, which does not show any light on financial

transactions of the assessee, be it income earned from

undisclosed source or expenditure incurred outside regular

books of account. The jottings recorded in the so called diary

does not show anything about income from whom said income

is earned or source from which said income is earned or

expenditure incurred outside regular books of account.

Therefore, on the basis of said document additions made by the

Assessing Officer is highly incorrect. Further, the assessee has

filed retraction immediately 15 days after date of search along

29 ITA Nos. 112 to 114/Chny/2021

with affidavit and stated that admission taken during the course

of search is by coercion and undue influence, but not based on

evidences gathered during the course of search. In the

retraction letter dated 18.06.2016 and affidavit dated

04.08.2016, the assessee has explained manner in which

statement was recorded u/s.132(4) of the Act, and said letter

was filed before the investigation officer, however, the

department has ignored retraction filed by the assessee. It is

well established principle of law by the decision of the Hon’ble Allahabad High Court in the case of L. Sohan Lal Gupta Vs CIT

(1958) 33 ITR 786 that an affidavit filed by the assessee

cannot be discarded, unless an opportunity is given to the

assessee to substantiate its case. In this case, the Assessing

Officer as well as learned CIT(A) has discarded retraction letter

filed by the assessee only on the basis of admission of

undisclosed income recorded in the statement u/s.132(4) of the

Income Tax Act, 1961. In our considered view, the Assessing

Officer as well as learned CIT(A) were completely erred in

making additions towards only credit entries in the seized

documents, disregarding explanation furnished by the assessee.

30 ITA Nos. 112 to 114/Chny/2021

The ld. AR has made an alternative argument without prejudice

to its first argument. The assessee contended that if at all, a

credit entry in the seized documents is considered as sales

made outside regular books of account, then entire sales

cannot be added as income, but only net profit from the

business should be treated as income of the assessee. The

assessee has also made arguments for applying peak credit

theory in light of debits and credits contained in very same

seized documents and argued that if at all document is to be

relied upon, then only peak credit recorded in the document

should be considered as undisclosed income of the assessee.

The peak credit theory is not a foreign to the income-tax

proceedings. Various courts and tribunals time and again are

batting for peak credit theory depending upon facts and

circumstances of each case, more particularly, where large

amount of cash transactions are involved, the courts observed

that peak credit theory is best method to determine undisclosed

income of the assessee to avoid duplication of additions

towards income & expenditure. In this case, so called diary

found during the course of search contains some credit and

31 ITA Nos. 112 to 114/Chny/2021

debit entries. Although, there is no narration in the entries to

describe it as income, however, the Assessing Officer has

considered entries as unaccounted income earned by the

assessee from his business. The said incriminating diary found

during the course of search also contains debit entries and the

Assessing Officer has conveniently ignored those entries on the

ground that said entries pertain to expenditure incurred outside

regular books of account, although, there is no narration with

regard to nature of entry and to whom said amount is paid. It is

well established principle of law by the decisions of the courts

and the tribunals that when something is recorded in the seized

documents, be it income or expenditure, both needs to be

considered for the purpose of taxation and this principle is

supported by the decision of the ITAT., Mumbai in the case of

Pooja Bhatt Vs. ACIT (supra), where the Tribunal held that

expenses eligible for deduction in the seized document should

be considered while arriving at net income.

was recorded in the seized document towards debit side is

expenditure outside regular books of account, although nature

32 ITA Nos. 112 to 114/Chny/2021

of said expenditure is not known to the assessee as well as the

Assessing Officer. Therefore, we are of the considered view

that when the Assessing Officer has taken credit entries as

income of the assessee earned from undisclosed source of

income, he ought to have considered debit side of entries as

expenditure incurred for earning said income. If you consider

same analogy, then the Assessing Officer should have

considered income as well as expenditure. If you consider debit

entry as expenditure, then only net income from said document

needs to be taxed. Since, we have already stated in earlier part

of this order, credit entry does not depict any income and debit

entry does not show any light on expenditure, then the only

possible method to determine undisclosed income for the above

period is adoption of peak credit theory and in this case,

particularly peak credit theory is best method to determine

undisclosed income of the assessee. The assessee has filed

working of peak credit, which is available in paper book filed for

relevant period. The assessee has copied entries contained in

seized documents relied upon by the Assessing Officer and

recorded date-wise receipts and payments. For the financial

year 2015-16 as on 23.03.2015, peak credit works out to

33 ITA Nos. 112 to 114/Chny/2021

Rs.36.25 lakhs, which is net of debit and credit entries recorded

in seized document. Therefore, addition is required to be made

to the extent of Rs.36.25 lakhs for the assessment year 2015-

to the extent of Rs.36.25 lakhs for the assessment year 2015-

16 towards undisclosed income. The assessee has worked out

peak credit of Rs.73.13 lakhs as on 25.03.2016 which is

relevant to the assessment year 2016-17, on the basis of net of

debit and credit entries from so called diary found during the

course of search. Therefore, we direct the Assessing Officer to

restrict addition to the extent of Rs.73.13 lakhs for the

assessment year 2016-17. Similarly, the assessee has worked

out peak credit of Rs.422.00 lakhs for the assessment year

2017-18 on 27.05.2016, which is on the date of search, which

includes a sum of Rs.3.00 crores cash paid by the assessee to

one Mr. Santosh of M/s.NAC Jewellers Pvt. Ltd. and confirmed

by the party. Therefore, addition is required to be made to the

extent of Rs.422.00 lakhs for the assessment year 2017-18 and

thus, we direct the Assessing Officer to sustain addition to

Rs.422 lakhs for the assessment year 2017-18.

34 ITA Nos. 112 to 114/Chny/2021

assessment year 2015-16 is addition of Rs.1,65,90,000/-

towards unaccounted cash receipts. During the course of

search & seizure operation, certain loose sheets were found

and seized from the residential premises of Mr.S.Vasudevan,

which contains details of cash receipts and corresponding cash

payment. During the course of assessment proceedings, the

assessee was asked to explain contents of the loose sheets

along with supporting documentary evidence. In response, the

assessee filed a reply dated 28.12.2018 and furnished details

with regard to seized documents and explained that these cash

receipts are pertain to income generated from his proprietary

concern M/s. Natesan Agenices and same was duly accounted

for in the regular books of account amounting to

Rs.50,40,000/-. In respect of other entries, like amount in the

name of Mr.N. Palaniswamy, M/s. Pearl Transport, Mr. TNJ

Natarajan and M/s. M.S.Wines amounting to Rs.1,65,90,000/-.

The assessee could not explain nature and source. Therefore,

the Assessing Officer has made additions as unaccounted

income.

35 ITA Nos. 112 to 114/Chny/2021

materials on record. Even before us, except entry in the name

of M/s. Natesh Agencies amounting to Rs.50,40,000/-, the

assessee could not explain other entries in the name of

P.Palaniswamy for Rs.61,00,000/- M/s.Pearl Transport for

Rs.10,00,000/- Mr.TNJ Nadarajan for Rs.49,90,000/- and M/s.

M.S.Wines for Rs.45,00,000/- totaling to Rs.1,65,90,000/-,

except stating that those entries does not belong to him and

persons from whose premises said document is found needs to

be explained contents of the document. We do not find any

merits in the arguments of the assessee for the simple reason

that document pertains to business activities of the assessee

and further, persons specified in the document are all

associates of the assessee and hence, it is for the assessee to

explain contents recorded in the document. Since, the

assessee could not explain contents; we are of the considered

view that the Assessing Officer has rightly made additions

towards entries as unaccounted income in the hands of the

assessee. Hence, we are inclined to uphold findings of the

learned CIT(A) and reject ground taken by the assessee.

36 ITA Nos. 112 to 114/Chny/2021

assessment years are partly allowed.

Order pronounced in the open court on 27th July, 2022

Sd/- Sd/- ( वी. दुगा� राव) (जी. मंजुनाथ) (V.Durga Rao) (G.Manjunatha) "या�यक सद$य /Judicial Member लेखा सद$य / Accountant Member चे"नई/Chennai, 'दनांक/Dated 27th July, 2022 DS आदेश क� ��त)ल*प अ+े*षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु,त (अपील)/CIT(A) 4. आयकर आयु,त/CIT 5. *वभागीय ��त�न1ध/DR 6. गाड� फाईल/GF.