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Facts
The assessee's A.Y. 2013-14 return was reopened for Rs. 50 lakh accommodation entries. The assessee admitted the omissions, attributed them to an accountant, and requested that any addition be restricted to the peak credit balance, citing judicial precedents and a similar case. Both the Assessing Officer and the CIT(A) rejected the peak credit theory, made the full addition under Section 68, and the CIT(A) dismissed the appeal ex-parte without properly considering the assessee's evidence.
Held
The Tribunal observed that neither the AO nor the CIT(A) examined the detailed peak credit computation and bank statements provided by the assessee, rejecting the claim summarily without verification. Emphasizing the principles of natural justice, the Tribunal held that it is mandatory for fact-finding authorities to examine all documentary evidence and record a reasoned finding. Therefore, the rejection of the assessee's claim without due verification was unsustainable.
Key Issues
1. Whether the CIT(A) was justified in dismissing the appeal ex-parte and rejecting the peak credit theory without examining the assessee's evidence. 2. Whether the addition under Section 68 should be restricted to the peak credit balance given the submission of bank statements and peak credit workings.
Sections Cited
250, 147, 144B, 148, 68, 271(1)(c), 234A, 234B, 234C, 234D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
This appeal by the assessee is directed against the order dated 07.11.2024 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as "CIT(A)"], under section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act"], for the Assessment Year 2013-14, arising from the reassessment order dated 26.03.2022 passed by the National Faceless Assessment Centre, Delhi [hereinafter referred to as "Assessing Officer"], under section 147 read with section 144B of the Act.
The assessee filed its return of income for the Assessment Year (A.Y.) 2013-14 on 26.03.2014 declaring a total income of Rs.13,85,597/-. The case was subsequently reopened by issuance of a notice under section 148 of the Act dated 31.03.2021 on the ground that the assessee had received accommodation entries aggregating to Rs.50,00,000/- from Dahyabhai Ishwarlal Thakkar and Jalaram Finvest Pvt. Ltd. during the relevant previous year, which were not disclosed in the return of income. Pursuant to the reopening, the assessee filed a return of income on 31.05.2021 reiterating the same income as originally declared. The Assessing Officer recorded that during the assessment proceedings, the assessee admitted omission of certain transactions involving Dahyabhai Ishwarlal Thakkar and Jalaram Finvest Pvt. Ltd., and also transactions with Textile Traders Co-operative Bank, attributing the omissions to the mistakes of the accountant due to the assessee’s advanced age (around 70 years). The assessee requested that the addition, if any, may be restricted to the peak balance in the bank accounts, and filed workings of peak credit along with bank statements. The assessee also relied upon the treatment accorded to a similarly placed entity, namely, Lalbhai Mangaldas Shah HUF (younger brother of the assessee), wherein the addition was restricted to the peak credit balance on similar facts for A.Ys. 2012-13 and 2013-14. Judicial precedents were cited by the assessee, including CIT v. Tirupati Construction Company (2015) 55 taxmann.com 308 (Guj.), Ruchi Organisers 3 Pvt. Ltd. v. ACIT (2006) 150 Taxman 22 (Ahmedabad), and others, to support the application of the peak credit theory. The Assessing Officer, however, rejected the explanation furnished. He recorded a finding that the entire amount of Rs.50,00,000/- constituted unexplained income, representing accommodation entries, and that the peak balance theory was inapplicable because the receipts were not part of a series of running transactions, but were singular unexplained credits. Consequently, the AO made an addition of Rs.50,00,000/- under section 68 of the Act to the returned income. Penalty proceedings under section 271(1)(c) were also initiated for furnishing inaccurate particulars of income.
Aggrieved by the assessment order, the assessee filed an appeal before the Ld. CIT(A). During the appellate proceedings, several notices were issued by the Ld. CIT(A) for hearings on multiple dates, including 12.08.2024, 13.09.2024, 20.09.2024, and 07.10.2024. On each occasion, the assessee sought adjournment citing difficulty in accessing and compiling documents relating to the assessment year under consideration. However, the assessee did not furnish any substantive written submissions or documentary evidence despite being granted opportunities. The Ld. CIT(A), referring to the repeated requests for adjournments without meaningful compliance, invoked the principle that “equity aids the vigilant and not those who sleep over their rights,” and relied upon some decisions to conclude that mere filing of appeal without pursuing it diligently was not sufficient. In para 5.1 of the appellate order, the Ld. CIT(A)
4 adjudicated Ground No. 1.01 raised by the assessee (challenging the addition under section 68) and upheld the finding of the Assessing Officer. It was specifically observed that the assessee’s own acknowledgment of omission coupled with failure to substantiate the source justified the addition. The peak balance approach was rejected on the ground that the accommodation entries were singular in nature and not part of a series of running debits and credits. Section 68 was held applicable because the assessee failed to satisfactorily explain the identity, creditworthiness, and genuineness of the transactions. Accordingly, the Ld. CIT(A) upheld the addition of Rs.50,00,000/- under section 68 and dismissed the assessee’s appeal.
Aggrieved by the order of CIT(A), the assessee preferred an appeal before us raising following grounds of appeal:
Ld. CIT (A) (NFAC) erred in law and on facts in dismissing the appeal by rejecting adjournment application seeking time to file documentary evidence inferring that appellant was neither serious nor earnest to pursue the appeal. Ld. CIT (A) (NFAC) erred in law and on facts asking the assessee to comply with the notices issued in a short span of time not appreciating that details of A Y 2013/14 were not handily available & the assessee was in the process of collecting documents to prepare the response to the notices. Ld. CIT (A) (NFAC) erred in law and on facts in confirming addition by AO of Rs. 50, 00, 000/- allegedly as unexplained cash credit u/s 68 of the Act. Ld. CIT (A) (NFAC) erred in law and on facts confirming action of AO to hold that failure of assessee to record transactions with the entities engaged in providing accommodation entries amounted to unexplained income. Ld. CIT (A) (NFAC) grievously erred in law and on facts in concurring with AO that peak balance approach was not applicable to a single transaction ignoring that assessee in the business of finance has a running account with the entities where loans or repeated credits and debits are involved.
5 Both the lower authorities erred in law and on facts not considering orders accepting peak balance theory on identical facts submitted by the appellant. Levy of interest u/s 234A, 234B, 234C & 234D of the Act is unjustified. Initiation of penalty proceedings u/ 271(1)(c) of the Act is unjustified. The appellant craves leave to add, amend, alter, edit, delete, modify or change all or any of the grounds of appeal at the time of or before the hearing of the appeal.
5. During the course of hearing, the Authorised Representative (AR) submitted that the Ld. CIT(A) erred in deciding the appeal ex-parte despite the assessee having filed repeated adjournment requests citing genuine difficulties in accessing and compiling records pertaining to Assessment Year 2013–14. The AR further submitted that the Ld. CIT(A), in para 5.1 of the appellate order, rejected the assessee’s claim regarding the applicability of the peak credit approach without properly appreciating the facts and evidence on record. The AR pointed out that during the assessment proceedings, the assessee had filed a detailed working of the peak credit position along with relevant bank statements, which clearly demonstrated that multiple transactions involving debits and credits were undertaken with the entities in question. It was submitted that the Assessing Officer, as well as the CIT(A), failed to examine the said working and erroneously proceeded on the assumption that the impugned credit represented a solitary unexplained transaction. The AR emphasized that had the authorities properly considered the peak credit working, the addition, if any, ought to have been restricted only to the peak balance, as per settled judicial principles.
6 6. We have carefully considered the submissions made by the assessee, the material available on record, and the orders of the lower authorities. It is an admitted fact that during the course of assessment proceedings, the assessee had filed a detailed working of the peak credit position supported by bank statements. The assessee contended that the transactions with Dahyabhai Ishwarlal Thakkar and Jalaram Finvest Pvt. Ltd. were part of running accounts involving multiple credits and debits, and therefore, the addition, if any, ought to be restricted to the peak balance outstanding during the year. However, on perusal of para 5.1 of the appellate order passed by the Ld. CIT(A), we find that the Ld. CIT(A) summarily rejected the assessee’s plea regarding peak credit, holding that the impugned transaction represented a single unexplained credit and was not part of a running account. No independent verification or examination of the bank statements or the working of peak credit furnished by the assessee has been carried out either by the Assessing Officer or by the Ld. CIT(A).
It is a settled proposition of law that in cases involving accommodation entries or unexplained credits where multiple transactions occur over a period of time, the theory of peak credit is applicable. The assessee, during the course of assessment proceedings as well as appellate proceedings before the Ld. CIT(A), had specifically placed reliance on the working of peak credit supported by bank statements and had cited judicial precedents in support of the contention that the addition, if any, ought to be restricted to the peak balance. However, both the 7 Assessing Officer and the Ld. CIT(A) have failed to adjudicate upon the assessee’s submissions by appropriately considering the evidence and the judicial pronouncements relied upon.
It is incumbent upon the fact-finding authorities to duly examine the documentary evidence placed on record before drawing adverse conclusions. Mere assumptions without proper appreciation of material lead to miscarriage of justice. The principles of natural justice demand that every piece of evidence produced by the assessee must be considered and a reasoned finding recorded thereon. In the present case, we find that both the Assessing Officer and the Ld. CIT(A) failed to examine the peak credit computation and the bank statements submitted by the assessee. The rejection of the assessee’s claim without verification and without a speaking order dealing with the evidence cannot be sustained in the eyes of law.
In view of the foregoing, we are of the considered opinion that the matter requires to be restored to the file of the Ld. CIT(A) for fresh adjudication. The Ld. CIT(A) shall afford adequate opportunity to the assessee to present its case, examine the bank statements and the working of peak credit furnished, and thereafter pass a speaking and reasoned order in accordance with law.
We clarify that we have not expressed any opinion on the merits of the addition and all issues are left open for adjudication by the Ld. CIT(A).
8 Accordingly, the impugned appellate order is set aside, and the matter is restored to the file of the Ld. CIT(A) for deciding afresh after giving due opportunity to the assessee.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Court on 29th April, 2025 at Ahmedabad.