SHRI MOHAN KUMAR,,CHENNAI vs. ACIT, CC - 1 (2),, CHENNAI

At the outset, learned AR for the assessee submitted that there is a delay of 43 days in filing both these appeals by the assessee, for which necessary petition along with affidavit for condemnation of delay explaining the reasons for delay has been filed. The AR further submitted that the assessee could not file appeal within the time allowed under the Act, due to the fact that the assessee was suffering from heart ailments due to diabetics and high blood pressure and was undergoing medical treatment which caused delay of 43 days. The delay in filing both the appeals is neither intentional nor willful, but for the unavoidable reasons, therefore, he prayed that delay may be condoned in the interest of advancement of substantial justice.

The learned DR, on the other hand, strongly opposing 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, appeal filed by the assessee may be dismissed as not maintainable.

The brief facts of the case are that the assessee is an individual and engaged in the business of money lending. A search and seizure operation u/s.132 of the Income tax Act, 1961, was conducted in the case of the assessee on 02.01.2008. Consequent to search, the assessee has filed return of income for the assessment year 2006-07 on 30.12.2008 admitting total income of Rs.40,54,960/-. The assessment has been completed u/s.143(3) r.w.s.153A of the Income Tax Act, 1961 on 31.12.2019 and determined total income of Rs.27,90,83,922/- by making following additions :-

The assessee has challenged various additions made by the Assessing Officer before the first appellate authority. The learned CIT(A) vide his order dated 27.03.2013 has deleted additions made towards investments in M/s. Surana Sales Corporation amounting to Rs.7,55,00,000/-, bank deposits in the names of family members and associates amounting to Rs.52,03,962/- and additions towards disallowance of bad debts amounting to Rs.9,52,25,000/-, however, did not decided the issue of unexplained investments with regard to payment to M/s. Landmark Construction Company amounting to Rs.30 lakhs. The revenue as well as assessee has filed appeals before the ITAT and challenged order of the learned CIT(A).

The Assessing Officer, in pursuant to the order of the Tribunal has posted case for hearing and called upon the assessee to explain its case with supporting evidences. The Assessing Officer, after considering relevant submissions of the assessee and also taken note of direction of the Tribunal has completed assessments u/s.143(3) r.w.s 254 of the Income Tax Act, 1961, on 27.12.2017 and determined total income at Rs.18,37,83,920/- by making very same additions which he had made in the first round of assessment passed u/s.143(3) r.w.s. 153A of the Income Tax Act, 1961, dated 31.12.2009.

The learned A.R for the assessee, on the other hand, referring to the order of the Tribunal dated 12.02.2016 submitted that the Tribunal has remitted appeals filed by the revenue on those issues which has been decided by the first appellate authority in violation of Rule 46A of the Income Tax Rules, 1962, otherwise, all other additions made by the Assessing Officer and deleted by the first appellate authority vide his order dated 27.03.2013 was attained finality and thus, the Assessing Officer cannot reconsider those issues and made additions once again, in consequential assessment proceedings. The learned A.R for the assessee referring to the order of the learned CIT(A) dated 27.03.2013 submitted that the learned CIT(A) has deleted additions made by the Assessing Officer in light of facts brought out in the assessment order and findings of the Assessing Officer in remand report on various additional evidences filed by the assessee. Although, the revenue has filed an appeal before the Tribunal, but the revenue has not challenged various issues considered by the learned CIT(A), however, challenged findings of the learned CIT(A) in light of Rule 46A of the Income Tax Rules, 1962. The Tribunal, after considering relevant facts has set aside appeals filed by the Revenue to the file of the Assessing Officer only on those issues which have been decided by the learned CIT(A) in violation of Rule 46A of the Income Tax Rules, 1962.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. There is no dispute with regard to fact that the Tribunal has set aside appeals filed by the revenue as well as assessee to the file of the Assessing Officer for de novo consideration of all those issues, which has been decided by the first appellate authority in contravention of Rule 46A of the Income Tax Rules, 1962. In fact, the Assessing Officer had categorically admitted in his assessment order passed in pursuant to direction of the Tribunal and observed that the Tribunal has restored only those issues which have been decided in violation of Rule 46A of the Income Tax Rules, 1962, however, went ahead to decide the issues by defying directions of the Tribunal by observing that order of the Tribunal is not clear on the issues of violation of Rule 46A and with respect to which additions violation relates to by exceeding his authority. If at all, the Assessing Officer was not clear on the findings of the Tribunal, best course of action would be to file Miscellaneous Petition before the Tribunal and seek clarification on findings given by the Tribunal. In this case, the Assessing Officer without understanding findings of the Tribunal has gone ahead to make additions on those issues which were not at all subject matter of appeal before the Tribunal. Therefore, on this ground itself, the assessment order passed by the Assessing Officer, in pursuant to direction of the Tribunal u/s.143(3) r.w.s. 254 of the Act, cannot be sustained.

Coming back to the additions made by the Assessing Officer towards bad debts amounting to Rs.9,52,25,000/-. The Assessing Officer has disallowed claim of bad debts on the ground that the assessee was not financier, but only an agent and hence, he cannot claim bad debts. The learned CIT(A), during first round of litigation observed that respondent was indeed, a financier and payments were booked in the books of account of the assessee and further, these advances became bad and hence, the assessee was eligible to claim deduction towards bad debts written off. The learned CIT (A) had recorded categorical finding in light of various evidences filed by the assessee in the form of police complaint, cases in higher courts for recovery of debt etc., to prove that these debts have indeed became bad. The learned CIT(A), during the present proceedings has observed that the Assessing Officer has not brought any material evidence to the contrary in his assessment proceedings u/s.143(3) r.w.s.254 of the Income Tax Act, 1961, and therefore, deleted additions. Therefore, we are of the considered view that when the AO himself admitted fact that the assessee had not filed any additional evidences and further, there is no violation of Rule 46A by the ld. CIT(A), he ought not to have made addition on this issue in consequential proceedings. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue.

As regards, deletion of additions on bank deposits of Rs.52,03,692/- in the names of family members of the assessee, we find that the learned CIT(A) in the first round of appellate proceedings held that since, all the family members are independent assessee,s and filing their return of incomes and moreover, alleged bank accounts were duly reflected in the respective returns filed for relevant assessment years, the question of addition of these cash deposits, once again in the hands of the assessee does not arise. The revenue does not challenged the findings of the ld. CIT(A) before the Tribunal, except arguing that the CIT(A) has decided the issue in violation of Rule 46A of Income Tax Rules 1962. We find that the CIT(A) has decided the issue after considering Remand Report of the AO and thus, the question of violation of Rule 46A does not arise. Further, the AO himself admitted during consequential proceedings that there is no violation of Rule 46A of IT Rules. Therefore, we are of the considered view that when the AO himself admitted fact that the assessee had not filed any additional evidences and further, there is no violation of Rule 46A by the ld. CIT(A), he ought not to have made addition on this issue in consequential proceedings. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer. Hence, we are inclined to uphold findings of the learned CIT(A) and reject ground taken by the revenue.

In the result, appeal filed by the revenue is dismissed. & 464/Chny/2020 (A.Y. 2007-08)

The revenue has raised following grounds of appeal:-

The assessee has raised following grounds of appeal:-

The first issue that came up for our consideration from assessee as well as the revenue appeal is addition towards amount receivable from debtors by adopting peak credit at Rs.4,76,15,000/-. The Assessing Officer has made additions towards amount receivable from borrowers on the basis of peak credit by observing that the assessee does not maintained proper books of account for his money lending business. The Assessing Officer has determined amount receivable from sundry debtors on the basis of incriminating materials found during the course of search, which includes advances not reflected in the regular books of account of the assessee. Both the learned CIT(Appeals) had adopted a stand that amount advanced and those not reflected should be added by adopting peak credit. The learned CIT(A) was of the opinion that amount advanced, repayment received and again reinvested which also included interest earned and hence, peak credit should be adopted to determine total undisclosed income from money receivable from borrowers.

The learned A.R for the assessee submitted that the assessee has maintained proper books of account which is evident from the seized materials found during the course of search, as per which advances made to various borrowers has been found recorded in books of account maintained for the relevant assessment year. The learned A.R further submitted that the assessee has duly provided balance sheets, profit & loss account and other schedules and disclosed all the parties to whom money was advanced. Therefore, he submitted that once regular books of accounts were maintained, addition on the basis of peak credit cannot be made.

The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that facts gathered during the course of search clearly establish modus operandi of the assessee, as per which the assessee has lent money to various borrowers which were not disclosed in regular books of account maintained for the relevant assessment year. The Assessing Officer has worked out unaccounted advances on the basis of incriminating materials found during the course of search by adopting peak credit theory, when the assessee is unable to reconcile various incriminating materials to regular books of account. The learned CIT(A), after considering relevant facts has rightly directed the Assessing Officer to adopt peak credit method to determine unaccounted advances receivable from borrowers, and hence, their orders should be upheld.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Assessing Officer has worked out unaccounted receivable from borrowers on the basis of peak credit and has made additions of Rs.4,76,15,000/- for the assessment year 2007-08. It was explanation of the assessee before the Assessing Officer that he has maintained proper books of account and has accounted various advances given to borrowers and therefore, no addition could be made by adopting peak credit method. We find that the learned CIT(A) in the first round of adjudication, has recorded categorical finding that the assessee had maintained regular books of account for his money lending business. Further, loans and advances given to various borrowers were part of books of account maintained by the assessee. Even, this fact has been confirmed by the AO during remand proceedings. Therefore, we are of the considered view that once the assessee maintains regular books of account for his business, the question of application of peak credit theory does not arise.

The basic idea behind peak credit theory is to avoid double addition and to bring only actual income of the assessee to suffer tax, where there is large number of unexplained credit and debit entries. In a case, where the assessee has various debits & credits, which he would not explain with regular books of account maintained for the year, then peak credit theory may be one of the possible method to determine correct income of the assessee. But, the above proposition cannot be treated as proposition of law. These are only inferences which can be drawn based upon normal probabilities. Further, these inferences can also be displaced by any material or record which may indicate to the contrary. Therefore, application of peak credit theory should be tested in each case based on its facts and circumstances. In this case, there is no dispute with regard to fact that the assessee has maintained books of account for his finance business. Further, the assessee has reconciled various entries found as per incriminating documents to his regular books of account maintained for the relevant assessment year. In fact, the learned CIT(A) has categorically noted in his order that the assessee has maintained books of account for finance business and further, loans & advances given to various parties is reflected in the books of account maintained for the relevant assessment year. The assessee had also filed financial statement which contains details of amount receivable from borrowers. Based on the books of account maintained by the assessee, the Assessing Officer had allowed deduction towards bad debts written off in respect of various loans & advances receivable from borrowers. From the above, it is very clear that the assessee has maintained regular books of account for the assessment year in question and has also explained each debit & credit entries as per incriminating materials found during the course of search to his books of account maintained for above period. Therefore, we are of the considered view that once the assessee has explained debit & credit entry appearing in his books of account, then the Assessing Officer cannot adopt peak credit theory for determination of income, because question of application of peak credit theory would come into operation only when large number of debits & credits in the books of account of the assessee are unexplained. Since, the assessee has explained debit & credit entries, as per incriminating materials to his regular books of account, the Assessing Officer ought not to have applied peak credit theory and determined amount receivable from borrowers. The learned CIT(A), without appreciating above facts, has simply sustained reasons given by the Assessing Officer to adopt peak credit theory to make additions on amount receivable from borrowers. Hence, we reverse findings of the learned CIT(A) and direct the Assessing Officer to delete additions made towards amount receivable from borrowers.

The next issue that came up for our consideration from ground nos.2 & 4 of revenue appeal is deletion of addition of Rs.5,88,00,000/- made by the Assessing Officer towards bad debts written off. The Assessing Officer has made additions towards bad debts written off on the ground that the assessee is only an agent, but not carried out finance business on his own and thus, he cannot claim deduction towards bad debts written off.

The learned A.R for the assessee strongly supporting orders of the learned CIT(A) submitted that the assessee has maintained books of account and has disclosed all advances given in the course of money lending business. The AR further submitted that the learned CIT(A) has considered various evidences filed by the assessee and after considering relevant facts very categorically held that the assessee has maintained books of account and has disclosed advances given during the relevant period. Therefore, the learned CIT(A) opined that when the assessee has written off bad debts as irrecoverable, same needs to be allowed. Therefore, there is no merit in the ground taken by the revenue challenging findings of the learned CIT(A).

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The additions made by the Assessing Officer towards disallowance of bad debts cannot be sustained on basic ground that the issue was not subject matter of appeal filed by the revenue before the Tribunal. From the findings of the Tribunal vide order dated 12.02.2016, what we noticed is that the Tribunal has set aside the appeals filed by the revenue only on those issues which have been decided by the learned CIT(A) in violation of Rule 46A of I.T. Rules, 1962, otherwise, the revenue has not challenged findings of the learned CIT(A) in deleting additions made by the Assessing Officer towards bad debts.

The next issue that came up for our consideration from assessee appeal is addition sustained by the learned CIT(A) towards sum received from M/s.Bajaj Promoters Pvt. Ltd. amounting to Rs.45,35,000/-. We find that, the assessee has failed to file evidences to prove amount received from M/s.Bajaj Promoters Pvt. Ltd. is reflected in books of account for the relevant assessment year. Although, the assessee claims to have recorded credit in books, but facts brought on record by the ld. AO as well as the ld. CIT(A) proves otherwise. Even before us, no evidences has been placed to justify credit in the name of M/s Bajaj Promoters Pvt Ltd.,. Hence, we are inclined to uphold the findings of ld. CIT(A) and reject ground taken by the assessee.

The next issue that came up for our consideration from assessee appeal is addition towards investments in land at Mylapore amounting to Rs.15 lakhs. The learned CIT(A), in the first round of litigation, has deleted additions made by the Assessing Officer by holding that the assessee has not made any investments in purchase of land, but has only advanced loan against property and further, same was part of regular books of account maintained for the relevant assessment year.

Having heard both the parties, we find that first of all, this issue is not emanating from the order of the Tribunal in setting aside the issue to the file of the Assessing Officer for de novo consideration, because the Tribunal had set aside only those issues which have been decided by the learned CIT(A) in violation of Rule 46A of I.T.Rules, 1962. Therefore, once the issue was not subject matter of appeal before the Tribunal, the Assessing Officer cannot question the said issue in the consequential proceedings. Since, the issue was not subject matter of proceedings before the Tribunal, the Assessing Officer ought not to have considered very same issue and made additions. The learned CIT(A), without considering these facts has simply sustained additions made by the Assessing Officer. Hence, we reverse findings of the learned CIT(A) and direct the Assessing Officer to delete additions made towards investment in land at Mylapore amounting to Rs.15 lakhs.

In the result, appeal filed by the revenue for the assessment year 2007-08 is dismissed and appeal filed by the assessee for the assessment year 2007-08 is partly allowed. & 465/Chny/2020 (A.Y.2008-09): 30. The revenue has raised following grounds of appeal:-

The assessee has raised following grounds of appeal:-

The Learned CIT and Learned AO failed to understand that the credits taken from Mr. Sivaraman and K. Murugasan were only through legitimate banking channels and the same have been confirmed by the creditors. The fact that they have not chosen to show these transaction in their returns need to be addressed in their individual assessment. The fact that they have accepted in a sworn affidavit the credits made to the Assessee proves the genuineness of the transaction and the said addition must not be done in the hands of the Assessee.

The first issue that came up for our consideration from ground Nos.2 & 3 of assessee appeal and ground nos.2 &3 of the revenue appeal is addition on account of money receivable from borrowers amounting to Rs.24,49,98,000/- and money receivable as per pro-notes of Rs.45 lakhs and as per sworn statement on the basis of seized materials at Rs.45,50,000/-.

In the second round of litigation, the learned CIT(A) by taking note of findings of the ITAT., Chennai, and also various reasons given by the Assessing Officer to work out amount receivable from borrowers has held that although, the assessee argued that the Assessing Officer should not have considered this addition in the consequential assessment proceedings, but because the first appellate authority in earlier round of litigation has directed the Assessing Officer to work out peak credit, and such finding was challenged by the assessee before the Tribunal and further, appeal filed by the assessee was set aside for de novo consideration, the Assessing Officer is required to make additions towards amount receivable from borrowers, as

Therefore, the learned CIT(A) rejected arguments of the assessee and sustained additions made by the Assessing Officer.

The learned AR for the assessee submitted that the learned CIT(A) having accepted fact that the assessee had maintained books of account for finance business, ought to have deleted additions made by the Assessing Officer towards amount receivable from borrowers on the basis of peak credit theory, because question of application of peak credit theory would come into operation only when credits and debit entries in the books of account of the assessee are unexplained. Since, the assessee has explained each and every credit and debit found during the course of search with reference to seized materials and books of account maintained for the relevant assessment year; the Assessing Officer should not have applied peak credit theory and made additions.

The learned DR, on the other hand, supporting order of the learned CIT(A) submitted that incriminating materials found during the course of search clearly indicate modus operandi of the assessee as per which the assessee has lent money to various persons which is outside books of account maintained by the assessee for the relevant assessment year. The Assessing Officer had worked out amount receivable from borrowers by applying peak credit theory, when the assessee was unable to explain credit and debit entries in the books. The learned CIT(A), after considering relevant facts has rightly sustained additions made by the Assessing Officer. Hence, there is no reason to deviate from the findings recorded by the learned CIT(A).

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The Assessing Officer has made additions towards amount receivable from borrowers from the finance business by applying peak credit theory on the ground that the assessee was unable to explain credit and debit entries appeared in the incriminating materials found during the course of search. It was the explanation of the assessee before the lower authorities that, he had maintained books of account for finance business and further, reconciled each and every loans & advances, as

We have given our thoughtful consideration to the reasons given by the Assessing Officer to make additions towards amount receivable from borrowers on the basis of peak credit theory in light of various averments made by the learned A.R for the assessee and we ourselves do not subscribe to the reasons given by the Assessing Officer for simple reason that basic idea behind peak credit theory is to avoid double addition and to bring only actual income of the assessee to suffer tax, where there is large number of unexplained credit and debit entries. In a case, where the assessee has various debits & credits, which he would not explain with regular books of account maintained for the year, then peak credit theory may be one of the possible method to determine correct income of the assessee. But, the above proposition cannot be treated as proposition of law. These are only inferences which can be drawn based upon normal probabilities. Further, these inferences can also be displaced by any material or record which may indicate to the contrary.

The next issue that came up for our consideration from ground no.6 of assessee appeal is additions towards unexplained investments in land. The Assessing Officer had made additions towards unexplained investments in land at Sriperumbudur amounting to Rs.50.00 lakhs on the ground that the assessee has paid amount for purchase of land. It was explanation of the assessee before the Assessing Officer that alleged investment in land did not take place and that agreement was cancelled. The assessee has filed certain additional evidences before the learned CIT(A) during first round of litigation. The learned CIT(A) had called for remand report from the Assessing Officer and after considering relevant facts has deleted additions made by the Assessing Officer towards unexplained investments in land. The Revenue had challenged order of the learned CIT(A) before the Tribunal.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. At the first instance, additions made by the Assessing Officer towards unexplained investments in land cannot be sustained, because the Tribunal has remanded only those issues which have been decided in violation of Rule 46A by the learned CIT(A) for de novo consideration in light of additional evidences filed by the assessee. In the consequential proceedings, the Assessing Officer did not bring on record what is additional evidence filed by the assessee. In absence of any additional evidences, the issue cannot be reconsidered by the Assessing Officer in the consequential proceedings, because scope of assessment is limited only on those issues which have been decided by the learned CIT(A) in violation of Rule 46A of Income Tax Rules, 1962. Therefore, on this count itself, additions made by the Assessing Officer cannot be sustained.

Be that as it may, fact remains that although, incriminating materials found during the course of search suggested that the assessee made investments for purchase of land at Sriperumbudur, but during the assessment proceedings as well as appellate proceedings, the assessee has filed cancellation of sale agreement, because land purchase transaction could not materialize. The learned CIT(A), in the first round of litigation, after considering relevant facts has rightly deleted additions made by the Assessing Officer. During the second round of litigation, the learned CIT(A) although, accepted fact that the assessee has placed certain evidences to prove that land purchase deal could not be materialized, but made additions only on the ground that the assessee could not furnish necessary evidence, without pointing out what kind of additional evidences the assessee is required to file to explain his case. In our considered view, once it has been accepted that agreement entered into by the assessee for purchase of land has been subsequently cancelled and cancellation agreement was placed before the authorities, then it is sufficient evidence to explain case of the assessee. The learned CIT(A) without appreciating above facts has simply confirmed additions made by the Assessing Officer. Hence, we reverse findings of the learned CIT(A) and direct the Assessing Officer to delete additions towards unexplained investments in land.

The next issue that came up for our consideration from ground no.7 of the assessee appeal is cash found in the premise of the assessee on the date of search. The Department has found cash at Rs.34,50,000/- and the same has been seized. The Assessing Officer has made additions towards cash found and seized during the course of search on the ground that the assessee could not explain source for cash seized. During the first round of litigation, the learned CIT(A) deleted additions on the ground books of account has been maintained and cash balance is available in the books. But, in the second round of appeal, the learned CIT(A) sustained additions on the ground that no evidence was filed before him.

The next issue that came up for our consideration from ground no.9 of the assessee appeal is unexplained credits appeared in the name of Mr. Sivaraman & Mr. K.Murugesan amounting to Rs.1,55,12,283/-. The Assessing Officer made additions towards credits on the ground that the assessee could not file any evidence to explain the credits. The Assessing Officer has considered the issue in light of statement recorded from the assessee, Mr. Sivaraman & Mr. K.Murugesan during the course of search and on the basis of their statements opined that both does not have any means to explain huge amount of advances given to the assessee. Therefore, the Assessing Officer has made additions in the hands of assessee on substantive basis and further, assessed very same credits in the hands of Mr. Sivaraman & Mr. K.Murugesan on protective basis. During the second round of litigation, the Assessing Officer has made additions towards credits on very same basis and observed that except general statement, the assessee could not furnish any specific evidence to justify credits in the name of both the parties.

We have heard both the parties, perused material available on record and gone through orders of the authorities below. The assessee claims that Mr. Sivaraman & Mr. K.Murugesan are agents of the assessee in his finance business. The assessee further claimed that he has taken advance from both parties and said advance has been taken through proper banking channels. The assessee claims to have filed all necessary details to justify credits and also explained genuineness of transaction and creditworthiness of the parties.