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Facts
A search and seizure operation was conducted on the assessee's premises, leading to the discovery of incriminating documents, including hand-written diaries. The Assessing Officer made additions to the assessee's income based on a cash loan of Rs. 84,32,000 and interest of Rs. 10,00,000. The CIT(A) deleted these additions, but the revenue appealed this decision.
Held
The Tribunal held that the CIT(A) correctly deleted the addition of Rs. 84,32,000 as cash loan, as its source was explained. The interest payment of Rs. 10,00,000 was also deleted as it was considered an application of undisclosed income confirmed in a subsequent assessment year. For other assessment years, additions were modified based on peak balance theory.
Key Issues
Whether the CIT(Appeals) erred in deleting the additions made by the Assessing Officer related to alleged cash loan and interest payment, and whether subsequent additions based on peak balance theory were justified.
Sections Cited
69A, 69C, 132(1), 148, 142(1), 250(6), 127
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Income Tax Appellate Tribunal, AGRA BENCH, AGRA
Before: SHRI S. RIFAUR RAHMAN & SHRI SUNIL KUMAR SINGH
ORDER PER : SUNIL KUMAR SINGH, JUDICIAL MEMBER:
, 437 & 432/Agr/2024 have been preferred by revenue and 447 & 448/Agr/2024 have been preferred by assessee against the common order dated 04.09.2024 passed in Appeals Nos. CIT (A)-IV/KNP/11193, 10188, 10031, 10013/2019-20 to 2022-23 by the Ld. Commissioner of Income-tax (Appeals)-IV, Kanpur u/s. 250(6) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for the assessment years 2020-21 to 2023-24.
The facts and issues involved in all these appeals are almost similar, hence, for the sake of convenience and brevity, all these appeals are being disposed of by this consolidated order. The facts of only are being narrated as under :
ITA No. 431/Agr/2024 (A.Y. 2020-21):
3(i). The brief facts state that the assessee did not file original return of income for A.Y. 2020-21. A search and seizure action u/s. 132(1) of the Act was conducted on 03.08.2022 on the residential and business premises of Ghanaram & others group of Jhansi, wherein various assets/books of account and documents were found and seized during the course of search. Consequently, Assessing Officer assumed jurisdiction vide order passed u/s. 127 of the Act by PCIT, Kanpur. Notice u/s. 148 of the Act dated 27.06.2023 was issued and served upon the assessee. Assessee did not file return in response thereof. Subsequently, notice u/s. 142(1) of the Act on various occasions were issued along with questionnaire and served upon the assessee.
2 | P a g e 3(ii). During the search action, the residence (Premise DR-19) of one Shri Ashok Kumar Sahu, the Accountant-cum clerk responsible for keeping track of all cash transactions of the assessee company, M/s. Ghanaram Infra-engineers Pvt. Ltd., was also covered. Various incriminating documents were found and seized from the premise. The documents were in the form of various hand-written diaries (BK-4, BK-20, BK-12, BK- 8, BK-34, BK-50, BK-29, BK-32, BK-25, BK-22 etc.).
3(iii). While examining the hand written diary BK-4, it was noticed that the assessee had taken cash loan of Rs.84,32,000/- from M/s. Ghanaram Infra-engineers Pvt. Ltd. during the year 2019-20 and paid interest of Rs.10,00,000/- in cash. In this connection notice u/s. 142(1) of the Act dated 20.02.2024 was issued for seeking explanation regarding nature of transaction and source of payment of interest, assessee, however, failed to submit required explanation.
3(iv). Further show cause notice was also issued and served upon the assessee. Assessee, vide his submission dated 23.03.2024 admitted the copy of ledger recovered from Shri Ashok Kumar Sahu that belonged to assessee, however, explained that the transaction on this paper were related to Shri Bishan Singh, owner of Ghanaram group of cases/ Country One Real Estate LLP for Bhitoor Land/Jewar Land (Ghanaram
3 | P a g e Construction Company Pvt. Ltd.) and Cherry Buildcon Pvt. Ltd., Greater Noida falling in A.Y. 2020-21 & 2022-23.
3(v). It was further stated that these funds were taken from Shri Bishan Singh in connection with his project, of which his accountant Shri Ashok Kumar Sahu was maintaining his records. Further stating that since, the assessee has no concern with reference to the ownership of the investment of these funds, they could not be found in the books of account. Assessee further stated that since he was associated as a helper and sometimes also participated in investment in personal capacity, Rs. 5,00,000/- were transferred from assessee’s wife’s concern M/s. Krishna Agritech.
3.(vi). Assessee further explained that he was enjoying income from business as commission agent and was associated with Ghanaram Infra- engineers Pvt. Ltd. in the above said capacity, the assessee has not made said payment of Rs.10,00,000/- as interest to Shri Bishan Singh/Ghanaram Infra-engineers Pvt. Ltd. Further that during the course of recording his statement, it was said that these funds were taken from Shri Bishan Singh in connection with his project and because of the fact that the deal could not get materialized, Shri Bishan Singh demanded for his money and added Rs.7.5 lacs as interest on account of non-payment as answered to question No. 58 of assessee’s statement recorded on 4 | P a g e oath. Assessee, accordingly, explained that he did neither make the said alleged payment/interest nor accepted the same. Assessing Officer, was, however, not satisfied with the explanation tendered by assessee during the assessment proceedings and added Rs.84,32,000/- as said cash loan and Rs.10,00,000/- as unexplained expenditure u/s. 69C of the Act in the income of the assessee.
Aggrieved, assessee preferred first appeal before ld. CIT(Appeals), who deleted both the additions made by the Assessing Officer.
Aggrieved, revenue has preferred this second appeal, raising following grounds :
1. Whether on facts and circumstances of the case and in law. Ld. CIT (A) IV, Kanpur has erred in deleting the addition of Rs 84,32,000/ made by the Assessing Officer on account of cash loan taken from M/s Ghanaram Infra-engineers Pvt. Ltd without appreciating the fact that the addition was based on the incriminating material found and seized during the course of search and seizure and the assessee failed to explain the contents of the incriminating material.
2. Whether on facts and circumstances of the case and in law, Ld. CITIA) IV, Kanpur has erred in deleting the addition of Rs 84,32,000/- made by the AO on account of cash loan taken from M/s Ghanaram Infra-engineers Pvt. Ltd. by observing that source of this amount is explained, ignoring the fact that the assessee during the course of search and seizure action failed to produce any cogent documentary evidence to prove that seized documents were related to Shri Bishan Singh, owner of M/s Ghanaram Group of cases and this amount was duly recorded in the books of said entity.
3. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-IV, Kanpur has erred in deleting the addition of Rs. 10,00,000/- made by the Assessing Officer u/s 69C of the Income Tax Act, 1961 on account of payment of interest on cash loan taken from M/s Ghanaram Infraengineers Pvt. Ltd, without 5 | P a g e appreciating the fact that the addition was made on the basis of the incriminating material found and seized during the course of search and seizure action and the assessee was not able to explain the relevant entry and contents of the incriminating material.
4. Whether on facts and circumstances of the case and in law, Ld. CIT(A)-IV, Kanpur has erred in deleting the addition of Rs. 10,00,000/- u/s 69C of the Act on account of payment of interest by holding that application of undisclosed income has been confirmed in the hands of assessee in A.Y. 2022-23, without appreciating the fact that the additions made by the AO in different assessment years were based on incriminating material/ seized documents found and seized in the case of assessee pertaining to that assessment years; hence, benefit of sustenance of addition in subsequent years cannot be allowed to the assessee in the year under consideration. ………………………”
Perused the records. None responded for the respondent assessee.
Heard Ld. CIT/DR for the appellant revenue.
Ld. CIT/DR has submitted that while passing the impugned order, ld. CIT(Appeals) has erred in deleting both the aforesaid additions made by the Assessing Officer, ignoring the incriminating material found and seized during the course of search and seizure, which remained uncontroverted by the assessee.
The main point for consideration under appeal is as to whether Ld. CIT(Appeals) has erred in deleting addition of Rs.84,32,000/- made by the Assessing Officer on account of alleged cash loan taken from M/s.
Ghanaram Infra-engineers Pvt. Ltd. and addition of Rs.10,00,000/- on account of payment of interest on such alleged cash loan ?
We have gone through the impugned order alongwith all the material available on record. We notice that on the basis of search and seizure action carried out by the revenue u/s. 132(1) of the Act on 03.08.2022 on the premises of “Ghanaram and other groups of Jhansi”, various documents were seized. The residence of one Shri Ashok Kumar Sahu was also covered under search action. On examining the hand written diary BK-4, revenue noticed that the assessee had taken cash loan of Rs.84,32,000/- from Ghanaram Infra-engineers Pvt. Ltd. during F.Y. 2019-20 and paid interest of Rs.10,00,000/- in cash. On the basis of these seized documentary contents, learned Assessing Officer made the said additions in the income of the assessee. Ld. First appellate authority, on the basis of the assessee’s submissions made before it, called for the remand report from the Assessing Officer in respect of A.Y. 2020-21 to 2023-24. Ld. Assessing Officer submitted combined remand report dated 30.08.2024 for all the relevant assessment years. After considering the assessee’s submissions and remand report submitted by the Assessing Officer, Ld. CIT(Appeals) passed consolidated order dated 04.09.2024.
The relevant paras 8.1 and 9.1 of the impugned order related to A.Y. 2020-21 are reproduced as under :
“8.1. In AY 2020-21 from the seized pages 131 & 170 of Annexure BK-4, found and seized from residential premise of Sh. Rakesh Kumar, it can be seen that the account is maintained in the name of Sh. Rakesh Yadav. From these pages, it can be seen that the 7 | P a g e account of page no. 131 is running from July, 2019 to 05.01.2022. Further account of page no. 170 starts from 09.04.2021 and the same runs upto July, 2021. In page no. 170 of BK-4 on 09.04.2021, there are three entries i.e. entry of Rs. 25,00,000/- on 09.04.2021 in the name of Cherry Buildcon Pvt Ltd., entry of Rs. 5,00,000/- again on 09.04.2021 in the name of Krishna Agritech and entry of Rs. 19.07.2021 of Rs. 75,00,000/- in the name of Country One Real Estate LLP. At the end of this page, there is narration of Hisab Ho Gaya. These entries do not belong to the year under consideration and appear to be cheque entries. In this page, there is mention of debit of Rs. 10,00,000/-. It appears that AO has made addition of Rs. 10,00,000/- based on this. However the same do not pertain to the year under consideration. Further in page no. 131, there are three narrations relating to July, 2019, February, 2021 and 05.01.2022. From these narrations, it appears that amounts have been given to Sh. Rakesh ie the appellant. Based on these narrations, the AO has made addition of Rs. 84,32,000/- as cash received by the appellant from M/s. Ghanaram Infra-Engineers Pvt Ltd. Another addition of Rs. 10,00,000/- is made as cash interest paid by the appellant to M/s. Ghanaram Infra-Engineers Pvt Ltd. In this regard, it is observed that the AO himself has reached to the conclusion based on narration of seized material that amount of Rs. 84,32,000/- is received by the appellant from M/s. Ghanaram Infra-Engineers Pvt Ltd., therefore the source of this cash amount is clear and the same cannot be added in the hands of the appellant. Therefore the same is deleted and the relief is allowed to the appellant. …………………………………………………………………………”
“9.1 Based on the above observations, various grounds of appeal of AY 2020-21 are adjudicated as under: (i) ………………………….
(ii) In the grounds of appeal no. (ii) & (iii), the appellant has challenged addition of Rs. 84,32,000/- being cash loan taken from M/s. Ghanaram Infra-Engineers Private Limited and addition of Rs. 10,00,000/- made u/s 69C of IT Act on account of alleged payment of interest in cash to Ghanaram Infra-Engineers Private Limited.
In this appellate order, addition of Rs. 84,32,000/- being cash loan taken from M/s. Ghanaram Infra-Engineers Private Limited has not been confirmed since the source of this amount is explained, hence the same is required to be considered in the hands of M/s. Ghanaram Infra-Engineers Private Limited and not in the hands of the appellant. However in the matter of addition of Rs. 10,00,000/- 8 | P a g e made u/s 69C of IT Act, it has been concluded that since the same has been paid back as cash interest after the end of 19.07.2021, the same is considered as application of undisclosed income, which is confirmed in the hands of the appellant in AY 2022-23 hence this addition is deleted. (In AY 2022-23, undisclosed income of Rs. 1,63,69,630/- is confirmed in the hands of the appellant] Thus both the additions are deleted in the year under consideration and relief is allowed to the appellant.”
Perusal of the aforesaid relevant part of the impugned order shows that ld. CIT(Appeals) has found the sum of Rs.84,32,000/- as alleged cash loan taken from Ghanaram Infra-engineers Pvt. Ltd. as the source of this amount was genuinely found to have been explained with further observation of ld. CIT(Appeals) that the same was required to be considered in the hands of M/s. Ghanaram Infra-engineers Pvt. Ltd. and not in the hands of assessee. Conclusion of ld. CIT(Appeals) that since Rs.10 lacs was paid back as cash interest after the end of 19.07.2021, was confirmed in the hands of appellant in the year 2022-23. Nothing contrary to these findings of ld. CIT(Appeals) has been brought before us to take any other view. We do not find any error of law or fact in the impugned order. Aforesaid point is accordingly determined against the revenue and in favour of the assessee. This revenue’s appeal is liable to be dismissed.
The assessment in this case was completed on the basis of cash transactions of F.Y. 2022-23 (A.Y. 2023-24) based on seized diaries BK-
9 | P a g e 2/BK-3/BK-4/BK-5 during the aforesaid search and seizure proceedings at the residence of the assessee. An addition of Rs.1,17,34,000/- was made u/s. 69A of the Act on the basis of cash receipts and Rs.1,41,15,914/- was added u/s. 69C of the Act on the basis of aforesaid diaries/loose papers found from the assessee’s residence. According to the facts of this case, assessee filed original return of income for A.Y. 2023-24 on 27.12.2023, declaring income of Rs.3,10,130/-, but was not verified. On the basis of search and seizure, assessee’s case was selected for complete scrutiny.
After considering the assessee/s submissions, Assessing Officer was not satisfied and added the aforesaid receipts and expenditure in the total income of the assessee.
Learned CIT(Appeals), while examining entire records at his disposal, found that on the basis of the diaries and loose papers detailed in para 7.4 of the impugned order, a total of all cash receipts in the hands of appellant was Rs.1,17,34,000/- and Rs.1,41,15,914/- but according to para 8.3 (last sub-unnumbered para at page 7.3 of the impugned order) there was peak negative balance reached after cash payment of Rs.6,45,363/-. There was negative balance of Rs.1,03,90,314/-. Learned CIT(Appeals) found that there was no explanation of appellant as to how the negative cash balance could be justified. Ld. CIT(Appeals), accordingly, considered this amount of Rs.1,03,90,314/- as undisclosed 10 | P a g e deemed income in the hands of assessee as against aforesaid two additions of Rs.1,17,34,000/- and Rs.1,41,15,914/-.(allowing relief of Rs.1,54,59,600/- to the assessee). This conclusion of ld. CIT(Appeals) seems to be based on the peak credit theory/peak balance theory, which is used to avoid the double taxation or re-cycling of unaccounted or unexplained cash. This principle has been established through judicial precedents. Hence, we do not find any fault in the conclusion arrived at by ld. CIT(Appeals) based on this peak balance theory. Nothing has been brought before us by the revenue so as to disregard the theory adopted by the first appellate authority. This revenue’s appeal is, accordingly, liable to be dismissed.
ITA No. 437/Agr/2024 (A.Y. 2022-23):
The facts and issue involved in this appeal are similar to that of (A.Y. 2023-24) except the figures of returned income and the figures of additions of Rs.2,84,42,280/- u/s. 69A as gross receipts and Rs.2,92,02,900/- as gross expenses added u/s. 69C of the Act by the Assessing Officer. Ld. CIT(Appeals), on the similar reasoning, modified the addition to Rs.1,63,69,630/-, as the maximum cash balance as against the two additions of Rs.2,84,42,280/- and Rs.2,92,02,900/- added by the 11 | P a g e shall mutatis mutandis apply to the issue involved in this appeal also. This revenue’s appeal is liable to be dismissed accordingly.
& 448 (A.Yrs. 2022-23 & 2023-24 :
The facts and issue involved in these assessee’s appeals are search and seizure proceedings. Assessee’s appeals are allowed to the extent only of sustenance of part of additions of Rs.1,63,69,630/- and Rs.1,03,90,314/-, by ld. CIT(Appeals) on the basis of peak balance theory for A.Y. 2022-23 and 2023-24 respectively. Hence, our finding in shall mutatis mutandis apply in these appeals also. These assessee’s appeals are liable to be dismissed accordingly.
ITA No. 449/Agr/2024 (A.Y. 2021-22):
This assessee’s appeal relating to A.Y. 2021-22, has common fact and issue involved in assessee’s aforesaid two appeals, except sustenance of peak negative balance of Rs.18,13,500/- as against additions of Rs.8,95,500/- made u/s. 69A of the Act and Rs.19,59,500/- made u/s. 69C of the Act on the basis of aforesaid search and seizure mutandis apply in this appeal also. This assessee’s appeal is liable to be dismissed accordingly.
12 | P a g e 437 & 432/Agr/2024 filed by the revenue 447 & 448/Agr/2024 filed by assessee are dismissed.
The impugned common order dated 04.09.2024 stands confirmed.
Order pronounced in the open court on 26.11.2025.