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ACIT, CENTRAL CIRCLE-2, JAIPUR, JAIPUR vs CHANDRA MOHAN BADAYA, JAIPUR | BharatTax

ACIT, CENTRAL CIRCLE-2, JAIPUR, JAIPUR vs. CHANDRA MOHAN BADAYA, JAIPUR

ITA 464/JPR/2024Status: DisposedITAT Jaipur27 November 2024AY 2017-18Bench: DR. S. SEETHALAKSHMI (Judicial Member), SHRI RATHOD KAMLESH JAYANTBHAI (Accountant Member)1 pages

AI SummaryPartly Allowed

Facts

A search and seizure action was conducted on the premises of the assessee and others. During the assessment proceedings, various incriminating documents and digital data were seized. The assessee admitted to receiving and disbursing cash loans and also made cash advances to various parties. The seized documents contained details of these transactions, which were not disclosed in the regular books of accounts. The Assessing Officer made additions based on these transactions, which were challenged by the assessee.

Held

The Tribunal noted that the assessee was engaged in money lending activities and the seized documents pertained to these transactions. The peak credit theory was applied to determine the taxable income. The Tribunal observed that the assessee failed to provide satisfactory explanation and details regarding the source of funds and parties involved, and therefore, the additions were partially upheld.

Key Issues

The primary issue was whether the assessee had correctly offered income for taxation, particularly concerning cash loans and advances, and whether the peak credit theory should be applied to determine the taxable income.

Sections Cited

68, 69, 69C

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, JAIPUR BENCHES, “B” JAIPUR

Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, vk;dj vihy la-@ITA. Nos. 404 & 421 to 423/JP/2024

Hearing: 22/10/2024Pronounced: 27/11/2024

6. Aggrieved from the order of Assessing Officer, assessee preferred an appeal before the ld. CIT(A). Apropos to the various grounds so raised by the assessee, the relevant finding of the ld. CIT(A) is reiterated here in below:

“Decision The appellant has claimed that the issue in this SCN 5 is covered with issue in SCN 14. However it is seen that on the two crucial dates of 3rd June 2011 and 12th November 2011 when the cash loan has been received by the appellant there are no matching entries in the details maintained in the tally in SCN 14. The amounts are different as well as there is no entry on the date of 12th November 2011. Neither the dates are matching nor the amounts are matching regarding the cash loans in the two SCN. Thus the appellant maintained two separate accounts in the name of CM BADAYA (Nikki) for noting separate cash transactions. Further underlying nature of the transaction is not stated in the documents seized and can be different for two different documents. In view of this discussion this argument of the appellant is hereby rejected. There is no dispute on the issue regarding the taking of unaccounted cash loans by the appellant. Unaccounted cash interest payment is also disallowable u/s 69C of the Act. The identity, genuineness and creditworthiness are not proved by the borrower appellant. In this regard reference is made to section 68 of the Act. The appellant has not even furnished the complete address and PAN numbers of these parties from whom the loan has been borrowed. Merely because in the present appeal the loan transactions of the appellant are in cash and have be kept undisclosed and have been detected only during the course of search and seizure action does not make the appellant eligible for some premium benefit or treatment regarding exemption from not complying with legal requirements and taxability under section 68, 69 and 69D etc. of the Act. It is a settled law that no premium can be awarded to the dishonesty. Had the appellant provided the complete details of the lenders the assessments in those cases of the lenders could have been reopened and addition regarding unaccounted cash or unaccounted investment & others /JP/2024 Chandra Mohan Badaya vs. DCIT could have been done in the hands of such lenders. However identity and other details of the parties have been deliberately withheld by the appellant.

In response appellant vide submission dated 13.12.2018, submitted that, "From the hard disk, an excel file in the name of "book1.xls" of deleted was extracted containing Sheet 1 and Sheet 2. Copy of these sheets is enclosed. On the basis of these sheets, it is alleged that appellant has taken cash loan of Rs.14,61,42,000/ between AYs 2014-15 to 2016-17 which is proposed to be added u/s 68. In this connection, we may point out that on 'sheet 1' the name of the person along with the various dates and certain amounts thereunder are mentioned. This sheet is in respect of due date of the repayment of amount advanced to various parties. This is established from the fact that in the name of Sanjay Jain on 25.10.2014, Rs.20 lakhs is mentioned as cheque of Axis Bank. In fact, appellant has advanced Rs.20 lakhs by cheque of PNB Bank to Sanjay Jain on 26.08.2014 which was due for repayment after two months on 25.10.2014 and therefore, in the Sheet, the due date of repayment is mentioned as 25.10.2014. The amount was repaid by him between 05.11.2014 and 07.11.2014. Thus, the amount mentioned on this paper indicates the amounts advanced by the appellant to various persons and not the loan raised. Accordingly, it has been considered in the peak working as amount advanced two months before the date mentioned on this sheet. Similarly, in Sheet 2, the amount raised by the appellant from various persons along with the due date of repayment of loan and amount is mentioned. This is evident from the fact that in the name of Sanjay Natani on 23.11.2014, Rs.20 lakhs is mentioned by cheque which means that appellant has taken the loan from him on 23.09.2014 which & others /JP/2024 Chandra Mohan Badaya vs. DCIT was due for repayment on 23.11.2014. In the ICICI Bank account of the appellant, the loan of Rs.20 lakhs received from Sanjay Natani is duly reflected. Thus, on this sheet, the due date of the repayment of loan raised by the appellant is noted and accordingly, the same has been considered in the statement of peak credit as loan raised. Therefore, the addition proposed by you is incorrect".

"3.2 As per section 68 of the Act, onus is upon the assessee to discharge the burden so cast upon. First burden is upon the assessee to satisfactorily explain the credit entry contained in his books of accounts. The burden has to be discharged with positive material (Oceanie Products Exporting Co. v. CIT [2000] 241 ITR 497 (Ker.). The legislature had laid down that in the absence of satisfactory explariation, the unexplained cash credit may be charged u/s 68 of the Act. Our view is fortified by the ratio laid down in Hon'ble Apex Court in CII v. P. Mohankala [2007] 291 ITR 278/161 Taxman 169. A close reading of section 68 and 69 of the Act makes it clear that in the case of section 68, there should be credit entry in the books of account whereas in the case of 69 there may not be an entry in such books of account. The law is wellsettled, the onus of proving the source of a sum, found to be received/transacted by the assessee, is on him and where it is not satisfactorily explained, it is open to the Revenue to hold that it is income of the assessee and no further burden lies on the Revenue to show that income is from any other particular source. Where the assessee failed to prove satisfactorily the source and nature of such credit, the Revenue is free to make the addition. The principle laid down in CTT v. M. Ganpati Mudaliar [1964] 53 ITR 623 (SC)A. Govinda Rajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC) and also CIT v. Durga Prasad More [1969] 72 ITR 807 (SC) are the landmark decisions. The ratio laid down therein are that if the explanation of the assessee is unsatisfactory, the amount can be treated as income of the assessee. The ratio laid down in CII v. Daulat Ram Rawatmal [1973] 87 ITR 349 (SC) further throws light on the issue. In the case of a cash entry, it is necessary for the assessee to prove not only the identity of the creditor but also the capacity of the creditor and genuineness of the transactions. The onus lies on the assessee, under the facts available on record. A harmonious construction of section 106 of the evidence Act and section 68 of the Income Tax Act will be that apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of the creditors. In CIT v. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal), it was held that mere mention of file number of & others /JP/2024 Chandra Mohan Badaya vs. DCIT creditor will not suffice and each entry has to be explained separately by the assesseeCIT v. R.S. Rathaore [1995] 212 ITR 390/86 Taxman 20 (Raj.). The Hon'ble Guwahati High Court in Nemi Chandra Kothari v. CIT [2003] 264 ITR 254/[2004] 136 Taxman 213 held that transaction by cheques may not be always sacrosanct……..”

"13. Let us suppose that in the account of 'A', there was shown a deposit of Rs. 10,000 on April 1,1978, and in the account of 'B' there was a deposit of Rs. 10,000 on December 1, 1978. The assessee has not established the genuineness of these two deposits. Now according to the assessee in case there was a withdrawal of Rs. 10,000 in the account of 'A' prior to the deposit of Rs. 10,000 in the account of 'B' then no separate addition should be resorted to on account of unexplained deposit in the account of 'B'. According to the assessee, it should be presumed that the deposit in the account of 'B' was made out of the funds which were available to the assessee after the withdrawal of the amount from the account of 'A'. We cannot subscribe to this point of view. According to us, if the assessee is not able to prove the genuineness of the deposit in the account of 'B', a separate addition in respect of that will be required to be made. As per the provisions of section 68, where any sum is found credited in the books of an assessee and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory, the sum so credited is to be charged to income-tax as the income of the assessee. Hence, it is for the assessee to establish the source of the deposit in the account of 'B'. If the assessee admits that the alleged deposit in the account of 'A' was & others /JP/2024 Chandra Mohan Badaya vs. DCIT not genuine and, in fact, it was the assessee's own money which had been introduced in the books in the garb of a loan from 'A' and hence when this amount was available to the assessee for being introduced as a fresh deposit in the account of 'B' then it may be possible to accept the contention of the assessee. But in case the assessee all along maintains that the various loans are genuine then we fail to understand as to how the assessee can put forward the claim that separate additions for the unexplained cash credit in different accounts should not be made. When the assessee himself does not contend that the deposit made in the account of 'B' is out of prior withdrawal made in the account of 'A', how does the assessee expect the Department to subscribe to this point of view. We hence reject this contention of the assessee."

1. The Ld. CIT Appeal has erred on fact and in law in upholding addition in various year including this year by treating the various entries mentioned in the seized record as unaccounted cash credit or undisclosed investments without considering the fact that these transaction are both for loan taken as well as loan given and loan being capital receipt is not chargeable to tax and is source of loan given. The various type of transaction added to income of assesse u/s 68,69 and 69C as discussed in order for cash loans or advances or other cash transaction gathered from documents found in search record, deleted data retrieved from hard disk of laptop and images from mobile found in possession of assesse during search. The fact as submitted above is that assesse has been regularly raising funds from the market and advancing funds to various persons in the market on which he has earned interest income. Such interest income has been duly declared in the books of accounts. However, assesse has also raised cash loan from the market and advanced cash loan to various parties in the market or use in property. These transactions are not disclosed in the books of accounts. This fact is also admitted by the assesse in his statement recorded u/s 132(4) of the Act. In the various seized papers, the evidences of loan raised from various persons and amount advanced to various persons along with the interest paid / received is found in search. However, on such advances there is hardly any income earned by the assesse. Section 292C of the Act provides that where any books of accounts or other documents etc. are found in possession or control of any person in search u/s 132, it is presumed that the contents of such books of accounts and other documents are true. Therefore, the loans raised by the assesse as found noted on various papers and documents found in search has to be considered as true and therefore, no addition should be made on account of loan raised. Alternatively in case the same is not accepted, then the amount raised cannot be considered as income but only the peak of such amount should be considered as income. 1.1 The ld CIT Appeal further erred in upholding addition related to loans and advances entries found in deleted data of Laptop with assesse, and saved WhatsApp massages, CIT Appeal further not considered the facts relating to part of the entries are verifiable from the books of accounts and part of the entries are duplicate entries and also considering of receipt or payment entry reverse as evident from the seized record itself. Our explanation to various facts which are not considered while taking data for loans and advances found in deleted

i) SCN 5 addition Rs 21058188 on account of alleged unexplained cash credit from the hard disk you have extracted excel file in name of “123Tally.xls” of deleted data is a ledger of CM Badaya (Nikki) loan for the period 01.04.2013 to 21.12.2013 (PB 40 &72 ). The appellant has already replied during course of hearing that as per this ledger account, there is certain credit in the account of the assessee from 01.04.2013 to 21.12.2013. The total of these credit entries which include both cash and cheque transactions is Rs.2,90,58,188/-. However, this appears to be a consolidated entry of one person named Khusi Sanshar of various amounts of which the ld A.O added the cash amount of Rs.2,10,58,188/-though for similar name day-to-day ledger account from the hard disk for the period 01.04.2013 to 23.12.2013 is also extracted as mentioned in SCN. 14 found in searched record (PB 54 and 73). As per this ledger account, there is a credit of Rs.3,30,50,000/- and debit of Rs.2,07,00,000/- in the account of the assessee during the aforesaid period leaving a balance of Rs.1,23,50,000/-. In this ledger account, there are two credit entries of Rs. 20 lakhs each dated 21.08.2013(from ICICI Bank-SRE, PB-380 ) and 30.08.2013 ( PB-360 ) against Axis Bank which is verifiable from the books of accounts of the assesse in the name of Khushi Sansar Pvt Ltd. Accordingly the assessee has given this amount to M/s Khushi Sansaar Pvt. Ltd. Thus, in fact both the statement provided by Khusi Sansar to whom the assesse has made transaction but the difference between two is that one as given in SCN 5 is a summary of only receipt transaction prepared by person without correlating from records form period 1-4-13 to 21-12-13 and the other in SCN 14 after two days prepared by differenct person for all transaction from records for period 1-4-13 to 23-12-13. Therefore, the addition of Rs.2,10,58,188/- made should be excluded as it is covered by the transaction specified at Point No. SCN 14 as discussed in order. The ld CIT has not accepted the submission stating not matching date and amount in two statement and treated two different document. In this regards it is further submitted that these two paper are for same transaction prepared on different way. One is consolidated rough paper prepared without confirming actual date and amount of transaction but the other as specified in SCN 14 is after confirming actual day to day transaction which is final account among them. This fact can be understand with both the statement mentioned for same name where period start date is same but the correct statement period end two days later and cheque amount is also matched though there is date difference which is due to fact mentioned above.

Thus from the fact of seized document, when the other statement found with all correct transaction detailed, it has to be dealt with ii) SCN 6 addition Rs146142000 u/s 68 on account of alleged unexplained cash credit from the hard disk, an excel file in the name of “book1.xls” of deleted was extracted containing Sheet 1 and Sheet 2. First of all the A.O alleged that assesse has taken cash loan of Rs.14,61,42,000/- between AYs 2014-15 to 2016-17 but it is pointed out that on in Sheet 2,(PB 75) the amount raised by the assessee from various persons along with the due date of repayment of loan and amount is mentioned. This is evident from the fact that in the name of Sanjay Natani on 23.11.2014, Rs.20 lakhs is mentioned by cheque which means that assesse has taken the loan from him on 23.09.2014 which was due for repayment on 23.11.2014. In the ICICI Bank account of the assessee, the loan of Rs.20 lakhs received from Sanjay Natani is duly reflected(ICICI SRE PB 451) . This loan has been repaid also as per ledger account produced(PB 651) Thus, on this sheet, the due date of the repayment of loan raised by the assessee is noted and accordingly, the same has to be considered in the statement of peak credit as loan raised. Similarly on ‘sheet 1’(PB-74) the name of the person along with the various dates and certain amounts thereunder are mentioned are in respect of due date of the repayment of amount advanced to various parties. This is established from the fact that in the name of Sanjay Jain on 25.10.2014, Rs.20 lakhs is mentioned as cheque of Axis Bank. In fact, assessee has advanced Rs.20 lakhs for which cheque of PNB Bank for payment to Sanjay Jain issued on 26.08.2014(PB 408 PNBARP) which was due for repayment after two months on 25.10.2014 and therefore, in the Sheet, the due date of repayment is mentioned as 25.10.2014. The amount was repaid by him as per ledger account produced(PB 650). Thus, the amount mentioned on this paper indicates the amounts advanced by the assessee to various persons and not the loan raised. Accordingly, it has been considered in the peak working as amount advanced two months before the date mentioned on this sheet. The ld A.O disregarded the facts which has upheld by ld CIT Appeal for want of various clarification which is not possible with limited records available from search documents. Though the facts are verifiable from available seized documents where any entry can be co-related from the bank record and the other on same sheet should be treated as such. Hence addition made are wrong and bad in law.The ld CIT Appeal appeal upheld the addition and for calculation of addition the following mistake arisen: (i) Entries verifiable from bank should not be considered in peak calculation Rs 6100000(Sanjay Jain 2000000+Virendra Haldia 900000+1200000+Sanjay Natani 2000000) (ii) Repeated one entry Rs 500000/- & others /JP/2024 Chandra Mohan Badaya vs. DCIT (iii) Payment entry Rs 88042000 in sheet considered loan raised. The Loan receipt and payment should be treated as per nature of bank entries in that sheet. iii) SCN 7 to 9 Addition u/s 68 Rs 18600000,17500000 and 10500000 on account of alleged cash credit from the hard disk, an excel file in the name of “Raju Bhai Shab 13092014.xls” of deleted data was extracted containing sheets 1 to 3 as referred in Point Nos. 7, 8 & 9 of the show cause notice. The complete copy of these sheets is enclosed (PB 76-79). In the show cause notice only that part of the sheet is extracted which reflects the cash transactions and on the that basis, it is alleged that assessee has given cash loan of Rs.1,86,00,000/-, Rs.1,75,00,000/- and Rs.1,00,00,000/- which is added as undisclosed income of the assessee. In this connection, we have pointed out firstly that these sheets do not indicate the transaction of loan given rather these sheets are in respect of the amount taken from various parties through “RajuBhaisaab”. This is evident from the fact that on first part of this sheet, cheque transactions are noted and on the second part, cash transaction is noted. Some of instances as under: 21-02-2014 Renu Goyal 300000 SBBJ CMB –PB 384 23-11-2013 Rishabh Goyal 200000 SBBJ SRE- PB 397 28-11-2013 Omprakash Agarwal 350000 SBBJ SRE – PB 397

All the cheque transactions are of the amount raised by the assessee and his family members / concerns which is verified from the regular books of accounts / bank accounts of the concerned person. Therefore, the details noted in the bottom part of these pages are also of the amount taken and not amount given. Second there is one entry in name of Indra Devi on Sheet 1 and Sheet 3, both. In Sheet 3(SCN9), an amount of Rs.1,00,00,000/- at interest rate of 2.50% with due date of 01.06.2014 is mentioned in the name of ‘Indira Khandelwal’. Thereafter, on sheet 1, Rs. 1.25 crores is mentioned in the name of ‘Indira Devi’ with the date of receipt as 01.06.2014 and due date of repayment as 01.10.2014. This indicates that assessee raised Rs.1,00,00,000/- in 01-08-2013 which was due for repayment with interest of Rs. 25 lakhs (For 10 month @ 2.5% PM) on 01.06.2014 but since the amount was not paid, it was rescheduled on 01.06.2014 for Rs.1.25 crores with due date of repayment as 01.10.2014 as mentioned in sheet 1(SCN 7).There is no transaction on 01-06-2014 as mentioned on sheet 3 SCN 9. Hence Rs 100000 loan raised on 01-08-2013 as explained above from sheet1 as given in scn 9 only to be & others /JP/2024 Chandra Mohan Badaya vs. DCIT included and re-scheduled with interest on due date Rs 1.25 crores in sheet 1(SCN 7) should exclude. iv) Ref SCN No. 11 Addition Rs 27730000 on basis an excel file in the name of “Raju Bhai Shab 13092014.xls” of deleted data containing sheet 7 in the name of Sumer Jain. On the basis of this sheet, it is alleged that assessee has given cash loan of Rs.2,74,50,000/- and in form of silver weighing 2kg and 5 kg aggregating 7kg giving amount Rs280000. In this connection, we have pointed out that other entries recorded in same sheet(PB 80 ) containing the name, date of cheque, amount, rate of interest, no. of months, and interest amount are verifiable from books of account and bank statement of the assessee which indicates that this sheet is with reference to the amount received and not the amount given. The ld A.O. has no dispute for nature of bank entries on same page which are of fund taken. The ld CIT Appeal has also accepted that nature of the cash entries will be same on basis of nature of the bank entries whether fund take or fund given. As such as per nature of bank entries, these are of fund taken but still ld CIT Appeal has erred in taking the same as payment while calculation addition in his statement. v) Ref SCN No. 13 Addition Rs 45792766 on basis of an excel file in the name of “Raju Bhai Shab 13092014.xls” of deleted data containing sheet 9 in the name of ‘VinayakSonkia’ in the last part of this sheet, certain transaction under the title ‘Others’ is mentioned. In this connection, we have pointed out that other entries recorded in same sheet(PB 82 ) containing the name, date of cheque, amount, rate of interest, no. of months, and interest amount are verifiable from books of account and bank statement of the assessee which indicates that this sheet is with reference to the amount received and not the amount given. The ld A.O. has no dispute for nature of bank entreis on same page which are of fund taken Further in the sheet the silver fine reflects the quantity of silver received by the assessee which was to be given back on due date with the interest as mentioned in the sheet to considered these transaction in working of peak for prevailing rate of silver at Rs.40,000/- per kg as considered in SCN 11. However ld CIT appeal upheld addition without considering due date and nature of the cash entries on basis of nature of the bank entries on same sheet whether fund take or fund given. vi) Ref SCN 19 (a. to j.) various addition made u/s 68 Rs 149437770(20567000+11042299+38700000+1795000+101747+4 5584774+20820000+1070000+9756250) on basis of WhatsApp messages have been extracted from the mobile of the assessee. These messages relate to the transaction of funds received / given but in some cases ld A.O dealt the transaction different than facts

(i) That it is not in dispute that the assesse is engaged in the business of money lending. It is also not in dispute that the entries/transactions in various annexures of the seized documents found during the course of search pertains to money lending transactions of the appellant and which were not disclosed earlier in the books of accounts and offered to tax. These entries/transactions relates to money advanced to various persons by the assesse and the amount returned back by the said borrowers or amount borrowed by the assesse for further lending to its borrowers. These seized documents contain the name of various debtors and creditors to whom the money has been advanced and taken on credit by the assesse. The assesse has prepared a cash flow statement considering the entries relating to the debtors and creditors and offered the maximum peak amount as worked out for respective years for taxation during course of assessment proceeding u/s 153A. However the Ld. AO has clearly taken a double stand in as much as he has treated the credit found mentioned on the seized papers and made out of undisclosed income of assesse & others /JP/2024 Chandra Mohan Badaya vs. DCIT while on the other hand he does not accept the debit found mentioned on the same papers claimed as source by assesse being working as money lender but again added to that as undisclosed money, meaning thereby that the Ld. AO has capriciously and without any basis made addition of all the credits and debits on the seized papers and he has rejected the part of the entries appearing on the same papers which constituted source of funds for assesse. In this regard, it is humbly submitted that the Ld. AO has committed a gross error in relying upon the seized documents partially without any basis in view of the well established law that a seized document has to be read as a whole and cannot be broke into parts as per the convenience or sweet will of the Assessing Officer. In this regard, reliance is placed on the following case laws: • Glass Lines Equipments Co. Ltd. V/s CIT 253 ITR 454 (Guj.): Interpretation of documents - Documents must be read as a whole. It is a well settled canon of interpretation that a document has to be read as a whole" it is not permissible to accept a part and ignore the rest of the document. • 22 TW 684 Hissaria Brothers V/s ACIT (Jpr.):Held that the seized document has to be read in its entirety and the parties are not allowed to read only that part which is suitable to it. • 21 Tax World 213 Lal Chand Agarwal V/s ACIT:In no case AO can be allowed to consider a part of a particular document as true being favourable revenue and other part of the very document as false since that is favourable to assessee - Duality of the approach of AO is not fair -

(ii) That the Ld. CIT appeal disallowed the benefit of peak credit theory as claimed by assesse alleging that during course of search and survey action no document, whatever was found suggesting nexus between availability of cash fund and its subsequent utilisation. In this regard it is submitted that the purpose of peak credit theory has been completely ignored by the Ld. CIT Appeal which is to avoid double taxation of the same income, inasmuch as the same goes beyond the charging section of the Act itself. Therefore, before arriving at the taxable income, necessary adjustments have to be made so as to arrive at the correct taxable income and to avoid considering same income twice for taxation. Further, the application of peak credit theory has been upheld in various judicial pronouncements. Accordingly the assesse has prepared the cash flow statement of the credit and debit entries found in search records and calculate maximum peak amount in a particular year offered for taxation. It is well established law in this regard that where the debit and credit both are unexplained the credit and debit entries have to be set off against each other to the extent possible and only the peak of credit(negative or & others /JP/2024 Chandra Mohan Badaya vs. DCIT positive) can be considered as undisclosed. Peak credit is applicable where complete records of unaccounted transaction was not found and it is not possible to work out the exact quantum of undisclosed income. Thus, if the Ld. AO alleges that the benefit of peak credit theory cannot be allowed to assesse, then he had the burden to prove that the inflow of cash through various credit entries was applied elsewhere and was not utilized for the purpose of re-introduction. However, the Ld. AO without discharging the onus lying upon him, has cryptically observed that the peak credit theory cannot be applied to the case of assesse by drawing a hypothetical and imaginative distinction between the debit and credit entries of cash advances and receipt back, which action of Ld. AO is completely baseless, against law and thus deserves to be struck down. In the similar facts the peak credit theory has been allowed in various judicial pronouncements as under: • Hon ITAT Jaipur allowed peak credit theory in casle of Om Prakash Agarwal Vs ACIT in ITA 721 to 726/JP/2014 (PB 652-666)observed that ” It is not in dispute that the assessee is engaged in the business of money lending. It is also not in dispute that the entries/transactions in Ex.1 - 3 of Annexure AS-1 of the seized documents found during the course of search pertains to money lending transactions of the appellant and which were not disclosed earlier in the books of accounts and offered to tax. These entries/transactions relates to money advanced to various persons by the assessee and the amount returned back by the said borrowers or amount borrowed by the assessee for further lending to its borrowers. These seized documents 17 ITA 721 to 726/JP/2014 Om PrakashAgarwalVs ACIT contain the name of various debtors and creditors to whom the money has been advanced and taken on credit by the assessee. The assessee has prepared a cash flow statement considering the entries relating to the debtors and creditors and offered the maximum peak amount as worked out for respective years in its return of income filed subsequent to issuance of notice u/s 153A of the Act. The AO has considered the entire amount of outstanding debtors at the year-end as assessee's undisclosed investment in the form of debtors. The AO has not given credit for entries pertaining to the creditors and also disregarded the peak amount offered to tax by the assessee for the respective assessment years. The reason for not giving appropriate credit for the entries relating to the creditors as stated by the AO was that the assessee has not proved the identity of the creditors. The AO therefore accepted the debtors details as mentioned & others /JP/2024 Chandra Mohan Badaya vs. DCIT in the seized documents but at the same time, has not accepted the creditors details also found mentioned in the same set of seized documents. The Hon'ble Gujarat High Court in the case of Glass Lines Equipment Co. Ltd. vs. CIT (253 ITR 454) has held that "it is a well settled canon of interpretation of documents that a document has to be read as a whole and it is not permissible to accept a part and ignore the rest of the document." In 18 ITA 721 to 726/JP/2014 Om PrakashAgarwalVs ACIT light of the same, in the instant case, we are of the view that the AO was not correct in accepting only the debit entries in respect of the debtors and ignoring the credit entries in respect of the creditors found recorded in the same set of seized documents especially when the particulars of both the debtors as well as creditors are clearly visible along with date and amount in the said seized documents. In respect of applicability of peak theory, it is noted that there is nothing on record which can help determine the real income which has accrued to the assessee in respect of his money lending business in terms of agreements, contracts etc. with the borrowers and lenders which can throw light on the rate of interest charged /paid by the assessee, duration of loans /advances, repayment, etc. In such circumstances, application of the peak credit theory is the most reasonable and appropriate basis for determining the real income in the hands of the assessee. From perusal of the various entries found recorded in the seized documents and the cash flow statements prepared by the assessee, it is observed that in terms of amount advanced to various debtors, repayment thereof to the assessee, amount received from the creditors and its repayment by the assessee, the assessee has tried to establish the necessary linkage in terms of outflow and inflow of funds. It is also not the case of the Revenue that inflow of funds through 19 ITA 721 to 726/JP/2014 Om PrakashAgarwalVs ACIT various credit entries was applied elsewhere by the assessee other than his money lending business. Also, where necessary linkage in terms of inflow and outflow of funds are established, it is immaterial whether these transactions are happening in physical form or routed through the banking channel. Accordingly, we do not see any infirmity in applying the peak credit theory in the facts of the present case. In light of this discussion, we set aside the matter to the file of the AO to apply the peak credit theory after taking into consideration both the debtors and creditors entries found recorded in the seized documents.”

• Hon ITAT, Ahmedabad in case Saral Plastic Pvt Ltd Vs ITO, and 3063 dt 25-5-17 applied global method of peak credit for 5 parties having similar nature of unexplained advances. • Income Tax Appellate Tribunal – Mumbai Akshar Developers, Navi Mumbai vs Acit Cen Cir 3, Thane on 28 February, 2018 observed that “ We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The facts with regard to the seizure of two RCBs 1 & 2 and admission of additional income on the basis of rough cash book is not disputed. The assessee Akshar Devlopers group has admitted the fact that transactions recorded in seized materials relate to its business activity and amount received from parties towards on-money received for sale of flats and also payments towards unaccounted expenses in respect of its project. The partner of the firm, Shri Hari B Mujat has admitted the fact that entries recorded in RCBs 1 & 2 are unaccounted transactions in respect of receipts and payments and accordingly voluntarily admitted undisclosed income of Rs.16,04,84,872 spread over to 3 assessment years in the statement recorded u/s 132(4) on 29-09-2011 and 17- 10-2011. It is also an admitted fact that the assessee has filed letter on 02-09-2013 in the form of a separate booklet which contains 16 pages wherein it was submitted before the AO that disclosure made during the course of search in respect of undisclosed income was made without going through the seized materials and after analysis of the seized materials it has come to the notice that there was a mistake in disclosure of Rs.14,19,10,000 and accordingly suggested 2 methods to compute the undisclosed income i.e. one on the basis of peak cash theory where the assessee has arrived at peak cash balance of Rs.2,73,87,071 on 02-06-2010 and second, estimation of reasonable net profit on total receipts recorded in RCB excluding cash with employees and cash drawn from bank which worked out to Rs.27.89 & others /JP/2024 Chandra Mohan Badaya vs. DCIT crores. To substantiate the plea of peak cash credit theory, the assessee firm further submitted that the assessee has Akshar Devlopers group analysed the transactions and as per which certain credits appeared in RCB are unsecured loan received from Smt. Janaki Shah of Rs.45 lakhs, profit on sale of Ulve land of Rs.1.27 crore, transaction with Rameshbhai Rs.78.58 lakhs and transaction with Shri ML Shah of Rs.1.05 crore and all these are not on-money receipts and the details of the above payments are recorded in RCB 1. The assessee further submitted that receipt of on-money amounting to Rs.3.82 crores from different projects and Rs.2.21 crores arising from Hari Mujat account already stood accounted for in RCB. Therefore, no separate addition for the aforesaid amount is required. The sum and substance of the arguments of the assessee is that admission of additional income during the course of search in the statement recorded u/s 132(4) is not correct and which is not supported by any materials and hence, determination of income should be on the basis of peak credit theory or estimation of reasonable net profit from total receipts” • Income Tax Appellate Tribunal – Ahmedabad in case S.R. Enterprise v. ITO [2002] 77 TTJ 69 (Ahd.) (PB667– 671) observed and held that “on treating credit entries as non-genuine, the amount introduced has been taken to be assessee's deemed income. All the credits have been added without bothering to know as to what was the cash available with the assessee on a given date on which it was introduced in the books of accounts as receipt from the customer. The AO has not even mentioned dates of credits. It is also not available on record as to what was the opening balance with the assessee and how much cash he had from known and accepted sources. In the absence of above material, the addition for unexplained cash could not be worked out. What has been introduced beyond the available cash could only be treated as "unexplained". It is, therefore, necessary to work out the peak of the credits as also details of available funds with the assessee and then see how much unaccounted for cash has been introduced in the books of accounts. The peak of such amounts is to be added in the hands of the assessee as "deemed income" and in accordance with law. “ • In the case of ACIT vs Praveen Kumar Agarwal [IT (SS) A No. 61 & 74/Kol/2003 ], the Hon'ble ITAT, 'C' Bench, Kolkata upheld the combined peak credit method. In this & others /JP/2024 Chandra Mohan Badaya vs. DCIT case, the appellant maintained various undisclosed bank accounts. The AO added the entire deposits amounting to Rs.23,55,26,844/-. The Ld.CIT(A) confirmed the addition only to the extent of the combined peak credit of Rs.23,92,582/-. The Hon'ble ITAT upheld the decision of the Ld. CIT(A) . • Income Tax Appellate Tribunal – Kolkata Provash Sardar,C/O-S.K. Khetan, ... vs Assessee on 15 July, 2016 672 – 679) held as under:”We have heard rival submissions and gone through facts and circumstances of the case. Admittedly, the bank accounts found during the course of search were undisclosed by the assessee. We find that the assessee had from the date of search stated that he was engaged in the business of selling cheques and main business was to convert cash into cheques and earned commission income in the range of .25% to .50% and accordingly, even made a disclosure petition u/s. 132(4) of the Act by giving a detailed working of the commission income purportedly earned by him. However, the same was not believed by the Ld. AO as assessee could not prove with any evidence. We find lot of force in the alternative argument of the assessee that the peak credit should be worked out after considering all the transactions in the undisclosed bank account and the peak credit so arrived should be treated as undisclosed income. We find that the Ld. AO took 'peak deposit' in the bank account acceptable under peak credit theory which, in our opinion, is against the spirit of such theory. It is well settled that the peak credit theory is based on practical way of determining the undisclosed income of a person. We find that the Ld. AO did not dispute that all the deposits in bank accounts were interlinked with withdrawals. We find that the concept of peak credit has been approved in the aforesaid decisions. In our opinion, adoption of peak credit balance after considering all the transactions in the bank account and adding the same as undisclosed income of each year would meet the ends of justice. Accordingly, we deem it fit and proper in the interest of justice and fair play to set aside this issue to the file of the Ld. AO to determine the undisclosed ITA No. 1377-1378/Kol/2012 Provash Sardar, AYs 2009-10 & 2010-11 income based on the peak credit workings as directed above.

As submitted above, the expenses are recorded in regular books and source is verifiable from books of accounts and from the withdrawals shown in capital account submitted during course of hearing. The ld A.O made addition without considering the fact verifiable from the books of accounts maintained by the assessee hence requested to delete the addition on account of foreign tour. GOA.6: Upholding addition Rs.811636/- (Out of addition made by ld A.O Rs 1051887) by separately taxing brokerage income under the head & others /JP/2024 Chandra Mohan Badaya vs. DCIT income from other sources. The fact is that assesse having business of jewelry and property. In profit and loss account there includes brokerage receipt Rs 1201255 and net profit Rs 292455.41 arises after claiming all expenses for all business. The ld A.O however taxed income from business u/s 44AD after separating brokerage income brokerage expenses and such net brokerage income under head of other sources resulted addition to total income Rs 1051887. The ld CIT appeal upheld the action of A.O after directing to allow further 20% of brokerage income deduction for expenses for earning brokerage income. In the regards we submit as under: (i) The ld A.O computed income from business u/s 44AD though as per sub section 6 of 44AD, the section not applicable to a person earning income in nature of commission or brokerage. Looking to trading and profit and loss account (PB 171), the substantial income of assesse is brokerage income as such the section 44AD is not applicable to assesse during the year. It is also to be noted that property business of assesse includes working as agent to earn brokerage income. This is also undisputed fact that the assesse not claimed business income u/s 44AD but calculated actual profit and submitted trading and profit and loss account and balance sheet to verify the income computed under business. Hence the whole business income is to be taxed as profit arrived from books of accounts.

& others /JP/2024 Chandra Mohan Badaya vs. DCIT The first one is having short term capital gain Rs 46275 offered for tax under head short term gain. The ld A.O. treated same as business income though no effect on taxable income but treated in turnover for purpose of initiating penalty u/s 270(2)(a) in misconception of facts that the land was kept as investment and not shown in stock in trade since purchases. The other is long term assets having long term loss Rs 351073 after indexation benefit. The main issue is on long term assets where the assesse compute loss after indexation of cost but the ld A.O assessed business profit Rs 1640190/- due to not giving indexation benefit. In this regards it is submitted that the land was about 1.516 hector purchases in the year 2008 with intention to agricultural activities. The assesse also earned agricultural income in some of years evident from return of income submitted. Further since 2008 the assesse neither taken the land as stock in trade nor have any intention to business activity or trading activity of this land. The land was sold only due to financial need. The ld A.O alleged that land sale of land is business activity considering sold to three different person is factually wrong as the assesse sold the whole land by executing sale deed in name of three different person as specified share of land as undivided and without plotting or any development. As such no entrepreneur activity has been carried out before sale of such land. Further ld A.O further alleged that the sale of land is business receipt as he is in property business is also misconception of fact as how a sale of capital assets can be treated business receipt. Further claim of agricultural activity disregarded by the ldA.O.. Also the ld A.O alleged that the land was taken capital assets intentionally to having benefit of indexation at the time of sale, but it does not understand how this intention can be projected for 8 year back. For denial of benefit of indexation which is available as per law, blaming of the intention of assesse is after though interpretation. The ld CIT appeal further alleged that there is no evidence to prove agricultural income shown are derived from same land, it is submitted that it is undisputed fact that agricultural lans was purchased in the year 2008 when assesse was not engaged in property business and also at that time only this agricultural land he was owinng. GOA.8: Uphold addition of Rs.28,55,102/- on account of alleged unexplained investment in jewelry found in search. The fact is that in search, gold jewelry and silver articles were found as per Annexures JF- 1 and JF-2 of Panchnamadated 31-07-2016 as under:

The term Peak credit denoted the highest undisclosed cash available. This plea is generally accepted as it is logical and acceptable(whether the creditor is a genuine or not), provided there is no material on record to show that a particular withdrawal / repayment could not have been available on the date of the subsequent credit. This peak theory is usually applied in cases when the unexplained credit and debit entries are standing in the same account of a person. However the peak credit theory may also be extended to the cases where the credits appear not in the same account but in the accounts of different persons. Even if the genuineness of all such persons is disbelieved and all the credits appearing in the different accounts are held to be assessee’s own moneys, the assessee still will be entitled to a set off and a determination of the peak credit theory after arranging all the credits in chronological order. Here we note that these propositions cannot be treated as propositions of law but are only the inferences which can be drawn based upon the normal probabilities. The basic idea behind the peak credit theory is to avoid double addition and to bring only the actual income of the assessee to suffer tax, where there are large numbers of unexplained credit and debit entries involved. The peak credit theory should normally be applied to non- genuine entries and not to genuine ones. Where there are many credits, all treated as non-genuine, withdrawal from one account should be treated as available for credit in another. In Bhaiyalal upheld the view of the Tribunal that working of the peak should be confined to credits and withdrawals in accounts admittedly non- genuine. As in case of large number of non-genuine credit and debit entries, peak theory may be applied, similarly, additions for low gross profits can be given credit against unapproved cash credits or unexplained expenditure or investment with similar set offs between additions and such practice is known as telescoping.

SCN 5 addition Rs 21058188 on account of alleged unexplained cash credit from the hard disk you have extracted excel file in name of “123Tally.xls” of deleted data is a ledger of CM Badaya (Nikki) loan for the period 01.04.2013 to 21.12.2013 (PB 40 &72 ). The appellant has already replied during course of hearing that as per this ledger account, there is certain credit in the account of the assessee from 01.04.2013 to 21.12.2013. The total of these credit entries which include both cash and cheque transactions is Rs.2,90,58,188/-. However, this appears to be a consolidated entry of one person named Khusi Sanshar of various amounts of which the ld A.O added the cash amount of Rs.2,10,58,188/-though for similar name day-to-day ledger account from the hard disk for the period 01.04.2013 to 23.12.2013 is also extracted as mentioned in SCN. 14 found in searched record (PB 54 and 73). As per this ledger account, there is a credit of Rs.3,30,50,000/- and debit of Rs.2,07,00,000/- in the account of the assessee during the aforesaid period leaving a balance of Rs.1,23,50,000/-. In this ledger account, there are two credit entries of Rs. 20 lakhs each dated 21.08.2013(from ICICI Bank-SRE, PB-380 ) and 30.08.2013 ( PB-360 ) against Axis Bank which is verifiable from the books of accounts of the assesse in the name of Khushi Sansar Pvt Ltd. Accordingly the assessee has given this amount to M/s Khushi Sansaar Pvt. Ltd. Thus, in fact both the statement provided by Khusi Sansar to whom the assesse has made transaction but the difference between two is that one as given in SCN 5 is a summary of only receipt transaction prepared by person without correlating from records form period 1-4-13 to 21-12-13 and the other in SCN 14 after two days prepared by differenct person for all transaction from records for period 1-4-13 to 23-12-13. Therefore, the addition of Rs.2,10,58,188/- made should be excluded as it is covered by the transaction specified at Point No. SCN 14 as discussed in order. The ld CIT has not accepted the submission stating not matching date and amount in two statement and treated two different document. In this regards it is further submitted that these two paper are for same transaction prepared on different way. One is consolidated rough paper prepared without confirming actual date and amount of transaction but the other as specified in SCN 14 is after confirming actual day to day transaction which is & others /JP/2024 Chandra Mohan Badaya vs. DCIT final account among them. This fact can be understand with both the statement mentioned for same name where period start date is same but the correct statement period end two days later and cheque amount is also matched though there is date difference which is due to fact mentioned above.

SCN 6 addition Rs146142000 u/s 68 on account of alleged unexplained cash credit from the hard disk, an excel file in the name of “book1.xls” of deleted was extracted containing Sheet 1 and Sheet 2. First of all the A.O alleged that assesse has taken cash loan of Rs.14,61,42,000/- between AYs 2014-15 to 2016-17 but it is pointed out that on in Sheet 2,(PB 75) the amount raised by the assessee from various persons along with the due date of repayment of loan and amount is mentioned. This is evident from the fact that in the name of Sanjay Natani on 23.11.2014, Rs.20 lakhs is mentioned by cheque which means that assesse has taken the loan from him on 23.09.2014 which was due for repayment on 23.11.2014. In the ICICI Bank account of the assessee, the loan of Rs.20 lakhs received from Sanjay Natani is duly reflected(ICICI SRE PB 451) . This loan has been repaid also as per ledger account produced(PB 651) Thus, on this sheet, the due date of the repayment of loan raised by the assessee is noted and accordingly, the same has to be considered in the statement of peak credit as loan raised. Similarly on ‘sheet 1’(PB-74) the name of the person along with the various dates and certain amounts thereunder are mentioned are in respect of due date of the repayment of amount advanced to various parties. This is established from the fact that in the name of Sanjay Jain on 25.10.2014, Rs.20 lakhs is mentioned as cheque of Axis Bank. In fact, assessee has advanced Rs.20 lakhs for which cheque of PNB Bank for payment to Sanjay Jain issued on 26.08.2014(PB 408 PNBARP) which was due for repayment after two months on 25.10.2014 and therefore, in the Sheet, the due date of repayment is mentioned as 25.10.2014. The amount was repaid by him as per ledger account produced(PB 650). Thus, the amount mentioned on this paper indicates the amounts advanced by the assessee to various persons and not the loan raised. Accordingly, it has been considered in the peak working as amount advanced two months before the date mentioned on this sheet. The ld A.O disregarded the facts which has upheld by ld CIT Appeal for want of various clarification which is not possible with limited records available from search documents. Though the facts are verifiable from available seized documents where any entry can be co-related from the bank record and the other on same sheet should be treated as such.

treated same as business income though no effect on taxable income but treated in turnover for purpose of initiating penalty u/s 270(2)(a) in misconception of facts that the land was kept as the second one the gain on sale of other property was offered as long term capital gain and considering the indexation benefit in the cost of acquisition the same was offered as long term capital loss Rs 3,51,073/-. Assessee considered it as long term capital assets where the assessee compute loss after indexation of cost but the ld A.O assessed business profit Rs 16,40,190/- without giving benefit of indexation to the assessee. As regards the contention of the assessee considering the land as capital asset it was submitted that the land was about 1.516 hector purchased in the year 2008 with intention to perform agricultural activities. The assessee also earned agricultural income in some of years evident from return of income submitted. Further since 2008 the assessee neither taken the land as stock in trade nor have any intention to business activity or trading activity of this land. The land was sold only due to financial need of the assessee. The ld A.O alleged that sale of land is business activity considering sold to three different person is factually wrong as the assessee sold the whole land by executing sale deed in the name of three different person as specified share of land as undivided and without plotting or any development. As such no entrepreneur activity has been carried sale of land is business receipt as he is in property business is also misconception of fact as how a sale of capital assets in the form of agricultural land can be treated business receipt. Further claim of agricultural activity disregarded by the ld AO. Also the ld A.O alleged that the land was taken capital assets intentionally to having benefit of indexation at the time of sale, but it does not understand how this intention can be projected for 8 year back by the assessee therefore denial of benefit of indexation which is available as per law is not correct and blaming on the intention of assessee merely based on the after thought is without considering the records and without countering that records already on record.

34.

We have heard the arguments and perused the record for this ground no. 8 & 8.1 raised by the assessee. The bench noted that the in the search action carried out, gold jewelry and silver articles were found as per Annexures JF-1 and JF-2 of Panchnama dated 31-07-2016. The gold valuable was valued at Rs. 60,44,389/- and silver was valued at Rs. 1,01,305/-. The valuable to the extent of Rs. 20,78,162/- for 739.700 was seized. In the statement so recorded while in search the assessee on being asked in the statement u/s 132(4) dated 29.07.2016 vide reply to question no. 38 has explained and clarified that gold ornaments found from the premises and the locker pertains to the various family members. The family of the assessee comprises of his parents, wife, 1 daughter, and 1 son, gold jewelry to the extent of Rs.20,78,162/- was seized. In the proceedings before AO assessee contended that the entire gold ornaments and silver items found in search are old / parental jewelry received at the time of marriage or other social functions or inherited from the forefathers. The assessee also contended that in search, not a single paper or document for purchase of jewelry was found and that is why the assessee considered it as explained. He while relying on the CBDT Instruction No. 1914 dated 06.01.1994, wherein with reference to the seizure of gold ornaments has considered that 500 gms of gold jewelry in the hands of the married ladies, 250 gms in the hands of unmarried lady, and 100 gms in case of male members should be considered as reasonable possession of jewelry as per the Hindu customs being acquired at the time of marriage or otherwise. That is why he relying on the Board Instruction and stature of family and customary practices of the community to which the family belongs contended to consider as explained. He further stated that his forefathers are themselves engaged in the jewelry business. It is an ancestral family where the ladies at the time of marriages are given more gold ornaments than considered in the Board Instruction. As we note that while even the addition has been made for the valuable of gold for the grams which are exceeded that guideline of the board. Looking to the number of family members the benefit has been given and balance amount was only added as income of the assessee. As the contention of the revenue that the CBDT instruction are for the guidance only and are not binding is not correct as our Hon’ble Jurisdictional High Court held in the case of Commissioner of Income-tax, Alwar v. Satya Narain Patni [46 taxmann.com 440 (Rajasthan) ] held that