“peak credit theory”
The decision most relied on for peak credit theory is Bhaiyalal Shyam Behari v. CIT (276 ITR 38), cited in 63 judgments on BharatTax.
Leading authorities on peak credit theory
The peak credit theory applies only to credits and withdrawals that are held to be non-genuine. If the assessee claims all deposits are genuine, the benefit of the peak credit theory may not be available.
The court considers the evidentiary value of unaudited books and loose papers when assessing income, particularly concerning trade creditors and their verification.
The assessment can apply the peak credit theory for additions related to unexplained credits or entries. Furthermore, assessment proceedings are not vitiated merely because the Department proceeded under an incorrect section if material existed to justify the assessment under a proper provision like section 148.
The peak credit theory is applicable only when the source and corresponding outgo of a deposit are unexplained, and it does not apply to issues concerning purchases.
Addition under section 69C for bogus purchases from non-existent suppliers is justified, even if purchase bills are produced and payments are made through banking channels, if other evidence is lacking.
An assessee who acts as an accommodation entry provider and cannot explain the sources of deposits and corresponding payments is not entitled to the benefit of peak credit.
The peak credit theory can be applied to determine unexplained income arising from a series of transactions, even when exact quantum is difficult to ascertain. However, it may not be applicable to singular unexplained credits.
The High Court determines whether additions based on uncorroborated purchase invoices are justified when the revenue relies on multiple conflicting precedents.
