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2016 (8) TMI 72 - ITAT KOLKATA

2016 (8) TMI 72 - ITAT KOLKATA - TMI - Additions under ‘peak credit theory’ - Held that:- 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. .....

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Ld. AO is directed to verify the veracity of the said workings for both the assessment years and determine the undisclosed income of the assessee accordingly. The Ld. AO is also directed to eliminate the commission income offered by the assessee in the return of income in view of the directions contained above for determination of income of the assessee for both the assessment years. - Decided in favour of assessee for statistical purposes. - I.T.A Nos. 1377 & 1378/Kol/2012 - Dated:- 15-7-2016 - .....

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is order dated 17.10.2011. Since issue is identical in both the years, we dispose of both these appeals by this consolidated order for the sake of convenience. addition in the sum of ₹ 34,50,000/- and ₹ 5,50,000/- could be made towards unexplained cash credit by adopting peak credit theory in the facts and circumstances of the case. 3. At the outset, the Ld. AR stated that ground nos. 1, 2 and 4 for AYs 2009-10 and 2010- 11 raised by the assessee are not pressed. The same is taken as .....

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d. CIT(A) was unjustified in disregarding the explanation without passing any speaking order. 5. Without prejudice to the above, in the facts and circumstances of the case, the Ld. AO erred in taxing income both under peak credit theory and the undisclosed commission income . The action of the AO was wholly unreasonable uncalled for and bad in law. He should have considered higher of the above two income and not aggregate them. 6. For that in the facts and circumstances of the case, the Ld. AO e .....

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iled at the assessment stage. The action of the AO was wholly unreasonable, uncalled for and bad in law. The Ld. CIT(A) was unjustified in disregarding the explanation without passing any speaking order. 5. For that in the facts and circumstances of the case, the Ld. AO erred in taxing income both under peak credit theory and the undisclosed commission income . Thus, he has taken both mode of earning and application of such earnings. The action of the AO was wholly unreasonable, uncalled for and .....

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izure operation u/s. 132 of the Act conducted on 08.12.2009 in the cases of Shashikant Khetan Group at their business and residential premises, the following bank accounts were found at the time of search: i) The bank A/c No. 605019206 held in the name of M/s. Alankita Traders held with ICICI Bank, 20, R. N. Mukherjee Road, Kolkata; ii) Bank A/c No. 33105144977 held in the name of M/s. Raghupati Enterprises held with Standard Chartered Bank, N. S. Road, Kolkata; iii) Bank A/c. No. 33105139973 he .....

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ries to various people who were also parallelly covered in the aforesaid search operation. In the said disclosure statement, the assessee explained that these bank accounts were used for the purpose of providing accommodation entries for which the assessee had earned commission to the tune of 25p. to 50p. and accordingly, came forward to offer the aforesaid sums towards commission income for both the assessment years. The assessee also requested the Ld. DDIT (Inv.) to adjust the balance lying wi .....

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Portugese Church 0206062000000546 6. The basis for arriving at the undisclosed income by the assessee is as under: S. No. Account Name Bank Name Account No. Total cash deposits 1,090,000 28,591,103 1 Alankita Traders ICICI Bank 20, R.N.Mukherjee Road 605019206 - 29,745,000 2 Raghupati Enterprises Standard Chartered Bank N. S. Road Branch 33105144977 - 10,970,000 3 Moto Enterprises Standard Chartered Bank N. S. Road Branch Dhanlaxmi Bank 15, Portugese Church 33105139973 - 10,970,000 0206062000000 .....

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; under 'peak credit theory' as he was not able to give details of all undisclosed transactions in the bank account. While submitting a detailed workings assessee voluntarily offered an additional income of ₹ 1,00,000/- under 'peak credit theory for AY 2009-10 and ₹ 3,00,000/- for AY 2010-11. During the course of assessment proceedings, a specific questionnaire was raised by the Ld. AO vide notice dated 04-07-2011 with regards to the disclosure made by the assessee u/s. 1 .....

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hree types - Cash, contra cheques and clearing cheques. Contra cheques and clearing cheques represent cheque received from persons working in conduit for providing accommodation entries. "Contra Cheques" represent receipt of cheques from persons simultaneously covered during search operations and who have made disclosures u/s. 132(4) of Income Tax Act simultaneously. Cash represent amount received from the beneficiaries from where I used to get commission. No commission was received fr .....

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5139973 and 0206062000000546 with Standard Chartered Bank and Dhanlaxmi Bank respectively in the name of Moto Enterprise and bank account no 605019206 with ICICI Bank in the name of Alankita Traders were found. Please explain the nature and source of the transactions in these bank accounts? A.3. This bank accounts were undisclosed and does not form part of my regular income and were used for the purpose of providing book entries and earning commission thereon. Other than initial cash deposit for .....

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ource of cash deposits initially cash was received from the arrangers of the beneficiaries. The cash so received was deposited in the bank accounts maintained by us. Subsequently, I used to issue cheques to some other concerns working in conduit for transfer of funds to ultimate beneficiaries. As regards to cheque deposited, the same were from persons working in conduit for providing accommodation entries. In accommodation entry transactions, it is imperative that the funds move through a number .....

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red commission income at higher slab (50 paisa) on cash deposits on all the banks belonging to my proprietorship concern in my calculation of undisclosed income. The cheque deposits are from persons who were working in conduit for providing accommodation entries. You shall appreciate that in accommodation entry transactions, it is imperative that the funds move through a number of bank accounts after deposit of cash in a bank account before issuing cheque to the ultimate beneficiaries. No commis .....

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ied that as stated above, that he was earning commission for converting cash into cheques which was my main source of livelihood. The assessee stated that he had not maintained any books of accounts. The assessee stated that both cash deposits and cheques issued were transactions of trading nature and do not represent his own investments/drawings in any manner. His business was to deposit cash and issue cheques from the bank accounts and earn commission thereon. The question of applicability of .....

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during the investigation proceedings that he was involved in providing accommodation entries and the deposit of cash/cheque in the bank account was incidental to the business as entry operator. Since the deposits and withdrawals were interlinked trading transactions, the "peak credit theory" shall apply on his peak balance in the bank accounts and not on entire cash deposits in the said accounts. Reference may be made to following judgments. (i) ITO Vs. Md. Asraf Ali, ITA No.169/K/200 .....

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x) CIT Vs. Neemar Ram Bandhu Ram (1980) 122 ITR 68. As evident from the aforesaid judgments, the principal of peak credit is applicable on peak balance owned by the assessee and the entire deposits cannot be subject matter of additions. 8. The assessee stated before the AO that the initial deposit made in cash for opening the bank account and the bank balance on the date of search totaling to ₹ 5,02,000/- to be treated as undisclosed income for both the assessment years put together. Out o .....

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sion that under peak credit theory income should have been ₹ 34,50,000/- and ₹ 40,00,000/- for AY 2009-10 and 2010- 11 respectively being the peak of the cheque deposit amount credited in the bank accounts as unexplained income of the assessee. 9. The Ld. CIT(A) upheld the addition in the sum of ₹ 34,50,000/- for AY 2009-10 and upheld the addition of ₹ 5,50,000/- for AY 2010-11 as he felt that the addition made in the earlier year would explain the source for deposit made .....

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ccounts and determined the undisclosed income accordingly. In response to this, the Ld. DR vehemently relied on the orders of the lower authorities. 11. 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 cheq .....

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