TMI Blog2016 (12) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... the debtors and creditors entries found recorded in the seized documents. - Decided in favour of assessee for statistical purposes. Addition on account of undisclosed/unexplained house hold expenses - assessee has contended that the household expenditure has been incurred out of his salary withdrawals - Held that:- As except for AY 2009-10 in respect of which documents were found during the course of search, no documents are found in respect of any of the other years and the AO has only made an estimation without any underlying documents. The basis of estimation which ranges from ₹ 50,000 to ₹ 2,50,000 is also not clear from the records. Though both AO and ld CIT(A) has taken cognizance of the said contentions of the assessee, however no credit/setoff has been given. As against the total addition of ₹ 8,00,000 made by the AO towards undisclosed household expenditure, the assessee has reported in his return of income, an amount of ₹ 8,92,000 as salary income for all the respective years taken together, besides income from other sources. We therefore find force in the said contention of the ld AR and are of the view that necessary credit should be availa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search and seizure operation u/s 132 of Income Tax Act, 1961(in short the Act) was carried out on 24.08.2009 at the business and residential premises of Sh. Damodar Das Agarwal, of whom the assessee is one of the employees and during the course of search, certain loose papers/documents were found and seized. The assessee s name was included in the search warrant and was confronted with these loose papers/documents and he admitted that these loose papers/documents belong to him and he was involved in money lending business. Thereafter, notice u/s 142(1) was issued to assessee on 11.05.2011 in response to which return of income was filed wherein certain additional income is offered which is tabulated as under: Assessment Year Additional income offered 2005-06 1,68,400.00 2007-08 22,175.00 2008-09 1,95,400.00 2009-10 10,249.00 2010-11 11,658.00 Total 4,07,882.00 Thereafter, the assessments were completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch were not disclosed in the books of accounts. The appellant has recorded the amount of money given to various persons and the amount of interest being charged on these loans and also the amounts returned back by the borrowers. All these transactions were collated by the appellant and a computerized chart of inflows and outflows of funds, year wise has been prepared. 4.8 The argument taken by the appellant is that while calculating the peak, the maximum of debit and credit amount is to be considered as whatever comes into the business in cash is duly available and from that only payment is to be made. So peak is the maximum of what comes and what goes as it shows the maximum of undisclosed and unaccounted amount. It is to be noted that this proposition cannot be treated as proposition of law. These are only the inferences which can be drawn based upon the normal probabilities. These inferences can also be displaced by any material on record which may indicate to the contrary. 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 a large number of unexplained credit and debit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year are tabulated as under: A.Y. Amount 2005-06 1,91,200.00 2006-07 1,70,625.00 2007-08 3,51,000.00 2008-09 12,30,600.00 2009-10 19,32,445.00 2010-11 6,67,860.00 Total 45,43,730.00 Brief facts pertaining to these grounds of appeal are that, during the course of search at residential premises of Sh. DamodarDas Modi at D-32, Subhash Marg, C-Scheme, Jaipur, who is engaged in the money lending business contain loose papers were found and seized which were marked as Annexure AS-1, Exhibit 1 to 3 containing some transactions of credit and debit entries in the names of various persons which the assessee admitted as belonging to his money lending activity. Based on these entries assessee has worked out additional undisclosed income by arranging the entries of incoming or outgoing figures noted and wherever there was shortfall of cash the same was taken as unexplained an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,95,825.00 6,46,825.00 36,425.00 32,925.00 2008-09 5,51,825.00 17,82,425.00 32,925.00 97,875.00 2009-10 10,56,775.00 29,89,220.00 97,875.00 95,065.00 2010-11 27,31,620.00 33,99,480.00 95,065.00 79,680.00 From the perusal of the table above, it is evident that Ld. AO has adopted pick and choose method as per his sweet will even without taking the pain of considering the amount of closing balance which has been made basis for making addition in immediately preceding assessment year. It can be seen that the Ld. AO has denied the benefit of peak credit theory to assessee merely by distinguishing the case where transactions are related to cash creditors/debtors with the case where the transactions occur in the bank account of an assessee and has held that the peak credit theory can be applied only in the latter case and not the prior one. The said observation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving observed so, he held the entire amount of net outstanding balance of debtors at the year end as undisclosed investment of the assessee without giving credit for the credit balance available with assessee. In this regard, it is submitted that the Ld. AO has clearly taken a double stand in as much as he has accepted the debtors found mentioned on the seized papers as existing and made out of undisclosed income of assessee while on the other hand he does not accept the creditors found mentioned on the same papers claimed as source by assessee being working as money lender, meaning thereby that the Ld. AO has capriciously and without any basis accepted only part of the entries appearing on the seized papers which showed investment in debtors and allowed him to make illegitimate additions; and he has rejected the other part of the entries appearing on the same papers which constituted source of funds for assessee. In this regard, it is humbly submitted that the Ld. AO has committed a gross error in relying upon the seized documents partially, accepting only the debit entries and ignoring the credit entries without any basis in view of the well established law that a seized document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal undisclosed income for respective assessment years assessee has considered the positive peak only and ignored the negative peak which at the most could be the additional undisclosed funds utilized for making further advances. The same has not been offered in the return of income filed for the sole reason that certain transaction recorded do not contain any date and therefore has to be considered for pertaining to year of search. Therefore if at all any addition is to be made, the same could not be exceeded by the amount of negative peak on year to year basis which is tabulated as under: A.Y. Negative Cumulative Year-wise 2005-06 21,200.00 21,200.00 2006-07 36,425.00 15,225.00 2007-08 58,425.00 22,000.00 2008-09 4,37,775.00 3,79,350.00 2009-10 88,624.00 - 2010-11 1,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion is quite reasonable and supported with the entries in seized papers. He further observed that no such details are, however, available for the year under consideration. No / balance sheet is drawn/furnished nor any capital account is furnished claiming that / such accounts are not maintained by the assessee. Taking help of undisclosed house hold expenditure in AY 2009-10 at ₹ 2 lacs, expenditure for the year under consideration is estimated at ₹ 50000 over and above the income disclosed. Addition of ₹ 50,000/- is accordingly made on this count. 9. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had dismissed the appeal of the assessee on this ground by observing as under:- 5.3 I have perused the assessment order as well as submissions made by the appellant and find that an addition of ₹ 50,000/- has been made by the A.O. on account of unexplained household expenses. During the course of search certain incriminating documents were found pertaining to the household expenses and based on that evidence, A.O. has made the addition of ₹ 50,000/- on account of household expenses. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the submissions made above, it is humbly prayed that the additions made in various assessment years towards the household expenses and sustained by the Ld. CIT(A) on assumptions and presumptions deserves to be deleted. 11. At the outset, the ld. CIT DR has vehemently supported the order of the Assessing Officer. 12. We have heard the rival contentions of both the parties and perused the material available on the record. Firstly, it is noted that as per documents seized during the search referred as Exhibit 1 of Annexure AS1 belonging to the appellant, household expenditure of ₹ 191,099 was incurred during the financial year 2008-09. Based on the said seized documents, the AO estimated ₹ 2 lacs as undisclosed household expenditure for AY 2009-10 and for other years, an estimation was made by AO ranging from ₹ 50,000 for AY 2005-06 to ₹ 2,50,000 for AY 2010-11. Therefore, it is clear that except for AY 2009-10 in respect of which documents were found during the course of search, no documents are found in respect of any of the other years and the AO has only made an estimation without any underlying documents. The basis of estimation which ranges f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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