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2016 (12) TMI 608 - ITAT JAIPUR

2016 (12) TMI 608 - ITAT JAIPUR - TMI - Addition on account of Undisclosed debtors - application of prime credit theory - Held that:- 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 te .....

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present case. Thus 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. - 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 whi .....

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O 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 available in respect of salary income already offered to tax and no addition is thus called for in respect of undisclosed household expenditure. The entire addition .....

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7/2015 passed by the ld CIT(A), Alwar for the A.Ys. 2005-06 to 2010-11. Given that these appeals contain identical facts and common set of grounds of appeal, the same were taken up for hearing together and are being disposed off by this consolidated order. The grounds taken by the assessee in the appeal of A.Y. 2005-06 is as under:- 1. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in upholding an addition of ₹ 22,800/- on account of undisclosed debtors .....

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he case the Ld. CIT(A) has grossly erred in sustaining the addition of ₹ 50,000/- on account of undisclosed / unexplained house hold expenses arbitrarily, without considering the drawings made by the assessee. Hence the addition so made based on estimates deserves to be deleted. 2.1 That the addition of ₹ 50,000/- has been made by merely estimating the household expenses of the assessee without any material found as a result of search for the year under appeal. Similar grounds of app .....

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essee 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 .....

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observed that since the amount of income offered on the basis of these entries in seized papers was found to be not correct vide order sheet entry dated 20.10.2011, the A/R of the assessee was asked to prepare person wise copy of account and total amount of outstanding debtors at the year end so as to exactly determined the correct amount of undisclosed investment in debtors. The assessee thereafter on 25.11.2011 filed copies of person wise accounts and also details of outstanding debtors at th .....

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earned interest but the interest so earned is treated as reinvested which is reflected in outstanding debtors and thus amount of addition made included as new debtors during the year and amount of interest earned during the year as reinvested in the debtors. For the year ending 31.3.2005, such amount of debtors is of ₹ 191,200 as calculated above and the same is assessed as undisclosed debtors and addition was made to the declared income instead of ₹ 168,400 declared by the assessee .....

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isclosed 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 what .....

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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 entries. However, this theory would apply only in the case of a undisclosed bank account, where deposits of cash are found alongwith cash withdrawals. Therefore, it is important to understand the facts of each case before computing the peak credits. This method of computing peak credit in my opinion would not be appr .....

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eposits and withdrawals have been made cannot be adopted in this case. Further, in this case it has been clearly established by the AO that the loans and advances given to various persons during the year amounting to ₹ 1,91,200, which were outstanding as on 31-03-2005. This balance outstanding at the end of the year is nothing but represents the peak balance of an unaccounted asset. Therefore, the question of not considering the peak amount raised by the appellant does not appear to be log .....

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AO on this ground. 4. Similar factual matrix is present and identical findings have been given by the ld. CIT(A) in the orders of A.Ys. 2006-07 to 2010-11 and the assessee is in appeal before us in respect of all these years. 5. The ld AR of the assessee has submitted that under these grounds of appeal, the assessee has challenged the action of Ld. CIT(A) in sustaining the addition made by Ld. AO on account of undisclosed debtors without appreciating the fact that during the year under appeal, t .....

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ound 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 and accordingly ₹ 4,07,882/- was offered as additio .....

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From the perusal of the respective pages, the Hon ble Bench would observe that these papers contained the closing balances of both the debtors and creditors and the final balance outstanding in the shape of the closing balances (in all the years it is the debit) i.e. the undisclosed funds of the assessee involved in money lending business not recorded in the regular books of accounts. However, the Ld. AO deliberately and intentionally ignore this working and pick the balances of debtors outstand .....

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o also failed to appreciate the same before confirming the additions. The precise working of the same as submitted before the Ld. CIT(A) in the written submissions made in all the assessment years is as under: As per Assessing Officer As per Books of Accounts A.Y. Balance as on 1st day of the year Balance as on last day of the year Balance as on 1st day of the year Balance as on last day of the year 2005-06 - 1,91,200.00 - 21,200.00 2006-07 1,91,200.00 3,61,825.00 21,200.00 36,425.00 2007-08 2,9 .....

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hat 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 the Ld. AO has been upheld by the Ld. CIT(A) in a mechanical manner and without application of mind to the submissions made before h .....

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stments 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 assessee has prepared the cash flow statement of the debtors and creditors and offered the maximum peak amount in a particular year. It is well established law in this regard that where the debit and credit both are unexplained the credit and debit entries h .....

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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 assessee by drawing a hypothetical and imaginative distinction between the cases of cash deposit / withdrawal in bank account and the cases of entries of cash advances and receipt back, which action of Ld. AO is completely baseless, against law and thus deserves to be struc .....

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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 .....

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roke 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 seize .....

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tors both were appearing, there was no justification for the AO to accept only the debtors as genuine and holding the creditors as non-genuine, more particularly when the debit / credit entries both were borne out of the seized papers and not as out of the details submitted by assessee during assessment proceedings. Thus, the credit entries could not have been doubted in any manner and the closing balance of advances as reduced by credits received deserves to be considered for computing addition .....

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and accepted method where precise and accurate information are not available and accordingly the additional income declared by assessee deserves to be accepted and the additions made in various assessment years deserves to be deleted. Without prejudice to above and in the alternative it is submitted that while computing the additional 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 addi .....

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7 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 1,64,273.00 - 4,37,775.00 In the circumstances it is submitted that in the event the Hon ble Bench has proceeded to confirm the additions based on the positive and negative peaks, the addition that could have been made should be restricted to ₹ 4,37,775/- for various assessment years as per the table given herein above. 6. At the outset, the ld. CIT DR has vehemently supported the .....

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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 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 pe .....

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es 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 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 doc .....

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e 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 reason .....

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o not the case of the Revenue that inflow of funds through 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, w .....

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ppeal for the A.Y. 2005-06 is against sustaining the addition of ₹ 50,000/- on account of undisclosed/unexplained house hold expenses. The Assessing Officer has observed that page Nos.10,11,25,26,27,37,39,41,43,45,47,48,50,51, 53,55,57,59,61,63 of Exhibit -1 of Annexure AS1 also belongs to him and these papers are related with the normal house hold expenditure incurred by him month wise. The month wise total of the above transaction is given below. Page No 63 out of the above pages showing .....

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stimation 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 inco .....

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earch 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 appellant has stated that an amount of ₹ 1,30,000/-, which is the salary received has been used for meeting household expenses. Considering the fact that the family consists of his parents, wife and two children, the household expenses have been reasonable estimated by the A.O. Therefore, addit .....

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al are that, during the course of search certain papers were seized which were alleged to contain details of normal house hold expenditure incurred by assessee in the year under appeal, as reproduced at page 9 of the assessment order, and total expenditure recorded on the said pages was of ₹ 1,91,099/-, none of which related to the year under appeal. The Ld. AO after referring to the seized papers estimated the house hold expenditure for various assessment years and no credit was given to .....

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laimed looking to the fact that assessee s family is pure vegetarian and teetotaler and living in the self-owned house, are most reasonable and sufficient to meet out day to day family needs. Therefore, in light of the facts and circumstances of the case and in light 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 .....

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