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Commissioner of Income Tax Versus D.K. Garg

2017 (8) TMI 450 - DELHI HIGH COURT

Addition on account of unexplained deposits in the bank accounts of the assessee - addition u/s 68 - basis of peak credit theory - Assessee is a Chartered Accountant - Assessee does not deny that he is an accommodation entry provider - Held that:- Where an Assessee was unable to explain the sources of deposits and the corresponding payments then he would not get the benefit of 'peak credit'. - The legal position in respect of an accommodation entry provider seeking the benefit of 'peak credi .....

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able to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the Assessee, the identity of the creditors and that the money paid from the accounts of the Assessee has returned to the bank accounts of the creditors. The Assessee has to discharge the primary onus of disclosure in this regard. - While the AO in the present case did not question the working out of the peak credit by the Assessee, he, at the same time, insisted t .....

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- As already noted, the ITAT went merely on the basis of accountancy, overlooking the settled legal position that peak credit is not applicable where deposits remain unexplained under Section 68 of the Act. The question of law framed by this Court, is accordingly, answered in the negative i.e. in favour of the Revenue and against the Assessee. - ITA 115/2005 - Dated:- 4-8-2017 - S. Muralidhar And Prathiba M. Singh, JJ. For the Appellant : Mr. Ruchir Bhatia, Senior Standing Counsel For the Re .....

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d: Whether the Income Tax Appellate Tribunal was correct in law in restricting the addition made on account of unexplained deposits in the bank accounts of the assessee to ₹ 5,87,374/- as against ₹ 72,08,996/- on the basis of peak credit theory ? Background facts 3. The Respondent/Assessee is a Chartered Accountant. For the AY in question, he filed his return of income on 10th October, 1996 declaring his taxable income at ₹ 49,880 which comprised his gross professional receipts .....

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and other two companies viz., Zamindar Plantation Pvt. Ltd. and Kisan Plantation Pvt. Ltd. were all sold to M/s James Group. 4. Notice was issued to the Assessee on 29th April, 1999 under Section 148 of the Income Tax Act ( the Act ) regarding his income that escaped assessment. The Assessee did not participate in the re-assessment proceedings for a long time. Thereafter, on 5th February, 2002, the Assessee informed the AO that the return already filed by him on 10th October, 1996 should be trea .....

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said business during the year 1994-95 and in the subsequent year I could not earn the income because the demand for fresh entries were negligible. The calculation and the detail how I have earned income are enclosed herewith for both the years. The entries consists of loan entries and loan entries for applying shares in public issues. I was getting merely 1 % commission / services charges and 0.25% on amount utilized in public issues. The name of the companies are also enclosed herewith giving .....

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account opening forms of these concerned persons/beneficiaries to whom cheques were issued by the Assessee. After getting the addresses of these beneficiaries from their respective account opening forms, summons were issued to them. But almost all these beneficiaries were not found at the addresses given in their account opening forms. As regards the credit entries in the said accounts of the Assessee are concerned, wherever the Assessee was able to show that the corresponding issuance of chequ .....

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/s Sai Fisheries and M/s Premchand Plantations. The unexplained peak credit of the cheques deposited in the Assessee s bank accounts were considered and a sum of ₹ 20,91,882 was added to the total income of the Assessee under Section 68 of the Act. Likewise, the unexplained cash deposits in his bank accounts amounting to ₹ 51,17,114 were also added to his total income. The total income was, therefore, revised to ₹ 72,58,880 under Section 143(3) read with Section 147 of the Act. .....

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gued on behalf of the Assessee that the additions made by the AO should be restricted to the extent of peak credit only. The Assessee worked out the peak credit as ₹ 5,87,374. 7. On this, the CIT (A), asked for a Remand Report from the AO. On 8th July 2003, the AO submitted a remand report wherein the peak balance in the two bank accounts, as worked out by the Assessee at ₹ 5,87,374, as on 6th December, 1995, was accepted. However, the AO reiterated his stand that the additions made .....

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d persons/beneficiaries through the addresses given in their account opening forms, however, to no avail as, most of these addresses were found to be incorrect. It was noted that the Assessee was involved in the activity of providing cheques by accepting deposits in cash. In the circumstances, noting that the AO had duly accounted for squared off transactions and made additions only to the extent to which there was no convincing explanation given by the Assessee, for cash or cheque transactions, .....

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adopted by the AO and sustained by the CIT (A) wherein the cash entries and cheque entries have been treated differently is absolutely illogical and irrational and cannot be upheld . It was noted that while dealing with the cash deposits, the AO had worked out the difference between the total deposits and the total withdrawals in regard to the two accounts whereas with regard to the cheque transactions, the AO had worked out the peak separately relating only to the three companies i.e. M/s Anur .....

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t, the peak credits have been worked out separately for cash deposits and cheques issued by the companies. The ITAT then observed that if the companies were non-existent, there was no justification for the AO to treat the payments vis-a-vis the three companies as the income of the Assessee. It was further observed by the ITAT that the Assessee had himself deposited the unaccounted money in these accounts and issued cheques. It was also observed by the ITAT that the additions could not be made tw .....

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appreciate that the Assessee had not provided an explanation for all the cheque deposits or even the cash deposits and the corresponding cheques issued from his account. According to him, the concept of working out the peak credit would arise only if it was possible to square off the deposits made in an account against the cheques issued therefrom. If A made a deposit in the account and the ultimate payment was made to A either in A s account by cash or cheque then to that extent, the peak credi .....

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ned counsel for the Assessee, on the other hand submitted that the issue in the present appeal under Section 260 A of the Act is confined only to working out of the peak credit. He pointed out that the AO had himself accepted the peak credit as worked out by the Assessee. There was no justification for the CIT (A) in sustaining the order of the AO and not restricting the addition to the peak credit as worked out by the Assessee. After the CIT (A) and the AO had both accepted that the Assessee wa .....

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f ethics but only from the point of view of accountancy . Analysis and reasons 13. There have been numerous cases before the AO, CIT (A), the ITAT and for that matter even before this Court, where the question involved concerns the treatment of 'accommodation entries'. Basically, what an accommodation entry provider does is to accept cash from an Assessee and arranges to have a cheque issued from his own account or some other account, usually of 'paper' or fake entities, to make .....

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. 14. In cases where the Assessee discharges the initial onus of establishing the identity and creditworthiness of the credit provider and the genuineness of the transaction, be it one of loan or subscribing to share capital, the onus shifts to the revenue to show the contrary. Where, for instance, an Assessee furnishes the complete details of the entity like its certificate of incorporation, PAN number, income tax returns, bank accounts, names and addresses of the directors and so on, the Court .....

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r companies' only for that purpose. He also does not dispute the fact that he has not been able to explain the source of all the deposits in his accounts or the ultimate destination of all the outgo from his accounts. 16. The Assessee's plea that he should be taxed only on a composite 'peak credit' is based entirely on principles of accountancy. He questions the logic behind allowing peak credits for some of the credit entries by way of cheques and denying it for the other entrie .....

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uot;For adjudicating upon the plea of peak credit the factual foundation has to be laid by the assessee. He has to own all cash credit entries in the books of account and only thereafter can the question of peak credit be raised." 18. In that case, it was held that as the amount of cash credits stood in the names of different persons which the Assessee had all along been claiming to be genuine deposits, withdrawals/payments to different persons during the previous years, the Assessee was, t .....

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applied only in the case of squared up accounts. In other words, where an Assessee was unable to explain the sources of deposits and the corresponding payments then he would not get the benefit of 'peak credit'. 19. The legal position in respect of an accommodation entry provider seeking the benefit of 'peak credit' appears to have been totally overlooked by the ITAT in the present case. Indeed, if the Assessee as a self-confessed accommodation entry provider wanted to avail the .....

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