COMMISSIONER OF INCOME TAX III V. TIRUPATI CONSTRUCTION COMPANY

TAX APPEAL NO. 1010 of 2014

AI Insights

The case involves a series of tax appeals by the Commissioner of Income Tax against Tirupati Construction Company, concerning the assessment years 2004-05 to 2006-07. The appeals were based on a common order by the ITAT, Ahmedabad, which upheld the CIT(A)'s decision to tax only the peak amount of unaccounted receipts and payments found in seized documents during a search at the residence of Vijay Shah, brother of the respondent-assessee. The Revenue challenged the application of the 'peak credit' method, arguing that there was no proven nexus between the receipts and payments. However, the court agreed with the lower authorities that the income from the transactions recorded in the seized diary should be determined on the basis of the highest peak, plus a net profit of 5% on the receipts, and taxed accordingly.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 368925 (HC-GUJARAT)
• Appeal Type: High Court cases
• Pronouncement Date: 03-11-2014
• Appeal Filed By: Department
• Assessment Year: 2004-2005
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: K M PARIKH
• Keywords: Assessment proceedings; Peak credit; Unaccounted income; Unexplained receipts; Seized papers
• Section: 69; 69C

Judgement Text

"O/TAXAP/1010/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1010 of 2014 TO TAX APPEAL NO. 1012 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ COMMISSIONER OF INCOME TAX III....Appellant(s) Versus TIRUPATI CONSTRUCTION COMPANY....Opponent(s) ================================================================ Appearance: MR KM PARIKH, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Date : 03/11/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Since, all these appeals involve common Page 1 of 6 Downloaded on : Thu Jun 05 12:55:53 IST 2025 Uploaded by UMESH H. CHAVDA(HC00203) on Tue Nov 11 2014 2014:GUJHC:28700-DB NEUTRAL CITATION O/TAXAP/1010/2014 JUDGMENT questions, they are heard together and disposed of by this common order. 2. This group of appeals is preferred by the appellant-Revenue against a common order passed by the ITAT, Ahmedabad Bench “B”, Ahmedabad in IT(SS)A No. 73/Ahd/2010 for the Assessment Year 2004-05, IT(SS)A No. 74/Ahd/2010 for the Assessment Year 2005-06, IT(SS)A No. 75/Ahd/2010 for the assessment year 2006-07, Dated : 13.11.2013, raising the following common questions of law; “1. Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the CIT (Appeal)’s order that the peak of unexplained receipts and payments only should be brought to tax, without appreciating that there is no evidence in the seized papers of such nexus between the receipts and payments so as to show that the same funds have been rotated by the assessee? 2. Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the CIT(Appeal)’s order that the peak of unexplained receipts and payments only is taxable, without appreciating that the peak theory presupposes immediate and proven nexus between the receipts and the payments and hence could not have been applied to the assessee’s case as the seized papers do not evidence any such nexus? Page 2 of 6 Downloaded on : Thu Jun 05 12:55:53 IST 2025 Uploaded by UMESH H. CHAVDA(HC00203) on Tue Nov 11 2014 2014:GUJHC:28700-DB NEUTRAL CITATION O/TAXAP/1010/2014 JUDGMENT 3. Whether on the facts and circumstances of the case and in law, the ITAT was justified in upholding the CIT(Appeal)’s decision that the peak of unaccounted receipts and payments only should be taxed ignoring the fact that since there is no nexus between the assessee’s unaccounted receipts and unaccounted payments, they liable to be separately taxed under the deeming provisions of section 69 and 69C of the Act? 4. Whether on the facts and circumstances of the case and in law, the ITAT was justified in merely confirming the arbitrary and ad hoc estimation of the assessee’s unaccounted income by the CIT(Appeal)’s despite the fact that the seized papers contain ample evidence of the actual quantum of the assessee’s unaccounted income, which has been upheld by both appellate authorities?” 3. The brief facts of the case are that a search was carried out at the residence of one Shri. Vijay Shah on 17.01.2007, who is the brother of the respondent-assessee. During the course of search, certain material was found and on the basis of the same, the appellant-Revenue commenced the assessment proceedings. During the assessment proceedings, it was found that the Respondent-assessee had not disclosed certain amounts. Hence, the Respondent-assessee was asked to explain the same. However, the Respondent- assessee did not file any reply. Therefore, certain additions came to be made to the income Page 3 of 6 Downloaded on : Thu Jun 05 12:55:53 IST 2025 Uploaded by UMESH H. CHAVDA(HC00203) on Tue Nov 11 2014 2014:GUJHC:28700-DB NEUTRAL CITATION O/TAXAP/1010/2014 JUDGMENT of the Respondent-assessee for the concerned assessment years. 4. Being aggrieved thereby, the Respondent- assessee preferred appeals before the CIT(A), Ahmedabad, which partly allowed the appeals filed by the respondent-assessee. Pursuant thereto, the appellant-Revenue as well as the Respondent- assessee preferred appeals before the ITAT, Ahmedabad, wherein, the ITAT passed the common order, which is impugned in these appeals. 5. Mr. Parikh, learned Advocate for the appellant-Revenue in all the appeals, submitted that the Tribunal erred in passing the impugned common order and holding that the peak amount of credit and debit entries on the seized papers could be validly taxed in the hands of the assessee. Mr. Parikh, further, submitted that the Tribunal ought to have appreciated the fact that peak theory pre-supposes immediate and proved nexus between the receipts and the payments, and hence, the ITAT erred in confirming the CIT(A)’s finding that assessee should be given benefit of peak credit. 6. We have heard Mr. Parikh, learned Advocate appearing on behalf of the appellant- Revenue, and perused the material on record. Page 4 of 6 Downloaded on : Thu Jun 05 12:55:53 IST 2025 Uploaded by UMESH H. CHAVDA(HC00203) on Tue Nov 11 2014 2014:GUJHC:28700-DB NEUTRAL CITATION O/TAXAP/1010/2014 JUDGMENT 7. At the outset, it is required to be noted that, while appreciating a document, it is required to be considered in its entirety and it cannot be considered in part. In the case on hand, while appreciating the papers / documents, which according to the Assessing Officer, contained accounted and unaccounted transactions on the part of the Respondent-assessee, she not only failed to examine it properly but also failed in assessing the income as per law. Further, though, the AO, herself, had prepared the account of profit and loss in respect of accounted and unaccounted entries, she did not assign any reason, as to why the profit and loss account of unaccounted transactions of the Respondent-assessee cannot be believed to be true. Moreover, the AO also did not take into consideration the explanations tendered by the Respondent-assessee vide letters dated 10.12.2008 and 29.12.2008. Even, the working of the peak based on the seized diary given by the Respondent-assessee for the concerned assessment years was also overlooked by the AO and, here again, no reason was assigned for the same. We are, therefore, of the opinion that the CIT(A) rightly held that it would be just and proper, if, the income from the transactions recorded in the seized diary are determined on the basis of Page 5 of 6 Downloaded on : Thu Jun 05 12:55:53 IST 2025 Uploaded by UMESH H. CHAVDA(HC00203) on Tue Nov 11 2014 2014:GUJHC:28700-DB NEUTRAL CITATION O/TAXAP/1010/2014 JUDGMENT highest peak, as increased by the net profit of 5 per cent on the receipts and taxed accordingly, for the relevant assessment years. We do not find that the CIT(A) and ITAT has committed any jurisdictional error in passing the impugned orders. 8. In the result, all the appeals fail and are DISMISSED. (K.S.JHAVERI, J.) (K.J.THAKER, J) UMESH Page 6 of 6 Downloaded on : Thu Jun 05 12:55:53 IST 2025 Uploaded by UMESH H. CHAVDA(HC00203) on Tue Nov 11 2014 2014:GUJHC:28700-DB NEUTRAL CITATION "