Commisisoner of Income Tax VI V. Shri Purushottam Jhawar,

ITTA/231/2013

AI Insights

The case revolves around an appeal by the Commissioner of Income Tax-VI, Hyderabad, challenging the Tribunal's decision regarding the assessment of undisclosed income for the block period from 1989-90 to 1999-2000. The Tribunal had applied the peak credit method in quantifying undisclosed income and deleted certain additions made by the Assessing Officer. The main legal issues pertained to the justification of the Tribunal's application of the peak credit theory, the deletion of specific additions as undisclosed income, and the handling of unaccounted investments. The High Court, after reviewing the Tribunal's decision, upheld the Tribunal's findings, agreeing that the methods used were in accordance with the provisions of the Income Tax Act, 1961, and that the factual determinations made by the Tribunal did not warrant interference.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 739297 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 12-07-2013
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Assessee Lawyers: S R ASHOK
• Keywords: Block assessment; Peak credit theory; Search operation; Unaccounted Investment; Undisclosed income
• Section: 158BB(1)

Judgement Text

"IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE Ms. JUSTICE G. ROHINI I.T.T.A. No.231 of 2013 DATE: 12.07.2013 Between: The Commissioner of Income Tax-VI, Hyderabad. … Appellant And Shri Purushottam Jhawar Warangal District. … Respondent This Court made the following: THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTA AND THE HON’BLE Ms. JUSTICE G. ROHINI I.T.T.A. No.231 of 2013 JUDGMENT: (Per the Hon’ble the Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is preferred and sought to be admitted against the judgment and order of the learned Tribunal, dated 28.11.2008, in relation to block period from 1989-90 to 1999-2000 on the following suggested question of law. “(A) Whether on the facts and circumstances of the case, the appellate Tribunal is justified in restricting the addition of Rs.33,29,300/- against Rs.87,10,100/- fixed by the Assessing Officer by roping in the theory of peak credits? (B) Whether on the facts and circumstances of the case, the appellate Tribunal is justified in allowing the peak cash credit theory without there being nexus between the inflow and outflow of the cash? (C) Whether on the facts and circumstances of the case, the appellate Tribunal is justified in affirming the view of the CIT (Appeals) in deleting the addition of Rs.10,50,000/- as undisclosed income, in spite of there being no material on record to substantiate that the advances rotated with the traders had nexus with the squared-up amounts? (D) Whether on the facts and circumstances of the case, the appellate Tribunal is justified in reducing the addition made on account of unexplained investments in purchase of Chillies to the extent of alleged profit and closing stock, in spite of there being no material to substantiate that the said items had been brought into books of accounts?” We have heard Sri S.R. Ashok, learned senior counsel for the appellant and gone through the impugned judgment and order of the learned Tribunal. It appears that the learned Tribunal has decided by its judgment and order three appeals in all. The first appeal was filed by the department, second appeal was filed by the respondent herein against the appellant and the third appeal was filed by the department in the case of connected assessee M/s. G.K. Cold Storage, Mahabubabad. The appellant/respondent filed cross appeal against the judgment and order of the Assistant Commissioner of Income Tax in which the application of principle of peak credit method in quantifying the undisclosed income was considered. The learned Tribunal on this issue has found that the lower authority came to the fact finding that the peak credit concept has to be applied and it cannot be disputed that the concept of peak credit is one of the accepted methods of accounting principles for the purposes of computing the real profit, and came to the conclusion that there is no fault with the view taken by the Commissioner of Income Tax (Appeals) unless and until the method adopted by the lower authority is contrary to the provisions of the Income Tax Act, 1961 (for short, “the Act”). We are in agreement with the views expressed by the learned Tribunal on this issue. Next question relates to deletion of addition of Rs.10,50,000/-. The learned Tribunal found that the assessee has disclosed a sum of Rs.10,50,000/- and this factum of disclosure is not in dispute. Therefore, the addition of the aforesaid amount of Rs.10,50,000/- would amounts to double addition. The learned Tribunal while affirming the judgment of CIT (Appeals) has come to the conclusion that deletion of addition of Rs.10,50,000/- is justified, since the same was already disclosed by the assessee in the block return. Next question is addition of Rs.1,13,500/-. It appears that the Tribunal came to the conclusion on fact that the assessing officer has already deducted a sum of Rs.89,000/- for the financial year 1996-97. Therefore, the Commissioner of Income Tax (Appeals) was not correct in deleting the addition of Rs.1,13,500/- on the ground that the same was forming part of Rs.13,55,617/-. Having found the discrepancy the learned Tribunal thought that some verification was necessary to find out whether the amount of Rs.1,13,500/- form part of addition of Rs.13,55,617/- or not and accordingly set aside the order of the lower authority on that issue and remanded the matter for fresh computation after verification as to whether the amount of Rs.1,13,500/- form part of the addition of Rs.13,55,617/-. Next question is with regard to Rs.4,21,748/- on account of unaccounted investment in the purchase of chillies. The learned Tribunal on fact found that it was not in dispute that the assessee purchased chillies outside the books of account and the profit arising out of such purchase was already offered for taxation. Hence, there was no need for any further addition. The learned Tribunal on fact also found that the assessee purchased chillies outside the books of account, which was found during the course of search operations. The assessee has disclosed the closing stock to the extent of Rs.98,000/- in the block return, which was offered for taxation. Hence, the relief to the extent of Rs.98,000/- should have been given in the block assessment and the profit admitted by the assessee to the extent of Rs.32,000/- in the block return cannot be added again. Therefore, on fact, the learned Tribunal had correctly reduced the addition to Rs.2,91,748/- in case of Rs.3,23,748/-. We do not find any flaw in this. Next point relates to the addition of Rs.4,67,909/- on account of investment in M/s. G.K. Cold Storage. The learned Tribunal found on fact that the search operation was conducted in the premises of the assessee on 24.02.1999, which was concluded on 02.04.1999. The assessee filed the balance sheet of G.K. Cold Storage before the assessing officer on 28.08.2000 in the course of block assessment proceedings. The learned Tribunal found that no material was found during the course of search operations with regard to addition of Rs.4,67,909/- and correctly applied the law, namely; Section 158BB(1) which clearly says that undisclosed income has to be computed on the basis of material found during the course of search operation or the information, which is relatable to the material found during the course of search operations. It was found by the learned Tribunal on fact that there was no reference in the assessment order about the material found during the course of search operations and the addition was made purely on the basis of the balance sheet filed by the assessee on 28.08.2000 in the course of block assessment proceedings. Therefore, the learned Tribunal correctly held that the sum of Rs.4,67,909/- cannot be treated as undisclosed income, and deleted the same from addition. While dealing with the assessee’s appeal, the learned Tribunal dealt with the matter in the manner as follows. The first ground in this appeal was with regard to the addition of Rs.33,29,300/-. After examining the records and material, the learned Tribunal on fact found as follows. “Merely because the assessee made coded entries even for small figures, like Rs.100, Rs.200 etc., that does not mean that the assessee has omitted three zeroes. On the basis of the material available on record, and the statements recorded from the various debtors examined, it is very much clear that what was omitted by the assessee is only two zeroes and not three zeroes. In the absence of any material to the contrary brought on record, the assessing officer is not justified in ignoring the statements recorded from debtors. The statements recorded by the assessing officer clearly establish that what was omitted by the assessee is only two zeroes and not three zeroes.” On the basis of the above fact finding, the learned Tribunal did not accept the order of the Commissioner of Income Tax (Appeals) and accordingly set aside the said order directing the assessing officer to re- compute the income of the assessee after adding two zeroes to the figures mentioned in circle in coded form in the seized note book. The aforesaid fact finding does not call for any interference by this Court in exercise of its jurisdiction under Section 260A of the Income Tax Act, 1961. Next point in the assessee’s appeal was with regard to the interest on advances to the extent of Rs.1,56,820/- for the assessment year 1997-98, Rs.1,37,073/- for the assessment year 1998-99 and Rs.4,32,103/- for the assessment year 1999-2000. The learned Tribunal has examined the books of account and records. After doing that, the learned Tribunal found that what was omitted by the assessee with regard to the advances was also two zeroes and not three zeroes. Therefore, the learned Tribunal set aside the orders of the lower authorities on this issue and directed the assessing officer to make addition of only Rs.1 lakh instead of Rs.10 lakhs with regard to the advances made by the assessee to Sri Ram Cold Storage. This factual computation and analysis cannot be gone into by this Court, as it does not involve any question of law. Next ground of the assessee’s appeal was with regard to addition of Rs.1,80,000/- on account of repayment of loan from undisclosed sources in the case of B. Sriram Reddy. The learned Tribunal on this contention found that when the Commissioner of Income Tax (Appeals) has followed the peak credit concept, there is no need to make any separate addition in respect of Rs.1,80,000/- and that the assessee has explained the sources for repayment. Under such circumstances, the learned Tribunal found that there was no justification for separate addition. In our view this is also a question of fact, which this Court cannot decide. Next ground of the assessee’s appeal was with regard to the squared up loans. It appears that the learned Tribunal on fact thought it fit that this issue requires reconsideration and as such it set aside the order of the Commissioner of Income Tax (Appeals) insofar as the impugned addition of Rs.1,50,000/- is concerned and remanded the matter to the file of the assessing officer for due verification and decision in accordance with law, after giving reasonable opportunity of hearing to the assessee. It is a mere remand order. So we do not think that this should be scrutinized by this Court in exercise of its jurisdiction under Section 260A of the Income Tax Act, 1961. The learned Tribunal has dismissed the revenue’s appeal in relation to M/s. G.K. Cold Storage. In this appeal the only issue was in relation to addition of Rs.69,28,945/-. The learned Tribunal on fact gone into this matter and found as follows. “Admittedly, the partnership firm was established during the assessment year 1998-99. In other words, assessment year 1998- 99 is the first year of assessment in the case of G.K. Cold Storage. The business of the assessee firm is that of running a cold storage. Within just one year of its establishment, the partnership firm, in our opinion, could not have generated unaccounted money to the extent of Rs.69,28,945/-. Therefore, certainly the monies in question must have been introduced by the partners, as claimed by the assessee. Therefore, there is no question of making any addition in the hands of the present assessee.” Thereafter, the learned Tribunal found that the spouses of the respective partners who have also contributed substantially, were assessed to income tax. They have also sufficient credit balances in their books of account, so as to advance funds to the assessee firm. In the circumstances, the addition of Rs.69,28,945/- as undisclosed income in the hands of the assessee firm is not warranted. Therefore, the finding of the Commissioner of Income Tax (Appeals) in deleting the addition made by the assessing officer was just and perfect. In view of the above fact-findings, we do not see any reason to interfere with this appeal to upset the said fact-findings. Accordingly, we dismiss the appeal, as there is no element of law involved in this matter. Almost this involves factual finding and question. _____________________ K.J. SENGUPTA, CJ ______________ G. ROHINI, J Date: 12.07.2013 ES "