ORDER SHEET IN HIGH COURT AT CALCUTTA Special Jurisdiction [Income Tax] ORIGINAL SIDE GA No. 3801 of 2014 ITAT No. 197 of 2014 PIYUSH PODDAR Versus COMMISSIONER OF INCOME TAX - XVII BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 14th January, 2015. For Appellant : Mr. N. K. Poddar, Senior Advocate with Mr. V. Tibrewal, Advocate For Respondent : Mr. S. B. Saraf, Advocate Court : subject matter of challenge in this appeal is judgment and order dated 7th August, 2014 by which learned Tribunal allowed appeal preferred by revenue against order of CIT(A). By order, CIT (A) had reduced tax liability of assessee to sum of Rs.16,36,060/- from original sum of Rs.6,30,89,413/-. Thus, relief granted to assessee was for sum of Rs.6,14,53,353/-. Aggrieved by order of Tribunal, assessee has come up in appeal. 2 Mr. Poddar, learned Senior Advocate appearing on behalf of assessee, submitted that Tribunal erred in not applying peak credit theory to case of assessee. He submitted that in this case opening balance as per bank statement was sum of Rs.12 lakhs. If aforesaid sum of Rs.12 lakhs is to be treated as unexplained entry, then sum of Rs.12 lakhs may be taxed but that becomes real income of assessee on basis whereof further transactions can be explained and that is how all further transactions can be taken care of by applying peak credit theory to extent of Rs.12 lakhs and in case it is found that peak credit is exceeding sum of Rs.12 lakhs, then further addition to sum of Rs.12 lakhs can be made. He, in support of his submission, relied on judgment of Madras High Court in case of S. Kuppuswami Mudaliar vs. Commissioner of Income-Tax, Madras, reported in [1964] 51 ITR 757, wherein following view was expressed: Where income-tax authorities make addition to income of assessee over and above income as disclosed by assessee, on estimate basis, amount so added must be treated as real income of assessee. It is not open to authorities to take view that addition was only for purposes of taxation and that it should not be regarded as true income of assessee. aforesaid view of Madras High Court was affirmed by Apex Court in case of Anantharam Veerasinsghaiah & Co. vs. Commissioner of Income Tax, A.P., reported in [1980] 1213 ITR 457 (SC), wherein following views were expressed: In present case, Appellate Tribunal has relied entirely on basis that intangible addition of Rs.2,00,000 had been made to book profits of assessee for assessment year 1957-58 and it inferred that amount of Rs.90,000 was available for being put to use in year with which we are 3 concerned. Now it can hardly be denied that when intangible addition is made to book profits during assessment proceedings, it is on basis that amount represented by that addition constitutes undisclosed income of assessee. That income, although commonly described as intangible , is as much part of his real income as that disclosed by his account books. It has same concrete existence. It could be available to assessee as book profits could be. In Lagadapati Subba Ramaiah v. CIT [1956] 30 ITR 593, Andhra Pradesh High Court adverted to this aspect of secret profits and their actual availability for application by assessee. That view was affirmed by Madras High Court in S. Kuppuswami Mudaliar v. CIT [1964] 51 ITR 757. There can be no escape from proposition that secret profits or undisclosed income of assessee earned in earlier assessment year may constitute fund, even though concealed, from which assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as source of unexplained expenditure incurred or of cash credits recorded during subsequent assessment year. mere availability of such fund cannot, in all cases, imply that assessee has not earned further secret profits during relevant assessment year. Neither law nor human experience guarantees that assessee who has been dishonest in one assessment year is bound to be honest in subsequent assessment year. It is matter for consideration by taxing authority in each case whether unexplained cash deficits and cash credits can be reasonably attributed to pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, true nature of cash deficit and cash credit must be ascertained from overall consideration of particular facts 4 and circumstances of case. Evidence may exist to show that reliance cannot be placed completely on availability of previously earned undisclosed income. number of circumstances of vital significance may point to conclusion that cash deficit or cash credit cannot reasonably be related to amount covered by intangible addition but must be regarded as pointing to receipt of undisclosed income earned during assessment year under consideration. It is open to revenue to rely on all circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and indeed, from nature of enquiry, it is almost impossible to do so. In end, they must be such as can lead to firm conclusion that assessee has concealed particulars of his income or has deliberately furnished inaccurate particulars. It is needless to reiterate that in penalty proceeding burden remains on revenue of proving existence of material leading to that conclusion. Mr. Saraf, learned advocate appearing for revenue, submitted that theory of peak credit could not be applied to case in hand for following reasons: (a) Going by case of assessee, he is entry operator. Therefore, by his own admission each transaction is different unit and there cannot be any continuity of transactions which may be possible in case of ordinary trader. (b) point as regards applicability of peak credit theory was never advanced before assessing officer nor in memo of appeal before CIT(A). Mr. Poddar disputed this submission of Mr. Saraf. He drew our attention to grounds of appeal as would appear from judgment of CIT(A). He drew our attention to ground nos. (ii) and (iii) which reads as follows: 5 ii) That on facts and circumstances of case, Ld.AO is wrong and unjustified in considering entire deposit made into bank as undisclosed/unexplained cash credit in case of assessee. iii] That on facts and circumstances of case, Ld. AO has proceeded on erroneous belief in treating deposits in bank a/c. as unexplained without considering regular withdrawals from same bank. Mr. Saraf drew our attention to Division Bench judgment in case of Bhaiyalal Shyam Behari v. Commissioner of Income-Tax, reported in (2005) 276 ITR 38, wherein following views were expressed: For adjudicating upon plea of peak credit factual foundation has to be laid by assessee. He has to own all cash credit entries in books of account and only thereafter question of peak credit can be raised. Mr. Saraf, relied upon judgment in case of Kale Khan Mohammad Hanif, reported in (1963) 50 ITR 1 (SC), which was also taken into account by learned Tribunal. We have considered rival submissions advanced by learned advocates appearing before us. We are inclined to think that Mr. Saraf is correct in his submission that factual foundation for applying theory of peak credit was not laid by assesee. assessee may have impliedly done so, but expressly no such attempt is discernible to us. It is not in dispute that this plea was not raised before Assessing Officer. Even in memo of appeal, from grounds, quoted above, one cannot say that point was squarely taken but arguments were no doubt advanced before CIT(A). learned Tribunal has also not considered question in correct perspective. Tribunal appears to have proceeded solely on basis of 6 judgment of Apex Court in case of Kale Khan being unmindful of fact that in case of Kale Khan, scope of meaning of Section 68 was in issue but Supreme Court was not concerned with identical set of facts which are before us. What will be implication after Section 68 is applied to opening balance of little over Rs.12 lakhs in this case vis- -vis further transactions is serious question of fact which has to be considered and for that purpose we are of opinion that remand is required. We should not be deemed to have express any opinion as to whether peak credit theory is applicable to fact and circumstances of case or is not applicable to facts and circumstances of case. That question is left to be decided by Tribunal on basis of evidence, which may be adduced before them and they shall allow letting in of necessary evidence, if assessee so desires. limited question to be considered is whether assessee is entitled to any benefit on basis of peak credit theory. In result, order under challenge is set aside and matter is remanded to learned Tribunal for re-hearing. learned Tribunal is requested to hear out matter within period of six months from date of communication of this order. appeal is, thus, disposed of. (GIRISH CHANDRA GUPTA, J.) (ARINDAM SINHA, J.) sm Piyush Poddar v. Commissioner of Income-tax - XVII