2013 (12) TMI 725 - HC - Income Tax

High Court affirms Tribunal decision on undisclosed income re-computation

Commisisoner of Income Tax (Central) Versus M/s Fertilizer Traders

The High Court of Allahabad upheld the Income Tax Appellate Tribunal's decision in an appeal under Section 260A of the Income Tax Act, 1961. The dispute ... Unaccounted investment and undisclosed income - Held that:- The Tribunal was justified in restoring the matter to the AO with direction to recompute the peak - The AO was wrong in his method of peak by pick and choose method - As per he peak theory defined in the Sampath Iyengar's Law of Income-tax - Where the credits appear not in the same account but in the accounts of different persons. Even then, if the genuineness of all the person is disbelieved and all the credits appearing in the different account are held to be the assessee's own moneys, the assessee will be entitled to set off and a determination of the peak credit after arranging all the credits in the chronological order - Decided against Revenue. Issues:- Appeal under Section 260A of the Income Tax Act, 1961 against a consolidated judgment and order dated 13.02.2004 by the Income Tax Appellate Tribunal, Allahabad.- Substantial questions of law raised regarding various errors in the ITAT's decision.- Dispute over re-computation of peak credits/debits for undisclosed income.- Justification of the Tribunal's order by both the Department and the assessee.- Application of the peak theory in determining undisclosed income.- Reference to legal precedents supporting the Tribunal's decision.- Tribunal's directions to the AO for re-computation and subsequent assessment order.- Decision of the High Court on the appeals filed by the Department.Analysis:The High Court of Allahabad heard appeals filed by the Department under Section 260A of the Income Tax Act, 1961 against a consolidated judgment by the Income Tax Appellate Tribunal, Allahabad for the block period from 01.04.1986 to 13.02.1997. The substantial questions of law raised included concerns about errors in the ITAT's decision, such as the treatment of common grounds of appeal and additional evidence presented by the assessee. The dispute primarily revolved around the re-computation of peak credits and debits for undisclosed income based on the seized material during a search and seizure operation.The Department argued that the peak was already determined by the AO based on the entries and disputed the need for re-computation. However, the assessee contended that the peak should be re-calculated based on correct entries brought to light by an affidavit. Legal precedents were cited to support the Tribunal's direction for re-computation, emphasizing the application of the peak theory in determining undisclosed income. The Tribunal's directions to the AO for re-computation were detailed, focusing on chronological arrangement of entries and allocation of undisclosed income between the firms involved.The High Court upheld the Tribunal's decision, stating that the AO had to pass a fresh assessment order within a specified period. The Court found no fault in the Tribunal's order, which included directions for re-computation. As the matter was already restored to the AO for fresh adjudication, the Court dismissed all appeals filed by the Department. The judgment highlighted the importance of factual considerations in deciding substantial questions of law and affirmed the Tribunal's decision in the case.