AI Drafter 
TaxTMI 
TaxTMI 
2016 (12) TMI 608
X X X X Extracts X X X X
X X X X Extracts X X X X
....ds in the hands of assessee. Thus, the addition of Rs. 22,800/- deserves to be deleted. 1.1 That the Ld. AO has further erred in not considering the amount of closing balance of debtors as opening balance while working out the additional debtors created during the year. 2. On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining the addition of Rs. 50,000/- on account of undisclosed / unexplained house hold expenses arbitrarily, without considering the drawings made by the assessee. Hence the addition so made based on estimates deserves to be deleted. 2.1 That the addition of Rs. 50,000/- has been made by merely estimating the household expenses of the assessee without any material found as a result of search for the year under appeal." Similar grounds of appeal have been taken by the assessee in the cases of assessment years 2006-07 to 2010-11 with only variation of figures in respective years. 2. The brief facts of the cases are that a search and seizure operation u/s 132 of Income Tax Act, 1961(in short the Act) was carried out on 24.08.2009 at the business and residential premises of Sh. Damodar Das Agarwal, of whom the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ested in the debtors. For the year ending 31.3.2005, such amount of debtors is of Rs. 191,200 as calculated above and the same is assessed as undisclosed debtors and addition was made to the declared income instead of Rs. 168,400 declared by the assessee in his return of income u/s 153 A of the IT Act. 3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had partly allowed the appeal by observing as under:- "4.7 Having considered the submissions made and evidence placed on record, I find that there is no dispute with regard to the fact that the entries/transactions found to have been recorded in Ex-1 to 3 of AS-1 pertain to money lending transactions of the appellant which were not disclosed in the books of accounts. The appellant has recorded the amount of money given to various persons and the amount of interest being charged on these loans and also the amounts returned back by the borrowers. All these transactions were collated by the appellant and a computerized chart of inflows and outflows of funds, year wise has been prepared. 4.8 The argument taken by the appellant is that while calculating the peak, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eeds to be given for an amount of Rs. 1,68,400/- which has already been declared. Accordingly, I confirm only an addition of Rs. 22,800 made by the AO on this ground." 4. Similar factual matrix is present and identical findings have been given by the ld. CIT(A) in the orders of A.Ys. 2006-07 to 2010-11 and the assessee is in appeal before us in respect of all these years. 5. The ld AR of the assessee has submitted that under these grounds of appeal, the assessee has challenged the action of Ld. CIT(A) in sustaining the addition made by Ld. AO on account of undisclosed debtors without appreciating the fact that during the year under appeal, there were no undisclosed debtors. The additions so sustained in every year are tabulated as under: A.Y. Amount 2005-06 1,91,200.00 2006-07 1,70,625.00 2007-08 3,51,000.00 2008-09 12,30,600.00 2009-10 19,32,445.00 2010-11 6,67,860.00 Total 45,43,730.00 Brief facts pertaining to these grounds of appeal are that, during the course of search at residential premises of Sh. DamodarDas Modi at D-32, Subhash Marg, C-Scheme, Jaipur, who is engaged in the money lending business contain loo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....day of the year Balance as on last day of the year 2005-06 - 1,91,200.00 - 21,200.00 2006-07 1,91,200.00 3,61,825.00 21,200.00 36,425.00 2007-08 2,95,825.00 6,46,825.00 36,425.00 32,925.00 2008-09 5,51,825.00 17,82,425.00 32,925.00 97,875.00 2009-10 10,56,775.00 29,89,220.00 97,875.00 95,065.00 2010-11 27,31,620.00 33,99,480.00 95,065.00 79,680.00 From the perusal of the table above, it is evident that Ld. AO has adopted pick and choose method as per his sweet will even without taking the pain of considering the amount of closing balance which has been made basis for making addition in immediately preceding assessment year. It can be seen that the Ld. AO has denied the benefit of peak credit theory to assessee merely by distinguishing the case where transactions are related to cash creditors/debtors with the case where the transactions occur in the bank account of an assessee and has held that the peak credit theory can be applied only in the latter case and not the prior one. The said observation of the Ld. AO has been upheld by the Ld. CIT(A) in a mechanical manner and wit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....btors at the year end as undisclosed investment of the assessee without giving credit for the credit balance available with assessee. In this regard, it is submitted that the Ld. AO has clearly taken a double stand in as much as he has accepted the debtors found mentioned on the seized papers as existing and made out of undisclosed income of assessee while on the other hand he does not accept the creditors found mentioned on the same papers claimed as source by assessee being working as money lender, meaning thereby that the Ld. AO has capriciously and without any basis accepted only part of the entries appearing on the seized papers which showed investment in debtors and allowed him to make illegitimate additions; and he has rejected the other part of the entries appearing on the same papers which constituted source of funds for assessee. In this regard, it is humbly submitted that the Ld. AO has committed a gross error in relying upon the seized documents partially, accepting only the debit entries and ignoring the credit entries without any basis in view of the well established law that a seized document has to be read as a whole and cannot be broke into parts as per the conveni....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed the positive peak only and ignored the negative peak which at the most could be the additional undisclosed funds utilized for making further advances. The same has not been offered in the return of income filed for the sole reason that certain transaction recorded do not contain any date and therefore has to be considered for pertaining to year of search. Therefore if at all any addition is to be made, the same could not be exceeded by the amount of negative peak on year to year basis which is tabulated as under: A.Y. Negative Cumulative Year-wise 2005-06 21,200.00 21,200.00 2006-07 36,425.00 15,225.00 2007-08 58,425.00 22,000.00 2008-09 4,37,775.00 3,79,350.00 2009-10 88,624.00 - 2010-11 1,64,273.00 - 4,37,775.00 In the circumstances it is submitted that in the event the Hon'ble Bench has proceeded to confirm the additions based on the positive and negative peaks, the addition that could have been made should be restricted to Rs. 4,37,775/- for various assessment years as per the table given herein above. 6. At the outset, the ld. CIT DR has vehemently su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ly when the particulars of both the debtors as well as creditors are clearly visible along with date and amount in the said seized documents. In respect of applicability of peak theory, it is noted that there is nothing on record which can help determine the real income which has accrued to the assessee in respect of his money lending business in terms of agreements, contracts etc. with the borrowers and lenders which can throw light on the rate of interest charged /paid by the assessee, duration of loans /advances, repayment, etc. In such circumstances, application of the peak credit theory is the most reasonable and appropriate basis for determining the real income in the hands of the assessee. From perusal of the various entries found recorded in the seized documents and the cash flow statements prepared by the assessee, it is observed that in terms of amount advanced to various debtors, repayment thereof to the assessee, amount received from the creditors and its repayment by the assessee, the assessee has tried to establish the necessary linkage in terms of outflow and inflow of funds. It is also not the case of the Revenue that inflow of funds through various credit entries w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....me disclosed. Addition of Rs. 50,000/- is accordingly made on this count. 9. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld. CIT(A), who had dismissed the appeal of the assessee on this ground by observing as under:- "5.3 I have perused the assessment order as well as submissions made by the appellant and find that an addition of Rs. 50,000/- has been made by the A.O. on account of unexplained household expenses. During the course of search certain incriminating documents were found pertaining to the household expenses and based on that evidence, A.O. has made the addition of Rs. 50,000/- on account of household expenses. The appellant has stated that an amount of Rs. 1,30,000/-, which is the salary received has been used for meeting household expenses. Considering the fact that the family consists of his parents, wife and two children, the household expenses have been reasonable estimated by the A.O. Therefore, addition of Rs. 50,000/- made by the A.O. on this account is confirmed." 10. Now the assessee is in appeals before us. The ld AR of the assessee has submitted that these grounds of appeal relate to the addition ....