TaxTMI 
TaxTMI 
TaxTMI 
2017 (8) TMI 450
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.... income on 10th October, 1996 declaring his taxable income at Rs. 49,880 which comprised his gross professional receipts of Rs. 1,91,050. The Assessing Officer ('AO') noted that the Assessee was holding two current accounts in the Union Bank of India, Karol Bagh, wherein sufficient cash and cheque deposits were made during the relevant period. It was also noted that the Assessee had floated one company viz., M/s Prem Chand Plantation Private Limited and purchased two other companies viz., M/s Anuradha Pharmaceuticals Pvt. Ltd. and M/s Sai Fisheries Pvt. Ltd. The AO further noted that the said three companies and other two companies viz., Zamindar Plantation Pvt. Ltd. and Kisan Plantation Pvt. Ltd. were all sold to M/s James Group. 4. Notice was issued to the Assessee on 29th April, 1999 under Section 148 of the Income Tax Act ('the Act') regarding his income that escaped assessment. The Assessee did not participate in the re-assessment proceedings for a long time. Thereafter, on 5th February, 2002, the Assessee informed the AO that the return already filed by him on 10th October, 1996 should be treated as his return in response to the notice under Section 148 of the Act. Before th....
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...., M/s Sai Fisheries and M/s Premchand Plantations. The unexplained peak credit of the cheques deposited in the Assessee's bank accounts were considered and a sum of Rs. 20,91,882 was added to the total income of the Assessee under Section 68 of the Act. Likewise, the unexplained cash deposits in his bank accounts amounting to Rs. 51,17,114 were also added to his total income. The total income was, therefore, revised to Rs. 72,58,880 under Section 143(3) read with Section 147 of the Act. Before the CIT (A) 6. The Assessee then went in appeal before the Commissioner of Income Tax (Appeals) ['CIT (A)'] against the aforementioned order of assessment. Before the CIT (A), it was pointed out by the Assessee that he was merely lending his name and providing accommodation entries. Accordingly, it was pleaded before the AO on behalf of the Assessee that only the peak credit in the two bank accounts should be worked out taking into account both the cash and cheque transactions. It was argued on behalf of the Assessee that the additions made by the AO should be restricted to the extent of peak credit only. The Assessee worked out the peak credit as Rs. 5,87,374. 7. On this, the CIT (A), ask....
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....ed out the peak credit separately for the cheques issued by the three companies and, according to ITAT, "the entire approach adopted by the revenue authorities betrays lack of understanding of basic accounting principles." The ITAT also found that there was a contradiction in the findings of the AO and CIT (A) inasmuch as, even after finding that the three companies were non-existent, the peak credits have been worked out separately for cash deposits and cheques issued by the companies. The ITAT then observed that if the companies were non-existent, there was no justification for the AO to treat the payments vis-a-vis the three companies as the income of the Assessee. It was further observed by the ITAT that the Assessee had himself deposited the unaccounted money in these accounts and issued cheques. It was also observed by the ITAT that the additions could not be made twice, once on the basis of cash deposits and again on the basis of cheque transactions. This would amount to double addition which could not be upheld. The ITAT, thereafter, restricted the addition to peak credit as worked out by the Assessee as Rs. 5,87,374 as against Rs. 72,08,996. Submissions of learned counsel....
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....involved concerns the treatment of 'accommodation entries'. Basically, what an accommodation entry provider does is to accept cash from an Assessee and arranges to have a cheque issued from his own account or some other account, usually of 'paper' or fake entities, to make it appear to be a loan or an investment in share capital. The accommodation entry provider usually charges a commission which is deducted upfront. Where the Assessee is unable to explain the source of such credit in his account - i.e. by demonstrating the identity of the provider of the credit, the creditworthiness of such entity, and the genuineness of the transaction - the credit entry is treated as unexplained and the income is treated under Section 68 of the Act as the income of the Assessee. 14. In cases where the Assessee discharges the initial onus of establishing the identity and creditworthiness of the credit provider and the genuineness of the transaction, be it one of loan or subscribing to share capital, the onus shifts to the revenue to show the contrary. Where, for instance, an Assessee furnishes the complete details of the entity like its certificate of incorporation, PAN number, i....
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.... where there has been no transaction of deposits and repayment between a particular depositor and the assessee." On the facts of that case it was held that peak credit could be applied only in the case of squared up accounts. In other words, where an Assessee was unable to explain the sources of deposits and the corresponding payments then he would not get the benefit of 'peak credit'. 19. The legal position in respect of an accommodation entry provider seeking the benefit of 'peak credit' appears to have been totally overlooked by the ITAT in the present case. Indeed, if the Assessee as a self-confessed accommodation entry provider wanted to avail the benefit of the 'peak credit', he had to make a clean breast of all the facts within his knowledge concerning the credit entries in the accounts. He has to explain with sufficient detail the source of all the deposits in his accounts as well as the corresponding destination of all payments from the accounts. The Assessee should be able to show that money has been transferred through banking channels from the bank account of creditors to the bank account of the Assessee, the identity of the creditors and that t....