TaxTMI 
TaxTMI 
TaxTMI 
2018 (9) TMI 882
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....h amounts were deposited in cash which were later on transferred into his concern -M/s. Ashok Gupta and Co. The Assessing Officer (hereafter "AO") brought to tax Rs. 3,99,35,142/ - on account of unexplained cash/ credit in the bank accounts by invoking the provisions of Section 68 of the Income Tax Act. The AO also made an addition of Rs. 76,82,551/- being the 1.5% commission of Rs. 51,21,70,060/-, the amount, which represented the total turnover of the period in question. On appeal, both additions were upheld by the CIT(Appeals). The ITAT, whom the assessee had approached held that the addition of Rs. 3,99,35,142/ - was not justified; it was of the opinion that Section 68 was inapplicable. On the other issue, the ITAT reduced the rate of commission from 1.5% to 0.60%. For doing so, ITAT relied on its order passed in M/s. JRD Stock Brokers (Pvt.) Ltd., against which revenue filed an appeal before this court (ITA No. 544/05). 3. During the hearing of the appeal, two issues were broadly argued: one, the reduction of the commission (from 1.5 % to 0.6%) and the other, the deletion of the sum brought to tax, by the revenue, under Section 68 of the Act. Mr. Singh submitted firstly that ....
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....ounts was not discharged. 6. Counsel for the assessee, Mr. Rastogi urged that Kale Khan (supra) had no application to the facts of this case. It was argued that having once assessed and brought to tax the larger amount of Rs. 104 crore, the AO could not have carved out a "peak credit" amount from amongst that turnover, based on aggregate of the amounts in the assessee's account in a particular year, to give treatment under Section 68 of the Act. He relied on the ITAT's observations, relying on its previous order, in this regard. 7. On appeal, the CIT (A) held that the assessee's argument with respect to treatment of peak credit during the period, i.e. the block assessment years, for the purpose of Section 68 was justified, observing as follows: "7.1 These grounds of appeal relate to estimation of appellant's undisclosed income on the basis of peak cash credit at Rs. 7,13,96,210/ -. 7.2 The A.R. submitted that the determination of peak and valuation thereof is neither correctly determined nor required to be made under Chapter XIV B. The addition, if any, required was to be made in the hands of the beneficiaries and not in the hands of the appellant. As per Section 68, additi....
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....have been treated as discharged. Whereas in the present case neither the capacity of the creditors was proved not the genuineness of the transaction was established as the appellant himself admitted the transactions were made with mala fide intentions. Thus, the onus lied upon the appellant to prove the cash found deposited in the bank accounts was not discharged either before the A.O. or before me. 7.8 Keeping in view the facts narrated above, in my opinion, in absence of any supporting/ corroborative evidences, the A.O. was justified in making addition of peak cash credit of Rs. 7,30,71,530/ -. Accordingly, the order of the A.O. is confirmed on this ground." 8. The ITAT's decision in this case, directing the deletion of Rs. 3,99,35,142/-, was based on the fact that its previous order in the same block assessment period (Delhi Bench "G" in IT(SS) 54/Del/2004 dated 30.11.2004) had held as follows: "22. We have given careful thought to the rival submissions of the parties. At the very outset we hold that provision of sec. 68 of the Income-tax Act has no application. The addition has been made not for any cash credits in the books of accounts of the assessee but for peak of credit....
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.... 5 above. Thus, when cash credits have been accepted in feeder/fictitious accounts there is no question of making addition for cash credits in bank accounts. These cash credits have proximity can be treated as unexplained with reference to deposit/withdrawals from feeder accounts. The assessee is also entitled off set of the commission income added in the hands of the assessee. Thus considered from any angle we see no justification for sustaining addition for peak credits under section 68 of the Income-tax Act. The same is directed to be deleted." 9. In Kale Khan (supra) the facts were that the assessee, a trader was carrying on two businesses, (general merchandise and bidis). He had income from property too. Four of the years concerned, he had submitted a return; however, his accounts were not found complete and reliable. The AO assessed the gross profits of the businesses on the basis of certain percentages of the total sales which had also to be fixed by estimates. This was not questioned. Later, while dealing with another year, the AO noted that various credit entries in the assessees' books of account that appeared to have escaped his attention at the time of the assessment f....
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....rently, it was said that there would be double taxation because it was assumed that the same income had once been earlier taxed on the basis of an estimate. This reason is obviously fallacious, for if the income is treated as one from an undisclosed source which the question postulates, it is not treated as income of the disclosed source which had previously been assessed to tax and, therefore, there is in such a case no double taxation. It is not a case where the income sought to be taxed was held to be undisclosed income of a disclosed source, the income of which source had previously been taxed on the basis of an estimate. If it were so, the question of double taxation might have been legitimately raised. That, however, is clearly not the case here as the question as framed itself shows. We concede that the question as to the source from which a particular income is derived is one which has to be decided on all the facts of the case. Hence the question whether income represented by an entry in the books of a business is income of that business or of another business would have to be decided on the facts which showed the business to which it belonged. But quite clearly the answe....
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....rty. That these amounts were included in the larger turnover, in terms of Kale Khan (supra), does not ipso facto shut out an inquiry into the credits, which have to be explained. These amounts were in fact "peak credit" amounts that were brought to tax, since the assessee's explanations were inadequate. This kind of acceptance of "peak credit" theory to bring to tax amounts under Section 68 was approved by this court in Commissioner of Income Tax v. D.K. Garg 2018 (404) ITR 757 (Del). "19. 13. There have been numerous cases before the AO, CIT (A), the ITAT and for that matter even before this Court, where the question 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....
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....fter can the question of peak credit be raised." 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 the money paid from the accounts of the Assessee has returned to the bank accounts of the creditors. The Assessee has to discharge the primary onus of disclosure in this regard. 20. While the AO in the present case did not question the working out of the peak credit by the Assessee, he, at the same time, insisted that the additions made by him to....