Seized Diary Transactions Require Fresh Examination as Peak Credit Alone Is Insufficient: ITAT Pune

DCIT Vs Sant Eknath Trading Company (ITAT Pune)

ITAT Remands ₹2.53 Crore Addition Because Source of Cash Payments Was Not Verified; ITAT Sets Aside Deletion Because Ownership of Transactions Does Not Explain Cash Source; ₹2.53 Crore Section 69 Addition Remanded Because CIT(A) Did Not Verify Peak Credit Claim; Cash Payments in Seized Diaries Need Verification Because Profit Disclosure Alone Is Not Enough.

The Income Tax Appellate Tribunal (ITAT), Pune, allowed the Revenue’s appeal for statistical purposes and remanded the matter to the Commissioner of Income Tax (Appeals) [CIT(A)] for fresh adjudication regarding the deletion of an addition of ₹2,53,36,402 made under Section 69 read with Section 115BBE of the Income-tax Act, 1961. The addition arose from handwritten pocket diaries seized during a search conducted in the Disha Group, which allegedly contained date-wise cash transactions involving the assessee and Devanand Narayan Kotgire (DNK). The Assessing Officer (AO) treated the cumulative net cash payments reflected in the seized diaries as unexplained cash payments and made the addition based on the peak theory.

The assessee had succeeded before the CIT(A), who held that DNK had accepted ownership of the transactions recorded in the diaries and had offered income based on the peak credit theory and net profit at 8% on business transactions. On that basis, the CIT(A) concluded that taxing the same transactions again in the assessee’s hands would amount to double taxation and deleted the addition.

Before the Tribunal, the Departmental Representative submitted that the issue was covered by an earlier decision of the Pune Bench in DCIT v. Navin Hanumanprasad Bagadiya, where similar facts had resulted in a remand for fresh examination. The Tribunal examined that earlier decision and found it directly applicable to the present case.

The Tribunal observed that the seized diaries recorded both cash receipts and cash payments between the assessee and DNK. While DNK had accepted the business transactions and offered income by applying the peak theory and net profit on those transactions, the Tribunal held that this did not automatically explain the source of cash payments made by the assessee to DNK. It noted that the CIT(A) had deleted the addition solely on the basis that DNK had owned up the transactions, without examining whether DNK had actually offered the entire peak credit or only the profit element arising from the business transactions.

According to the Tribunal, the crucial issue requiring examination was whether the peak credit added by the Assessing Officer in the assessee’s hands had already been offered by DNK in his income-tax return. If DNK had treated the transactions as business transactions and offered only 8% net profit, the CIT(A) was required to examine the availability and source of funds with the assessee for making the cash payments reflected in the diaries. The Tribunal observed that these aspects had not been properly verified before granting relief.

Accordingly, the Tribunal set aside the order of the CIT(A) and restored the matter for fresh adjudication. It directed the CIT(A) to examine whether the entire peak credit had been disclosed by DNK, call for DNK’s income-tax return, assessment records, and a remand report from the jurisdictional Assessing Officer, and thereafter determine the issue in accordance with law after providing adequate opportunity to both parties. The Revenue’s appeal was therefore allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT PUNE

The captioned appeal at the instance of Revenue pertaining to the Assessment Year 2014-15 is directed against the order dated 06.03.2025 of CIT(A), Pune-12 passed u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) arising out of the Assessment Order dated 29.09.2021 passed u/s.143(3) r.w.s.153C of the Act.

2. When the case called for, none appeared on behalf of the respondent-assessee despite due service of notice of hearing. Even on the previous dates of hearing fixed on 09.07.2025, 11.08.2025, 17.09.2025, 12.11.2025, 22.12.2025 and 10.02.2026, there is no representation from the side of respondent-assessee. We therefore proceed to adjudicate the appeal with the assistance of ld. Departmental Representative and available material on record.

3. Grounds raised by the Revenue reads as under :

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was correct in deleting the addition of Rs. 2,53,36,402/- made as per the provisions of section 69 rw.s. 115BBE of the Act on account of notings in pocket diaries found during search action at the Disha Group.

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in not appreciating the facts that the addition made was based on net (unaccounted) cash payments to Devanand Narayan Kotgire amounting to Rs.2,53,36,402/- made by the assessee e unaccounted credit/investment for which the assessee failed to furnish satisfactory explanation before the AO.

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in accepting the contention of the assessee that the transactions were covered by the offer of peak credit in the case of Devanand Narayan Kotgire when there was no working of peak credit in the case of Devanand Narayan Kotgire in the assessment of income for the relevant assessment year.

4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not following the procedure laid down u/s. 250(4) of the Act for the making enquiry or directing to make further enquiry before deciding the appeal matter relating to addition of Rs. 2,53,36.402/

5. The appellant craves leaves to add, alter, modify, delete and amend any of the grounds, as per circumstances of the case.”

4. Brief facts of the case are that the assessee is a partnership firm and filed original return of income for A.Y. 2014-15 on 23.09.2014 declaring income of Rs.51,68,230/-. A search and seizure action was conducted in Disha (Kotgire) group of Aurangabad, Pune and Kolkata on 21.01.2020. The seized material/documents contains information related to the assessee firm. After recording proper satisfaction as provided u/s.153C of the Act, ld. Assessing Officer carried out the assessment proceedings. Ld. Assessing Officer observed that the hand written seized diary belonging to Disha group contains the daily transactions in date-wise manner appearing to be a cash book for unaccounted receipts and payments made and received from Devanand Narayan Kotgire ( in short ‘DNK’). Details of such receipts and payments from F.Y. 2013-14 to F.Y. 2019-20 have been extracted by the Assessing Officer on page 3 of the assessment order working out the Peak amount and the same reads as under :

Working as per peak theory in case of the assessee under consideration :

5. Assessing Officer based on the above working made the addition for peak credit at Rs.2,53,36,402/- and assessed the income at Rs.3,05,04,632/-.

6. Aggrieved assessee preferred appeal before ld.CIT(A) and succeeded as ld.CIT(A) held that Devanand Narayan Kotgire has owned up the transactions with the assessee and has offered the income on the basis of peak theory @8% in respect of those transactions which related to his business and offered peak credit in respect of those transactions which was owned up by him as his own money/transactions. Ld.CIT(A) further held that there is no question of bringing to tax the income arising out of these transactions in the case of the appellant assessee as the income has already been taxed in the hands of DNK on the basis of Peak Credit Theory.

7. Aggrieved Revenue is now in appeal before this Tribunal.

8. Departmental Representative at the outset submitted that the issue on merits deserves to be restored to the file of ld.CIT(A) for re-adjudication in light of the decision of this Hon’ble Tribunal dealing with similar set of facts in the case of DCIT Vs. Navin Hanumanprasad Bagadiya in ITA No.990/PUN/2024 order dated 26.09.2025.

9. We have heard the ld. Departmental Representative and perused the record placed before us. We have gone through the decisions relied on by ld. DR and on due consideration of the facts discussed hereinabove, we note that similar set of facts were adjudicated in the case of DCIT Vs. Navin Hanumanprasad Bagadiya (supra) wherein this Tribunal has dealt with the facts and decided as follows :

“9. We have heard the rival contentions and perused the record placed before us. During the course of search and seizure action conducted in the Pride Group of Aurangabad, Pune and Kolkata on 21.02.2020, certain documents were seized including pocket diaries which contain the transactions between DNK and the assessee. During the post search enquiries, DNK in the statements recorded accepted the ownership of these diaries. Undisputedly, the transactions mentioned in the pocket diaries which have been entered have been accepted by DNK including the cash transactions with assessee. As per these diaries, there were transactions of receipts and payments and the payments from the assessee’s side has been higher and the working of cumulative difference of the net payment made by the assessee to DNK has also been referred in the assessment order and the same has been extracted (supra) as per which during F.Y. 2010-11 the cumulative difference was Rs.58,58,000/- which increased to Rs.6,05,31,261/- during F.Y. 2013-14 and which finally came done to Rs.4,85,55,855/- during F.Y. 2016-17. The alleged transactions have been admitted by DNK as well as the assessee and the same is also discernible from the grounds filed before ld.CIT(A) which appears at para 6.2 of the impugned order. The said submissions read as under:

“2.1 Ground No. 01: The addition made at Rs. 6,05,31,261/- is invalid and bad in law. The addition made is unjustified and unwarranted.

a. The search u/s 132 of the Income Tax Act, 1961 was also conducted at assessee premises and no documents or any noting’s etc is found with relation to DISHA GROUP.

b. If this transaction seems to be business transaction and not loans and advances then also it cannot be treated as income of assessee as DISHA GROUP has admitted all these transaction as their income.

c. The assessee has filed reply u/s 271D & 271E, elaborating all the points that it is not loans and advances and Addl. CIT (Central), Nashik has accepted the submissions and dropped penalty proceedings. The copy of orders of Sec. 271D & 271E are enclosed.

d. The transactions into diaries are from many people more than 300 but all the transactions are admitted by DISHA GROUP as his own transactions and no one is concerned with these transactions.

e. The assessee submits that, Shri Devanand Kotagiri has owned up all the transactions in the seized diaries as his own transactions and thereby, offered income on such transactions. Shri Devanand Kotagire has also offered net profit at 8% in respect business transactions apart from peak credit which was owned up by him as his own money & transactions.

f. The assessee is filing regular return of income from the business, profession and other sources and sources of investment are on record.

g. The transaction noted in the diaries are already considered as income in the hands of Shri Devanand Kotgire and the said transaction are already included yearwise in the income of Shri Devanand Kotgire and tax was paid thereon. Once the transactions are accepted by A.O. as income of Shri Devanand Kolgire and tax is also paid by him thus addition made by learned A. O, are seems to be as double taxation.

h. A. O. has made addition in relevant assessment year on account of working as per peak theory for the FY 2010-11, 2011­12, 2012-13 amounting to Rs. 5,96,42,291/-. The addition so made is for previous year are not as per law and secondly the learned A.O. has accepted all these transaction from diaries in the hands of Shri Devanand Kotgire.

i. That on the facts and the circumstances of the case and in law, the learned A.O. has erred in making addition u/s 69 of 1.T. Act on account of noting in pocket diaries found at DISHA GROUP at 6,05,31,261/- is unwarranted and required to be deleted.

j. That additions u/s 69 is not required as learned A.O. has not proved that these are loan-transactions. In fact, the assessee and Disha-group-has-business transactions-In view of this, addition made u/s 69 is not sustainable.”

10. In the above submissions, the main contention of the assessee is that since the alleged transactions are business transactions and have been owned by DNK no separate additions need to be made in the hands of assessee. We note that during the course of assessment proceedings the transactions appearing in the pocket diaries indicate that assessee has made net cash payment to DNK on year to year basis and the cumulative difference has increased upto Rs.6,05,31,261/-. It is also an admitted fact that during F.Y. 2013-14 relevant to the A.Y. 2014-15 the receipts are Rs.22,38,970/- and payments are at Rs.13,50,000/-. Prior to A.Y. 2014-15 whether any addition has been made in the hands of assessee during A.Y. 2010-11 to A.Y. 2013-14, information is not available on record. In the subsequent assessment proceedings from A.Y. 2015-16 and onwards the ld. AO has made the addition only if the cumulative balance has increased in comparison to the preceding years cumulative balance. Now the transactions in diaries clearly depict that cash payments have been made by the assessee and the source of such cash payments needs to be explained.

11. Now coming to the Affidavit given by DNK, the same has been executed on the very same day when the assessment proceedings have been concluded in the case of assessee on 29.09.2021 and there is no reference of said Affidavit in the assessment order. This Affidavit was placed before ld.CIT(A) in the said Affidavit DNK has stated as under :

“I Devanand S/o. Narayan Kotgire aged about 56 years R/o. Disha Square, Sutgirni Chowk, Garkheda, Aurangabad – 431 001 hereby declare and confirm that there was a search u/s.132 of Income Tax Act, 1961 on dated 21.01.2020 and during the search operation some diaries were found and seized containing cash transactions, some names, some expenses and sale receipts in cash from various projects. I hereby confirm that I owned up all transactions and nobody is related to it. The income calculated by me on the basis of diaries for all assessment years from 2014-15 to 2020-21, belongs to me only and I am ready to pay tax and interest thereon to avoid litigation and buy mental peace. Hence this Affidavit.”

12. On the basis of the above Affidavit, the assessment proceedings in the case of DNK were concluded and additions were made keeping into consideration the peak balance and treating the transactions as business transactions and income calculated @8% on such business receipts. However, ld.CIT(A) has observed that since DNK has owned up the transactions, sustaining the addition in the hands of assessee would tantamount to double addition. We however find that this finding of ld.CIT(A) is not correct because the transactions in the pocket diaries were regarding cash receipts and payments and the payments made by the assessee in cash were much more than the receipts from DNK and ld.CIT(A) ought to have dealt with the issue about source of cash available with the assessee for making payment to DNK. On the contrary, ld.CIT(A) merely took the basis of the Affidavit and has deleted the addition without examining as to whether DNK has owned up total cash payments or only the profit element in such business transactions. The transactions in the pocket diaries records the two types of transactions, firstly receipt and payment in cash and secondly if the transactions is of business nature then the profit element embedded in such transactions in the hands of DNK who has carried out the same. DNK has carried out the business transactions and so he has offered the net profit on the business transactions but the question still remains about the first part of the transactions, i.e. the source of cash available with the assessee to make payments to DNK. This issue remained to be adjudicated by ld.CIT(A) inspite of the fact that ld. Assessing Officer has referred to the total transactions in the assessment order but ld.CIT(A) failed to examine the issue in entirety. Further, ld.CIT(A) has totally disregarded the fact that ld. Assessing Officer has made the addition for unexplained cash which has never been owned up by DNK in the return of income filed before the AO as unexplained/unaccounted cash. Merely offering the net profit on the business transaction will not be sufficient to explain the source of cash payment made by assessee to DNK. Ld.CIT(A) failed to verify all these aspects prior to giving relief to the assessee.

13. In light of our aforesaid discussion, we are of the considered opinion that the issues need to be remanded to the file of lower authorities. We therefore set aside the impugned order and restore the issues raised by Revenue in the instant appeal to the file of ld.CIT(A) for re-adjudication as per our observations referred supra. Ld.CIT(A) shall give reasonable opportunity to the ld. Jurisdictional Assessing Officer to make submissions regarding the Affidavit filed by DNK as well as to the assessee and examine the amount of addition accepted by DNK vis-à-vis the total amount of excess cash payment given by the assessee to DNK. If necessary, ld.CIT(A) may also call for a remand report from ld. JAO. After considering the same, ld.CIT(A) shall decide the issue in accordance with law as contemplated u/s.250(6) of the Act. Grounds of appeal raised by the Revenue are allowed for statistical purposes.”

10. In light of the above decision and the same being squarely applicable on the facts of this case, ld.CIT(A) is directed to carry out necessary examination of the facts viz. (1) whether the total peak credit as has been added by the Assessing Officer in the hands of assessee has been offered by DNK in its Income Tax Return (2) In case DNK has treated it as business transaction and has offered Net Profit @8% on such transactions of receipt and payment, then ld.CIT(A) has to examine the source of funds available with the assessee given to DNK. For carrying out this exercise as well as the direction given by this Tribunal in the case of DCIT Vs. Navin Hanumanprasad Bagadiya (supra), Ld.CIT(A) shall call for the Income Tax Return and the assessment records of DNK along with the Remand Report from the ld. Jurisdictional Assessing Officer to this effect. Finding of ld.CIT(A) is set aside and the grounds of appeal raised by the Revenue are allowed for statistical purposes.

11. In the result, the appeal of the Revenue is allowed for statistical purposes.

Order pronounced on this 03^rd day of June, 2026.