Cash flow statement prepared on the basis of seized material cannot be ignored

It is an established way of computation of income where ever there is recycling of cash in a financial business to work out the peak credit. Particularly in a situation, when no regular or proper books of account are maintained by the assessee then a cash flow statement is generally prepared.

The department then makes an addition on the basis of the peak credit, as appearing in the cash­flow-statement, if there is recycling of cash. That peak credit is thus treated as an unexplained income of the assessee. But that working ought not to be final. Certain other factors are also required to be taken into account, as suggested in the Grounds of Appeal by the Revenue. As far as the assessee is concerned, the undisputed fact is that on the basis of the seized material a cash follow statement was prepared which was supplied to the AO. After the search, the working of the said cash flow statement was, therefore, required to be examined by the AO, that too after due verification from the seized material. We are of the view that a cash flow statement which was prepared on the basis of the seized material must not be ignored. Once the assessee is in the business of finance then the assessee is required to furnish the cash flow statement, so as to arrive at the figure of the incremental book credit, as per the prevalent practice. We are taking this view on the basis of decision of Hon’ble Gujarat High Court pronounced in the case of Pipush Kumar O. Desai, 247 ITR 568 (Guj.), wherein a cash flow was prepared by the assessee after the conclusion of the search. That was directed to be considered, especially when there was absence of books of account. On the basis of the cash flow statement the availability of cash was accepted.