PCIT Vs Rakesh Kumar (Allahabad High Court)
Summary: The Allahabad High Court dismissed the revenue’s appeal filed under Section 260-A of the Income Tax Act, 1961 against the order dated 26.11.2025 passed by the Income Tax Appellate Tribunal, Agra Bench, Agra in ITA No. 437/Agr/2024 for A.Y. 2022-23.
The appeal arose from the ITAT’s decision confirming the order of the Commissioner of Income Tax (Appeals) dated 04.09.2024, whereby additions of Rs. 2,84,42,280/- and Rs. 2,92,02,900/- made under Sections 69A and 69C of the Income Tax Act were deleted.
The revenue challenged the ITAT order by raising a question of law regarding whether the Tribunal was justified in upholding deletion of additions made under Sections 69A and 69C despite alleged incriminating material found during search proceedings and failure of the assessee to explain the nature and source of unexplained money and expenditure.
The revenue also questioned whether the ITAT could apply the principle of peak credit while dealing with additions under Sections 69A and 69C of the Act.
The High Court observed that the CIT(A) had followed the recognised method of peak credit for estimating undisclosed income and found no error in such computation. The Court noted that the additions were not based on any seizure of cash but were founded upon book entries discovered outside the regular books of accounts of the assessee.
The Court rejected the revenue’s contention that the principle of peak credit was merely an equitable principle and could not be applied in cases involving concealed income. It held that while making a best judgment assessment, it was open to the Assessing Authority and CIT(A) to apply the principle of peak credit to arrive at a fair determination of undisclosed income.
The Court further held that the approach adopted by the CIT(A), which considered both undisclosed credit entries and corresponding debit entries, was preferable to the Assessing Officer’s approach of adding the total undisclosed credit entries without accounting for debit entries.
The High Court observed that assessment proceedings are not intended to penalise an assessee for earning undisclosed income, and penalty proceedings operate separately.
Finding no legal error in the Tribunal’s order, the Allahabad High Court dismissed the revenue’s appeal as lacking merit.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Amit Mahajan, learned counsel for the revenue and perused the record.
2. Present appeal has been filed under Section 260-A of the Income Tax Act, 1961 arising from the order of the Income Tax Appellate Tribunal, Agra Bench, Agra dated 26.11.2025 in ITA No. 437/Agr/2024 for A.Y. 2022-23, whereby the tribunal has dismissed the revenue’s appeal and confirmed the order of the C.I.T. Appeal dated 04.09.2024.
3. The present appeal has been pressed on the following questions of law:
“1. Whether the ITAT is justified in upholding the deletion of additions of Rs. 2,84,42,280/- and Rs. 2,92,02,900/- made u/s 69A and 69C of the Act, without appreciating that the additions were based on incriminating material seized during the course of search and the assessee had failed to discharge the statutory burden of explaining the nature and source of the unexplained money and expenditure ?”
“4. Whether the ITAT could substitute the statutory scheme of Sections 69A and 69C by applying an equitable principle of peak credit, contrary to the provisions of the Act?”
4. We find no merit in the appeal, inasmuch as the C.I.T. appeal has followed a well recognized method of peak credit to estimate the undisclosed income of the petitioner. As to the computation of the undisclosed income, upon application of that principle, there is no error therein.
5. To the extent, learned counsel for the revenue would contend that it is an equitable principle that may not be applied to cases of concealed income, we find difficulty in accepting that submission. Undeniably, the additions in question have not been made on the strength of any seizure of cash. Rather, they are based on book entries discovered outside the regular books of accounts of the assessee. For the purpose of making a best judgment that may be made largely on that principle of peak credit only, certainly it was open to the assessing authority as also to the C.I.T. (Appeals) to apply that principle to reach a fair amount of undisclosed income.
6. To the extent, that method has been applied by the C.I.T. (Appeals) as against the approach adopted by the assessing authority where he had made the best judgment assessment on the strength of summation of all undisclosed credit entries, without accounting for the debit entries, the approach of the C.I.T. (Appeals) cannot be faulted. The process of assessment itself is not a process to penalise the assessee for reason of having earned undisclosed income. Those penalty proceedings stand on a separate footing.
7. In view of the above, we find no error in the finding of the tribunal. Those are based on correct application of principle of law.
8. The present appeal lacks merit and is accordingly dismissed.
