M.G. Mukherji, C.J. - (1.) IN this reference under Section 256(2) of the INcome-tax Act, 1961, the contention, inter alia, of the assessee is that it is a partnership firm. The firm is constituted Of three partners, namely, (1) Shri Dwarka Das Rathi, (2) Smt. Sunder Devi, and (3) Shri Anand Pra-kash. Dwarka Das Rathi was the main working partner and was conducting the business and attending to the affairs of the partnership firm. He died on January 2, 1986. Smt. Sunder Devi, mother of Dwarka Das Rathi, died in or about the year 1981. Anand Prakash was not the working partner, was not attending to the business of the partnership firm and was not conducting the business of the partnership firm. The firm stood dissolved long back. The petitioner-firm was dealing in agricultural commodities and was carrying on arat and had income from interest. The petitioner-firm was maintaining books of account on Diwali year basis. The accounting year for the assessment year 1976-77 ended on November 3, 1975. The petitioner firm returned an income of Rs. 20,960 for the assessment year 1976-77 which was assessed under Section 143 of the INcome-tax Act, 1961, on the total income of Rs. 24,580 on January 27, 1977. A survey under Section 133A of the Act was conducted by the INcome-tax Department on August 3, 1979, in the business premises of the petitioner-firm. Several account books comprising Kachi rokar and truck register were detected and were impounded under Section 131 of the INcome-tax Act, 1961. The impounded record was retained in the possession of the INcome-tax Department. Kachi rokar maintained from July 25, 1975, to November 3, 1975, contained various cash credits and exhibited income. Proceedings under Section 148 of the Act were initiated on the basis of the impounded record. Notice was served upon Dwarka Das Rathi on March 29, 1980. He submitted a return on February 16, 1982, declaring income at Rs. 20,960. An ex parte assessment under Section 144 of the Act was made on March 29, 1982, on an income of Rs. 5,36,580. Such assessment was reopened under Section 146 of the Act vide order dated April 30, 1982. It is contended that Dwarka Das Rathi being ill and infirm could not appear on each and every date and on some of the dates absented from appearance. Dwarka Das Rathi moved an application for settlement to the Commissioner of INcome tax. The Commissioner of INcome-tax, Jodhpur, in his camp at Barmer, discussed the issue with Dwarka Das Rathi and R. S. Rathore, authorised representative of the petitioner-firm. According to the petitioner-firm, the Commissioner of INcome-tax advised as under ; 1. To make a settlement petition on the basis of the facts and circumstances of the case ;
(2.) THE Department was prepared to take a sympathetic view provided the assessee-firm comes forward with full and final disclosure of concealed income ; Credits will have to be assessed on a single name being peak credits relevant to the assessment year 1976-77. It was made clear that once the credits are found recorded in the books of account, it is for the assessee to explain the source. In the event of his failure to do so the amounts have got to be treated as income from undisclosed sources and have to be assessed accordingly ; The assessee will give full and final disclosure of its concealed income. 2. The Commissioner of Income-tax sought a report from the Assessing Officer. The impounded books were in the possession of the Assessing Officer. It is submitted that Dwarka Das Rathi and the authorised representative of the petitioner-firm extended assistance to the Assessing Officer to work out credits on "peak theory" basis. Detailed charts were submitted which were verified by the Department from the impounded books. The Department worked out credits on peak theory basis amounting to Rs. 1,42,846 as on October 9, 1975. The petitioner-firm surrendered the said amount. Details of the peak credits arrived at by the Assessing Officer were incorporated by him in the assessment order. However, as the petitioner-firm did not arrive at a settlement with the Department, the Income-tax Officer did not make addition on "peak theory" basis at Rs. 1,42,846 but made an addition at Rs. 3,58,000 on the basis of credits without deducting debits. The Assessing Officer also estimated cash credits at Rs. 1 lakh for which no record was found. The Assessing Officer by order dated July 31, 1984, computed the total income at Rs. 5,38,580 after inclusion of unexplained investment in the shape of cash credits at Rs. 4,58,000 against addition on "peak theory" basis at Rs. 1,42,848. The petitioner relied on the copy of the assessment order dated July 31, 1984, which is annexure-A to the reference application. 3. The petitioner-firm preferred an appeal before the Commissioner of Income-tax (Appeals), Jodhpur. The petitioner-firm submitted a statement' regarding peak of cash credits which were worked out by the Assessing Officer at Rs. 1,42,846. A request was made that addition should be sustained at Rs. 1,28,264 against the assessment made at Rs. 4,58,000. The Commissioner of Income-tax (Appeals) held that the peak amount at Rs. 1,28,264 claimed by the appellant was yet to be decided upon by the Assessing Officer. Keeping the facts and circumstances in view, the Commissioner of Income-tax (Appeals) held that it was just and fair if the peak of the said cash credits as appearing in the Kachi rokar was adopted at Rs. 1,42,846 in place of the addition of Rs. 3,58,000 made by the Assessing Officer. He ordered for deletion of Rs. 1 lakh along with consequent reduction. He granted "relief of Rs. 3,15,154. A copy of the order of the Commissioner of Income-tax (Appeals) dated March 15, 1988, is at annexure B. 4. The petitioner-firm as well as the Revenue being aggrieved by the order of the Commissioner of Income-tax (Appeals) preferred a further appeal before the Income-tax Appellate Tribunal. The appeal filed by the petitioner-firm was registered as ITA No. 248/JP of 1988 and the appeal filed by the Revenue was registered as ITA No. 368 /JP of 1988. Both the appeals for the assessment year 1976-77 and the two appeals for the assessment year 1980-81 were consolidated and were heard together and disposed of by a common order. The Income-tax Appellate Tribunal sustained deletion of addition of Rs. 1 lakh and restored the addition of Rs. 1,42,846 to Rs. 3,58,000. The Income-tax Appellate Tribunal ignored to rely on the so called practice and conventions of working on peak credit basis. The learned Tribunal also ignored the fact that in similar circumstances, on the same basis of the said theory, the addition of Rs. 41,551 was made in the assessment year 1980-81 against cash credits of about Rs. 8 lakhs. The Tribunal also sustained separate addition of Rs. 24,000 without telescoping it with the amount of Rs. 1,42,846. A copy of the order of the Income-tax Appellate Tribunal dated February 25, 1991, is at annexure-C. The assessee-petitioner firm submitted that the Tribunal on the basis of the same theory effected an addition of Rs. 41,551 for the assessment year 1980-81. A copy of the order for the assessment year 1980-81 dated July 31, 1984, is at annexure-D. It is submitted by the assessee-petitioner firm that the peak theory was completely bypassed by the Appellate Tribunal in passing its final verdict. It was submitted that a refinement or extension of the peak theory occurs where the credits appear not in the same account but in the accounts of different persons. If the genuineness of all the persons is disbelieved and all the credits appearing in the different accounts are held to be the assessee's own money, the assessee will be entitled to a set off and a determination of the peak credit after arranging all the credits in chronological order. It was admitted that these propositions should not, however, be treated as propositions of law. They are inferences based on normal probabilities and can be displaced by material on record which may indicate facts to the contrary.
(3.) THE assessee-firm thereafter made a reference application under Section 256(1) of the Income-tax Act, 1961, on the following purported questions of law : "1. Whether the learned Tribunal was right in law in sustaining addition of Rs. 3,58,000 against the order sustained by the Commissioner of Income-tax (Appeals) at Rs. 1,42,846, which amount was calculated and computed by the Income-tax Officer for purposes of settlement ? 2. Whether, the learned Tribunal was right in law in not sustaining peak credit addition at Rs. 1,42,846 for the reason that the assessment by the Income-tax Officer was under Section 144 of the Income-tax Act, 1961? 3. Whether the learned Tribunal was right in law in ignoring/distinguishing the decisions cited before it and recorded in para. 9 of the impugned order ? 4. Whether the learned Tribunal was right in observing that in the normal working of a business this modus operandi of introducing one's own money in the shape of cash credit and withdrawing it later on when not required is adopted in the regular books of account, which are produced before the Department in order to show that money was available for making payments for the transactions, which are recorded in those books of account ? 5. Whether the learned Tribunal was right in holding that Kachi rokar was not admittedly produced before the income-tax authorities particularly when admittedly Kachi rokar was impounded in the survey, is still in the possession of the Department and entire working for peak credit of Rs. 1,42,846 was done by the Income-tax Officer on the basis of such Kachi rokar ? 6. Whether the learned Tribunal was right in law in not sustaining peak credit addition at Rs. 1,42,846 when on the same theory and in the same manner addition of Rs. 41,551 was made against credits of about Rs. 8 lakhs for the assessment year 1980-81 ? 7. Whether the learned Tribunal was right in law in not sustaining addition on peak credit theory at Rs. 1,42,846 because the assessee failed to make formal settlement application on the terms offered to him ? Whether the learned Tribunal was right in law in sustaining separate addition at Rs. 24,000 and the addition made in the original assessment without telescoping it with the amount of Rs. 1,42,846 ?" 8. The application was registered as R. A, No. 116/JP of 1991 and it was dismissed by the Tribunal by its order dated August 27, 1993, holding that no question of law did arise from the order of the Tribunal. A copy of the order of the Tribunal dated August 27, 1993, is at annexure E. It is submitted before us by the assessee-firm as petitioner that the order of the Income-tax Appellate Tribunal dated August 27, 1993, is erroneous because it is well settled law and accepted practice with the Department to make addition on the basis of peak credit when the cash credits remain unexplained or are found to be bogus. It was further submitted that in the instant case at the behest of the respondent, the Assessing Officer worked out peak credit at Rs. 1,42,846 after verification and complete satisfaction and incorporated such working in the assessment order, which working was not found and could not be found to be wrong by the Tribunal and which working was made as a base for addition by the first appellate authority. It was further submitted that in similar and identical circumstances in the case of the petitioner firm itself for the assessment year 1980-81, addition was made at Rs. 41,551 against cash credit of Rs. 8 lakhs for the assessment year 1980-81. Such assessment has become final, and ought to have been honoured by the parties. It was further submitted that other additions deserved to be telescoped in the sustained addition. It was further submitted by the assessee-firm that the working done by the Assessing Officer of the peak credit amount and the addition affirmed by the Commissioner of Income-tax (Appeals) is in accord with the practice prevalent in the Department and is in accordance with the different decisions of the Supreme Court, our High Court and other High Courts and other Benches of the Tribunal. It was also submitted that the learned Tribunal grossly erred in not following the view expressed by the Supreme Court, the various High Courts and the Tribunals and in enhancing the addition to Rs. 3,58,000 against Rs. 1,42,846 sustained by the Commissioner of Income-tax (Appeals). It was further submitted that the view expressed by the learned Tribunal, particularly, in para. 10 of the impugned order, is arbitrary, erroneous, unreasonable, illegal and contrary to the law laid down by the Supreme Court and various High Courts. It was lastly submitted by the assessee-petitioner that the petitioner firm was not found with the unexplained assets of the equivalent value and was also not found and could not be found to have spent away the said amount. ;